Government must abolish the cap on tuition fees – just raising it is not enough

Thursday 4 March 2010

Think tank calls for radical reforms to make UK the world leader in 21st Century higher education

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

Stanfield, who is also a fellow of the Adam Smith Institute, 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.

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

“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.”
 

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BBC: Cap on tuition fees 'should be scrapped'

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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.

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

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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.

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

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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.

CNBC: Remaking Britain & Cutting the Budget Deficit

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Published on CNBC here.

Banks' defenders win Enterprise Award

Tuesday 23 February 2010

Two influential policy thinkers who defended free-market capitalism in the teeth of the financial crisis will be presented with the National Free Enterprise Award today. Dr Madsen Pirie and Dr Eamonn Butler are President and Director of the Adam Smith Institute, the prominent think-tank which provided much of the intellectual support for the Thatcher government's privatisation and tax-reduction programmes.

The Award, a large trophy in hand-crafted silver, will be handed over at the Institute of Economic Affairs annual conference on the state of the economy, held in the Institute of Directors near Westminster. It will be presented by Professor Stephen Littlechild, the former electricity regulator,who devised the RPI-X formula for regulating rises in regulated utility prices.

The National Free Enterprise Award has a 30-year history. Its lustrous past winners include the airline entrepreneurs Sir Freddie Laker and Sir Richard Branson, hotelier Lord Forte, Nobel economist Friedrich Hayek, politicians Sir Keith Joseph and Margaret Thatcher, Buckingham University Vice-Chancellor Dr Terence Kealey, and financial journalist Neil Collins.

The panel of judges included prominent supporters of free enterprise from various walks of life, and most made Pirie and Butler their first choice for the award. The pair have been much in the news recently for defending bankers during the recent crisis, and pinning the blame on what they see as inept central banks, spendthrift politicians, and incompetent regulators. As Eamonn Butler put it: "The cause of this crisis was the tsunami of paper money that the US and UK kept printing over fifteen years. At first, all of us who surfed on it enjoyed the ride. But inevitably, it crashed into reality and destroyed everything before it."

Pirie and Butler are also critical of the US and UK governments' responses to the crunch, saying that it just conceals the scale of the crisis underneath another wave of borrowing. "But you cannot borrow your way out of debt," they say.

It is a busy week for Eamonn Butler in particular. Total Politics magazine has just voted him one of the 30 Top Political Influencers in Britain, and his new book The Alternative Manifesto – "a twelve-step plan to cure government of its financial alcoholism" – is published on Thursday.

The pair are known for humour as dry as their politics. Butler described his three-decade professional partnership with Pirie as "one of the great double-acts, like Jekyll and Hyde", while Pirie assured journalists that "absolutely no bullying was used on the judges."

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CNBC: UK PM Unveils New Party Slogan

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Published on CNBC here.

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

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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.

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

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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.

Daily Mail: Historian Niall Ferguson has twice before declared his love for other women

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Written by Ephraim Hardcastle

Latest pensée from Eamonn Butler of the Adam Smith Institute, this one about the Toyota debacle: 'Apparently the problem is that the accelerator sticks on and the brakes don't work. On those grounds, we should have recalled the British government long ago.'

Published in the Daily Mail here.