Why there is a degree of concern for university pay

Average salaries continue to rise at a rate much faster than other academic staff, over the past year doubly so. The average vice-chancellor now earns, including pension contributions, £280,877 a year.

The Government has consistently warned universities that the pay of vice-chancellors needs restraining. The Minister for Universities, Jo Johnson, has just announced

that the Office for Students will be able to fine institutions if the remuneration of their vice-chancellors cannot be justified by exceptional performance.

Vice-chancellors, foolishly, are now on the defensive, claiming their pay is modest compared to footballers and bankers, that they run multi-million pound organisations, and need these salaries because of operating in a global marketplace.

Well, they need to remember they are running charities and public services. Above all, they need to recognise that the significant growth in revenue experienced by universities since the 1990s is because of increased government support, either through teaching and reaching grants, or subsidised student loans. The growth and success of universities – and vice-chancellor pay – is fueled by taxpayers’ money.

Although direct state subsidy fell from 2010-2011, it was more than compensated by the lifting of the cap on undergraduate tuition fees to £9,000 per year in 2012-13.

In this decade, most public services – including in the education sector – have experienced significant real-terms cuts to their revenue. Universities have experienced the exact opposite.

The astronomical pay of vice-chancellors is now undermining confidence in the student loans system – an example of good public policy and of a supportive state.

The system ensures low-earning graduates do not repay any of their student loan if they earn below £21,000 a year and much less than wealthier graduates over their lifetime. These loans have enabled a record number of people, including those from disadvantaged backgrounds, to attend university.

Vice-chancellors are taking advantage of the generous contributions of both government and students. Of the countless other members of staff in these large institutions, the success of universities is based on the hard work of all staff and students, not just a star performer right at the top.

And it is unclear, at the start of the new academic year in higher education, just how much value for money students are getting from universities from paying higher tuition fees: There has been no real improvement on common measures of quality such as class size, contact time and student satisfaction since fees were just over £1,000 a year in 2005-06.

The Government is right to use the levers it has to enforce restraint. But it could go further. To charge over £6,000 a year in tuition fees, universities have to compile and achieve targets on widening access in Access Agreements. Government also wants universities to set up or sponsor state schools to charge above £6,000 a year.

A new rule should be applied: universities should only be able to charge above this amount if the remuneration of vice-chancellors is proven to be proportionate and justifiable.

Universities should also contribute towards the financing of the student loans system. At the moment, most institutions cluster their fees for undergraduates around the maximum cap of £9,250 a year. They can get away with this because students are not price sensitive when they don’t pay fees upfront.

But, also, they are exposed to little financial risk: It is government rather than universities that write-off the student loans of a forecasted three-quarters of graduates after 30 years. Those universities that have a disproportionate number of graduates with earnings profiles that means they will not pay off their loans in full after 30 years should pay a new levy.

Universities have enjoyed greater freedom and funds in recent years – time for their vice-chancellors to show more responsibility.

Ryan Shorthouse is the director of Bright Blue which campaigns for the Conservative Party to implement liberal, progressive policies.