OFT scrutinises sector: could it challenge the fees cap?

Source: PA

Measurement of value: the decision by the Office of Fair Trading to examine how fees are set could speed market developments

The Office of Fair Trading’s decision to examine English higher education could spell trouble for the £9,000 fee cap and may introduce true price competition to the academy, some in the sector believe.

On 22 October, the OFT issued a call for information on the provision of undergraduate education in England, with the aim of gaining “a better understanding of whether universities are able to compete and respond to students’ increased expectations” under the new fees and funding system.

The OFT’s interest could end there. However, if it finds that the sector merits further examination, it can carry out a fuller “market study”, take enforcement action and even call in the Competition Commission.

Nisha Arora, senior director at the OFT, said it wanted to hear about whether universities were “able to…deliver value for money” and to understand how they “go about setting fees”.

The prospect of an OFT examination of the sector was anticipated earlier this year in a paper co-authored by David Palfreyman, director of the Oxford Centre for Higher Education Policy Studies.

He said there was no suggestion “that vice-chancellors are colluding at the Athenaeum over port” in setting fees, but added: “There’s what the OFT would call ‘tacit collusion’ where…you get a price pattern as we’ve had, where everybody drifts to £9,000 over 18 months.”

This raised the question of whether the sector “is operating as a market should”, he said.

‘True Browne’

Some in the sector may see the OFT as a route to challenge the £9,000 fee cap as a restriction on price competition, offering a path to a “true Browne” scenario in which fees vary widely, as Lord Browne recommended in his 2010 report for the government.

Mr Palfreyman’s co-authored paper, published on the Oxford centre’s website, notes that competition law is concerned, among other things, with “policy restrictions upon competition”. This “applies in English HE in terms of…the UK/EU undergraduate fees cap, the rules re access to Student Loans Company loans, and the criteria for awarding degree-awarding powers”.

Asked if the OFT could offer a route to the abolition of the hard fee cap, Mr Palfreyman said: “It could be a way of getting there. But how that would play with the politics is an interesting question. It would be pretty brave of the OFT to take it in that direction.”

He suggested that universities “may have to divulge some interesting information” on the real cost of teaching rather than just assuming “‘if I can get away with £9,000, I’ll have it, thanks very much’”.

He added of the OFT’s interest: “This is the very early stage of what could be three or four years of people…delving into data, making joint conclusions. During this time the whole thing could end, or it could take on another burst of life.”

Andrew Boggs, policy adviser at the Higher Education Better Regulation Group, said he believed that the OFT was aiming “to get ahead of the general election and any new higher education act”.

He argued that the OFT’s interest signalled the “development of a public higher education sector into an actual…market”.

Mr Boggs said he expected it to cover three central themes: competitive behaviour within the sector; consumer rights for students; and “issues around entry to the market for new providers”.

David Willetts, the universities and science minister, will find that the OFT’s interest chimes with many of the policies he has sought to encourage, such as competition between institutions, better data for students and reduced barriers for private providers.

Asked if the coalition had requested the OFT move, Ms Arora said the organisation was independent, adding: “This is very much our own initiative.”

The OFT’s call for information also says that it wants to find “the best way to balance the ‘orderly exit’ of failing providers in a way that protects students, [while] allowing for the possibility of exit to drive competition”.

john.morgan@tsleducation.com