Competition Law and the Higher Education Sector

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The Competition & Markets Authority (the CMA) has published a policy paper, “An effective framework for higher education”, setting out what it perceives as the shortcomings in the regulatory regime pertaining to higher education (HE), and its proposals for reform. The paper follows the Office of Fair Trading’s Call for Information on the HE undergraduate sector in England, in March 2014, which recommended that the CMA should help develop proposals to improve the regulatory framework. The Office of Fair Trading had suggested that the regulatory framework was not working to protect students.

The CMA examined the impact that regulations have on student choice and competition in the HE sector. In particular, it has examined the extent to which HE regulations are designed to ensure competition works in the interest of students. In particular, it focused on:

  • How the current regulations prevent or inhibit choice and competition working well.
  • The impact the current regulatory framework has on providers’ incentives to compete for students.
  • The role the regulatory framework plays in enabling students to make informed choices about the range of providers across the HE sector.

Problems arising from the current regulatory framework

The CMA identified several problems which it says have arisen largely because the current regulatory framework has evolved around the protection of public money rather than reducing risks to the quality of students’ learning experience. The CMA identified the following problems:

  • There are gaps in regulatory oversight and discrepancies in the application of regulatory sanctions, resulting in different types of HE providers being quality assured in different ways, or indeed not being quality assured at all. Since the incentives on providers to provide a quality service are not consistent and a poor quality service is not swiftly addressed in some cases, there is a real risk that some students are less well protected against poor quality provision than others.
  • The current regulatory framework may be restricting entry and expansion, particularly as increasing public and regulatory scrutiny of performance make it increasingly risky for HE providers with degree-awarding powers to validate a new entrant’s courses.
  • The rules around student loans are impacting the manner of course provision, potentially impeding innovation.
  • There is no sector-wide “exit regime” ensuring that students are protected if their course is withdrawn or their provider fails.
  • Whilst the information provided to students to enable them to make in an informed choice is improving, there is still room for improvement.

The CMA’s recommendations

The CMA recommends that the current regulatory framework is reformed in accordance with the following underlying principles:

  • In order to be able to operate in the sector all operators must meet a baseline level of quality.
  • That baseline should be kept to the minimum level needed to provide assurance to students that governance, transparency, student redress and consumer protection standards have been met, whilst still allowing scope for providers to compete to provide a quality learning experience above the baseline.
  • Additional regulation above the baseline should not signal different levels of quality or create an unlevel playing field. Care should be taken to avoid a system which signals to students that providers bound by additional rules offer better quality. This could be achieved by ensuring the separation of public money from the baseline quality assessment and for the system to be “competitively neutral” so that different types of providers have the opportunity to be bound by the same rules.
  • The maintenance of a risk-based approach to the frequency and intensity of regulatory review.
  • Ensuring that sanctions are related to the risks facing students rather than to the type of institution in question.

The CMA also emphasises the importance of ensuring that the regulatory rules and funding requirements allow new and innovative approaches to the delivery of high quality HE provision, such as online and accelerated learning. It calls for government to consider alternative funding structures to support these types of course.

The CMA believes that the HE sector is one requiring a system of regulation beyond that of general consumer protection law. This is because it is difficult for students to assess the likely quality of a course before they start studying and because they will suffer in the longer term if they make the wrong choice, or have a poor learning experience during their period of study. The paper concludes with a call to government to introduce appropriate regulatory measures to protect students in the HE sector. We await the government’s response.

In light of the above, any HE provider should be preparing themselves for the possibility of significant change to regulation in the years to come. The CMA’s report presents a significant opportunity to engage with the CMA and governmental institutions to ensure that any regulatory amendments promote an effective competitive environment. This exercise will also be instructive for Further Education establishments as to the direction of travel of the competition regulatory environment for education. Should you require further information or guidance, the Education and Competition Teams at Walker Morris LLP would be delighted to assist you.