Hot on the heels of its investigation into the legality of student contracts under consumer protection legislation, the Office of Fair Trading (OFT), this time wearing its competition regulator hat, has launched a 'call for information' on the way in which universities and other Higher Education Institutions (HEIs) compete in the provision of undergraduate education in England, and the effect of regulation on this.

The Government’s reforms were intended to increase competition between HEIs and to increase choice for students but the concern is that the imposition of a maximum price for tuition fees has instead had the effect of reducing price competition, as HEIs have uniformly raised prices in order to avoid giving the impression of low quality. This appears to be borne out by the fact that for 2014 three-quarters of all universities will demand the maximum £9,000 fee for at least one course, and a quarter for all degrees. In contrast, postgraduate fees, which are not subject to a cap, have remained at an average of around £6,000.

If price competition is not working, what about competition on quality and outcomes? Competition only works well where there is transparency and, unless prospective students have access to the information they need about courses and employment prospects, they will not be able to make informed choices. Also, the application process may create obstacles that prevent those choices being made effectively.

These are the issues that the OFT now wants to investigate. It will be seeking information specifically on:

  • how universities compete for students in order to deliver value for money, including how they go about setting fees, deciding which courses to offer and how they should be delivered;
  • whether other factors, such as the application process, affect how universities compete;
  • whether collaboration between universities, which could be beneficial to students, is affected by potential concerns about breaching competition law;
  • whether the regulatory system is creating any unfair advantages for certain types of higher education providers;
  • whether regulation is contributing to effective competition or undermining it by creating any unnecessary obstacles to universities expanding their offer to students or innovating (for instance, hindering the introduction of new ways of delivering courses);
  • the best way to balance the ‘orderly exit’ of failing providers in a way that protects students, while allowing for the possibility of exit to drive competition;
  • whether students can access relevant and accurate information about courses and universities to enable them to make a properly informed choice, and the extent to which their ability to choose is supported by, amongst other factors, the application process;
  • whether there is sufficient clarity about what students can expect from higher education providers, such as the overall cost of degrees, access to facilities, teaching methods, and length of terms;
  • student concerns about how universities meet their expectations and whether there are appropriate channels for complaints and access to redress if things go wrong.

The OFT is therefore planning to talk about these issues to a range of universities, students, interest groups, graduate employers, government and regulatory organisations between now and the end of the year, and to invite comments from other interested parties. It will then analyse the evidence and decide whether any further action is warranted. It is due to publish its findings in March 2014.

Potential outcomes of this analysis are:

  • an in-depth 'market study' of the sector or specific aspects of the sector
  • competition enforcement proceedings, for example if the OFT suspects that HEIs are colluding on the setting of tuition fees or unlawfully sharing cost and price data
  • consumer enforcement proceedings if the OFT believes that the way in which students commit to particular HEIs breaches consumer protection laws
  • advice to Government, for example on reform of the law or regulations
  • guidance to universities or students, and
  • voluntary actions from universities.

The announcement of the investigation has drawn a cautious welcome from universities which recognise that choice may not be working as well as it should and a warm welcome from student bodies.

Should universities be concerned? As long as they have not been colluding on the setting of tuition fees or exchanging information about prices and costs, there is nothing immediate to worry about. However, given the levels of concern about student fees, it seems likely that this exercise will lead to more in-depth investigations by the competition authorities, whether of the market generally or of individual HEIs.