Pre-Budget Submission: Irish Universities Association

Before we begin, I remind everyone to turn off their mobile phones. I welcome Mr. Jim Miley, director general of the Irish Universities Association, IUA. He is accompanied by Mr. Michael Casey, finance director of the IUA. We thank them for making themselves available to meet the committee. The purpose of this session is pre-budget scrutiny and consideration of issues raised in the IUA's submission. I will ask the witnesses to give their opening statement in a moment but I first must deal with the normal housekeeping matter of privilege. I draw the witnesses' attention to the fact that, by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee.

However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected to the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity either by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

I invite Mr. Miley to make his opening statement.

Mr. Jim Miley

I thank the committee for this opportunity to address it. We have included our opening statement in the documentation provided to the committee and I will go through it briefly. We also included a copy of our pre-budget submission and an impact report, to which I will refer later.

Universities are key catalysts of economic growth. Ireland's economic success is increasingly linked to our capacity to compete globally in a competitive knowledge economy. As a small open economy within the EU, we have succeeded in attracting a disproportionate level of inward investment from the global leaders in technology, pharmaceuticals, medical devices and other sectors. Our success in foreign direct investment, FDI, combined with the development of a thriving indigenous SME sector, has enabled us to recover from recession and emerge as one of the fastest growing economies in the EU, all within a single decade. It is well recognised by all that our pool of high-quality talent and our capacity for innovation at a globally competitive level in a range of industries is central to this achievement. We contend that universities and other third level institutions are the engine rooms for the production of this talent and for cutting-edge research and innovation.

The Minister of State with responsibility for higher education has described our emerging talent as Ireland's oil reserve and how right she is. However, the value of those oil reserves of talent cannot be tapped unless we invest in harnessing and developing that talent, which will, in turn, fuel our future economic success. This is why investing in our universities must be a national priority.

In April, Indecon published a major study on the impact of universities, the first of its kind in Ireland. It provides a detailed measurement of the contribution of the seven universities represented by the IUA to the economy and the country generally. We have included a summary copy of the report in the documentation. The universities collectively contribute approximately €9 billion annually to the economy, support 22,000 jobs, and more than 120,000 students are enrolled. The universities generate close to €400 million a year in export earnings from international students. By comparison, this is almost double sheep meat exports from the country. The research and innovation activities of the universities generate €1.5 billion annually to the economy. Critically, Indecon has shown an estimated net gain to the Exchequer of €1.6 billion per year arising from the increased earnings and tax take from higher-earning university graduates. Given that the total annual State investment in universities is of the order of €1 billion, there is a clear cash return to the State. In summary, universities not only deliver on the public good of producing top talent and driving innovation, they also deliver a cash return for the State. This is why investment in universities is an investment in our economic success.

Over the past decade, State funding per student in the third-level sector has been dramatically cut. The core grant from the Higher Education Authority to third-level institutions throughout the sector has dropped from almost €9,000 per student a decade ago to just over €5,000 per student now. This €4,000 gap has been made up in two ways: half by an increase in the student registration fee and half by cost-cutting at universities and generating new sources of income.

In spite of welcome but modest funding increases over the last two budgets, State funding per student - the critical measure - has hardly moved as the increases are largely mopped up by a growth in student numbers. This bulge in student numbers is set to grow over the next decade, with an estimated 40,000 extra students to be catered for by 2030, as compared with the 2015 baseline. The funding problem will get considerably worse unless there is a significant step-up in investment to support our growing student base. There is almost unanimous support among employer leaders, unions and students for a comprehensive programme of investment, with IBEC, chambers of commerce leaders, USI and ICTU all in support of such a programme.

The Irish Universities Association is calling for a three-part response from Government to the urgent investment needs of the third level sector. First, an additional €117 million for core operational funding is required, inclusive of €40 million in new money to improve quality and enhance services and the remainder to cater for a known increase in student numbers and known increases in staff pay awards arising from the financial emergency measures in the public interest, FEMPI, reversals, which are out of the control of the universities. Second, we are seeking a step-up in investment in research, including an additional €50 million for frontier research by our top scientists, many of whom currently receive no national funding. This was amplified in the last week in regard to the prestigious European Research Council, ERC, grant awards - a pot of €600 million - in respect of which Ireland succeeded in securing only one of 408 grants overall. This was a direct result of applicants not having seed funding from national government.

On capital funding, we propose a two-strand injection with €100 million for new build to cater for growing student numbers in the first instance. We acknowledge the recent announcement by Government on grant funding for capital projects in four of our universities. Second, €110 million for year one of a seven-year capital investment recovery programme to upgrade many of our decades-old facilities, in particular the refurbishment and upgrade projects that have remained neglected over the last decade or longer and are now urgent.

We have set out our proposals in detail in our budget 2020 submission, Investing in Ireland’s Future Talent and Innovation. We would welcome the support of the Committee on Budgetary Oversight for these proposals.

I am happy to take comments or questions from members.

I thank Mr. Miley for his opening statement.

I thank Mr. Miley and Mr. Casey for the submission. Yesterday, I attended a meeting of business leaders from the Cork region at which third level funding and education generally was raised as one of the key issues. For them, it is right up there with infrastructure and housing. Many of those present were the owners of growing businesses or start-ups, but all of them expressed concern in regard to where their next tranche of staff might come from. The point was made that as a State we regularly point to the quality of our workforce in terms of education. Increasingly, no matter where one travels in the world there is a high level of education. Concern was expressed in regard to the league tables and ranking systems. People understood that these are a mixed bag, that they can be gamed and that some are better than others. Nonetheless, there was a recognition that this is a reality. People were specifically concerned about research. They expressed the view that while we might be leaders in specific areas such as, for example, food, drink and perhaps electronics, Irish universities are falling behind. While there are several streams of funding here, is it the research element that is causing us to fall down the rankings? As there are several asks in terms of research and innovation and capital funding and core funding, what is the most crucial element in tackling the continuing fall in the rankings of Irish universities?

We have discussed this issue previously. An increasing number of institutions in Asia and other parts of the developing world are entering the league tables and becoming more competitive. Many of our third level institutions meanwhile are becoming more reliant on international students for income. To what extent is that the case? Can a percentage be put on that funding? Is there a strategic risk - perhaps not this year or next - to our institutions if international student numbers begin to fall off because they choose universities closer to home?

I might be asking the same question in two ways. The request regarding finance is significant and I appreciate the value for money aspect that was outlined. Can the delegates identify the most important investment that can be made? A similar question relates to the risks the Irish university sector faces if investments are not made. What will the position be like in three or four years? What will the university sector look like and what shortfalls and deficits will there be?

Mr. Jim Miley

The messages the Deputy got from business leaders in Cork and that we have also heard from business leaders across the country demonstrate that there is concern about the future talent pool. That is particularly the case as we are reaching peak employment. There are significant shortages of key talent in a wide range of areas in the economy.

Reference was made to rankings and research. This is related to the Deputy's previous question about overall priority. I will make two points. First, core funding is absolutely critical. An increase in State funding was a fundamental ingredient of all of the options outlined in the Cassells report which was published more than three years ago. I will hand over to my colleague in a moment as we conducted an exercise on that issue. It is included it in our budget submission and examines where we are versus what was outlined in the Cassells report. Increasing core funding is critical, but we are not suggesting we have to go anywhere near closing the €4,000 gap that has opened up in the last decade. A meaningful contribution does, however, have to be made towards doing that. What we have outlined refers to pushing that figure upwards in order that the €5,000 in direct funding per student that we receive from the State can, within a couple of years, become perhaps €5,500. That is relatively modest compared to the drop we have seen, but given the increase in numbers, we are conscious of what the State can afford.

The Deputy referenced research in both of his questions. That issue is also critical. It relates to parts 2 and 3 of our submission. We have proposed extra funding of €50 million for core frontier research. A significant number of our top researchers and scientists do not receive national funding. that inhibits their capacity to build teams and develop the ability to compete for other funds such as from the ERC fund which I mentioned. If that issue is not addressed, we will certainly fall further down the rankings over time. The second aspect of research relates to the capital investment programme, in particular the facilities that need to be upgraded such as laboratories and technical equipment. That is directly related to the research agenda. Therefore, the two absolute priorities are addressing the issues of core funding and research in the context of direct funding and the capital investment programme.

I ask Mr. Casey to comment further on the Cassells report.

Mr. Michael Casey

Committee members will be aware that the Cassells report set out a number of options, all of which involved additional investment in the context of core funding.

I suppose core funding is the funding that keeps the institutions ticking over. It is the bread and butter stuff. It is the area that has suffered dramatically in the past decade or so. It is fundamental to the quality of what universities produce, whether it is at undergraduate or research output level, etc.

The Cassells report had 2015 as its baseline. At the time direct State grants to third level institutions amounted to €923 million. By 2019 that figure had increased to €1.1 billion, but in analysing the figure, it translates to an increase of €189 million over the period, with €102 million being subsumed by increases arising from pay restoration and centrally agreed pay costs which are outside the control of the universities. The increase in funding, net of pay awards, over the period was €87 million. The Cassells report identified a number of options. Now we are faced with the status quo with respect to maintaining the student contribution and increased State funding. The report identified increased investment by the State of €842 million by 2030. If we assume that figure applies on a flatline basis over the period, it amounts to €56 million per annum. On that basis, by 2019, we should have seen an increase of €225 million in real terms. As I indicated, the actual increase was €87 million; therefore, we are €138 million shy of where the Cassells report identified we should be. That is fundamental to the quality of what we produce and it is one of the risks for the sector in terms of investment.

Quality is a tricky issue with which to deal. As a representative body for the universities, the quality of what we produce is fundamental. We need to maintain that quality. We are trying to promote what we produce, but with the lack of investment, it is inevitable that quality will be at risk. We do not necessarily want to say this, however, because it can become a self-fulfilling prophecy. The reality is we cannot absorb the cutbacks in funding without there being some impact on quality in the long run. The big risk from a quality perspective is that there tends to be a time lag between investment and quality. By the time we, as a state, realise quality may be impacted on, we could be chasing ten years of investment to try to get ourselves back into position. The time lag is a critical factor. We need to realise as early as possible the importance of investing and maintaining quality.

There was a question that was not answered about the risk involving international students.

Mr. Jim Miley

I apologise. We have grown the number of international students. As I indicated in my opening comments, it is now worth close to €400 million per year in net export earnings. There is much economic value and it has been a major buffer for universities and other third level institutions in catering for the fall in income elsewhere. There is, however, a potential risk. There is massive investment in Asia in third level systems, including in China, Indonesia and countries in that part of the world. Some of the universities there are moving into the top 100 in the world. Even a decade ago, that would have been unheard of. Taking the medium term view, it is reasonable to assume the flow of international students to this part of the world will certainly plateau and could decrease.

However, there is a substantial risk attached to relying on that funding.

Second, we know an extra 40,000 of our students will be at the doors of the system by 2030 compared with the 2015 baseline. If we do not have sufficient funding in place, we will be unable to cater for them. Universities do not want to be in the position where they must take in international students to balance the books to the detriment of Irish students, which is another risk. The year 2030 is more than a decade away but the steps of that stairs have begun and that is a real and live risk in the coming years.

We are working towards finishing at 3.15 p.m. but we have a little flexibility in terms of time.

I thank the witnesses for attending.

Mr. Miley has been quoted publicly as saying that it is time for politicians to stop saying what they do not want and to commit to solutions. What is the IUA's view on how third level should be funded? What solution will the association commit to?

Mr. Jim Miley

The comments we have made in that regard related to the fact that two of the options mentioned in the Cassells report - loans and an increase in student fees - have been effectively ruled out by the current Government. Implicitly that then means the only solution left on the table is to substantially increase State funding. However, we are also hearing that the capacity of the State to fund the entire piece is limited. Failing that, the other option is to restrict the number of student places. If there is not enough money to pay for them, restricting the number is the only option but that is an untenable option as far as we are concerned. We pride ourselves on the fact that we have one of the most educated populations in Europe and one of the most educated workforces, which we want to continue.

When the Cassells options first came out, we expressed some views at that time on the loans or fees options. We understand the political sensitivities of dealing with those issues. We pose our solution to the funding crisis in the context of access and ask the following question. Is it acceptable that the son or daughter of a wealthy individual studying, for example, medicine, veterinary science or a laboratory-based course, should be effectively subsidised by the State while there are schools in this country where as few as 9% of the leaving certificate students access third level? We think that the issue of access, as part of the funding solution, must be addressed. That inherently means that certain people who can afford to pay a little bit more should, perhaps, be asked to do so because if we do not do so, and the State does not have the capacity to pick up the full tab, as we continually hear, the only other option is that we continue to restrict access to those who otherwise cannot afford to avail of third level education.

Very firmly, I shall refer to our ethos. Last year, we published a charter for the future of Irish universities, which we shared with all of the members of the Oireachtas. One of the six core principles of the charter was to enhance access for the future.

Can Mr. Miley explain what he meant when he said that those who can afford to pay something should pay? Will ability to pay be adjudicated by the universities or the State? Has the association done any work on what its solution might look like? The association has come in here and said there is a funding problem. I ask him to please explain how its solution to the funding problem will work. What is the ballpark figure for the family income threshold?

My concern is that the bands of the SUSI grant, which formerly was the higher education grant, have been tightened. The household income limit to avail of a SUSI grant is very low. It cuts out those on middle incomes, which means these students cannot get any help and cannot afford to go college.

Mr. Jim Miley

Obviously the cost of going to college is not just confined to the cost of the registration fees but also the cost of accommodation and other ancillary fees that are more substantial, particularly for those who are going to colleges or universities outside their home area.

On the framing of the SUSI grants, there are political issues around how one would address that. The association would look at it in terms of cost. The cost of what the student is earning needs to be factored into it. The cost of producing a medical graduate in terms of annual fees is many multiples of the €3,000 registration fee. If one looks at a whole range of disciplines, such as engineering, veterinary medicine, the cost of producing the graduates is dramatically greater and yet the lifetime earnings are substantially greater in the long term.

If one applies the principle of fairness, one would have to say there needs to be some rebalancing on that. There are pragmatic difficulties in getting public support for some of those issues, but if we bring it back to the question of open access and ask whether it is fair that 100% of students in one secondary school in a particular postcode area have access to third level while at present as low as 10% of the leaving certificate students in another postcode area access third level, even though we know that there is no such gap in their potential and academic capacity, we as a society need to address that issue. There is a difficult political challenge in that but the universities are very open to having a very honest discussion with Government on how best to tackle that issue. I do not think we have had that proper debate since the Cassells report has been published.

I thank Mr. Miley. I am still not clear as to what his solution is or how it works. If Mr. Miley is looking at rebalancing on the basis of the earning potential of a particular course, it will do exactly what we do not want to do, which is to become a course for those in certain postcodes because they can afford the repayments. That will put certain professions out of reach for many people. I am not sure that is the way forward.

The universities say there is a funding problem. It would be very helpful to the politicians, who, as Mr. Miley has acknowledged, are struggling with the issue politically if the association stated what it thinks is the best solution. It is just the association's view. It is not binding, but such an advisory view would be most helpful. I am still not quiet sure what he is suggesting. Is Mr. Miley suggesting that some students should pay something and that it should be based on the earning potential of those who do that course? That is a bit intangible. I will move on, but I kind of see the direction of where Mr. Miley is going.

In his opening statement, Mr. Miley said that the gap in direct funding from the State of €4,000 per student has been made up in two ways. Some 50% of it has been made up by an increase in student registration fees and the other 50% has been made up by cost cutting at the universities.

A particular issue that politicians have encountered in recent years has been the hikes in the cost of on-campus student accommodation. I am assuming that money is going to the universities and is probably being used to plug that hole. That is an unwelcome development in the university sector because once again the universities are doing the one thing that Mr. Miley does not want to do, which is to make universities inaccessible to low and middle-income families. The increases in the cost of some campus accommodation has been astronomical, and far higher than market rent increases. It does seem to be a gouging of vulnerable students who have worked very hard to get a place in a particular university. They almost have them where they want them because there is no alternative private rental market.

I would like to hear the witnesses' response to that because it has been a particularly difficult political situation for us.

Mr. Jim Miley

I thank the Deputy. My colleague, Mr. Casey, might want to come in on this matter. I would like to make a couple of points. A recent amendment to the Residential Tenancies Act has brought universities and on-campus accommodation providers under the umbrella of that Act. As we go forward, we will see that this issue has been dealt with through this mechanism.

What does Mr. Miley mean that it has been dealt with? I ask him to explain that.

Mr. Jim Miley

It is subject to a cap of 4% per annum.

Is it not the case that the universities had two months notice?

Mr. Jim Miley

There has been-----

That is exactly what I am talking about. I am asking Mr. Miley to comment on the rent increases that happened before the universities were brought under the umbrella of the residential tenancies legislation. People were particularly upset by those increases.

Mr. Jim Miley

I will come back to that before handing over to my colleague, Mr. Casey. It is recognised that if the universities had not provided student accommodation over recent years, the student accommodation crisis would have been much worse. We have provided approximately 15,000 places. If one examines the model used by universities, one will see that the money to build blocks of accommodation is almost exclusively borrowed. The eight universities we represent have borrowed almost €800 million from the European Investment Bank. As the universities are run on a not-for-profit basis, any surplus that is made is ploughed back into refurbishing older blocks or building newer blocks. Obviously, building costs have increased. That directly reflects the current situation. The universities are not-for-profit institutions. They are not by any means looking to generate significant surpluses out of this. If one looks at the profile of recent developments, one will see that the cost of building blocks of student accommodation has escalated dramatically in the past three or four years.

Mr. Michael Casey

I suggest that the specific recent rent increases should be looked at in the context of the longer term. As my colleague, Mr. Miley, has said, student accommodation is run on a not-for-profit basis. Universities are not interested in gouging students or whatever. Students are our core business. Fundamentally, the first responsibility of a university is to its students. If one examines the cost of student accommodation over the past ten years, one will find that there were few, if any, increases during the initial period. Over the past two or three years, prior to the most recent round of increases to which the Deputy has referred, we have seen universities responding to market pressures like the cost of construction and the cost of refurbishment. Increases have been introduced to reflect such pressures. As my colleague has alluded to, the universities are operated on a cost-neutral basis. In effect, the cost of new blocks helps to refurbish older blocks, many of which are 20 years old at this stage. In many cases, the price increases in the most recent round were agreed with students six months ago. When universities increase the price of student accommodation, it is generally following consultation with student unions. Student unions are engaged with and are part of the decision-making process when prices are being decided on. The prices were set in advance of the recent developments with regard to the Residential Tenancies Act. It is not the case that the university sector increased prices in response to legislation aimed at capping prices. In most cases - I cannot speak for every case - the decision to increase the price was made before there was any indication that purpose-built student accommodation would come within the ambit of the Residential Tenancies Act.

I thank Mr. Casey. We have the gist of his response.

I wish to clarify one issue. I do not agree that the price increases were set before there was any indication that pressure zones were going to come in. For more than two years, we have been pressing for rent pressure zones to cover university accommodation. It was very clear that this was coming down the tracks. Some universities are charging in excess of €1,000 more per month for rooms with shared living space. Members of the Irish Universities Association may consider that acceptable, but it is not. It is gouging students. Universities should not be responding to market pressures. They are not-for-profit organisations. I acknowledge that they are not making a profit from the accommodation but, rather, redirecting funds to other areas of the university where money is lacking. While I understand why that is happening, what is being done is not okay and students are suffering because of it. The universities are pricing low to middle-income families out of student accommodation. Very few of them can afford the rates being charged. Universities are using funds from accommodation to plug holes elsewhere. No one is buying the suggestion that the money is being recycled to refurbish other apartments. There are clear problems in the university sector. The rents were increased significantly because that is what is happening elsewhere and it is seen as acceptable. I would have expected better from the universities than to respond to those market pressures.

I call Deputy Bailey and remind her that we are tight on time.

I will be quick. On the funding model, I fundamentally disagree that parents who can afford to pay slightly more should do so. In Dún Laoghaire, the area which I represent, many non-fee-paying schools are at capacity and many parents have no option apart from sending their children to a private school. Many make massive sacrifices to do so. The fact that families send their children to a private school does not automatically mean they can afford to pay more than other families to send their children to college. I understand the witnesses' thinking in that regard but we are a long way away from that being feasible.

On student accommodation, we must recognise the Government policy that has enabled its construction, including fast-track planning permission, European Investment Bank funding and the low-cost funding model. It is a long-term investment. It is not a quick fix but, rather, an ongoing income for colleges. I acknowledge the maintenance cost involved and I agree that the cost of construction has increased. What income is realised from the accommodation being let in the summer? How much of it is let in the summer? Is that money ring-fenced? Does it go to the same area as the student accommodation income?

I agree with Deputy Lisa Chambers on this issue. The Joint Committee on Housing, Planning and Local Government has been discussing this issue since the Thirty-second Dáil was convened. Representatives of several student unions appeared before the committee. It did not come as a shock to anybody that student accommodation was included in the rent pressure zones. We must recognise the security that gave to tenants and that the colleges came with us on that.

On the cost of student accommodation, the newly-built accommodation is of exceptionally good quality. I visited a significant amount of it. Whether they are four-bed or six-bed units with communal areas, the standard is very high. However, that comes at a cost. Do the witnesses envisage the cost of that accommodation decreasing in light of the anticipated increase in supply?

Mr. Jim Miley

On the fees issue which was discussed earlier, I fully accept that the Deputy does not consider it fair. However, we are back in the territory of what we do not want. We are asking the Government what is the solution. If it does not wish to bring in student loans or to address the level of fees, the only logical solution is for the State to increase its contribution. If that is the decision of the Government, universities will support that and will operate our businesses accordingly. We need clarity on that issue to come out of the political process.

On accommodation, if it were feasible to decrease accommodation charges, universities would do so.

We need to bear in mind that the average lifespan of a university accommodation block, before it requires substantial refurbishment, is approximately 25 years. Some of these accommodation blocks are on 25 to 35-year loans. As we all know, loans have to be repaid and there is a charge to that.

I will leave it at that. I am aware that Deputy Ryan has indicated and perhaps he can ask his question within one minute. I also ask that Mr. Miley replies within a concise time as we are well over time for this session.

The committee had a discussion on tax relief last week. One of the considerations was that allowance should be made for outsourcing where universities might be do work for companies based here. Has Mr. Miley any written evidence or proposals as to how the universities might manage that? Is the IUA seeking this, or has the association considered it in the context of the third-level funding problem?

Mr. Jim Miley

We do not have a detailed proposal on that but it has been discussed. Right now we do not have a proposal but we are certainly looking at it. We would be happy to engage with the committee directly on that, once we have something meaningful.

I thank the Deputy and Mr. Miley for their conciseness on that question. I thank Mr. Miley and Mr. Casey for coming before the committee. We appreciate their engagement with the committee and its members.

The select committee went into private session at 3.21 p.m. and resumed in public session at 4.03 p.m.