Universities' extra cash from higher fees 'swallowed up' by NICs hike

Extra funding for universities from higher tuition fees will be 'almost entirely swallowed up' by Labour's hike to national insurance, experts have warned.

The Higher Education Policy Institute (HEPI) said universities would only be marginally better off due to the impact of Chancellor Rachel Reeves' tax raid.

This is despite students having to pay hundreds of pounds more per year in fees from September, after ministers announced the first rise in tuition fees since 2017.

HEPI pointed to an Institute for Fiscal Studies analysis that showed raising the tuition fees cap from £9,250 a year to £9,535 a year would spare universities a real-terms cut of £390million next year.

But they also highlighted a warning by the Universities and Colleges Employers Association that April's rise in employers' national insurance contributions (NICs) - as annnounced at the Budget - will add an estimated £372million to the sector's pay bill.

An £18million net gain for the sector - or an average of under £45,000 for each of the more than 400 providers on the Office for Students' register - would only allow them to employ a single new staff member each, HEPI warned.

In an article for Research Professional, HEPI director Nick Hillman said: 'We seem to be expecting young students to borrow a slug more money to pay higher fees that will then be almost entirely eaten up by a national insurance rise.'

He added the extra revenue from the NICs hike would then 'largely go on public services that are used more heavily by older people'.

'Many people believe we need an intergenerational shift in policy, but they don't usually mean a further shift in resources from younger people to older people, which is what this appears to be,' Mr Hillman wrote.

He suggested that tuition fees should instead jump to around £10,000 per student per year.

This would 'recognise the impact of inflation and ensure universities can cover the higher national insurance payments and have any additional resource left over to improve the student experience', Mr Hillman added.

In a statement to the House of Commons yesterday, Education Secretary Bridget Phillipson revealed domestic students will face maximum fees of £9,535 per year from 2025.

Tution fees timeline 

From 1962 - University study is effectively free as local education authorities paid fees and offered maintenance grants

1998 - £1,000 fees are introduced in England

2006 - Variable 'top-up' fees of up to £3,000 are introduced in England

2012 - Fee cap is increased to £9,000 in England

2017 - Fee cap is increased to £9,250 in England

2025 - Fee cap to rise to £9,535 in England 

Tuition fees had previously remained frozen at £9,250 per year in England since 2017.

Ms Phillipson said the tuition fees cap was being increased by £285 per year due to the 'severe financial challenges' facing universities.

She said there had been a 'significant real-terms decline in their income' due to rampant inflation in recent years.

The Tories attacked Prime Minister Sir Keir Starmer over his previous pledge to 'abolish' tuition fees when he was campaigning to be Labour leader in 2020.

They also highlighted how Ms Phillipson wrote a newspaper article last year that told graduates they would 'pay less' under a Labour government.

The Education Secretary was quizzed last night about whether universities would actually be better off from the rise in tuition fees, when coupled with the looming increase in NICs.

She told Channel 4 News: 'Like all businesses, it’s for universities to decide how they manage their budgets. Universities are autonomous independent institutions. They prize that.

'But what I would say is that when we set out details around the secondary legislation that will be laid before parliament, we will publish an impact assessment around that as well.'

Commenting on fears that universities will be no better off due to Labour's tax raid, Tory shadow education minister Neil O'Brien said: 'So every single penny graduates are paying goes on Labour's own tax hike on workers. One broken promise pays for another broken promise.'