As Naomi Klein and others have demonstrated, the neoliberal model of privatizing expensive public functions, which was introduced and popularized by Ronald Reagan and Margaret Thatcher, often has the perverse effect of raising the costs of those functions by selling off assets below their market value and introducing profit-seeking middlemen who create further inefficiencies, thereby driving up costs which must be defrayed with further public subsidies. As further proof that the neoliberals in the current British government continue to just not get it, the Public Accounts Committee in the House of Commons is projecting that the costs of running Britain’s universities after their partial privatization this autumn will in fact be greater than they were before the supposedly cost-saving reforms were instituted. The reason for this is that, since higher tuition fees will be paid for with student loans fully subsidized by the state, the public ends up paying for each student anyway. However, since these are loans, and hence carry interest that must be subsidized along with the principal, the cost per student is higher than if the state were making a direct grant to the universities on the students’ behalf. Because the Camborne administration failed to correctly estimate the effect their reforms would have on the market, they did not budget enough money to cover the costs of this year’s student intake. The solution being floated is to cut student intake, but with fewer students paying fees the universities will have another shortfall, which will presumably require cutting admissions further. It seems that this experiment in setting price controls under which some universities would magically fail to charge enough tuition to break even, and ever the folly of the neoliberal reformer who is convinced that his projections will trump reality, can only end with the universities making further internal cuts. The tuition fee increase was justified as offsetting the elimination of government grants in support of teaching and research. If the higher fees are not enough to cover the loss of those grants, then the universities will have to make the cuts regardless.
If the government were really serious about driving down the cost to the treasury of higher education, they would have either increased the state’s funding to universities and abolished tuition fees, thereby driving the state’s responsibility for loans to zero, or they should have cut the funding, raised the fees, and not offered government-backed loans. Clearly the latter option was politically untenable, and so as with so many neoliberal experiments, the government chose the middle road: replace the existing system with something that is superficially useful but actually is counter-productive for achieving the stated goal of financial balance. Compounding interest is apparently not George Osborne’s strong suit.