Exclusive: the fee hike won’t create a market

The fee vote really comes down to two questions. First, will the fee hike proposed by the coalition government actually create an internal market in higher education? Second, what will be the effect on the public finances? There is good reason to be doubtful.
 
First, the market: the idea, I suppose, is that world-class universities might charge higher fees than second and third tier ones. But, in the last few days, I’ve spoken to several very senior higher-education sources who privately report that universities like Leeds Met, Bolton and Worcester are very seriously considering charging the full £9,000 tuition for their courses once legislation is in place. The government is extremely concerned. As you can imagine, if that pattern is repeated across the sector, then there will be no internal market in the short-term. Everyone will be paying a higher rate.

In the long-term, it might be hoped the market to become more flexible as universities vie for students but it’s unclear how long that will take – there may be no change at all. In fact, when Blair introduced fee the cap of £3,000 in the Higher Education Act 2004, it was designed to be a cap. Now, of course, they all charge it. There is no competition on cost.
 
The university sector makes a poor free market. It’s very slow moving, and entrants only get involved once a year and, usually, for one time only. As a result there’s likely to be many undergraduates paying higher fees than a really competitive market would provide. It’s very possible others, who might have attended if fees were cheaper, will not go at all.
 
As for what the effect will be on the public finances, there’s a rather scary report by the Higher Education Policy Institute which concludes that:

“The answer to the question, ‘will the proposals decrease the public contribution to HE’ is, ‘it’s too close to call, but they could actually easily lead to a small increase in the public contribution’. ”

The report assumes that rise in loan costs will actually force more loans to be written off – not unreasonably. If that happens, then the UK’s Resources, Accounting and Budgetary charge will grow from its current 28 per cent to nearly 50 per cent. From the government’s point of view this is fine, as this money is not included in the cash budgets recently agreed in the CSR – but in terms of public finances the policy achieves nothing.
 
MPs, in other words, may well be voting to achieve little more than the writing off of un-re-paid loans in preference to investing in higher education.