The current system is impractical as a way of maintaining or expanding the sector as a whole. But don’t expect politicians to propose a solution any time soon

Andrew Hamilton, vice-chancellor of the University of Oxford, caused a storm earlier this month when, in his annual oration, he called for tuition fee levels to be “closer to the real cost of the education” an institution was providing, and noted that an Oxford undergraduate costs £16,000 a year to teach.

He will not have won many friends among his fellow vice-chancellors when he said some universities are “doing very nicely, thank you” on the £9,000 maximum fee that the vast majority have decided to charge, despite being part of a supposed new market in higher education.

But all will agree that the unit of resource is diminishing. As Sir Christopher Snowden, president of Universities UK, pointed out recently, by mid-2015, the £9,000 fee will be “worth” only about £8,250 in real terms. The remaining state funding for teaching is in line for significant reductions in the same time frame and, with the science budget frozen since 2010, it is clear that no one will be “doing very nicely” for much longer.

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The current system is also impractical as a way of maintaining or expanding the sector as a whole because of the ballooning cost of the loan book. But don’t expect politicians to propose a solution any time soon. The Liberal Democrats have, grudgingly, committed to supporting the £9,000 fee regime, but they would still prefer to abolish fees completely than to raise them further. Lib Dem leader Nick Clegg’s hasty pledge, in the wake of Hamilton’s remarks, to not raise fees to £16,000 only emphasised the party’s continuing sensitivity on the issue of fees.

Theoretically, Labour’s position as it prepares for the 2015 general election might still be to lower fees to £6,000. Liam Byrne, newly drafted into the higher education brief, will be busy judging whether tuition fees are still the totemic electoral issue Ed Miliband clearly thought they were when he came up with the policy two years ago. If they are, Labour may still invest resource and political capital in reducing them. But that is less likely now that undergraduate applications have bounced back to 2011-12 levels after a drop in 2012-13 and the NHS, social care and primary school places all look like higher priorities for what might be as much as a £9 billion commitment over the next parliament.

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The Conservatives have been more gung-ho on the issue of further deregulation and competition. The party’s “Free Enterprise” and “40” groupings, as well as thinktanks such as Policy Exchange and Bright Blue, have all called for more deregulation of the higher education market, often recommending uncapping fees as well as the “freeing” of the best universities from state control. But it is highly unlikely that the party would commit to raising fees in its 2015 manifesto. The £9,000 regime was, after all, billed as making higher education sustainable for the longer term. The Tories will be delighted with the 2013‑14 recruitment figures, but they will know that any further changes in the medium term may damage a fragile acceptance of the new system. With Labour’s renewed focus on the cost of living and consumer prices, even an inflation-linked uprating might look cavalier.

As Hamilton himself observed, this all points to the £9,000 fee remaining as a hard cap for the foreseeable future. In the longer term, and certainly by the later years of the next parliament, new financial solutions will have to be found. The spectrum of possibilities includes both a graduate tax and Hamilton’s uncapped or “variegated” fees system, as well as increases to the current universal cap.

As for Oxford, it will continue talking up the £70 million a year “chasm” in its budget in the hope of attracting large amounts of private philanthropy to fill it. After all, building its endowment is ultimately how it must compete with the US’ Ivy League.

Talk of a £16,000 fee was always a bit of a red herring, as well as a red rag. But it succeeded in reminding the rest of us that the current fee regime is unlikely to last for ever.

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