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The government must abolish the cap on university tuition fees, according to a new report from think tank the Adam Smith Institute. The Broken University, by academic and education expert James Stanfield, argues that if the UK is to be a world leader in the higher education in the 21st Century, all institutions must be free to sell their services at whatever price they choose.

Reforming higher education funding

In contrast to other recent proposals, Stanfield’s report emphatically rejects the idea of merely raising the cap on tuition fees, arguing that such a policy not only fails to recognize the independence of universities, but also completely overlooks the various malign consequences of the higher education sector not having a functioning price system. According to the report, capping tuition fees: 

· artificially increases the demand for university places

· causes students to value their education less, and therefore choose inappropriate courses or not work as hard

· results in less overall investment in higher education

· encourages universities to be less responsive to student needs

ASI Fellow, James Stanfield said:

There is a lot of talk about the importance of the universities in our new ‘knowledge economy’. But how effectively can any market work when the government is distorting prices to such an extent?

What politicians don’t realize is that tuition fees ought to send important signals about the relative value of different university courses, and help to co-ordinate the interests of students, universities, and future employers. By dictating what fees may be charged, the government is severely retarding the natural development of higher education.

The report goes on to propose reforms to public subsidy of higher education, calling for an end to the taxpayer subsidizing universities directly, with funding instead being channeled directly to students through an expanded student loans programme. Controversially, the report also suggests that loans be targeted at those students most in need of support, with loans to wealthier students limited to a set percentage of their university fees.

Executive Director of the Adam Smith Institute, Tom Clougherty, added:

The funding system outlined in the report would be a huge step forward. Ending the direct subsidy would empower students, because universities would be forced to treat them as paying customers. In the long run, it would also benefit universities since it would help them regain their independence from central government. And it would also benefit the taxpayer, by ensuring their money was used as effectively as possible.

Stanfield, however, is open about his longer term plans for higher education, making it clear that he believes the government’s £14.3bn subsidy ultimately acts as a transfer of income from the poor to the better off – “taxing the poor to help the rich get richer”, as he puts it – with little economic benefit. He recommends that the government adopt a clear 10-15 year timetable for winding down the government’s support of higher education, so as to give ample opportunity for universities to attract philanthropic donations and corporate sponsorship.

Making Britain a world leader in higher education

Stanfield’s report, which runs to more than 100 pages, also goes beyond university funding to look at the broader question of how to make UK higher education – which he regards as one of our most significant service industries for the future – more dynamic, competitive and entrepreneurial. The report stresses a number of key points:

· Firstly, the government must establish full freedom of entry into the higher education sector for fully private providers. This means ending the historic protection of the word ‘university’, as well as the role of the Privy Council in approving new institutions.

· Secondly, the government should extend those tax benefits currently enjoyed by charitable non-profit institutions to for-profit higher education providers.

· Thirdly, and most importantly, the government must restrict itself to a very limited role in higher education, promoting and stimulating competition rather planning or directing the sector, or using it to meet ‘national objectives’.

Stanfield concludes:

It is clear to me that the government’s involvement in higher education is doing far more harm than good. Despite the best intentions, government attempts to subsidize and centrally plan industrial sectors like steel, automobiles and telecommunications all failed miserably. Higher education is no different. It has the potential to become our most successful service industry and provide a vital boost to our economy – but that won’t happen unless the government is prepared to back off.

Click here for the report.

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