Top-up fees, RAEs? Farewell to all that

Last week, my wife and I visited our local health insurance office in Sydney. We explained that we had been living in England but had now returned home and wanted to re-activate the health insurance we suspended four years ago.

"No problem," said the person behind the desk. "All we need is proof that you have returned to Australia." "Well," I replied, "we are sitting here right in front of you. Isn't that sufficient?" "Not really," she said, "we need something authoritative". "OK," I replied, "you can pinch me, if you like."

I have been pinching myself a lot lately. It is hard to believe that the last four years have passed so quickly. It seems like only yesterday that Claire and I arrived at Heathrow (and had our bag stolen while waiting for a taxi). Yet, so much has changed.

When I arrived at Brunel University in early 2002, Estelle Morris was education secretary, Margaret Hodge was higher education minister and no one was contemplating income-contingent fees or the Office of Fair Access (Offa). Universities still believed that money distributed after the research assessment exercise (RAE) would be carved up among all departments rated 3,4, or 5. Operating deficits were a national problem and red ink washed across the sector. Every university in the country had exactly the same business plan - recruit full-fee students from China.

Four years, three secretaries of state and several ministers later, everything has changed. After the most important policy initiative in English higher education in the last 50 years, income-contingent fees are about to become a reality and, despite considerable scepticism, Offa has succeeded beyond anyone's expectations. Students entering higher education in 2006 will have more financial support available to them than at any time in history. Changes to the RAE have concentrated research funding in fewer universities and this trend, which appears to be universal, will doubtless continue.

In times of rapid change, it is sometimes useful to take a step back and survey the scene from a perspective-giving distance. Being in Sydney certainly provides sufficient distance. As for perspective, you will have to judge for yourself.

In November 2002, I attended a sandwich lunch at No 10. Tony Blair was there, along with Margaret Hodge, Andrew Adonis (then a Downing St adviser), Charles Clarke (new education secretary) and a dozen or so vice-chancellors. The prime minister set the tone, emphasising the need to give universities more resources and explaining why tuition fees were just. Middle-class students dominate higher education, while working-class students are under-represented. When universities are funded entirely by taxation, assets are transferred from the working class (which pays taxes but does not attend universities) to middle-class students.

Everyone seated around the cabinet table agreed that the fairest way to give universities the money they so desperately needed was to create a system of graduate fees. But we knew there would be considerable opposition from prospective students, politicians, academics and even some vice-chancellors. A cap on fees was seen as an undesirable but necessary measure to help counter the expected dissent.

Some Labour MPs (and a few Lib Dems) have still not grasped the difference between income-contingent loans and traditional up-front fees. The Conservative leadership understood, but cynically adopted the policy of no fees at all. So, while Labour was arguing that students should take some personal responsibility and pay at least part of their own way, the Tories were offering students a free lunch. It is gratifying to see that Boris Johnson, now Conservative spokesman for higher education, has repudiated the no-fees policy, which he defended strongly when he invited me to lunch at the Spectator. He put his name to an early day parliamentary motion castigating me for criticising it.

Some vice-chancellors relied on naive opinion surveys to argue that working-class students would not apply for university if they had to pay fees. Of course, when you ask them, students say they prefer not to pay fees. However, when you look at actual behaviour, the story is different. There is considerable evidence from Australia to show that income-contingent loans do not deter working-class students. Indeed, the participation rate of all socio-economic groups in Australia increased after the introduction of income-contingent fees. This does not mean the Australian system is flawless. Requiring English universities to use part of their fee income for bursaries was an important improvement on the Australian system.

The introduction of bursaries was not enough to quell Labour opposition. So Hodge and Clarke decided to institute a review of higher education admissions and create an "access regulator". When I heard about the access regulator proposal from Hodge, I knew the terminology was wrong. Everyone would hate it. I hated it. If we were to have such an office, it should do something positive. Promoting access is better than regulating it and that's why the final body was called the Office of Fair Access. Despite considerable angst among academics and politicians, Offa has delivered the bursary system that is still lacking in Australia.

Chairing the review of university admissions gave me the chance to contrast academic and national politics. Some of our recommendations seemed to be common sense to people outside universities. Yet they proved highly controversial among those inside the higher education system. To the average person, it seems sensible to use real marks to select applicants to university rather than rely on predicted marks, especially since more than half of these predictions are wrong. Many reports, including ours, recommended that the admission system be changed, yet, nothing has been done.

Many vice-chancellors defend the use of predicted marks saying they are not that bad (the marks are only "a little wrong"). A new system based on actual marks would require staff to work in summer, they say, and might even result in a change to the university calendar. Can you imagine the furore if a hospital refused to use the latest diagnostic imaging technology because radiographs are only a little fuzzy and switching technology would require staff to change their work habits?

The UK and the US are home to most of the world's leading universities. But will they remain on top? Money remains a major problem here. Not even the richest UK university has the resources available to its US counterparts. More generosity from taxpayers is unlikely. The money will come from fees. The fee cap, currently set at £3000, will have to rise, or even be eliminated.

Because the government will borrow the money and pay interest for years before graduates start making repayments, the cost to the exchequer will be very high. The government may have to introduce a discount for up-front payment of fees (as in Australia).

After a dip, UK enrolments will begin to increase, as students learn more about the bursaries available to them. When the review of the recommendations made by our admissions review takes place in 2007, it will certainly find much greater transparency in admissions criteria and processes, but it is unlikely to find a post-qualifications admissions system in place. Most important, the fees that will begin to flow in 2006 will provide the resources that UK universities need to ensure that they remain the envy of other nations.

It has been a privilege to work in a British university and one of the high points of my life. To all my colleagues and friends, I say farewell and good luck.

· Steven Schwartz is vice-chancellor of Macquarie University in Sydney. He was vice-chancellor of Brunel University from 2002 to 2006