Antitrust Alert: UK Report Highlights Competition in the Higher Education Sector
Today an independent committee, chaired by Lord Browne of Madingley, reported its recommendations for university funding and student finance in England. Lord Browne's report, which could significantly affect future competition in higher education, includes the following recommendations:
- Removal of the GBP 3,290 cap on tuition fees.
- Free market in fees (the Report models charges up to GBP 12,000 a year) but introduction of a "soft cap" whereby universities charging more than GBP 6,000 a year would lose a proportion of the fee to help cover the cost of student borrowing. The consequences of this, as mooted in the press, are that the majority of institutions will charge GBP 6,000 but some, probably highly selective universities such as the Oxbridge institutions, may eventually charge up to GBP 15,000 a year.
- The provision of higher education must become a more competitive marketplace with competition, on the basis of price and teaching quality, over students, fee levels and entry enabled for new providers, who will be able to apply for targeted HE Council investment if they offer priority programmes.
- Because competition means survival of the fittest, popular institutions will be able to expand to meet student demand, with a recommendation of a 10% increase in the number of places, and universities that are unsuccessful in competing will be allowed to fail, leaving them open to take-over or closure.
- Quality and competition will be safeguarded by the independent Higher Education Council, which will replace the four bodies that currently oversee the higher education system and which will enforce minimum quality standards, provide information to students to help them choose the right Institution and courses and evaluating institutions on how well they are doing in providing fair access to all.
- Government will meet the upfront cost of higher education through loans to students, with additional support for living costs through further loans for all and top-up grants for some. Part-time students to be treated the same as full time.
If implemented, some of the recommendations should lead to increased competition between universities on fees, student numbers and the quality of the courses on offer for the price.
Highly regarded courses and institutions would no longer have to turn away as many students due to the current cap on student numbers. As a result, less well regarded courses would no longer be able to rely on a guaranteed overspill to fill up their places. Instead they will need to make greater efforts to attract students, by e.g. improving quality and/or lowering fees. Similarly, two equivalently "good" courses would be more incentivised to compete on price, as the negative economic effect of decreasing fees could be offset by increasing student numbers on a course.
How does this fit with competition law?
Universities are subject to EU and UK competition law. Accordingly, any discussions between the universities regarding student intake numbers, the courses that they will be running or dropping and the fees they will be charging will very likely infringe competition law. Any such breach of competition law is likely to be dealt with swiftly by the Office of Fair Trading, the UK competition regulator, given the potential harmful effects on students through artificially high fees and/or lower course quality. The consequences of infringing competition law include fines of up to 10% of annual turnover, negative publicity and private actions for damages by anyone who has suffered hard as a result of the infringement and, if price fixing is involved, imprisonment for the individuals involved.
The OFT has already shown that it is not afraid to take on the education sector. In 2006 it issued a statement of objections asserting that 50 fee-paying independent schools were infringing competition law by exchanging specific, confidential and commercially sensitive information, regarding the fees they were intending to charge both boarding and day pupils and the percentage increases they represented. (The authors of this note represented and defended the interests of some of the independent schools involved in the OFT's investigation and the agreement to settle.) In exchanging information on their fees, the OFT said that the schools knowingly substituted practical co–operation for the risks of competition in the relevant markets for the provision of educational services, in breach of competition law.
Instead of issuing a formal infringement decision and imposing fines, the OFT agreed to a settlement with the schools. Under the settlement, schools (1) admitted to participating in the exchange of information the object of which was to distort competition in the UK in breach of the Chapter I prohibition; and (2) agreed to make an ex gratia payment towards a GBP 3 million educational trust fund for the benefit of the pupils at the schools concerned.
Universities must be mindful
Universities must ensure that that they do not share sensitive information with each other including information regarding their fee structures, their student numbers and the courses they are likely to run. The exchange of such information is highly likely to infringe competition law.
The OFT's school fee fixing investigation was prompted by a report published by The Sunday Times which investigated fee-setting practices and submitted a file of evidence to the OFT. With the high level of public interest surrounding university fees and funding, institutions would do well to remember that their activities are going to be subject to a great deal of public scrutiny.
Furthermore, the Browne recommendations specifically task the Higher Education Council with safeguarding and promoting competition to ensure that students get the benefits of more competition. To this end the Council will publish an annual survey of charges, look after the interests of students when an Institution is at risk and regulate the entry of new providers. Parliament must now respond to the recommendations but, assuming the recommendations are implemented and such an additional watchdog is put on duty, competition in the higher education sector should increase, and any attempt to circumvent it must surely be caught and reprimanded.
For more information, please contact your principal Jones Day representative or either of the lawyers listed below.
+44 20 7039 5202
+44 20 7039 5222
Jones Day prepares summaries of significant antitrust enforcement, litigation, and policy events as a service to clients and interested readers, to provide timely insight on antitrust and competition law developments relevant to business, but not as legal advice on any specific matter. Please visit our Publication Request form to add your name to our distribution list.