The government’s higher education reforms will fail to deliver the radical, free-market overhaul our university system needs, argues Simon Gordon.
In the next few weeks, the Higher Education and Research Bill will likely pass both Houses of Parliament. Both its advocates and its detractors seem to agree, at least, that it is a radical, free-market overhaul of the system. UKIP doesn’t.
There’s an element of déjà vu in the latest round of university reforms. When the fee cap was raised to £9,000 in 2010, David Cameron argued that it would increase competition between universities, boost choice, and raise standards.
But it didn’t. Teaching hours haven’t increased. Grade inflation has continued. And the vast majority of universities in England charge maximum fees for all courses. So much for competition.
Moreover, even though graduates are paying more for their education, their employment prospects are increasingly bleak. A recent study by the CIPD highlighted that a growing proportion of graduates are underemployed. The government’s own statistics show that the graduate premium is falling, as non-graduate pay rises faster than graduate pay.
At the same time, there are skills shortages in several occupations, notably engineering, notwithstanding that the proportion of school leavers undertaking higher education has risen over the past decade.
These are the hallmarks of market failure.
The Higher Education and Research Bill represents a tacit admission that raising fees hasn’t delivered choice. But there’s good reason to doubt that the latest reforms will succeed where the last failed.
This time, the government will be much more interventionist. A new higher education super-quango, the Office for Students, will make it easier for new universities to enter the system, and grade teaching via the recently established Teaching Excellence Framework.
Will the Office for Students work? It will certainly empower the bureaucrats who will decide whether providers get the right to award degrees, and which teaching grade they receive. Whether that empowers students is open to debate.
The real problem with these reforms, though, is that they aren’t based on a clear idea of what restricted choice in the first place.
The fundamental reason there is so little competition between universities, especially on fees, is that universities receive guaranteed public subsidy – through student loans.
Universities can get away with charging maximum fees for any course almost irrespective of its content or future employment prospects because taxpayers will fund students to do it – and pick up the tab if they fail to repay. In fact, based on current repayment rates, raising maximum fees to £9,000 p.a. may not have reduced the burden on taxpayers at all.
At its core, this is a problem of moral hazard. Universities gain from higher fees – as the sector’s growing surplus testifies – but bear none of the risk. Students and taxpayers face a financial cost if higher graduate earnings the system promises never materialise. Universities don’t.
So the question is: how do we align universities’ interests with those of students? How do we give universities skin in the game?
That was one of the main themes of my research paper, Opening the British Mind, published by the UKIP Parliamentary Resource Unit. Our answer is to make tuition fees reflect value.
Rather than a maximum fee for all courses, individual courses at each university could have their own fee cap, directly linked to graduate earnings – as per the repayments data collected by the Student Loans Company. We propose that those courses that offer graduates the poorest earnings returns have their fee caps proportionally cut from the current maximum of £9,000.
Of course, it would be wrong to see a university education only through a professional prism. Education for its own sake should remain one of the key purposes of universities.
But very few students get a degree only for its own sake. It’s also taken as read that higher education will pay for itself. Applicants are led to believe that a degree is automatically a passport to a better job – not just by the government’s “knowledge economy” rhetoric, but by universities themselves. Yet, for many degrees, that is false advertising.
The aim of our proposal is not just to incentivise universities to offer more courses that are in greatest demand by employers – and cut fees for those that aren’t. It’s to give applicants the means to make a more informed choice. The price of a degree should mean something.
But the broader point our paper makes is about the effect of subsidy. The current structure of student loans promotes producer capture. If the government is serious about increasing students’ choice – and bargaining power – reform needs to start with the funding.