A salutary lesson in undergraduate economics

Miles is 18 and lives across the road. This weekend he and his parents, like thousands of others around the country, face a difficult choice. Should Miles stick to his plans and take a year off before going to university or should he try to get a place this autumn? The financial implications are large. The Government's decision to scrap maintenance grants and start charging tuition fees from next year could leave him with a bill of more than pounds 9,000 when he has finished his three-year geography and economics degree. That is probably about what he will earn during his year off working at one of the big high street banks.

If it is any consolation, his financial position is not as bad as it could be. Miles lives in a nice area (how could it be otherwise?) and his parents, it would be fair to say, are comfortably off. If Miles came from a poorer family, he could, paradoxically, end up with a loan of more than pounds 12,000 to repay after college because of the way the new formula will work.

Behind the dilemma facing Miles and thousands of school leavers like him, there lies, of course, a bigger question. Everyone accepts that there is a funding crisis in higher education. But do you solve it by shifting more of the burden on to parents and students and what will the long- term effects be on the economy?

There are broadly two schools of thought. One says that higher education ought to remain free. It encourages more people into the system, thereby producing a better-educated, more skilled workforce which can only benefit wider society and lead to greater economic prosperity. What's more, the cost of providing free university education is more than covered by the higher taxes university-educated people pay. Start charging fees and you will get fewer applicants.

The other school of thought says this is baloney. Free higher education is just a middle-class subsidy and one paid for, moreover, out of the taxes of the less well-off. Since graduates can earn 20 per cent more than non graduates for doing the same job, surely it is right that they should make some contribution. After all, rights always come attached to responsibilities. Nor is there is any evidence that making students pay their way deters them from entering college. Look at the United States and Canada, or the tiger economies of the Pacific Rim, or even Australia and Italy for that matter. All of them charge for higher education and all of them have higher participation rates than Britain. In Canada, for instance, the figure is 44 per cent. Here, it is 33 per cent.

I am with David Blunkett on this one. The Education Secretary is adamant that the changes will not lead to a decline in undergraduate numbers and history suggests he is probably right. In the early 1960s one in twenty young people entered higher education. Now the figure is one in three, even though government funding has declined, in real terms, by pounds 4bn a year. Over the last decade, public funding per student has fallen by 25 per cent.

I am less persuaded, however, by Mr Blunkett's assurance that his funding revolution will encourage the less well-off to continue into higher education. The explosive growth in higher education in the last 30 years has sucked in better off students at twice the rate of students from socio-economic groups D and E. Saddling the less well off with even bigger debts at the end of their degree courses seems an odd way of encouraging more students from poorer backgrounds.

What the Government's changes do look like encouraging, however, is a further shift away from arts courses to much more vocational degrees. Goodbye BA in Anglo-Saxon History, hello Diploma in Internet Studies. It is surely not a coincidence that the biggest increases in vacancies this year are for courses such as business studies and engineering. That will surely please employers who have long argued that improving the education system and making it more relevant to the world of work would make the biggest single contribution to Britain's competitiveness.

All a bit depressing really: who wants to live in a world dominated by computer nerds and mechanical engineers obsessed with paying off their student loans and oblivious to the finer things of life?

Is Tony Dye about to be vindicated at long last? Yesterday's 125.5 point fall in the Footsie was the biggest since Black Monday in 1987. Not, of course, in percentage terms, because the Index has more than doubled since then. Anything less than a 100 point retreat is regarded with indifference these days. The other notable aspect about yesterday's market gyrations was how the second liners that make up the FTSE-250 actually rallied as the Footsie headed south. Perhaps this is not surprising since the 250 contains many of the engineers and exporters who have begun to benefit from sterling's depreciation at last.

Nevertheless, investors have been warned. The survey this week of investment intentions by Merrill Lynch clearly showed an increasing number of institutions baling out of equities and into cash and gilts. They are sceptical about the ability of central banks on either side of the Atlantic to keep interest rates down and worried about the toll that slowing economic growth will take on equity markets.

Both the Dow and the Footsie have retreated since breaking through the magic 8,000 and 5,000 levels respectively. It will require substantially bigger falls than yesterday's to put Mr Dye's PDFM back in the money but maybe things are moving in his direction at last. Yields are becoming ridiculously meagre and the pressure is for higher interest rates while the UK market still does not seem to have factored in the abolition of tax credits. Against that background, ordinary investors could easily be forgiven for following the lead of the professionals and moving out of equities.

On the rare occasions that I have used the National Rail Enquiry Service I have found it to be efficiency and politeness personified. Apparently that has not been the experience of much of the rest of the country. According to the Rail Regulator John Swift, 20 per cent of enquiries go unanswered and, when callers do get through, they are directed as often as not to services which do not exist and stations which are not open. That's private enterprise for you. Even so it is a big improvement on the figures for April when barely half of all calls were being answered. Mr Swift has now come up with a sliding scale of fines which, by my calculation, will land the privatised train operators with a bill of pounds 6m a month if their performance slips back to its level in the Spring. Even this is peanuts, of course, compared with the pounds 8bn of subsidies the industry is receiving - enough to pay the NRES's fines for the next 100 years, in fact.

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