Grants – an unavoidable victim of cuts to the SG budget?

In the course of discussions on Twitter over the past few days about the SG’s decision to cut grants in 2013, the most challenging bit of the argument – for me – has come down to whether the cuts to student grants are a consequence of pressure on the Scottish Block.  If so, it’s argued, they were beyond the SG’s control and therefore they cannot be blamed for them (they could still be blamed for making the cut in secret, denying it and putting down any critics with extreme prejudice – but that’s a different story).

I get this argument. My local council is about to do some unpleasantly drastic things and I attribute much of the blame for that to cuts in its central government-set budget and the freeze on it raising new money through local tax. So I want to give the budget point a proper response that can’t be done in 140 characters.

My essential argument is that the SG had choices and that the decision to target grants for large cuts was not at all inevitable.

Between 2012-13 and 2013-14, the SG had to manage a total cash budget (known as “DEL resource”) which was increasing slightly in cash terms but falling by 1.1% in real terms (source SPICe).

In 2012-13 Student Awards Agency for Scotland (SAAS) had a cash budget of £325.9m, used for non-repayable awards (aka grants) and tuition fees for students in higher education. It was expected to pay around 30% of that as non-repayable awards (largely the two main means-tested maintenance grants, Young Student Bursary and Independent Student Bursary) and the rest to universities and colleges in Scotland for fees.

For 2013-14, the Scottish Government decided to reduce the planned cash budget for SAAS to £302.4m (a 9.5% real terms fall).  The decision was taken to apply the whole cut to means-tested bursaries (hereafter grants for short): those had a total value of around £90m in 2012-13.  The cut made was big enough not only to protect the size of the remaining fee pot, but to allow it to grow a bit, by around £10m.  So the cut to grants  ended up being a bit over £35m, or 42% in real terms.

What were the alternatives to cutting grants in 2013-14?

Different choices in the SAAS budget

SAAS’s spending on fees could have taken some or all of the hit, rather than being 100% protected and indeed allowed to grow.

That would have meant either:

• just reducing the money passed to universities by SAAS. But the government clearly wasn’t prepared at that point to cut the money going to universities at all.  The opposite in fact: it was particularly keen in autumn 2012 to show that free tuition was not detrimental  to Scottish  universities.  University funding from the Funding Council rose from £1,002.2m to £1041.6m between 2012-13 and 2013-14 (+1.4% real terms).   At the same time, the sector was able to raise extra money by recruiting as many rUK students as it could, charging them fees of up to £9,000.

The other option was:

• getting better-off students to plug the gap in  university income, by paying a fee. So instead of robbing poorer Peter, asking better-off Paul to take the hit instead. If the cost of the £35m SAAS  saving had been spread across all those getting free tuition, it would have worked out at £300 per head a year, or something like £1000 per head if sought only from the wealthiest third.   The SG could have offered a fee loan to defer the short-term pressure, as it does for those going south to study  (it had enough loan to spare, so that wouldn’t have been a problem).   In fairness, this would have needed new legislation which couldn’t have been done in time for 2013: but there’s been time since. But  of course this was right off the agenda (and then some),  another straight political choice.

So, because  university fee payments were fully  ring-fenced from any cut, that left means-tested grants – and therefore the poorest students – fully exposed to the whole hit on the SAAS budget.

They were made more vulnerable  by the SG’s ability to backfill the grant cut with ever-growing amounts of student loan arriving from the Treasury under Barnett. Ministers tried to present the substitute loan as being just the same.  Only it’s evidently not.  We can see a substantial minority of the poorest just don’t want to borrow – around one-quarter of students who try to get by on grant alone just took an immediate hit on their income. And in the long-term, for those who have borrowed more, this extra debt will still have to be paid back from their earnings: a de facto  future stealth tax on having been poorer than other students, once upon a time.

Another possibility might have been to avoid cutting SAAS at all and let another area of spending take the hit.

Across the Education brief

Governments tend to budget in “ministerial portfolio” chunks, so there will have been potential in theory for some trade-offs across all the things funded via the education budget. But the scope for finding a few more tens of millions there  was probably  limited, given that FE colleges were already taking quite a hit, while school funding  is handled separately in the local government grant.

Across the SG

So was there absolutely nothing anywhere else in the SG’s budget which was less important than keeping grant levels up (and debt levels down) for the poorest students in HE?  Apparently not, even though the amount at stake was very small in the SG’s overall £26,000m budget.  £35m was a small proportion even of the typical annual underspend.

The biggest and most controversial choice made by the Scottish Government in recent years has been to fund a freeze in the council tax.  This has only been possible by using  a lot of money that would otherwise have been available for other things.  In the current year it’s costing £560m to fund the freeze –  in effect, funding the freeze is now having an “opportunity cost” equivalent to  more than closing down the entire FE sector.  In practice of course this has been met not by one major shut down, but by lots of smaller things foregone.

That £560m – would be £630m next year – is a lot of money no longer available for hospitals, FE colleges, or student grants, and now doing no more than back-filling a hole in the public finances caused by the freeze.  I belong firmly in the camp which argues the freeze has benefitted the well-off the most (see my evidence to the Finance Committee SRIT for Finance Cttee June 2015).  I am happy to see the SG’s poverty adviser seems to agree – along with a lot of other people.  I speak as someone who’s a classic  small-income-relative to-house-size gainer from the freeze.

Not available in 2013, but an option from 2016-17 is using new income tax powers.  Again, I’m firmly in the camp which argues – and demonstrates by running the detailed sums – that the SRIT is a progressive tax which hits harder as income rises (see my Finance Committee brief, but also the rather more expert David Eisner).

So what would I have chosen instead of grant cuts? On my limited knowledge of the SG’s budget, I can already see several alternatives which should appeal more than grant cuts to a sense of social justice.  The barriers to these alternatives were purely political – they were choices about what to prioritise.

Low income students, and specifically their future earnings, turned out to be one of the softest political targets. The same political logic appears to be at work (and rightly being condemned) in England.  A relatively easy choice politically compared to others? Yes.  A fair and socially just choice? No. Avoidable? Yes to that too.

That’s the argument which underpins my position that the Scottish Government can’t be let off responsibility for the large cuts it has applied to student grants (let’s leave the handling to one side).  It decided to cut the SAAS budget harder than its total budget, and to land those cuts entirely on the element used exclusively for grants for low income students, which were cut almost 40 times harder in real terms than the SG cash budget as a whole.

Sources for SAAS budget

Here’s the 2013-14 budget proposals: Table 5.06 for university funding (SFC HE Programme) and 5.07 for  “Student support and tuition fee payments”

Here’s the 2012-13 actual spending on grant by SAAS (Table 10 here)  and the 2013-14 figures (Table A9 here).