David Willetts: Sunak’s Mais lecture, Ministers’ Augar response – and a better approach to universities

1 Mar

David Willetts is President of the Resolution Foundation. He was Minister for Universities and Science 2010-2014. His book A University Education is published by OUP.

The invasion of the Ukraine and its heroic resistance is of course dominating our thinking. As David Gauke pointed out yesterday on ConservativeHome, this has diverted attention from the Chancellor’s Mais Lecture, which set out his economic strategy more clearly than any Budget which inevitably has to focus on specific measures.

On the same day Nadhim Zahawi and Michelle Donelan set out a higher education and skills package which complemented the Chancellor’s approach. Together, they add up to a coherent strategy for the public finances and also boosting productivity.

The case for the education package is simply that graduates earn more than non-graduates and it makes sense for graduates to pay back for their higher education provided they can afford it. This is the moment to quote Karl Marx – as I used to do at meetings with the National Union of Students. He objected to a plan from the German Social Democrats for taxpayers to fund higher education because: “[if] higher education institutions are also ‘free’, that only means in fact defraying the cost of education of the bourgeoisie from the general tax receipts”.

Theresa May ignored his wise words, and increased the repayment threshold above which graduates start paying back, so that half of graduate debt was going to be written off by taxpayers. That is far too much.

Phil Augar was commissioned by May to look at reforms to the system. Ironically, his main proposed reform is to reverse her own increase in the threshold, and extend the repayment period so that now only about 20 per cent of graduate loans will be written off. I always envisaged that the typical graduate should expect to pay back in full and that taxpayers should only help those who for whatever reason had unusually low earnings. The package very persuasively explained by Michelle Donelan in her piece on this site last Thursday gets that balance right.

It will not just get the public finances back on track. I hope it also provides an opportunity to get the whole Tory approach to higher education back on track. Many young people and their parents aspire to go to university – all of us out canvassing have seen the photograph of the child or grandchild in graduation robes on the mantlepiece. But Conservatives seemed to be getting into a mind-set that universities are the enemy.

I suspect many readers of ConservativeHome believe that over 50 per cent of young people going is too large a proportion. Indeed, I am surprised how often I am told it must have happened because we in the Coalition slavishly followed Blair’s target.

But I never believed in any such target. It has happened because of millions of personal choices – and carried on increasing, despite our making it clear that, as graduates, they would usually have to pay back for the cost of their university education in full. Participation is also over 50 per cent in countries like USA and Australia with relatively flexible labour markets and fewer protections for big industrial employers. It is not some eccentric English experiment.

Opinion surveys show very few young people regret going to university, though more do come to regret their choice of subject – and there the problem is early specialisation.

If too many people are going to university then this social problem is most acute in prosperous Tory constituencies where participation is over 60 per cent – such places as Wimbledon, Hitchen and Harpenden, Rushcliffe and Tatton. By contrast, my former constituency of Havant had low rates of young people going to university. I could see that if the only way for more young people from the tough council estate in my constituency to get a place was for fewer to go from Chelsea or Beaconsfield, then they were in for a long wait.

That is why I am against number controls. The Government is now consulting on some specific ones, but I think it would be very hard to make them work effectively and fairly.

Do all these graduates then become Labour voters? Just occasionally Tories, get close to Trump’s notorious remark that ‘I love the poorly-educated’. Three years of higher education does change people. Graduates are more liberal and individualistic. The more education they receive, the more likely they are to create their own businesses – doctorates are increasingly a route to a tech start-up not to academia.

Graduates have better health and longer life expectancy – not because they are somehow better people, but because of the effects of access to higher education. They are more tolerant of alternative views and more likely to vote. They are more more sceptical of the state. Whenever I met students, they were not focused on destroying capitalism: instead, they were unhappy that it took so long to get their essays back and that wifi coverage on campus wasn’t very good. Even the Woke agenda did not preoccupy them – though it is a serious issue which I hope to turn to in a future column.

The real political problem for Conservatives is not graduates, but young people in general, whether they go to university or not. A graduate earning £28,000 shouldn’t be turned into a socialist because she has to pay back £17 a month. What does turn them away from us is the retreat from the property-owning democracy. It is the difficulty of getting started on the housing ladder and the lack of any kind of company pension matching the one their parents got for themselves.

Ministers rightly want more adult learning and more vocational education – it was a key theme of the Mais Lecture. That must be right. But universities as well as FE College are key agents for this. More than half of university courses are vocational. There is the exciting new initiative of higher apprenticeships, but there are many other ways in which university courses link with employers – from being accredited by employer groups through to including a sandwich year in industry. Many doctoral students are now co-funded by employers and tackle a research problem directly relevant to an innovative company.

The Chancellor identified skills, investment and R&D as his three main routes to boosting the real economy. Universities are key to all three. I include investment because a lot of overseas investment comes from companies attracted by the quality of our universities for their recruitment and business innovation.

There have been times over the past few years when our party was in danger of becoming hostile to universities and the young people and their families who aspired to go. But last week’s two important statements boost my hopes that we are getting out of that dead-end. The real battles as we can see this week are so very different.

Neil O’Brien: Introducing the new Levelling Up Taskforce – and its first report on how we can measure progress

7 Sep

Neil O’Brien is MP for Harborough.

Were you still up for Penistone? One of joys of election night last December was winning so many seats we’ve not held for decades.

The constituencies we won over in 2019 are quite different from the party’s traditional base, in the deep red bits of the map above. Seats we gained last year don’t just have lower earnings than the seats we held, but earnings five per cent lower than Labour seats. Of the bottom quarter of seats in Great Britain with the lowest earnings, more are now held by us than Labour. Compared to seats we gained, homes in Labour constituencies are a third more expensive.

Many of the places we won have felt neglected for a long time. And led from the front by the Prime Minister, the new Government has committed to “levelling up” poorer places. But what does that really mean? How can we measure if we are succeeding? How can we get the private sector growing faster in these places, making the country stronger overall?

To help the Government answer these questions, I and 40 other Conservative MPs have formed a new Levelling Up Taskforce.

Our first report is out today, looking at how we can measure progress. It also examines what’s been happening in different parts of the UK economy over recent decades.

Income per person in London (before paying taxes and receiving benefits) grew two thirds faster than the rest of the country between 1997 and 2018: it’s now 70 per cent higher in London than the rest of the country, up from 30 per cent higher in 1997.

While the divergence seen since the 90s has been a story of London pulling away from all of the rest of the country, it follows decades in which former industrial areas in the north, midlands, Scotland and Wales fell behind. Between 1977 and 1995 South Yorkshire, Teesside and Merseyside saw GDP per person fall by 20 per cent compared to the national average, and most such areas haven’t caught up that lost ground.

Why does this matter?

It matters, first, because opportunity is linked to the economy. There are fewer opportunities to climb the ladder in poorer places. Not just fewer good jobs, but less opportunity in other ways.

In London, over 45 per cent of poorer pupils who were eligible for free school meals progressed to higher education in 2018/19. Outside London there were 80 local authorities where richer pupils who were not on free school meals were less likely than this to go to university. Overall, more than 60 per cent go to university in places like Kensington and Chelsea and Westminster. But less than a third go places like in Knowsley, Barnsley, Hull, and Thurrock.

It also matters because more balanced economies are stronger overall. In an unbalanced economy, resources like land and infrastructure are overloaded in some places, even while they are underused elsewhere. This might be particularly true where cities have seen population shrinkage, and have surplus infrastructure and land. If there are greater distances between workers and good job opportunities that makes it harder for people to get on: not everyone can (or wants) to move away from family to find a better job.

More balanced is stronger overall, but on a wide range of measures the UK is one of the most geographically unbalanced economies. In Germany 12 per cent of people live in areas where the average income is 10 per cent below the national average, while in the UK 35 per cent do. It is very striking that there is no industrialised country that has a more unbalanced economy than the UK and also a higher income, while all the countries that have a higher income have a more balanced economy.

What are we going to do about it? Well, that’s the question our new group will try to answer.

The answer isn’t any of the traditional Labour ones: pumping public sector jobs into places, or subsidising low wage employment, or trying to hold back successful places: we’re interested in levelling up, not levelling down.

Different things will work in different places.

For example, transport improvements might make a bigger difference for remote areas. The ONS defines certain places as “sparse”: the north of Devon and Cornwall, most of central Wales, Shropshire and Herefordshire, most of Cumbria and the rural north east, along with large parts of North Yorkshire, Lincolnshire and North Norfolk. In these places income levels are 17-18 per cent lower. Even controlling for the qualifications and age of people living there, these sparse areas have income levels between £600-£1,300 a year lower, likely driven by poor connectivity.

In other places, the answers are different. I’ve written before about how the way we spend money on things like R&D, transport and housing is skewed towards already-successful areas, creating a vicious circle. We should change that.

But tax cuts could also play a bigger role in helping poorer areas. There’s actually been convergence between regions at the bottom end of the earnings distribution, driven by things like the National Living Wage, tax cuts for low income workers, and things like Universal Credit, which have reduced the differences between places by levelling up the poorer areas more. In poorer places, more people benefit from these policies.

The reason there are growing gaps between areas overall is divergence higher up the income scale.
Looking at the gap between earnings for full-time workers in London and the North East, the pay gap shrank for the bottom 30 per cent of workers, but grew for those higher up. For those at the 10th percentile the pay gap between the two places shrank from 32 per cent to 20 per cent. But for richer folks at the 90th percentile, it grew from 62 per cent to 88 per cent.

So how do we get more good, high-paying jobs into poorer areas? There are a million different specific opportunities, but one that’s relevant in a lot of Red Wall seats is advanced manufacturing.

Over recent decades, Chancellors have tended to cut capital allowances (a tax break for investment) in order to lower the headline rate of corporation tax. I’m not sure that was a good idea: Britain has a lower rate of fixed capital investment than competitors and our tax treatment of investment is stingy. But either way, this change has had a pronounced regional impact: it favours services over manufacturing, so helps some areas more than others.

One way to blast our way through the current economic turmoil would be to get businesses investing again by turning capital allowances right up (“full expensing” in the jargon). That would be particularly likely to help poorer areas. Indeed, when we have tried this in a targeted way before it worked.

Government should think more about how tax and spending decisions can help us level up. It should produce geographical analysis of all budgets and fiscal events, setting out the different impact that tax and spending changes will have on different areas. The Treasury’s Labour Markets and Distributional Analysis unit should have geographical analysis added to its remit.

This whole agenda is exciting. But a lot of people are cynical, because they heard New Labour talk the talk – but not deliver. We’ve got to deliver. So let’s hold ourselves to account, and set ourselves some ambitious goals.

Let’s get earnings growing faster than before in poorer areas. Let’s get unemployment down in the places it’s worst. They say that “what gets measured gets managed.” So let’s “measure up” our progress on levelling up.