Planning for an uncapped future

In December 2013 the Chancellor of the Exchequer blindsided sector pundits with the announcement that the cap on student numbers would be lifted from 2015. Aside from the flurry of press releases and formal responses, analysis of the implications of ectionhis announcement for the future shape and size of the sector has only recently begun to take shape.

It is notable that when the announcement was made Nick Hillman’s phone rang ‘red hot’ – not with inquiries about the rationale for the policy or its expected outcomes, but queries about how it would be funded. And much of the subsequent coverage of the policy has indeed focussed on the funding question.

With the General Election only a year away, prudent analysts may be withholding judgement pending confirmation that a future government is ready to stand by this commitment and to source the sustainable flow of funding that would make it a reality. The likelihood of the latter coming to pass has already met with public scepticism and some searching questions from different quarters.

Revisiting the Autumn Statement on pp.54-55 the policy is set out: from 2015 the cap on student numbers in publicly-funded institutions will be removed entirely, and both publicly-funded and alternative providers will be freed from number controls. It is estimated that there is unmet demand in the system to the tune of 60,000 qualified young people who currently do not secure a place in higher education, a figure for which HEPI has been unable to find a source, although given the number is limited to young people it does not represent future patterns of student demand across the whole system in any case.

The Government’s intention behind freeing up number controls is to ‘improve quality in the sector’ through increased competition and expansion of institutions in high demand (Autumn Statement, p. 55). The lifting of the cap has been widely welcomed as affording more people greater opportunity to benefit from higher education.

I would argue that some light scenario mapping suggests that an open higher education market by itself cannot deliver either of these desirable outcomes.

Below, I show the results of an over-simplified exercise mapping prospective changes in the supply of qualified students against prospective changes in the supply of higher education places offered by providers under a system in which student numbers are not controlled. A central premise is that the student number control is only one of multiple variables shaping institutional and prospective student decision-making in the system. I have also made the assumption that ‘competition’ is neither a good nor an evil in itself but can manifest in both healthy and unhealthy ways.

Increases in the qualified applicant pool could be driven, or constrained, by demographic changes, reforms to Level 3 provision, the possible availability of new vocational pathways into work, the increase in the school leaving age and shifts in employer demand for graduates. Decreased demand among mature applicants could continue or recover, depending on the wider economic situation. If student number controls are removed and the unmet demand turns out to be from applicants who are not on the face of it qualified to undertake higher education, providers may choose to risk recruiting them anyway, or to turn them away.

Increases in the availability of higher education places offered could be created through capital investment, the creation of new higher education campuses, expansion in the college sector or alternative provider sector or, absent capital investment, through over-recruitment and overcrowding. A major variable for the likelihood of new provision is the willingness of those institutions with degree-awarding powers to increase validated provision and enter into partnerships with their putative competitors.

As such, there are four possible scenarios to consider, elements of each of which are already discernible in parts of the system:

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Scenario 1

Qualified applicant pool (demand) and available higher education capacity (supply) see little or no growth.  In this case very little changes from the status quo, although some providers may choose to expand at the expense of others who may contract or fail. In the absence of an untapped qualified applicant pool less popular institutions will have little incentive to innovate to stay in the game, though they may choose to recruit less qualified candidates who may then struggle to succeed. Popular institutions will be able to trade on their existing reputation rather than developing their provision to reflect the changing needs of society and the economy.

Scenario 2

Qualified applicant pool sees growth but available higher education capacity sees little or no growth. Without capital investment and a guarantee of a sufficient supply of qualified applicants institutions may decide not to risk expanding their capacity. In this scenario competition flourishes not between institutions but between applicants. Inevitably middle-class candidates will use their social capital to access the most desirable courses and the capacity of less advantaged applicants to participate will be seriously limited. Institutions will have limited incentive to innovate in their provision as they will be able to fill their courses without changing what they do.

Scenario 3

Qualified applicant pool sees little or no growth while available higher education capacity sees growth. This scenario sees increased competition between providers for a limited applicant pool with attendant inflation of marketing costs. Innovation becomes desirable but risky as new forms of provision may not attract qualified applicants. Providers may recruit less qualified applicants who struggle to succeed, and providers that have over-sold their provision to prospective students will face dissatisfaction and possible media scandal driven by demanding and powerful student-consumers.

Scenario 4

Both qualified applicant pool and available higher education capacity see growth. In this scenario the system can diversify and innovate to meet the needs and aspirations of a diverse applicant pool. Risk of innovation is lessened by the likelihood of there being available demand in the system. A challenge in this scenario is maintenance of academic standards; not because increased participation and diverse provision will inevitably drive these down but because a healthily diversified system could struggle to settle on a unitary definition of the term, which may be a problem for policymakers.

The use of market metaphors of supply and demand does not mean that the market can be trusted to find its equilibrium. Even if the projections of a pool of qualified future applicants to higher education are proved correct the incentives may still be misaligned for institutions to invest and innovate to increase capacity in the system. Instead they may simply expand popular courses until they become overcrowded, with knock-on impacts on the employability of graduates of those courses.

A more robust approach would be to consider what interventions will best secure a sustainable pipeline of qualified and informed applicants to higher education (significantly enhanced IAG springs to mind) and how policymakers can identify and share the risks of innovation with higher education providers in order to ensure a meaningful social benefit to increased participation.

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