Brexit reinforces the case for market-oriented reform of Universities

The “Australian-style” points system that the Leave campaign was advocating during the EU referendum debate might provide more control over immigration than the EU’s open borders. But it will do nothing to satisfy the aspirations of those Brexit voters who feel they have lost out in today’s economy. It does not address the underlying problem of too many British citizens lacking the training to make them suitable for high-earning employment, creating a skills shortage that can only be filled by foreigners.

Theresa May sought to address this by saying that she wanted to address the injustice whereby white working class boys were the group least likely to attend University. Her statement relies on the assumption that going to University would be an advantage to them, and that not going deprives them of opportunity. The facts speak otherwise. The latest study, with access to long term earnings data, established that, at 23 higher education institutions, half of male graduates are earning less than non-graduates ten years after concluding their studies. The latest numbers from the ONS indicate that fully one third of graduates are in jobs not requiring a graduate level education five years into their careers.

It is true that Universities should be playing a significant role in a renewed effort to improve the employment prospects of the disadvantaged. The purpose of higher education is to help graduates secure a satisfying career and raise their earnings potential, exactly what so many are crying out for. But the reality is that Universities have signally failed to address the needs of youngsters from non-University attending families. This is not, however, their fault. It is the inevitable consequence, as Professor Wolf observed, of government-created incentives and the regulatory environment enveloping the higher education sector. These are the root problems of a system that offers many worthless qualifications and sticks rigidly to the three-year on-campus format that suits some of the young, especially the middle class young, but alienates many of the rest.

Indeed, those white working class males who avoid University might be the lucky ones. They have made the rational choice to avoid the significant financial liability of a University education in the knowledge that there is a reasonable probability that it won’t help them. The real injustice that the new government must address – not just because it is unfair but also because Brexit makes it an urgent imperative to make our Universities more effective – is that too many students get no real earnings benefit from the very high costs that they must bear.

Two key reforms are needed: (i) the Universities must have some “skin in the game” – a share in the future earnings of their graduates so that their interests are directly aligned with those they educate, and (ii) tax relief on repayments of personal educational expenditures to correct the imbalance whereby large corporations avoid tax on the purchase of physical capital while individuals must pay out of after-tax income for developing their human capital.

Once Universities’ finances are tied to the future earnings of their graduates most regulation can be swept away. May said she is against red tape, here is a good place to start. There is no need for a quango to check that a degree product is of a given “quality” when the institution itself will be driven by its own budgetary requirements to ensure that is the case. It will lead to a wholesale re-evaluation of the three-year on-site standard. This will continue to suit many, but much more flexible approaches are required to help those historically excluded from the higher education system.

Not only will such a risk-sharing set-up improve the efficiency of higher education delivery, it will also ensure the achievement of wider objectives. “Access agreements” will be unnecessary when Universities share in the success of their charges as the social purpose of bringing higher education to a wider cross-section of society will be united with the financial interests of the providers. Instead of a box-ticking exercise, Universities will have a powerful economic driver encouraging them to seek to recruit those with potential to benefit significantly from further education, regardless of age or background.

With many businesses negatively affected by Brexit uncertainties, it is essential that the government takes quick steps to facilitate the growth of parts of the economy that are globally competitive regardless of the outcome of trade talks with the EU. UK Higher Education is one such sector. Arguably No 2 in the world, it offers a service that faces no risks from tariffs or non-price barriers. It is already a significant export earner and is well positioned to expand if only it is set free from the dead hand of an overweening state. Brexit, and the change of government it led to, has amplified both the opportunity and the need for market reform of higher education. Let’s hope that chance is seized.

Peter Ainsworth is Managing Director of EM Applications. He is the author of Universities challenged: funding higher education through a free-market ‘graduate tax’.

1 thought on “Brexit reinforces the case for market-oriented reform of Universities”

  1. Posted 17/07/2016 at 16:02 | Permalink

    It is not clear that a combination of deregulation and a graduate-income-sharing program is the best way to bring quality education to “a wider cross-section of society”. On the contrary, the university’s incentive will be to favour the well-connected in the admissions process, given their higher earning potential. This tendency to discriminate, if coupled with accommodating deregulation, could effectively entrench social exclusion in the top universities.

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