Applying fundamental economic theory to higher education makes it clear that, contrary to popular belief, the current UK university system is not ‘marketised.’ It is actually operating in an administered price, and increasingly micromanaged, system, which has more in common with the workings of the former Soviet Union than anything approaching a free, competitive, market. We all know what happened to the Soviet Union.

One illustration of the ‘micromanagement’ bedevilling UK universities is the plethora of government-imposed  regulatory and evaluation exercises of one type or another, covering just about everything a university does. If it moves, measure it, seems to be the government’s philosophy. And if it doesn’t move, the government wants an assessment on why not?

What with the REF, the TEF, the KEF and the increasing regulatory demands of the Office for Students, hundreds of university posts have been created for  ‘compliance officers’, ‘ knowledge exchange officers’ ‘research impact managers’, etc. While I am sure the post holders work very hard, none of these positions have very much to do with the core university missions of teaching and research. They have everything to do with ensuring the right boxes are ticked, the right narrative constructed, the right reports made (be that staff-student ratios or paperclips per administrator) just so that the universities can clamber over the latest evaluation hurdle.

Bloated and inefficient regulatory system

Even if one accepts that some level of evaluation is a good thing (accountability for public funds, and so on), the current evaluation and regulatory environment for UK universities is absurdly bloated and inefficient. There are ‘competing’ agencies all examining different aspects of higher education in isolation, ignoring the holistic nature of university work.  But it is the same higher education institution that has to jump through all of these different hoops simultaneously.

The most extraordinary aspect of all of this is that, whatever the various agencies (acting on behalf of government) decree in terms of evaluation and regulation of higher education, universities are forced to comply. Not only that, but the cost of compliance is heaped on to the universities.  The entire evaluation system for UK higher education is monopoly supply-driven and monopoly supply-dictated.

“Official” estimates (i.e. commissioned by the monopoly suppliers) of the cost to the UK HE sector of the 2014 REF alone was in the region of £230 million. (Costs to the regulators themselves, by comparison, was put at c. £14 million.)   However, other estimates from the university side, which took account of all university staff time involved, came to more than £1 billion. 1 See Times Higher Education, July 15 2015 Since then, many would argue that the university effort required for the 2021 REF is likely to have grown, rather than diminished.

The latter is not surprising since economic theory shows that where something is both monopoly supply driven and monopoly supply dictated, the direction of travel is inexorably towards lots more of it. There is absolutely no incentive for the evaluation and regulatory agencies to lighten the burden they place on universities.

Indeed, the incentives for the agencies is the opposite – the more they can show their own government paymaster that they are measuring and regulating, the better they can present themselves as performing. Indeed a recent blog from the new CEO of the Office for Students illustrates this point perfectly. Responding to criticism from universities over OfS processes and operations, the CEO announced that they would do better in the future, doing better being to have a “more active regulatory focus”, to “increase our investigatory work and strengthen our regulatory requirements.2 See: January 2023,  So far, so predictable.

Economic theory tells us that the only equilibrium outcome in this situation would be when all UK higher education resources are spent on regulation of the (by then ‘theoretical’) Higher Education outputs.  Note that this absurd outcome is inevitable, given current supply/demand conditions in the UK HE regulatory market. To avoid it, things have to change.

Making the regulators pay more of the cost

There are two steps that could be taken to improve this situation:

  1. Ensure that a full and rigorous Cost-Benefit Analysis is carried out for every evaluation exercise. This would at least mean that full university costs of participation would be acknowledged and would help analysis of value for money.
  2. Make the agencies themselves pay, at fair market prices, for the resources they are demanding universities devote to compliance.  In other words, charge the OfS the cost to universities of every new regulation it imposes, make the UKRI allocate funds to every university specifically to support their engagement in the REF, the KEF etc.

These steps could radically alter the incentive framework within which the agencies operate.  As an economist, and drawing on economic theory, I would guarantee that if this approach was adopted – irrespective of whatever the universities do in response – the evaluation system for UK higher education would end up leaner, meaner and arguably more fit for purpose; in short, more economically efficient.

I would certainly put these suggestions to the House of Lords Industry and Regulatory Committee in its new review of the operations of the Office for Students. At last at least one of the higher education ‘regulators’ is facing some external regulation themselves.

Emeritus Professor Iain McNicoll, 31 March 2023


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