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Market failure in tuition fees

2011 March 31
by Paul Vallely

Most British universities, it now seems clear, will soon be charging their students £9,000 a year in tuition fees. The government’s proposed maximum has become the norm. It was always likely to be so. No university would want to admit it was second-rate by doing anything else. But nor did the economics make anything else likely.

Universities are losing 80 per cent of their government teaching grant. Direct funding is being wiped out for almost all subjects other than science, engineering and medicine. There are big cuts in research funding. Fees from overseas students are evaporating under Coalition immigration policies. Billions of pounds are being lost.

On the other side of the ledger Cambridge University this week estimated that the actual cost of a year’s undergraduate course is £17,000 a year. The average UK university science course costs £13,000 a year to run, with about £8,500 for an arts one. Ministers hopes that the average fee would be fixed at £6,000 were always delusional. The idea that those universities who charge full whack will be forced to take more poor, disabled or ethnic minority students is also wishful thinking. The Office for Fair Access has no new legal powers to force universities to do that.

That is not the only problem. Students won’t have to start paying the fees till they are earning £21,000 a year. That means costs will start racking up next year; but repayments won’t begin till 2015, at the earliest. In the interim the bill for the trebled fees will be added to the public sector borrowing requirement. The reforms will create a new £1bn black hole. Ministers’ pledges to find this within the higher education budget can only mean even bigger cuts to the teaching budget. Or they could axe 38,000 university places to bring costs back into line with Treasury forecasts.

The idea that students should pay more towards their education is a good one. Those who benefit should pay. But a market in university fees was never going to work unless cuts to university funding were tapered over several years to allow that market to develop organically. Evolution not revolution was required. Ministers got that badly wrong, and now seem in denial as to how big a mess they have created.

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