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Peter Ainsworth is the Managing Director of EM Applications and is the author of Universities challenged: funding higher education through a free-market ‘graduate tax’.

The harsh criticisms from all quarters of the trial balloons floated by the Augar Review suggests it will fail to produce any useful solutions to the tuition fee quandary.

Cutting the headline figure to £6,500 would starve universities of resources. If the Treasury makes up the difference with teaching grants it will cost the state £3 billion it does not have, after making a £20 billion commitment to the NHS. It would be a “Labour-lite” policy and vastly politically inferior to Corbyn’s pledge of zero fees.

A second idea is, apparently, to charge much more – say £13,000 – for medicine and science and other subjects that lead to high earnings. This might mollify the Treasury, but it isn’t true that all medics and scientists have high earnings. Arts graduates of some universities earn more than scientists at others. Even for any given institution the range of earnings is wide, with some graduates doing exceptionally well and others doing no better than if they had never gone to University. This idea is a double fault – it both devalues the arts and overcharges many scientists. Since everybody would pay more than under Corbyn’s plan it remains a political loser.

The fundamental difficulty facing this review is that it appears to require squaring the circle. On the one hand it must address the political challenge arising from Corbyn’s promise to abolish tuition fees altogether. On the other it must preserve the independence and resources of the higher education sector. Preventing the easy delivery of these two is that austerity remains for most departments, and the terms of reference required that any proposal be within present budget constraints.

Without some very creative ideas the task seems impossible. Augar’s team, unfortunately, does not look equipped for out of the box thinking as it is drawn exclusively from the political and producer establishment.

Augar was a non-executive director of the Department for Education. Bev Robinson is the Principal of a Further Education College. Edward Peck is Vice-Chancellor of Nottingham Trent University. Professor Alison Wolf – Baroness Wolf of Dulwich – is both producer and politician. Sir Ivor Martin Crewe is Master of University College, Oxford. Jacqueline De Rojas serves on the government’s Digital Economy Council.

Nowhere in this panel are the consumers of higher education represented. The two groups who should be consulted to advise on how to reform this system are businessmen who hire graduates and parents with young children. Despite the ever-increasing proportion of youth attending University the CBI and other business groups continue to complain of a skills shortage. They say that too many graduates lack the attitudes and aptitudes that would make them productive. As a consequence, fully one third of graduates languish in non-graduate jobs. The other group is parents of young children. They want the best for their children and want a system that is fit for purpose – either providing an education that quickly helps students into higher paid employment or supporting them until they do.

Without consumer representation the Augar review is the victim of what an economist would call “Regulatory Capture”. This is a failure in government policy where a body charged with acting in the public interest instead advances the commercial or political concerns of the producers that currently dominate the sector; and consumer dissatisfaction continues.

What a producer/political team cannot see is that the underlying problem is that the sector is inefficient. If that can be improved then the conundrum is readily solved – costs can fall while standards improve. Looking at the problem with the eyes of the consumer makes it obvious that the focus of the review should be how to raise productivity.

The only way that a Conservative government can match Labour’s tuition fee abolition offer is with some form of graduate tax. This has the appeal that it is fair – the better off pay more – and it abolishes the idea that there is a “price” for tuition. Tuition becomes “free” again, but the graduate will pay slightly more tax in recognition of the fact that the degree boosts their earnings.

However, if the tax receipts flow to the Treasury there is nothing to encourage higher productivity and Universities’ finances are at risk from changing political priorities. The solution is to have the graduate tax operate by means of a contract between each University and its graduates so that “tax” receipts flow directly to each institution.

This is not fantasy land. The Economist reports that several US universities had instituted schemes that operated in this way. Purdue introduced ISAs (“Income Share Agreement”) as a means of payment of tuition costs in 2016, funded by its own endowment. Clarkson University in New York and Lackawanna College in Pennsylvania have recently begun similar schemes. The articled stated that it was believed another twelve institutions were due to follow shortly.

Tying the Universities income to that of its graduates aligns interests for the long term. As The Economist noted, such a scheme makes it likely that universities will adjust their courses to achieve better outcomes for both parties. If the Augar review team reads the tea leaves, or just The Economist, they will see that the future is clearly signposted.

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