Today an independent committee, chaired by Lord Browne of Madingley, reported its recommendations for university funding and student finance in England. Lord Browne's report, which could significantly affect future competition in higher education, includes the following recommendations:
- Removal of the GBP 3,290 cap on tuition fees.
- Free market in fees (the Report models charges up to GBP 12,000 a year) but introduction of a "soft cap" whereby universities charging more than GBP 6,000 a year would lose a proportion of the fee to help cover the cost of student borrowing. The consequences of this, as mooted in the press, are that the majority of institutions will charge GBP 6,000 but some, probably highly selective universities such as the Oxbridge institutions, may eventually charge up to GBP 15,000 a year.
- The provision of higher education must become a more competitive marketplace with competition, on the basis of price and teaching quality, over students, fee levels and entry enabled for new providers, who will be able to apply for targeted HE Council investment if they offer priority programmes.
- Because competition means survival of the fittest, popular institutions will be able to expand to meet student demand, with a recommendation of a 10% increase in the number of places, and universities that are unsuccessful in competing will be allowed to fail, leaving them open to take-over or closure.
- Quality and competition will be safeguarded by the independent Higher Education Council, which will replace the four bodies that currently oversee the higher education system and which will enforce minimum quality standards, provide information to students to help them choose the right Institution and courses and evaluating institutions on how well they are doing in providing fair access to all.
- Government will meet the upfront cost of higher education through loans to students, with additional support for living costs through further loans for all and top-up grants for some. Part-time students to be treated the same as full time.
Enter competition
If implemented, some of the recommendations should lead to
increased competition between universities on fees, student numbers
and the quality of the courses on offer for the price.
Highly regarded courses and institutions would no longer have to
turn away as many students due to the current cap on student
numbers. As a result, less well regarded courses would no longer be
able to rely on a guaranteed overspill to fill up their places.
Instead they will need to make greater efforts to attract students,
by e.g. improving quality and/or lowering fees. Similarly, two
equivalently "good" courses would be more incentivised to
compete on price, as the negative economic effect of decreasing
fees could be offset by increasing student numbers on a course.
How does this fit with competition law?
Universities are subject to EU and UK competition law.
Accordingly, any discussions between the universities regarding
student intake numbers, the courses that they will be running or
dropping and the fees they will be charging will very likely
infringe competition law. Any such breach of competition law is
likely to be dealt with swiftly by the Office of Fair Trading, the
UK competition regulator, given the potential harmful effects on
students through artificially high fees and/or lower course
quality. The consequences of infringing competition law include
fines of up to 10% of annual turnover, negative publicity and
private actions for damages by anyone who has suffered hard as a
result of the infringement and, if price fixing is involved,
imprisonment for the individuals involved.
The OFT has already shown that it is not afraid to take on the
education sector. In 2006 it issued a statement of objections
asserting that 50 fee-paying independent schools were infringing
competition law by exchanging specific, confidential and
commercially sensitive information, regarding the fees they were
intending to charge both boarding and day pupils and the percentage
increases they represented. (The authors of this note represented
and defended the interests of some of the independent schools
involved in the OFT's investigation and the agreement to
settle.) In exchanging information on their fees, the OFT said that
the schools knowingly substituted practical co–operation
for the risks of competition in the relevant markets for the
provision of educational services, in breach of competition
law.
Instead of issuing a formal infringement decision and imposing
fines, the OFT agreed to a settlement with the schools. Under the
settlement, schools (1) admitted to participating in the exchange
of information the object of which was to distort competition in
the UK in breach of the Chapter I prohibition; and (2) agreed to
make an ex gratia payment towards a GBP 3 million educational trust
fund for the benefit of the pupils at the schools concerned.
Universities must be mindful
Universities must ensure that that they do not share sensitive
information with each other including information regarding their
fee structures, their student numbers and the courses they are
likely to run. The exchange of such information is highly likely to
infringe competition law.
The OFT's school fee fixing investigation was prompted by a
report published by The Sunday Times which investigated
fee-setting practices and submitted a file of evidence to the OFT.
With the high level of public interest surrounding university fees
and funding, institutions would do well to remember that their
activities are going to be subject to a great deal of public
scrutiny.
Furthermore, the Browne recommendations specifically task the
Higher Education Council with safeguarding and promoting
competition to ensure that students get the benefits of more
competition. To this end the Council will publish an annual survey
of charges, look after the interests of students when an
Institution is at risk and regulate the entry of new providers.
Parliament must now respond to the recommendations but, assuming
the recommendations are implemented and such an additional watchdog
is put on duty, competition in the higher education sector should
increase, and any attempt to circumvent it must surely be caught
and reprimanded.
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