January 27, 2017

Government’s university reforms set to fail

Government’s university reforms set to fail

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.

4.00 avg. rating (80% score) - 13 votes
Simon Gordon
Simon Gordon
Simon Gordon has worked as a speechwriter for Douglas Carswell MP and the Ambassador of Israel to the Court of St. James’s, and as assistant editor of Mosaic Magazine in New York. He writes in a personal capacity.
  • Tom Burkard

    If vice-chancellors were held to the same standards as insurance salesmen, most of them would be in prison. I got my first degree at UEA in 1993, the last year before they went modular in a wholly successful attempt to get more bums on seats without engaging more first-class academics. Since then, standards have been in free-fall: secondary school teachers lament that NQTs from some of our universities don’t know enough to teach their subject to GCSE, let alone A-level.

    It’s not just the cynicism of the government and our VCs: a lot of newer academics are converts to the ’21st Century Skills’ scam, where knowledge is held to be unimportant, so long as you are digitally savvy. And of course employers have got the message: a lot of our graduates leave university with a sense on entitlement, large debts, and very little else.

    I hope enough Tory MPs read this article, and think again. Although I’m all for competition, this bill won’t create it. There’s nothing magic about the private sector–crony capitalism is the antithesis of free enterprise.

  • MrVeryAngry

    The full solution is to de-nationalise the whole Damn’ thing. Get rid of all the distorting subsidies. And if you really think that there is merit in transfer payments to students do it by way of vouchers. I personally do not think so. Just get the State out of higher (and tertiary) education.

  • ratcatcher11

    One big problem is that students with useless degrees often go into teaching as a last resort which means there is a vicious circle of non attainment in play. When Universities can drop a subject like chemistry and expand a subject such as drama there is something seriously wrong with the teaching of young people in Britain. The snowflake generation has not appeared by accident it is the consequence of the policies of two or three generations of governments and this seriously needs to be addressed.

  • Nick Smegg

    When the Bank of England upped the interest rate back in the late summer, it made £50 billion available for the banks. The student loan book debt is around that figure, so why not just wipe out the student debt?

  • Dougie

    Nice idea, Simon, but you’re missing the point. The employment data shows what should have been obvious when Blair decided that 50% of school leavers should go to university – we’re simply producing too many graduates. Ironically, we could do with rather more in science, maths, medicine, engineering etc. and a lot fewer in English, media studies, golf course management and the rest.
    After removing the funding for under-performing university media studies courses and so on, we need to stop making ever-more jobs into “graduate professions”. I read recently that the police intend to make themselves into an all-graduate organisation: no, no, no! And while we’re at it, social work, nursing and infant teaching should be returned to their former status of welcoming new entrants with good A-levels.
    Professions such as accountancy and the law have well-established and rigorous training schemes for non-graduates and those with degrees in other subjects. First degree courses in accountancy and law are superfluous and should not receive public funding.
    Institutions with high drop-out rates should be closed.
    Fortunately, the current generation of school leavers are grasping the financial reality that a third class degree from the University of West Rutland is probably not worth getting into debt for. Vocational routes into well-paid jobs are gaining in popularity. Never mind the baby-boomer generation, I suspect in a few years time we’ll be commiserating with the Blair Debt Project generation.

  • Rob

    Just stop giving out government-funded student loans (to anyone but the relatively few academically gifted students hailing from low income households). Simply by forcing students to obtain their study costs privately from families/financial institutions would ensure that students and their backers picked worthwhile courses at sensible fee levels whilst also forcing the HE industry producers to provide relevant offerings at competitive prices if they are to say in business. Moreover, such a model would encourage new institutions to emerge to further challenge the entrenched and essentially dishonest rent-seekers that currently plague our so-called Universities.

  • Mar Lizaro

    Double glazing salesmen could get lessons in hard selling from many a university admission tutor.

  • Pat

    If you view universities as businesses selling human capital, rather than the religious institutions they derive from, some progress can be made.
    Firstly everyone under 18 is forced to go to school where they are routinely told that university is the best next step. Any other industry would kill to have such an advertising opportunity, but the universities get that free.
    Second if the human capital of the student is not raised, or raised less than advertised, then the university keeps the fees and suffers no loss at all. Other industries get sued if their products are defective, but not universities.
    Loans are made on the basis of the student’s projected future earnings. If the projections are wildly out the university has no skin in the game.
    And should a course be run purely for interest that should be made clear to both the student and the loan company up front, so that neither is under any illusion. Perhaps the teachers of these courses could teach out of interest? After all there are many interesting things to do with no monetary reward, but it’s only the ones done in universities for which people are encouraged to indebt themselves, and ultimately default.

  • Derek

    University education is a bit of a con really for most people.
    Over 50% of graduates are in non graduate work. This makes it likely they will remain in debt the rest of their lives and poorer because of debt.

    The average graduate will still owe almost £60,000 in tuition fees after 30 years of repayments http://www.independent.co.uk/student/student-life/finances/average-graduate-will-still-owe-almost-60000-tuition-fees-after-30-years-of-repayments-student-loan-a7539516.html

    The world of work will change rapidly with the digital economy and specialist skills will be important not general degrees. You are likely to have to retrain for new skills every decade or so. I do not see the relevance of much of today’s degrees especially as these do not teach soft skills and critical thinking which will be more use in a century of rapid change. I’m surprised so many still make university first choice.

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