A dual pricing mechanism: modelling the English higher education market

Author(s):

Colin McCaig(presenting / submitting)Nic Lightfoot(presenting)

Conference:

ECER 2017

Network:

22. Research in Higher Education

Format:

Paper

Session Information

22 SES 12 A,

Paper Session

Time:

2017-08-25

09:00-10:30

Room:

K5.04

Chair:

Laura Hirsto

Contribution

The question this paper sets out to answer is: how have market mechanisms introduced by recent UK Governments impacted English higher education? Three main policies designed to increase marketisation of the system are discussed with reference to their potential impact on average tuition fees:

i) The 2011 White Paper Students at the Heart of the System (BIS 2011) introduced incentives for institutions to enrol greater numbers of highly qualified applicants (at the expense of less qualified applicants within a fixed numbers cap known as the Student Numbers Control mechanism) and incentives for institutions to enrol greater numbers of students at a lower fee rate (the 'core and margin' mechanism). The White Paper also obliged institutions to present clearer consumer information for applicants (Key Information Sets).

ii) The UK Treasury (HM Treasury 2013) announced a removal of the students numbers cap from 2015-16, thus enabling the supply of places in undergraduate HE to rise until they meet or exceed demand.

iii) The 2016 White Paper Success as a knowledge economy: Teaching Excellence, Social Mobility and Student Choice which introduced measures to encourage market entry from 'Alternative Providers' (Evans 2016) who will henceforth find it easier to attain Degree Awarding Powers and adopt the word University in their titles (BIS 2016). These are encouraged to create the additional supply of places to either absorb excess demand or to create additional places; in either case at lower fees than those charged by existing HE providers (in conditions of fixed fee cap), and thus having the effect of lowering the average tuition fee in English HE.

The paper seeks to discuss the implications of these moves with regard to the development of the stated aim of developing a price differential between higher education institutions that we conceptualise as a 'dual pricing' mechanism. English HE is characterised by fixed maximum tuition fees but there is a sophisticated alternative pricing mechanism consisting of University and College Admissions System (UCAS) tariff points (an equivalence measure of all entry qualifications). The more prestigious research-intensive universities are able to demand higher UCAS tariff points than less prestigious HE institutions. As, in traditional consumer markets, consumption at the highest prices is restricted to those with the highest income, so access to the highest demanded courses is restricted to those that have the highest entry grades.

Our work models changes in supply and demand following the opening up of the market in higher education places, which has taken two main forms: as in Australia, the cap on the total number of places has been removed; there has been encouragement of new providers into the market, principally by making it easier for providers to attain degree-awarding powers and use the title 'university' to help attract applicants. Secondly, legislation will also make it easier for existing HEIs to fail, i.e. they will no longer be supported by the state if they lose student numbers to new alternative providers (BIS 2015; 2016). The declared aim of this policy is to create a price differential within the existing fee-cap (£9250 per annum) by providing price competition at the least prestigious end of the market: government aims to achieve an average tuition fee of £7,500 which was in line with Government's modelling for affordability of the variable fee regime introduced in 2012-13 (currently the average stands at £8,650). A dual pricing mechanism, then, would equate the highest entry tariff courses and institutions with the maximum fee; and the lowest entry tariff courses/institutions with the lowest fees (£6,000).

Method

Currently the English HE market does not meet the conditions of perfect competition (Marginson 2013; Brown and Carrasso 2014; McGettigan 2012) - however governments, in England as elsewhere, have nevertheless determined to make market-like interventions to inject competition into the system, in the form of the three policy interventions outlined above. The paper uses economic modelling to test or challenge policy by analysing a set of 'market failures' that recent policies have either created, exacerbated or been designed to ameliorate. These market failures (deviations from the theoretical free market in HE places, Meek 2000) are: • the market does not set the price in this version of the market - equilibrium (achieved by a balance of supply and demand) cannot be achieved when there is a fee cap set by the state. • the state does not limit the number of funded places in a demand-led system, so equilibrium is further compromised. An excess of demand over supply suggests more places should be created or tuition fees should rise to reduce demand. • the market for degrees is not homogenous; not all degrees are the same (even within the same subject disciplines) as measured by demand (i.e. applicants per place at the required entry qualification level); there is differentiated demand by institution type (more / least prestigious) (IFS 2016, HEFCE 2011). In order to explore these market failures, we proceed by a) outlining economic models of the undergraduate market in English HE (that is; the effect of the capped tuition fee on supply and demand; the effect of differentiated demand (by institution-type) on supply, demand and price; and the theoretical model of a fragmented market (under conditions of both fixed-fees and a removal of the fee-cap). b) testing the logic of each of three market-enhancing policy initiatives against our models by analysing the effects of the removal of the student numbers cap in 2015-16 using UCAS applicant data from 2015-16 and 2016-17.

Expected Outcomes

Using the analytical models we explain the shifting patterns of applications since the removal of the numbers cap, i.e. the freeing up of the market. Early indications (applications data for 2015-16) suggest that student number growth continued, indicating that demand still outstripped supply; however the pattern of growth had shifted, with more prestigious institutions exhibiting numbers growth (than least prestigious institutions) and more prestigious institutions growing by larger proportions on average than least prestigious institutions. The second wave of data (for 2016-17) will be available for analysis by the time of the presentation of this paper: however, early indications (Higher Education Statistics Agency, December 2016) suggest that demand may now be satisfied (i.e. there is equilibrium between supply and demand), and that within the steady-state number of students seeking places there has been a shift towards applicants accessing the higher prestigious institutions, at the expense of least prestigious institutions. This may have negative consequences for widening participation if poorer and other underrepresented applicants are drawn only to those cheaper providers that have yet to establish prestigious track records. The paper concludes by re-examining the government's progress to its declared aims (e.g. in BIS 2011; BIS 2015 and BIS 2016): to encourage a differentiated fee which enables the distribution of best qualified students to the most prestigious institutions; to do this while avoiding raising the tuition fee cap (beyond inflationary increases); to lower the average tuition fee level across the sector to that modelled as sustainable, and thus public spending exposure through the introduction of new HE providers. The emergent findings are likely to be of interest to international colleagues, particularly those from countries rapidly marketising their HE systems, though of course many of the specific policy aims, intentions and impacts are specific to the English market context.

References

BIS (2011) Students at the heart of the system, HMSO, March 2011 BIS (2015) Fulfilling our potential: Teaching excellence, social mobility and student choice, HMSO, November 2015 Brown, R. & Carasso, H (2014) Everything for Sale; the marketisation of UK Higher Education Abingdon: Routledge Evans, GR (2016) Alternative providers of higher education: what are the risks? Higher Education Review, Vol 49, No 1, 2016. ISSN 0018-1609. HEFCE. (2011). AAB+ Modelling. HEFCE 2011/20 Annexe D. Bristol: HEFCE. HESA (2016) Statistical First Release, December 2016. Institute for Fiscal Studies (2016) What and where you study matter for graduate earnings – but so does parents’ income, Press Release, 13th April 2016 Marginson, S. (2013) The impossibility of capitalist markets in higher education, Journal of Education Policy, 28:3, 353-370 McGettigan, A (2013) The Great University Gamble: Money, Markets and the Future of Higher Education, London: Pluto Press. Meek, V.L. (2000) ‘Diversity and marketisation of higher education: incompatible concepts?’ Higher Education Policy 13: 23-39 Molesworth, M., Scullion, R. and Nixon, E. (2011) The Marketisation of higher education and the student as consumer London : Routledge

Author Information

Colin McCaig (presenting / submitting)

Sheffield Hallam University

Sheffield Institute of Education

Sheffield

Nic Lightfoot (presenting)

SHU

ECI