Taking a leap in the dark with a radical experiment on funding

Last week's narrow vote in the House of Commons to approve a near tripling of the tuition fees cap to £9,000 was - for people like me who believe passionately in the idea of public higher education - the beginning of the end. Although protests will continue, it is hard to see any quick reversal of the drift towards privatisation. Only hard years of political campaigning can do that. Like William Pitt after Napoleon's victory at Austerlitz, we simply have to "roll up the map".

But last week's vote was also the end of the beginning. The Browne proposals, lightly modified, are to be implemented. A White Paper is promised for the spring. The universities now have to turn their attention to implementing this Brave New World.

An immediate challenge will be to prepare for continuing protests. To demonise and dismiss these protests would be a big mistake. Of course, a hard core of protesters against global capitalism will attach themselves to the anti-fees campaign. But their presence cannot disguise the revulsion for electoral politics felt by many students, and young people generally.

For the moment, and rightly, this revulsion is focused on the Liberal Democrats. But the whole country will suffer if this revulsion turns into disenchantment with our political system. If universities handle these difficulties sensitively, it could be decisive in drawing students back into the democratic mainstream. If not...

The next big decision universities will face is the setting of their fees. The Higher Education Policy Institute predicts that £9,000 will become the standard, just as the £3,000 maximum was charged by nearly all the English universities after Labour introduced variable fees for the 2006-07 academic year. Hepi is probably right, although some universities will go in for ingenious discounting through complicated offers and alluring bursaries.

The reasons that universities will charge the maximum are simple. First, they will need the money; £6,000 is simply not enough to plug the gap created by the cuts in Higher Education Funding Council for England funding. Second, when students take into account the other costs of higher education (living expenses and income forgone), the difference between £6,000 and £9,000 is too small to "nudge" their behaviour decisively - especially when they do not have to pay the fees upfront.

Ministers cling to the hope that most universities will charge £6,000, and £9,000 will be the exception. Universities and science minister David Willetts is relying on undercutting competition from further education colleges, ignoring the fact that much higher education in colleges is franchised by universities who control fee levels and that almost none of it is at undergraduate level. Business secretary Vince Cable talks of competition from private providers, again ignoring their canny business instincts to pick soft targets (such as law and accountancy) and probably to prefer partnerships with "public" universities over cut-throat competition.

No, market forces are not going to do ministers' work for them. If the government wants to restrict the £9,000 fee to a few "top" universities, it will have to take powers to do so.

The "supply side", therefore, is fairly clear. Effectively there will be a cartel charging £9,000 with limited competition on the fringes. Although competition law is strict when it comes to market-rigging, it would be surprising if universities remained entirely ignorant of each other's plans - but by osmosis rather than collusion.

But the "demand side" is much less certain. No one really knows how potential students will react to higher fees, although the prominence of school and college students in the protests demonstrates that a raw nerve has been touched. The fact that student fees have become the coalition government's "poll tax moment" has also ratcheted up the pressure - and the uncertainty.

The Treasury is probably relying on an overall decline in student numbers (maybe 10 or 15 per cent) to contain the potentially higher "public" cost of "privatised" higher education. This probably explains the relaxed approach to controlling overall numbers. But even if these calculations were wrong, the extra cost of the student loans book will be paid for by cutting the Hefce grant still further.

My guess is that if there is a dip in student numbers, it will be brief. In a high-skills economy and a mature democracy, the pressures to participate in higher education are too strong. But who knows? England has just embarked on a radical experiment by moving decisively towards a market system of higher education - a far more radical experiment than embarked on by any other advanced society (including the US). Scotland and Wales, wisely, have opted out. It is a leap in the dark.