The National Audit Office issued its report on ‘The higher education market’ in December 2017. This identifies that, despite a 50 per cent increase in upfront public funding for teaching, only 32 per cent of students believe that they are receiving value for money. The extension of higher education throughout less advantaged backgrounds is weak and concentrated in the less prestigious universities. There is little price competition and little financial reward for rising in the league tables. In introducing the new Office for Students (OfS) in the 2017 Higher Education and Research Act, the government noted the rampant grade inflation in degree classifications. Recently, there has been a sharp increase in ‘unconditional offers’ to 23 per cent of university applicants. The Higher Education minister is quoted as saying that this ‘undermines the credibility of the university system’ (BBC News, 26 July 2018). The new Office for Students is charged to: maintain autonomy of higher education providers; promote quality; encourage competition; promote value for money; and promote equality of opportunity.

The Labour Party promise, in its 2017 General Election Manifesto, to eliminate student fees is generally viewed as a significant political success. The Party gained seats, particularly in constituencies with high university student populations. Arguably in consequence, the government has instituted a Review of Post-18 Education and Funding to conclude in early 2019. This Review in particular maintains the principles of income-contingent contributions by students to education costs and the absence of a cap on post-18 education. It is presumed that the wording of both principles is carefully chosen to allow for significant changes to the current funding regime. Notably, the ‘absence of a cap on post-18 education’ need not imply the ‘absence of a cap on university students’. Students can instead follow their interests into first rate apprenticeships and technical programmes. While awaiting the findings of the Review, the government has already capped tuition fees from rising further and made the repayments on student loans less onerous.

As if all that wasn’t enough, academics went on strike in 2018 over proposed draconian cuts to the pension system. Despite the 50 per cent increase in upfront public funding for teaching, the employers’ organisation (Universities UK) was unwilling to cover the projected shortfall in the scheme with increased contributions (on the 2/3, 1/3 share between universities and academics that had previously been agreed).

In each chapter to this point, we have analysed shortcomings in the current university funding arrangements, but have stopped just at the point of making policy recommendations. This is because we have wanted to bring everything together in constructing holistic policies.

The objectives of changes of policy initiated by the Browne Report were:

• 1. to improve participation and in particular access from less advantaged groups;

• 2. to improve quality and student choice in a diverse system by creating a market leading to competition.

We believe that creating a market was neither necessary nor desirable in achieving the stated aims, which we otherwise completely support. However, we have taken the regime change on its own terms and will continue to do so in this chapter. It is for the government of the day to determine the funding regime, and the current government clearly supports the market elements arising from the Browne review.

Our problem is that the manner in which the Browne Report was implemented and the way in which subsequent policy has developed has led to a failure to achieve the stated objectives. The system constructed is simply inefficient in its inability to encourage competition and in how it rewards failure. Further, it has encouraged micromanagement of and within universities to the detriment of the traditional focus on the academic esprit that has been essential to the high standing traditionally enjoyed by our Higher Education system.

In the following, we present clear and concrete policies that follow recommendations made (for example) by Browne. Further, everything is not only ‘costed’ but we impose the rigorous rule that additional support from the taxpayer cannot be provided at this time. The sector has done extremely well in funding over the period of national austerity, and the priorities lie elsewhere.

The hierarchy of universities

The economics model of marriage is based upon the idea of ‘assortative matching’, where individuals of similar standing in characteristics form relationships. This model can be applied more widely and is relevant to universities. Suppose there are good and weak students. If learning is ‘complementary’, putting the good students together and the weak students together produces more learning than if there are two mixed groups. In this world, it is efficient to match together the good students. But, even if it is not efficient, this may be the outcome on the basis of individual interest.

Ironically, this grade inflation has the effect of further boosting the Russell Group universities, particularly at the expense of the non-Russell pre-1992 universities. Previously, a student might be advised to go to a non-Russell university because the course matched the student’s interests and abilities, the geographical location fitted the student’s preferences, smaller size and campus environments enabled easier socialising with students outside one’s own department and a good student would get additional attention that they might not get at the very top universities. The student would be able to signal by the classification of degree – a first or a strong upper second – that they had put in the effort, English universities are private charities that receive substantial public funding. For most institutions, this makes up the bulk of their income. Public funding comes through a buffer, given the acknowledged need to protect the independence of the individual university. This is partly a matter of efficiency – it is unhelpful to have the government of the day unduly micro-manage a university. It is also, however, a recognition of the special importance of protecting academic freedom and free speech, for both staff and students. It is ironic that the government has simultaneously issued the Prevent Duty on universities and has raised concerns about limitations to free speech on campus.

Nonetheless, the taxpayer has a right – through the government of the day – to have university expenditure reflect the taxpayers’ priorities. Sometimes, the majority of academics will be supportive, as with the ‘public sector equality duty’ applicable to UK universities and the corresponding ‘affirmative action’ programmes in the US. In other cases, the priorities may not be the ones that would be chosen by the university. The taxpayer has a right, for example, to emphasise STEM (Science, Technology, Engineering and Mathematics) degrees, or instead to wish to encourage Arts degrees.

The funding authorities, independently or following government directives, set up the framework for accessing state support. The 2011 policy switched most subsidy from a block teaching grant, plus fees at £3000, to student fees of £9000 financed through the contingent loan system and limited grant to support some subject areas. Since the previous block teaching grant averaged out in the vicinity of £3000 per student, this is a substantial increase in funding. It is also a significant shift in how funding flows from the taxpayer to the university.

The substantial increase in per student funding that came with the new fees and funding policy was predicated on increased and widening participation in universities. We have questioned the 50 per cent target, particularly given evidence that graduates are now frequently being placed in non-graduate jobs. Other forms of higher and further education, and apprenticeships, are valuable alternatives to university, depending upon students’ interests and abilities. In any case, we feel strongly that expansion should not be a reason for lowering standards, particularly under policies which provided more than sufficient additional unit of resource – if wisely used – to provide extra support for non-traditional students. Indeed, that was the policy quid pro quo for a university being allowed to raise fees beyond the base £6000 up to £9000.

We have already raised our concerns that the top universities simply cream off more of the best students in general and meet widening participation objectives by taking the best non-traditional applicants, without engaging in sufficient outreach to widen the pool. As we move through the hierarchy, both for the existential need to attract more students and the more honourable motive to offer better life chances, universities lower down the league tables may feel they have to offer low entry requirements. It is doubtful whether, however committed and talented their teaching may be, they will be able to bring students to the same level and on similar courses after three years as those admitted to the top universities.

For these reasons, if we are to maintain high standards throughout the system, we feel that the diversity of institutions has to be kept in mind. It may be that we are moving toward the varied post-compulsory offering that Dearing advocated but at the price that the term ‘university’ now has a wider meaning. This is not to say that those universities with world class researchers and courses which make the highest intellectual demands are making a more valuable contribution. It is not so much a question of ‘better’ or ‘worse’ but different. Quantum Physics is not available everywhere and neither should it be, but that is not to say that less academically demanding courses and those that do not require research activity within the department are not important – to the individual and to society – and they may open up opportunities for further study to those wanting it and whose potential is revealed.

The primary purpose of this book is to analyse the effects of recent policy decisions to attempt to introduce a market and competition into the university system in the belief that this will increase quality and reduce costs. Given the introduction of student fees as the overwhelming source of funding, it is a presumed consequence that students will increasingly ask questions about value for money. Students are leaving university with up to £60,000 in debt, at a punitive interest rate of up to 6.3 per cent. This will affect their ability to gain a foothold on the housing ladder, or other of the common rites of passage accessed by previous generations. It potentially limits labour market flexibility, both because graduates will not be able to afford to live in some areas of the country but also because they may make career choices limited by their debts.

Before we turn to these issues, this chapter is an attempt to sketch a brief description of historic changes in Higher Education policy and indicate the direction of travel that has led us to where we are. The emphasis will be on universities in England since the policies adopted elsewhere in the UK have recently differed. Scotland under devolution has taken the approach of maintaining free fees, as we discuss at the end of this chapter. This survey is by no means intended to be comprehensive, but an indication of policy issues that have culminated in those which are the main subject of our analysis.

Until the 1830s Oxford and Cambridge were the only universities in England. Early in the nineteenth century a number of medical schools and ‘mechanical institutes’ developed. These relied on private financial support from individuals and local business and were poorly funded compared to Oxford and Cambridge which had ancient endowments and a wealthy clientele. In London, the ‘London University’ and King’s College were established in 1826 and 1829 respectively, but without degree awarding powers. The funding for these new colleges came partly from an increasing concern for moral obligations to the underprivileged and partly for the need to enhance the nation’s capacity for medical, scientific and technical advance. This need was perceived also at government level by the advances in Germany in particular which was seen as a major economic and political threat.