Economics today has become a matter of predetermined slogans such as ‘more markets’ or – on the alternative political side – ‘more regulation’. In practice, any efficient system has to be a combination of competition and regulation, even if the taxpayer is not – as is the case with universities – picking up the bulk of the bills. However, when the sector is heavily subsidised, the distortions of either unfettered markets or micromanaged regulation can become amplified. There is ‘rent seeking’ as participants try to divert the subsidies to their own interests. This can be facilitated by ‘regulatory capture’ where the institutions being regulated become too close to the regulators and have undue influence on the decisions made.

The emphasis should be on designing an intelligent and effective mechanism for achieving clear desired ends. There cannot be markets for their own sake – irrespective of the efficiency of the outcomes – or similarly regulation to make up for poor design of the allocation mechanism. As is often the case, ‘the best is the enemy of the good’. No market will be so perfect as to achieve ideal outcomes, and all regulation is costly. We will discuss in Chapter Four how the allocation of decision-making power to different stakeholders can help bridge the gap between what the regulated market can do on its own, and what we are trying to achieve on behalf of the students and taxpayers. But for now, we are just trying to get ‘in the ballpark’ of a sensible system.

What we are trying to achieve, based upon the Robbins, Dearing and Browne reports described in the previous chapter are:

• • a high quality of education

• • value for money

• • widening participation

We will discuss in this chapter how the system proposed in the Browne Report could have worked reasonably well, but that the switch to higher fees than proposed (£9000 rather than £6000) and uncapped student numbers led to disastrous results in terms of the nature of competition. Rather than a competition over education quality directed at the best students potentially available to the university, competition became that of the ‘lowest common denominator’. It was aimed at the weaker students and took the form – disproportionately – of grade inflation.

The problems

Once universities were uncapped in admissions, the elite and Russell Group universities hugely expanded their intakes at the expense of the other pre-1992 and the post-1992 institutions (see Figure 3.1).