The higher education sector must recognise that in an era of tight public spending control, the educational needs of children must take precedence, says Josh Hillman.

Britain is in the foothills of an economic and social transformation, in which high capabilities, developed throughout life, are imperative for a growing proportion of the population. In facing up to this challenge, only the education system can promote the investment in people to provide the foundation of, and motivation for, lifelong learning. Yet the adequacy of the United Kingdom's education system ranks 35th out of 48 nations. It lags behind in indicators such as rates of staying on at 16, attainment of qualifications, and participation in higher education, with recent improvements simply staving off further demotion.

One explanation for this poor position lies in our large and internationally unusual disparity of achievement, best illustrated by the 12-fold gap between the top and bottom 20 per cent groups of young people sitting GCSEs.

What are the reasons for such an uneven distribution of opportunities to learn and achieve? Far too many children lack access to nursery provision. Variations between schools in terms of pupil achievement are higher here than in most other Organisation for Economic Co-operation and Development countries.

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Failure to learn the basics at primary school is common, and fuels the growth in numbers of students who later fail to pass a single GCSE. While more adults are benefiting from higher education, far too few of the rest obtain intermediate-level vocational qualifications, and a significant proportion do not even have the basic skills necessary for work and everyday life.

The education system can wield a number of swords in tackling the long tail of underachievement, although it will always be hindered by factors mainly outside its control, in particular, social and economic disadvantage. Priorities for policy include moving towards universal access to nursery education, concerted efforts to turn around failing schools, more rigorous selection and training of head teachers, fairer funding formulae, a drive to improve the teaching of the three "Rs", and reform of post-16 qualifications.

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However, at the heart of what is holding the UK back is the simple fact that more public money is spent on pupils and students the older they become. This is irrational, unfair and unsustainable. Why is it irrational? Britain spends far more on each student in tertiary education (including support) than does any other OECD country, for example two and half times more than France and Germany. Such generosity is not extended to schoolchildren, particularly the younger ones. Only Ireland and Turkey have as high a ratio of primary school pupils to teaching staff, and several countries have ratios of about half that of the UK. Under-investment in the early years flies in the face of all evidence that the quality of primary schools - and the size of classes for younger ones - exerts a considerable effect on the long-term progress of pupils.

Why is it unfair? The fruits of public expenditure on higher education are extremely poorly distributed across the population; spending on those in the richest decile is more than four times that for those below average income.

The higher incomes of graduates result from the combination of the boost to their skills provided by their higher education and the signal the qualification gives of their suitability as potential employees. It remains to be seen whether this advantage over non-graduates will diminish as the sector expands, student hardship and debt worsen, and job prospects become more uncertain.

What is clear is that there will always be a regressive transfer of public money from the worse off to the better off for as long as full-time students in higher education are so heavily favoured.

Why is it unsustainable? The special treatment given to university students was only sustainable while they were an elite. Nearly one in three 18-year-olds now enters higher education, as compared to one in six in the early 1980s and one in 12 in the early 1960s. Some argue that the demand for higher education both will and should continue to increase, although others be-lieve we need more people with intermediate skills of which there is a shortage.

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The scale and speed of the recent expansion, with funding per student down by a quarter in the past five years alone, has caused serious strains, such as under-investment in technology, shortfalls in repairs and maintenance, and growing abdication of the one-to-one contact and low drop-out rates for which UK universities are respected.

While the Government's commitment to the expansion of higher education has been admirable, its response to financial pressure on both students and universities has been lamentable. The only attempt at reform has been the introduction of student loans in 1990. The scheme has failed to prevent student debt and hardship, has been blighted by administrative problems, not to mention fraud; and has so far recouped less than 7 per cent of the money borrowed.

The Government's latest faltering tracks, in an area where all parties tread cautiously, have now been revealed. Legislation in Parliament will allow banks and building societies to offer loans to students on the same terms as the Student Loans Company.

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In principle, this supposedly serves two political purposes: first, it allows choice for students through partial privatisation; second, it reduces the burden on the public sector borrowing requirement. In practice, the banks see this market as harmful for business unless they can cherry-pick those students seen as credit-worthy, effectively leaving the Student Loans Company in the role of safety net.

Worrying though this is, the most important objection to the Government's position is that it is driven by cosmetic considerations, and fails to address the fundamental questions of rationality, fairness and sustainability. Greater private funding of higher education is inevitable, and the privileged position of full-time university students over part-time students and those in further education colleges may no longer be countenanced. Meanwhile, the higher education sector must recognise that in an era of tight control of public expenditure, the educational needs of children must take precedence. This is not to say that money should be shifted from the higher education to the school budget, but that new money for education should be directed to schools and nurseries.

To allow this, greater contributions from students are required, certainly for the whole of maintenance, and probably for a portion of tuition costs. This should allow them sufficient funds to get the most out of their courses, and incidentally provide more incentive for demanding better quality.

What is essential is that the means are introduced for shifting the time-scale of the costs of education to align better with needs and ability to pay. This means repayment must, first be linked directly to an individual's earnings; second, be tied to a long and not pre-determined payback period; and third, use an existing mechanism such as the national insurance system. With a properly funded ladder of opportunity in place, Government policy can then concentrate on the problem of underachievement.

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Josh Hillman is a research fellow at the Institute for Public Policy Research and a contributor to Options for Britain, published by Dartmouth Press.