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Times Higher Education: Taxpayer beware: The hidden costs of public funding's helping hand

Written by James Stanfield

The academy should be brave enough to seek donations directly from individuals, rather than relying on the fruits of state coercion, says James Stanfield

While much of the current debate on higher education has focused on what is seen, namely the immediate benefits of government spending and national planning, it has tended to neglect what is not seen - the hidden costs and unintended consequences of these interventions.

First, there is no evidence to suggest that there is any economic benefit to the nation as a whole from the Government transferring £14.3 billion each year from taxpayers' wallets to students and universities.

Second, neither is there any evidence to suggest that the public benefits associated with spending £14.3 billion on higher education will be higher or somehow better than the public benefits associated with taxpayers spending £14.3 billion themselves.

Third, while many are convinced that the annual subsidy is helping to create a more equal and just society, it is impossible to escape the fact that part of this subsidy represents a transfer of income from those on lower incomes to those who will soon be on higher incomes.

Furthermore, it is clear that government subsidies and the manner in which they have been distributed have resulted in a significant number of hidden costs and unintended consequences that were not part of the Government's or universities' original intention. These include: undermining the autonomy and independence of private institutions; crowding out philanthropic donations; the disruption and distortion of the pricing system; confusing academic, professional and vocational education; the rationing of university places; restricting private investment from home and abroad; crowding out for-profit institutions and entrepreneurial talent; restricting competition and innovation throughout the sector; and qualification inflation.

One hidden cost that is clearly relevant concerns the widespread rationing of university places. As the whole point of transferring £14.3 billion from the taxpayer to students and universities in the first place was to encourage more higher education and not less, it would appear that this intervention is now having exactly the opposite effect.

In fact, when taking into account all the other hidden costs and unintended consequences of government subsidies and political interference, it becomes clear that they all involve (in one way or another) the distortion and the restriction of the natural growth and development of higher education, making it less efficient and less responsive to the needs of students and the business community. Therefore the £14.3 billion public subsidy to higher education is restricting and distorting the growth and development of one of the UK's most important service sectors. In short, the public subsidy is now doing much more harm than good.

While universities would celebrate if their public subsidy were doubled overnight, one wonders how they would react if told that instead of expecting the Government to confiscate money from the public on their behalf, they must now be prepared to appeal to the public directly. As universities have been happy to demand public subsidies from the rich and poor alike, then they should have no problem with appealing to these same people on the doorstep.

In principle, this method of raising funds is the same as the existing system in which universities use the Government to confiscate the funds from the taxpayer using the tax system. The key difference is that while one method is voluntary, the other depends on the use of force, and instead of the funds being transferred from the taxpayer to the Government and then to each university, they would now be transferred directly from the public to each university. This method of fundraising would at least appear to be much more democratic, as it would allow people to decide whether they wish to make a donation.

The ability of each university to collect sufficient funds from its local communities would now depend on its ability to convince local people, and especially all non-graduates, why and specifically how they will benefit each year from making an annual donation.

If universities are correct in their claims that they provide widespread and remarkable public benefits, then as long as they can provide the necessary evidence, those collecting the money on the doorstep can look forward to a warm and generous response. Three cheers for evidence-based policies.

Postscript : James Stanfield is a fellow at the E.G. West Centre, School of Education, Newcastle University. He is author of the Adam Smith Institute report The Broken University: What is Seen and What is Not Seen in the UK Higher Education Sector, published on 4 March.

Published in Times Higher Education here.

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BBC: Cap on tuition fees 'should be scrapped'

The cap on university tuition fees in England should be scrapped by the government, a think tank has said.

Universities should be able to charge what they like, according to the Adam Smith Institute.

Ministers are "retarding the natural development of higher education" with the current cap, said the free-market institute's James Stanfield.
Lecturers and students have attacked the proposals, saying they would have a negative impact on higher education.

The think tank does not think it is enough to raise the cap, which from next year will be £3,290 per year.

Capping fees artificially increases the demand for places and causes students to value their education less, its report called The Broken University suggests.

It results in less overall investment in higher education and encourages universities to be less responsive to student needs, it argues.

Mr 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?"

The report calls for an end to the taxpayer subsidising universities directly. Instead, it wants funding channelled to students through an expanded student loans programme.

The report also suggests loans should be targeted at students most in need, with loans to wealthier students limited to a set percentage of university fees.

Tom Clougherty, executive director of the Adam Smith Institute, told the BBC it was about recognising the independence of universities.

"Universities should be able to sell their services at what price they think appropriate," he said.

A spokesman for the lecturers' union, the University and College Union (UCU), said: "Hardly groundbreaking or surprising stuff from the brains behind the poll tax, rail privatisation and other policy disasters.

"It is rather disappointing that politicians have not come out and publicly distanced themselves from proposals that would destroy higher education."

The National Union of Students (NUS) also condemned the proposals.

Its President Wes Streeting said: "At a time where students are leaving university with record levels of debt, and graduate job prospects are at an all time low, it is offensive to argue that the cap on fees should be raised at all, let alone lifted entirely.

"The vast majority of the general public is against higher fees. If the cap on fees were scrapped, a disastrous market in higher education would open up, which would see poorer students priced out of more prestigious universities and other students and universities consigned to the 'bargain basement'.

"This would be a disaster for UK higher education and must not be allowed to happen."

Review under way

When variable tuition fees were introduced in England in 2006, the government said there would be no lifting of the cap until after a review of their impact had taken place.

The government-commissioned review into funding is not expected to be finished until after the general election.

Students have been campaigning against any increase in fees.
The Confederation of British Industry is among those who have said students should accept higher tuition fees as "inevitable" and pay more interest on their student loans.

Students in England and Northern Ireland and non-Welsh residents at universities in Wales have to pay tuition fees of as much as £3,225 a year.

Welsh residents studying in Wales pay fees of £1,285 while there are no tuition fees for Scottish students at institutions in Scotland.

Published on the BBC here.

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Times Higher Education: Adam Smith report calls for Right turn to privatised academy

Written by Melanie Newman

A claim that UK higher education cannot be considered a success while it receives a £14.3 billion annual public subsidy has been dismissed by senior sector figures.

The suggestion is made in a report published today by the Adam Smith Institute, a think-tank that promotes free-market policies.

The Broken University is written by James Stanfield, a fellow of Newcastle University's E.G. West Centre, which is privately funded.

The report claims that state funding brings no economic benefits to the sector, and identifies a series of negative consequences.

It states that as a result of the public subsidy, philanthropic donations are "crowded out", places are rationed, innovation is stifled and institutional autonomy is undermined.

It also attacks the Universities UK report The Impact of Universities on the UK Economy, published last November, which states that the sector earned £23.4 billion for the UK and employed more than 314,000 people in 2007-08.

Such claims are "meaningless", The Broken University says, as removing £14.3 billion of taxpayers' money, which would otherwise be spent by individuals, also has a substantial economic impact.

Steve Smith, president of UUK, responded that higher education provided an "outstanding return" on public investment.

"For every 61p of public investment received, universities also lever out 39p of private and international investment," he said.

"Compared with other sectors, this represents an excellent return. Universities now generate £59 billion a year for the UK economy, £15 billion more than in 2004."

He added that the sector achieved this despite receiving lower levels of public and private funding than competitor countries.

Mr Stanfield's report also criticises research council funding, highlighting costly projects that it considers to have been a waste of money. It adds that the lack of a profit motive in higher education has had a negative effect on the qualifications universities provide.

"Without government intervention, there would now be a variety of different, competing private qualifications providing a variety of educational experiences - many of which would have more purpose and relevance to an individual's future career than a degree," it says.

It recommends abolishing the cap on fees, allowing "full freedom of entry" into university, and extending tax benefits to for-profit institutions.

Terence Kealey, vice-chancellor of the University of Buckingham - the UK's only private university - said the report "demonstrates that Britain would be healthier if universities were privatised and the £14.3 billion subsidy was returned to the taxpayer".

But Paul Marshall, executive director of the 1994 Group of smaller research-intensive universities, said the sector already "drives positive social change that benefits individuals, the nation and the world".

A spokesman for the University and College Union dismissed the report as predictable fare from the Adam Smith Institute.

"It's hardly groundbreaking or surprising stuff from the brains behind the poll tax, rail privatisation and other policy disasters," he said.

"It is disappointing that politicians have not publicly distanced themselves from proposals that would destroy higher education."

Published in Times Higher Education here.

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Telegraph.co.uk: Abolish cap on student tuition fees, says report

Written by Graeme Paton

The cap on university tuition fees should be abolished to improve the quality of higher education, according to a report.

Institutions should be free to set their own price, above the current £3,200-a-year limit, it is recommended.

The report, by the Adam Smith Institute, an independent think-tank, said the existing cap had “distorted” universities by restricting competition and artificially inflating the demand for courses.

At the moment, almost all degrees cost the same – irrespective of their perceived quality and students' chances of getting a good job.

James Stanfield, a fellow at the institute and author of the report, said: “Tuition fees ought to send out 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.”

An independent panel, led by Lord Browne, the former head of BP, is currently reviewing the system of university fees, loans and grants.

The inquiry has already come under pressure to raise the cap – which will increase to £3,290 next year – amid claims that institutions are struggling to compete with wealthy universities in the United States.

A study last month by the think-tank Policy Exchange recommended increasing the charge to more than £5,000.

But the Adam Smith Institute said keeping fees artificially low meant degrees were devalued by students who are more inclined to “choose inappropriate courses or not work as hard”.

The study - The Broken University - called for a completely free market on fees. This would create a system similar to that in the United States where some elite institutions charge more than £20,000-a-year.

The study also called for all direct Government subsidy of universities to be phased out within 15 years – forcing institutions to be run by a combination of fees, philanthropic donations and corporate sponsorship.

In a further recommendation, the report said loans should be targeted at students most in need of support, with loans to wealthier students limited to a set percentage of their university fees.

Tom Clougherty, executive director of the Adam Smith Institute, said: “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."

Published on Telegraph.co.uk here.

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The Evening Standard: City Spy: Unsought tips for Mervyn King's ‘Dear Darling’ note

Now that inflation — as measured by the Consumer Price Index — has risen to 3.5%, Mervyn King has had to write a letter to the Chancellor, Alistair Darling, to explain himself.

Helpfully, the Adam Smith Institute has drafted it for him. “Dear Al, as you are aware, the Bank of England recently printed £200 billion of new money.

“This new cash was used to plug your Government's record-breaking budget deficit, and pumped into the economy via public spending. You also raised VAT by 2.5% at the end of 2009, pushing up retail prices. Are you really that surprised that we are seeing inflation? Lots of love, Merv x.”

Published in the Evening Standard here.

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Telegraph.co.uk:Robin Hood Tax: why 350 economists are utterly wrong

Written by Dr Madsen Pirie

The Tobin Tax, which is now dubbed the "Robin Hood Tax" in an attempt to increase its appeal, has attracted the support of "350 economists from across the world". They have written to G20 leaders calling on them to introduce a financial transactions tax on speculative dealings in foreign currencies, shares and other securities.

This assembly of opinion calls to mind the letter sent to The Times in March 1981 and signed by 364 economists. They denounced the Conservative governments anti-inflation policies, saying they would never bring economic recovery. The 364 represented one for every day of the year (yes, they got that wrong, too). It is now a matter of record that what they said was impossible occurred soon afterwards.

Their modern successors call for the tax to be levied at 0.05 percent, which they say makes it a tiny tax that will raise big revenues of $400bn. This is indeed a substantial amount, representing more than half of the profits of the worldwide banking industry ($788bn in 2006). They also say that it will hit only the rich, since it will not affect the retail banking sector.

This fails to recognise that taxes are always passed on to the customer. Many of these financial transactions are done as insurance, to guard the value of contracts against possible adverse currency changes. The notion that an industry will blithely accept the confiscation of half its profits belongs in fantasy. Banks will pas it on, and ultimately it will fall on those with mortgages and loans, changing foreign currency, or saving in insurance or pension funds.

Capital will be made more expensive if this tax ever comes about, hitting the ability of poorer countries to raise investment funds. Fortunately the tax is not likely to come about, since it would require the agreement of every tax jurisdiction to make it work, and the record of international consent, as illustrated by the stalled World Trade talks, is minimal.

Without that consent, traders would simply move to where it was not levied. The "Robin Hood Tax" might look superficially attractive, but it would do profound damage to the world economy and, far from hitting "the rich", it would be the world's poor who suffered most. This could be one reason why Bank of England Governor Mervyn King described it as "bottom of the list" of options.

If campaigners want to spend charitable funds on these campaigns, they would be more effective in calling not for higher taxes, but for the end of the protectionist tariffs that prevent poorer countries from selling their goods.

Published on Telegraph.co.uk here.

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