In recent years, voices opposing university tuition fees have increased in volume and number. The Liberal Democrats pledged to oppose any rise in fees before the 2010 election, before infamously supporting the same proposal as part of a coalition government. In both the 2017 and 2019 manifestos, Labour pledged to abolish all tuition fees.

Despite its popularity, abolishing university tuition fees doesn't actually fit very well with the widely-held ideal of reducing inequality. Abolishing university tuition fees in the UK today would actually be a regressive policy, which means it would be equivalent to taking proportionally more wealth from the worst off than the better off.

Where would funding come from?

Abolishing tuition fees does not mean that universities no longer have costs to cover, for example there are still staff and maintenance costs. Getting rid of fees would mean that the government would cover these costs itself. Government money comes from taxes: mainly from income tax, national insurance contributions and VAT. The extra government spending incurred because of scrapping tuition fees would require either increasing taxes, or cutting spending in another area, for example health or pensions (two of the biggest areas of spending.)

Who benefits from university?

Essentially, richer students from less deprived areas are more likely to go to university than the less affluent. From the most disadvantaged fifth of state schools students first eligible to attend university in 2010-11, only 19% attended university at age 18/19 compared to 56% of the least disadvantaged fifth . When we include private schools, the same proportion of the poorest fifth attended, but 61% of the richest group went.

On top of this, those who complete a university degree are likely to make more money over their careers. Men who go to university are on average £130,000 better off after taxes, student loan repayments and foregone earnings. For women, the number is £100,000. These numbers represent "present discounted values", which means that later earnings are weighted less than earlier ones. Without discounting, returns are £350,000 for men and £230,000 for women .

Let's recap.

The benefits of university education go to the more advantaged sections of society. Those who go to university are overwhelmingly (a) already in the middle and upper classes, and (b) will earn more later in life as a result of going to university. The costs of university education, if taken on by the government, would be paid for by taxes, which are raised on all members of the public. So, abolishing university fees is a subsidy from all of society to the richer members of society. It also represents a lost opportunity: that government revenue could have been spent on other public goods that benefit the poorer parts of society more, like early child education or healthcare.

This does not mean, however, that students should have to pay upfront. The UK Student Loans System allows students to attend university without paying anything until they earn above a certain threshold. (This was £26,500 in 2020.) Moreover, the debt is written off after 30 years, so most (about 80% of) students will never have to repay their full loan. This system means that no one should be "priced out" of university. This is not to say the system is perfect - I'm sure it could be optimised. But in broad strokes, it gets things right.

Although there is a common belief that poorer students are deterred from attending university due to the fees, there is little evidence to support that claim. The gap between more and less affluent students attending university existed when university was free, and the gap has actually narrowed as fees have increased.

Addressing some potential challenges

Income taxation is progressive in the UK. Doesn't this mean that all publicly funded goods are progressive?

Progressive taxation certainly does reduce the extent to which free university education is a subsidy to the middle classes. But, whether it defeats my argument will be a question of how progressive the taxation system is versus how much university disproportionately benefits the better off. A definitive answer would require some empirical analysis. My intuition is that the UK tax system is not sufficiently progressive to "balance the scales". It is possible that in a country like Sweden, where the top marginal tax rate is 57.1% (compared to the UK's 45%), free higher education would not in fact be a subsidy to the better off.

University is good for all of society, not just the students.

In economics, when something that I consume benefits others around me, we call that benefit a "positive externality". Higher education definitely does have positive externalities: perhaps students will go on to create big companies that employ thousands of workers, or produce research that contributes to a new vaccine. But whether the positive externalities justify getting rid of fees depends on the scale of the externality, compared to the individual benefit. Given the huge personal advantages linked to holding a university degree, I do not believe that positive externalities justify abolishing fees. It is also worth noting that the current UK higher education funding system already requires significant government spending, partly justified by these externalities.

You are a crazy market lover. Do you want the UK to become the USA?

No. The USA system is far from ideal, mainly because of the unfair practices (e.g. hidden interest rates and charges) associated with private loans. The centralised UK student loan system allows students to go to university without having to pay upfront and only charges them a proportion of their earnings so they cannot be crippled with debt in the way American students can be.

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