Taxpayer beware: The hidden costs of public funding's helping hand

The academy should be brave enough to seek donations directly from individuals, rather than relying on the fruits of state coercion, says James Stanfield

March 4, 2010

While much of the current debate on higher education has focused on what is seen, namely the immediate benefits of government spending and national planning, it has tended to neglect what is not seen - the hidden costs and unintended consequences of these interventions.

First, there is no evidence to suggest that there is any economic benefit to the nation as a whole from the Government transferring £14.3 billion each year from taxpayers' wallets to students and universities.

Second, neither is there any evidence to suggest that the public benefits associated with spending £14.3 billion on higher education will be higher or somehow better than the public benefits associated with taxpayers spending £14.3 billion themselves.

Third, while many are convinced that the annual subsidy is helping to create a more equal and just society, it is impossible to escape the fact that part of this subsidy represents a transfer of income from those on lower incomes to those who will soon be on higher incomes.

Furthermore, it is clear that government subsidies and the manner in which they have been distributed have resulted in a significant number of hidden costs and unintended consequences that were not part of the Government's or universities' original intention. These include: undermining the autonomy and independence of private institutions; crowding out philanthropic donations; the disruption and distortion of the pricing system; confusing academic, professional and vocational education; the rationing of university places; restricting private investment from home and abroad; crowding out for-profit institutions and entrepreneurial talent; restricting competition and innovation throughout the sector; and qualification inflation.

One hidden cost that is clearly relevant concerns the widespread rationing of university places. As the whole point of transferring £14.3 billion from the taxpayer to students and universities in the first place was to encourage more higher education and not less, it would appear that this intervention is now having exactly the opposite effect.

In fact, when taking into account all the other hidden costs and unintended consequences of government subsidies and political interference, it becomes clear that they all involve (in one way or another) the distortion and the restriction of the natural growth and development of higher education, making it less efficient and less responsive to the needs of students and the business community. Therefore the £14.3 billion public subsidy to higher education is restricting and distorting the growth and development of one of the UK's most important service sectors. In short, the public subsidy is now doing much more harm than good.

While universities would celebrate if their public subsidy were doubled overnight, one wonders how they would react if told that instead of expecting the Government to confiscate money from the public on their behalf, they must now be prepared to appeal to the public directly. As universities have been happy to demand public subsidies from the rich and poor alike, then they should have no problem with appealing to these same people on the doorstep.

In principle, this method of raising funds is the same as the existing system in which universities use the Government to confiscate the funds from the taxpayer using the tax system. The key difference is that while one method is voluntary, the other depends on the use of force, and instead of the funds being transferred from the taxpayer to the Government and then to each university, they would now be transferred directly from the public to each university. This method of fundraising would at least appear to be much more democratic, as it would allow people to decide whether they wish to make a donation.

The ability of each university to collect sufficient funds from its local communities would now depend on its ability to convince local people, and especially all non-graduates, why and specifically how they will benefit each year from making an annual donation.

If universities are correct in their claims that they provide widespread and remarkable public benefits, then as long as they can provide the necessary evidence, those collecting the money on the doorstep can look forward to a warm and generous response. Three cheers for evidence-based policies.

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