Beyond conspiracy: Why TEF plus fees may drive efficiency

On the 15^th January 1965 the Who released their first album, I Can’t Explain. Fifty-one years later many people in the sector are scratching their heads seeking the explanation why the Government is going to so much trouble, by linking the TEF and fees, to split a tiny inflation increase into even more minuscule parts.

It’s just not plausible, they say: up to four levels of TEF; the panels; the judgments; the risk of legal challenge. No one is that irrational: there must be a hidden reason.

Some in the sector assert the hidden reason is the Government’s desire to raise fees by more, and for some institutions very much more, than inflation. Perhaps some people in Government do want that. But I think the general view is that universities dodged a bullet in 2010 with the introduction of £9,000 maximum fees, and dodged another in 2015 with the abolition of maintenance grants. Both times it was students and graduates that paid; both times university income was maintained (or increased). And issuing more loans still has a cost to the Government.

It also requires government to think it could win a vote in Parliament to increase fees above £9,000 – and while it’s doubtful that many Conservative MPs would support that; it’s certain no-one else would (opposition MPs also think universities dodged bullets; students were made to pay; oh, and that vice chancellors are paid too much). And as the Parliamentary handling of the decision to abolish maintenance grant demonstrates, Government seems rather shy of debating and voting on controversial higher education matters.

The suspicion was initially fuelled by unfortunate Green Paper drafting that proposed a power for the Secretary of State to “set tuition fee caps and require OfS to monitor all registered providers to ensure they are complying with the tuition fee caps” – a running hare that seemed not only to be heading in the direction of raising fees but also to be doing so without the inconvenience of a Parliamentary vote.

In fact, it is very much duller than that. Just another piece of the lawyerly detail needed to fix the existing regulatory framework – one of the many required by the massive shift from grant to tuition fees for funding teaching. It replaces the Secretary of State’s duty under Section 23 of the Higher Education Act 2004 to set a condition of grant to ensure institutions do not breach the basic and higher fee caps (if you are sufficiently interested, look at Annex 3 of the 2014 HEFCE grant letter).

I think there is a different explanation. If you look objectively at what government proposes, if you apply the ‘duck test’, then the TEF and the link to inflationary and sub-inflationary levels of fee increase looks remarkably like an efficiency and performance framework for universities. The sort of model created by the economic regulators for some of the privatised industries, where price caps and service and quality standards determined by the regulator sit alongside greater competition. The TEF defines a set of service performance expectations (excellent teaching) on behalf of the student as customer. If universities perform very, very well indeed against that framework they get to raise prices by RPI. Anything less, including good and very good performance, triggers RPI-X, RPI-Y or RPI-Z. It is a permanent price squeeze for most universities.

I’d argue this interpretation is reinforced by the otherwise surprising absence in the Green Paper of any reference to the long-standing Treasury concerns about university efficiency. From 2012, this was a constant theme (remember when universities were awash with cash? Remember Diamond 1 and 2?). The word “efficiency” appears just twice in the Green Paper – the first occurrence refers to the potential positive contribution of new providers, the second to how regulatory functions are delivered. No need for rhetoric about the shortcomings of established universities if you’ve introduced something that does the job.

So is there nothing in the Green Paper proposals to support a conspiracy theory about higher fees? Well, maybe. It comes from the splitting of research and teaching grant that is proposed as part of the logic of creating the Office for Students. One of the perennial higher education press stories was the (alleged) desire of Oxford or Cambridge or both to ‘go private’: escape from the restrictions of the fee cap and the burdens of HEFCE oversight. Whether true or not, it was always arguable that what held elite institutions back was that in legislative terms there was no such thing as HEFCE teaching grant and research grant  – there was only grant.

Deciding you could live without direct teaching funding in order to win your freedom and charge higher fees meant living without QR. It looks like that will no longer be the case. In the Green Paper terminology, the option to set fees at any level with a £6,000 loan cap is model 2a, while the £9,000 fee cap, Access Agreements, teaching grant etc. is model 2b. I suppose it is just possible that someone might be tempted. To be or not 2b……….