Freedom to succeed

England's higher education funding council will be handed new responsibilities under proposals set out in the government's higher education White Paper.

While Australia has created an all-purpose single regulator, the Higher Education Funding Council for England will act as "lead regulator" for a number of existing agencies. Its regulatory powers will require it to operate with more independence from the government than before, and to take on the role of a formal intermediary between ministers and the sector.

But combining funding and regulatory responsibilities is a tricky mix, carrying with it the risk that market-based decisions could become embroiled with what ought to be quite separate judgements about institutional quality and standards. The changes are likely to significantly alter Hefce's relationships with both universities and the government.

Hefce is seeking power from the government to be able to instruct the various agencies when it considers this to be appropriate. The upcoming legislation to implement the government's proposals could allow Hefce "to direct a regulatory partner" and to possess the "power to initiate investigatory action" by these other entities. So an immediate dilemma concerns the relationship between Hefce and the other regulators.

As well as the danger of "buck-passing" in the event of regulatory failure and a consequent diminution of clear lines of accountability, the notion of a "lead regulator" urgently requires clarification.

It is likely that Hefce's responsibilities for quality assurance will make its relationship with the Quality Assurance Agency particularly significant. Although Hefce has long maintained strong influence over quality and standards - as required by its obligation to disburse taxpayer funds effectively and efficiently - the legislation will result in a new degree of formality in the level of its regulatory supervision of the QAA.

The fear is that external quality assurance and standards will become more subject to governmental influence than before. Yet in regulatory governance more generally - in the UK and elsewhere - it is usually recognised that agencies require quite high levels of independence from the state in order to function satisfactorily.

Problems could also arise from the fact that Hefce will be required to act as a competition authority, promoting higher education "marketisation" primarily on behalf of the "student consumer". As an economic regulator, Hefce will be expected to sort out potential "market imperfections", such as information asymmetries, barriers to system entrance and exit by providers, and the formation of any price-setting cabals.

Does competition mean preserving as many providers as possible to ensure wide choice for consumers, better service and value-for-money tuition-fee charges, however small or vulnerable some providers may be? Or does it mean letting the best get bigger, thus offering more quality choice, albeit with fewer institutions? Competition has consequences; it often has anti-competitive tendencies. In a wide array of markets, successful organisations get larger and smaller ones, presumably less efficient and customer-friendly, disappear.

Which way will Hefce regulate? Will its impending accord with the Office of Fair Trading result in it leaning towards the "anti-monopoly" or antitrust positions found in many competition regulators? Or will it regard competition as only one of a number of desirable objectives, others including, for example, the international competitiveness and reputation of the system and the offering of high-quality choices to students?

Hefce should possess non-economic objectives, too. The legislation should make it clear that the organisation has important social regulatory responsibilities: it should make judgements not just on systemic market risk and competition, but also on matters such as assessing and promoting the broad health of the system, access and social mobility. It should also promote such goals as social justice, human rights and the environment.

The social cohesion of the sector at a time of increased diversity is vital. As the regulator, Hefce should carry out important mediating and consensus-building functions on behalf of the academy to prevent the radically new competitive system from causing deep, systemic fractures.

Sustaining the system overall is about more than exercising the function of an economic regulator; it makes the promotion of cooperation, as much as competition, an important regulatory goal. Rather than focusing mainly on regulating "risky" institutions, Hefce should engage in balancing various sector interests through processes of deliberation and engagement. In this way, it would act more as an independent representative of and champion for the sector.

Hefce's recent proposal that it become accountable to Parliament and not simply to the government is a hopeful move in this direction. Its independence needs to be strengthened - a necessary move as it takes on major responsibility as a lead regulator, not least for "leading" the QAA and on issues of quality assurance.

Hefce would then become more of a legitimate intermediary body working between the government and the sector, and there would be less chance of its being perceived simply as an agent of the government.

In other sectors, governments of all persuasions have long proclaimed the autonomy of regulators. Higher education should be no exception.