Tuition fees paid by students as a share of universities’ income (%)

(Source: Higher Education and the UK Socio-Economic System, Institute of Education, University of London, Figure 9, p. 9.)

The share of university income from tuition fees declined rapidly from the 1920s onwards and between 1955 and 1990 tuition fees accounted for less that 10% of university income. The fact that as early as 1920 tuition fees were only accounting for just over 35% of university income, shows how public subsidies were used from the very beginning to suppress tuition fees. The hidden costs and unintended consequences of subsidising higher education in this particular way have been substantial.

Direct government grants and the offer of free or below cost higher education will obviously have significantly increased the demand for university courses over the years. This also helps to explain why universities have expanded indiscriminately into almost every area of adult training and education. More courses will result in more subsidies.

However, because each new student now costs the government thousands of pounds each year and because the government itself has limited funds, it soon becomes impossible to expand the supply of university places in order to meet the increase in demand, which the government has itself created. The government is also forced to restrict the number of new entrants into the sector because this will also mean it has to pay out more subsidies. The inevitable result is overcrowding and rationing.

We are therefore left in the current ridiculous situation in which the government can no longer afford to increase public subsidies, while at the same time it continues to restrict universities from raising extra income by raising tuition fees. This is despite the fact that both the government and the universities agree that extra investment in higher education is required and that many students (and their families) would be prepared to pay higher tuition fees, if only the government would allow universities to increase them. You know that something has gone horribly wrong when the government starts to fine universities for taking on additional students.

This is nothing short of madness and it is quickly becoming a national embarrassment, which the coalition appears to be unwilling to address. You can’t help but feel sorry for Lord Browne and his not so independent committee. My advice would be this. His commission should simply remind politicians that all universities in England and Wales are legally recognised as private institutions and therefore by law they should all be fully responsible for setting their own tuition fees. Problem solved.

Whatever the historical reasons for the £14.3 billion annual subsidy to students and universities, it is impossible to escape the fact that when public subsidies are spent on higher education, some of the taxes being paid by the general taxpayer (including those on low incomes) are now being used to support students who a) would have been prepared to invest in their own university education themselves b) come from families who would have been prepared to cover the full cost and c) will expect to earn much more after graduating than many of those who are now being forced to subsidise them. 

The inequitable nature of the way in which higher education is funded has previously been criticised by Professor Nicholas Barr (LSE), who has suggested that those campaigning against tuition fees would do well to recognise the simple fact that “free” simply means that someone else pays. He concludes that “the evidence is unambiguous: ‘free’ higher education redistributes from poor to rich.” 

Professor Andrew Oswald (University of Warwick) has also described the British system as unethical, because of the barely discussed subsidy from the badly off to the rich. He concludes that “[e]very year, poor families contribute hundreds of pounds through their taxes to each undergraduate in Great Britain. That is immoral.” Professor Oswald also refers to the muddled logic of many left wing commentators who continue to believe that taxing the poor to subsidise the rich is somehow egalitarian. This is also not a phenomenon which is unique to the UK - Milton and Rose Friedman in the US have previously admitted that “those of us who are in the middle and upper‑income classes have conned the poor into subsidizing us on a grand scale ‑ yet we not only have no decent shame, we boast to the treetops of our selflessness and public spiritedness.”

A similar sense of selflessness and public spiritedness is reflected in the NUS promise to name and shame every candidate who refuses to sign a pledge to oppose a rise in university fees. However, if a candidate signs this pledge then this implies that they not only support the current policy of taxing the poor to subsidise the rich, but that they also want this burden of taxation to be increased even further. It will also imply that the candidate believes that even though many students and their families can afford to fund their own university education themselves (often via loans), it is still much better if they continue to live at the expense of everybody else, including those on low incomes. 

Clearly there is no shame in refusing to sign this petition and candidates should be happy to explain that it is not the role of government to take money from low-income families in order to subsidise students who are perfectly capable of funding themselves. Finally, if the NUS is so intent on securing a free ride for its members, then they are still free to appeal to the public directly. And if union leaders believe that they occupy the moral high ground on this issue, then they can look forward to a warm and sympathetic response on the doorstep.

“Our politicians must take a responsible approach to the funding of higher education and recognise that it is one of the jewels in the country’s crown, worthy of protection because of the extraordinary value that it brings to our society, international competitiveness and economy.”  

Unfortunately the special pleading of powerful interest groups for protectionism is now centuries old and all previous attempts to protect so called “national champions” have all failed miserably. Therefore the protection of national champions in higher education (or “jewels in the country’s crown”) will only restrict competition, discourage innovation and encourage inefficiency, thereby depriving students of lower prices and/or greater choice. As a result the sector will continue to stagnate and we will all be worse off.

As previously noted by Neelie Kroes (European Commissioner for Competition Policy) in 2007, protectionist pressures can and must be resisted and “[t]hose who put up barriers, or who don’t want to take them down, need to know that they are acting against the interest of their economy and their citizens.” In 2006, the EC Competition Director General was far less charitable when he described national champions as being illegal, immoral and fat!

Sir Terry’s proposed solution is for the government to follow Tesco’s example by keeping instructions simple, structures flat and trusting the people on the ground. While such proposals from leading figures in the business community are obviously welcome, one wonders if on this rare occasion, Sir Terry has failed to grab the bull by both horns. 

Instead of attempting to import Tesco’s management philosophy into failing government schools, why not simply develop an entirely new model of a school and then expand it into a national and then a global chain of Tesco schools?

The question currently under discussion is whether the government should allow universities to increase their tuition fees above the current cap and if so what the new maximum should be. However, this question is based on the assumption that the government should be free to dictate how much a university should be able to charge its students for its services.

If universities were state owned institutions, then this would be expected. However, in the UK every university is recognised by law as a private, independent and autonomous institution. As noted by the Committee of University Chairmen in 2004, while universities may be different in origin and size, they all share the characteristic of being legally independent corporate institutions which are “accountable through a governing body which carries ultimate responsibility for all aspects of the institution.”

This begs the question, if the governing body of each institution is ultimately responsible for all aspects of the institution, then why are politicians now allowed to undermine this independence by dictating to private universities how much they can charge students for their services?

Unfortunately, the cap on tuition fees was sanctioned in Section 24 of the 2004 Higher Education Act, which imposed a condition on the governing body of each institution to ensure that its tuition fees did not exceed the specified £3,000 limit. Any institution which fails to meet this condition is threatened with financial penalties and as the government continues to provide approximately 60% of university funding, the fear of losing this income is sufficient to force universities to do whatever the government dictates. However, as this condition clearly undermines the independence of universities and their freedom to set their own fees, it raises the question of whether there are now any restrictions or limits left relating to the nature and extent of government interference with private institutions operating in this sector of the economy. 

There is clearly increasing uncertainty and confusion surrounding the rule of law in higher education, with the government no longer bound by rules which are fixed and announced beforehand. As a result, it is now difficult for universities to predict with any degree of certainty how or what the government is going to do next, making it difficult for them to plan for the future. 

As noted by F. A. Hayek in The Road to Serfdom (1944), the discretion left to the government should be reduced as much as possible in order to prevent it from “stultifying individual efforts by ad hoc action.” Within the known rules of the game, universities must be free to pursue their own individual missions, knowing that any future government will not deliberately intervene to frustrate their efforts.

Section 24 of the 2004 Higher Education Act should therefore be repealed and all future legislation on higher education should include a clause stating that any government intervention in the higher education sector must not in any way interfere or undermine the freedom and right of private institutions to set their own tuition fees. 

The end result is that in the first decade of the 21st century, one of the UK’s most important service sectors is now dominated by approximately 133 non-profit educational charities, which nobody appears to own and which are heavily dependent on government handouts. As the profit motive plays a critically important role in a majority of the other sectors of the economy, it would be naive to believe that the crowding out of the profit motive from higher education would have no unintended consequences or hidden costs.

BPP’s innovative approach to education is also attractive. For example, while regular lectures are used, BPP’s programmes also have a strong focus on small group sessions including tutorials, seminars and workshops. Lectures are also available in a variety of formats including traditional delivery, DVD and streamed for download to an MP3 player. As BPP Business School’s mission is to train people to become business professionals they also operate a professional careers service which they view as being an integral part of the educational experience which they provide. A student will receive career support as soon as they enrol.

Finally, the Business School also claims to lead the field not only in client-friendly but also in time-efficient course design. In short they have adopted the Buckingham model and now deliver three year courses in two years. Contrast this with the non-profit, publicly funded institutions who continue to meet and publish reports and set up committees to discuss the pros and cons of reforming the academic curriculum.

The simple fact that BPP can now deliver degree programmes in business and law in two years instead of three, without receiving government handouts, at a lower cost and still generate a profit, confirms that there is no market failure in the provision of these services. Instead it is simply the case that the market has not been allowed to develop. The solution is to privatise every law and business school across the country, allowing each university to keep the proceeds from each sale.