Bigger fees - or failure

If universities can't set their own fees, they will sink. David Greenaway and Michelle Haynes, and (below) David Blanchflower and Andrew Oswald, make the case for charging students up to Pounds 4,000

In May, university admissions hit the front pages of national newspapers. The reason? An obviously able young woman named Laura Spence had applied unsuccessfully for entry to Oxford University. Her application to Harvard University, however, was doubly successful: she was offered a place and a scholarship worth Pounds 65,000. Public interest was stirred not only by Laura's relative success but by chancellor Gordon Brown condemning the lack of an Oxford offer as "absolutely scandalous", lambasting the social mix of British universities and threatening funding penalties if they did not do something to change it.

This tale tells us a lot about the funding and management of higher education in the United Kingdom and the United States. First take Laura's application to Oxford. Oxford has many more applications from students who meet its entry standards than places to offer. Its admission tutors try to allocate those places so they go to candidates regarded as having most potential.

More are disappointed than elated. So why not offer more places? Oxford is not allowed to increase the number of places it offers. The maximum number a university can offer is determined by the chancellor's funding allocations and set by the government's funding councils: fines are levied if numbers are exceeded.

That Laura was from a comprehensive school in the Northeast added a second dimension: access. The social mix in our universities does not reflect the make-up of society more generally. This is as true now as 20 years ago. According to the chancellor, this is a failure of the elite universities.

Harvard is an elite university. Many would regard it as one of the finest in the world. Harvard is also a private university. Its governing body decides how many students to admit and to what courses. It also sets the fees to be charged - now about Pounds 17,000 ($25,000) a student per year.

Yet Harvard is socially inclusive. It uses its financial resources to seek the best applicants from the widest range of social backgrounds. Those whose circumstances allow them to do so pay full fees; those from poorer backgrounds get scholarships.

Oxford does not have that kind of financial flexibility. No British university does.

This stark contrast between Oxford and Harvard illustrates graphically the three key challenges facing British universities: funding, access and regulation.

Over the past 20 years, funding per student has fallen dramatically in real terms; the social mix of our universities has barely changed, while more of our universities' activities are over-regulated by costly bureaucratic processes. The government, which decides how many students there should be and controls teaching and research funds, has decreed that universities must educate more students - but with continued year-on-year cuts in funding. Our universities find it increasingly difficult to provide the highly educated workforce that the UK needs if it is to compete.

Moreover, given the past record, one can have little confidence in seeing a rapid change in the social mix of university students. This would be true even if the chancellor's threat to withhold funding were implemented. Effective access policies require more money, not less. Funding for teaching and research has fallen for 20 years, and the UK lags way behind its major competitors.

That additional investment is required is not in doubt. Estimates of what is needed vary: to restore expenditure per student to the level of ten years ago would need an additional Pounds 3 billion a year; to bring spending on higher education up to the average for the European Union, Pounds 2.5 billion a year extra; the Committee of Vice-Chancellors and Principals, in its submission to the government's comprehensive spending review, makes the case for an additional Pounds 5 billion. All these estimates seem too large for the taxpayer to contemplate.

More money, to supplement that already invested by the taxpayer, must be drawn in. The case for students paying more than the Pounds 1,000 a year they now pay for their tuition is overwhelming. On average, graduates earn about Pounds 400,000 extra during their working life from having been to university, yet the bulk of their teaching is still paid for by the general taxpayer.

Introducing differential tuition fees would allow individual universities to set fees that reflect their cost structures, their ambitions regarding support for students from less well-off families, their approach to e-learning and so on. Even fees at modest levels can make a substantial difference. Fees of Pounds 2,000 could generate up to Pounds 1 billion more a year; fees of Pounds 4,000 could generate more than Pounds 3 billion annually. Differential fees have the potential to benefit all universities, not just the Russell Group of top research universities. To ensure that they do not put poor students off university, they have to be accompanied by scholarships and an extension of income-contingent loans that students repay only when they can afford to do so.

Tuition fees and income-contingent loans were introduced to facilitate evolutionary rather than revolutionary change. It is now time to take that evolution to the next stage by making greater use of both.

Nottingham University economics professor David Greenaway and research fellow Michelle Haynes are the authors of Funding Universities to Meet National and International Challenges, a report commissioned by the Russell Group of top research universities and published today.