What will Labour do with student fees?

Speculation is mounting once more about Labour's policy on higher education funding. This has happened two or three times over the last year. Labour may promise to reduce the cap on fees from £9,000 per year to £6,000; make an all-out move from fees to a graduate tax; or the Shadow Treasury team may say that there's no money for either idea.

Affordability is certainly an issue. Unless Labour wants to reduce the funding universities have to provide teaching—and thereby bring a storm of student as well as establishment criticism upon their announcement—then any reduction in fee income will have to be made up by direct public funding. A graduate tax creates an even bigger hole in the public finances. Gordon Brown, always said to be uncomfortable with the "marketisation" of higher education, wanted to introduce one when he took over Number 10 but the Treasury he had just departed said no. The reason is that it may take a decade or more for graduate tax revenues to build up to the level of income universities have today; all the while government will be making up the difference.

Labour will say that this is an accounting issue. After all, in most cases it is government rather than the student who pays universities the fees upfront. If government is putting in the same amount of cash, whether it's in the form of a loan to the student or a grant to the university, then what's the difference? There is one, obviously, but this debate can be settled without consulting public spending rules.

The real problem with considering changes to funding is that this isn't even the part of the system we should be worrying about. University applications are rising despite higher fees, the gap between the application rate among young people from the most and least advantaged backgrounds is declining, and government can fund the loans it is making by selling bonds at ultra-low rates. Equally the requirement for each course to wear its full cost on its face has created a new focus among university leaders on what they need to provide to attract and retain students. From this year the old caps on how many students universities can recruit have gone as well, meaning that the most attractive universities have opportunities for growth—and the rest had better up their game. Labour's about-face on funding would return the system to central control.

In the meantime the bigger issues facing the system are, for example, how to address the fall in part-time higher education, the most realistic means by which older people who missed out on higher education the first time around can improve their skills. Postgraduate numbers need boosting too. The Chancellor has a plan for doing that by extending student loans; Labour presumably would have to forego any progress on postgraduate funding if it spent extra billions on undergraduates. And then there's a harder case—some of the universities at the bottom of the rankings may not be getting any better. The absence of student demand will force change in a way that government—if it regains control over which universities are funded—is unlikely to do. The invisible hand of the state propped up institutions in the past in a way that the all too public processes of student recruitment in an open market will not.

While Labour will argue for any funding change it proposes in terms of fixing an "unsustainable" system, making an expensive system more expensive by inserting additional public funding is an odd priority for scarce resources. But even calling it a policy in search of a purpose might be kind by way of response. If Labour changes fees policy now, in truth this might be about dealing with the internal trauma that remains from Blair's introduction of higher fees in 2003, perhaps a bit to do with shoring up votes from "Lib Dem switchers" and yet nothing at all to do with the issues facing higher education over the next Parliament.