ECON 11: Economic Theory and Higher Education in the UK

This report examines the economic theory and the higher education system in the UK. It explores the argument that education spending often falls below the socially efficient level without government intervention, analyzing the rationale behind this and the potential of recent policy changes. The report includes a literature review that discusses how higher education generates non-pecuniary spillovers to society, such as increased civic engagement and reduced crime rates, and also reviews the major policy reforms in the UK higher education sector, focusing on the sustainability of finances, investment in teaching and learning, and the government's role in funding and admissions. The report uses information from various sources to provide an in-depth understanding of the UK's education economy.

assignment
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Abstract
The report will help in understanding the economic theory and the higher education of
the UK. Further, the report will help in understanding the spending on education below
the level of efficiency without the intervention of the government. Then, the information
will be gathered from the various articles and the sources in order to understand the
economy of the country in depth. Then, the various policy reforms of the UK will be
given in the sector of education.

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Contents
Introduction................................................................................................................................................3
Education spending tends to fall below the socially efficient level without
government intervention...............................................................................................................3
Literature review.......................................................................................................................................5
Higher education generates non-pecuniary spillovers to the society...............................5
Recent major policy reforms of the UK higher education sector........................................................8
Conclusion.................................................................................................................................................9
REFERENCES........................................................................................................................................10

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Introduction
Education and higher education, in particular, have been expanded in the UK.
Aggregate student numbers in the higher education sector have doubled in 20 years.
There is a widespread presumption that higher education generates non-pecuniary
spillovers and education spending tends to fall below the socially efficient level without
government intervention. This essay aims to explain the reasons for this argument and
evaluate the potential of recent policy changes in the UK to bring about social welfare
improvements in the country.
Education spending tends to fall below the socially efficient level without
government intervention
It has been said that the electorate of the education is very important for the
organization in order to be successful. Further, the workforce of the education is
judgmental for the adaption of the new and the advanced technology. It has also been
observed that the crime and the education have the negative relation so that the
education can minimize the rate of the crime and the social disturbance. Furthermore,
the rationale for the intervention of the government occurs due to minors, who are
mainly the education’s recipients, as they are not responsible in order to decide that
how much education they will attain. The responsibility of the education lies with the
parents as they are the ones who bear the education’s cost. The education's
advantages accrue to the children who mainly get it, the spending level of education
relies on the degree of altruism. Moreover, if the parents place the minimum value in
improving the potential for the future of children, then invest in children and the

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intervention of the government can be justified on the foundation which will safeguard
the children from the parent's decision.
The decisions of the education include the constraints of the capital market and if the
households face the constraints which restrict the access to the credit and also causes
the rate of the borrowing more than the economy broad capital’s marginal product. Due
to the loan to achieve the education which is not hinder by the collateral which is
challenging in order to obtain in the credit markets of the privatization. Further, the
restricted number of children in order to educate is the sight of the fixed cost in the
production of education. Also, the marginal cost of adjoining another student to the
classes is relatively low as compared to the average cost of the education of a student.
It is very challenging to quantify the importance, and there is some externalities
comrade with the education. Moreover, the changes in the behavior of the parents can
move the economy from the level of equilibrium of spending on education to the other
level of equilibrium i.e. minimizing the overall spending. As the efficiency outfits the
rationale for the policies of the public which further intervenes the market for the
purpose of education, that are not the only rationale for the extant programs. In the UK,
the education has been the great responsibility for the government, though there was a
trend in the previous century for the finance’s centralization at the state level as
compared to the local level.

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Literature review
Higher education generates non-pecuniary spillovers to the society
The higher education is mainly funded from the money collected from taxpayers who
help in the creation of resources that can be invested in the higher education (Bynner,
J., & Egerton, 2000). But, these resources are not enough to fund the higher education.
Additional investments are required to be made, but the government finds it difficult to
draw these resources from the different sources. To convince the contributors for
investing in this or to make the beneficiaries contribute in this scheme, it is important to
examine the private and social benefits to higher education (Barr, 2000). The private
benefit is easy to determine because it can be measured by determining the salaries
which the graduates get when they receive the tertiary education (Hammond, 2002).
But, when it comes to social and cultural benefits, it is presumed that higher education
generates non-pecuniary spillovers (Hammond, 2002).
According to (Greenaway, 2003), when it comes to the issues related to national and
international tolerance and the concept of social inclusion comes up, the graduates are
found to be more active participants in these voluntary organizations. The contribution
of these graduates is the most in the process of democracy. The findings of (Hodgson,
2000) shows that there is a strong link between higher education and the participation of
those educated people in the affairs of a community, the process of democracy,
carrying the egalitarian attitudes and active participation in the parenting and voluntary
work. The report further states that the links continue to hold even after these people
adjust for other causal factors as the family background. These cultural and social
factors are important, and they promote the social cohesion without any doubt. These

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benefits have a knock-on effect on the economic benefits that are received directly. For
example, the public expenditure gets reduced on the activities like criminal justice and
the social security. Though it is difficult to quantify these benefits, but some researchers
have tried to do that.
(Barr, 2000) calculated the social savings that arose from the reductions in the rate of
crimes when more people completed their high school. They estimated that if 1% of the
male high school dropout rate will reduce, then approximately $2100 per additional male
high school graduate will be saved. (Bynner, J., & Joshi, H., 2007) has estimated the
effects that health knowledge and schooling has on the health behavior of people. The
effect of schooling on the good health is positive. They also found that the people who
have a college graduation degree is healthier and has more health benefits as
compared to those who just have a high school diploma.
(Murray, 2009) has mentioned in his paper that when higher education is gained by
people, they become more interesting in terms of knowledge gained and they become
more attractive because their personality gets enhanced with education. This also
helps in increasing the utility of the other people. Again (Purcell, 2007) shows that with
the schooling completion, the criminal activity gets reduced and substantial social effect
gets generated in the economy. Education enables people to increase their participation
in the political process in a more efficient manner.
(Brennan, 2014) has mentioned in his paper that there is a relationship between
attaining higher education and citizenship in terms of the changing attitude towards
voting of people. When people attain higher education, their propensity to vote

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increases. They are able to take the right decisions are right to the point of time. This
helps the nation by getting the right leader for them. Also, this educated lot is able to
evaluate and judge the skills and capabilities of the potential leaders in a proper way.
They can determine that who has the ability to run the country, and who does not have.
Also, they can predict and judge that who among the leaders is fake and is planning to
deceit the country.
(Brennan, 2014) has also mentioned in his research that the higher education has a
positive impact on the civic engagement in the sense that the propensity to volunteer,
the participation in the public debates, the mutual trust among people and the tolerance
towards each other increases. This is because when people have higher education,
they are able to see things in a broad way. They change their mind set, and they move
towards the betterment of the nation and its citizens. They become aware of all the pros
and cons of a situation. This makes them participate in debates and changes the way
things are done. They also move aware from the social norms that have an adverse
effect on the lives of people. This makes them contribute to the development of the
nation.
Thus, higher education generates many pecuniary benefits like more productivity, high
GDP, more rate of employment, increased demand for goods and services. But, in
addition to this, non-pecuniary spillovers to the society are also the result of higher
education.

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Recent major policy reforms of the UK higher education sector
The major policy reforms of the UK higher education sector are as follows ("British
Council | UK", 2016):
 Securing the sustainability of the finances of the institutions and the ability for the
long term in order to compete with the other universities.
 The establishment of the variable fees will help the various universities in order to
place the provision of teaching and the learning on a platform of sustainability,
following a period of long investment. This will help the universities further in
order to invest more to gain the experience of education. For example, the
investment in the quality, improvements in the ratios of student and the staff,
improved infrastructure for the purpose of teaching and the learning,
transformations in the assessment and the curriculum and the establishment of
the new system in order to encourage the changing population of the student.
 The universities will invest in a broad range of activities of the outreach.
 The universities will become more flexible for the various programs in order to
tailor the scholarships to the circumstances of the university.
 The universities will invest in order to create the future of the students so that
they can gain great experience.
 The universities will maximize the cost-effectiveness by influencing the innovative
and the creative ways in order to deliver the great efficiency and the high
productivity level.

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 The universities will involve in great negotiations along with the staff about the
various transformations in order to reduce the effect of cost reduction by offering
the experience to the students.
 The government will consider the advantages of shifting to the new system of
admissions for the post-qualification for the courses of the under-graduation.
 The policies of the coalition government in order to raise funds for the higher
education will take the complete account of the various advantages which the
universities will promote for the students and the economy.
Conclusion
The report clearly helps in understanding the economic theory of the UK along with the
higher education and how the education has been changed from the past few years.
Further, the previous research helped in understanding that how the education
promotes the non-pecuniary spillover to the society of the country. Further, there are
various difficulties which are being faced by the education system of the UK along with
the important questions which are yet to be solved. Therefore, the important strength of
the higher education of the UK is the great quality of the universities which are
research-intensive.

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REFERENCES
Barr, N. (2000). The benefits of education: What we know and what we don’t. Economic
growth and government policy, HM, Treasury.
Brennan, J., Durazzi, N., & Séné, T. (2014). Things we know and don't know about the
Wider Benefits of Higher Education: A review of the recent literature.
British Council | UK. (2016). British council.in. Retrieved 20 December 2016, from
https://www.britishcouncil.in
Bynner, J., & Egerton, M. (2000). The Social Benefits of Higher Education. An internal
report produced for HEFCE.
Bynner, J., & Joshi, H. (2007). Building the evidence base from longitudinal data: The
aims, content and achievements of the British birth cohort studies. Innovation, 20(2),
159-179.
Greenaway, D., & Haynes, M. (2003). Funding higher education in the UK: The role of
fees and loans. The Economic Journal, 113(485), F150-F166.
Hammond, C. (2002). What is it about education that makes us healthy? Exploring the
education-health connection. International Journal of Lifelong Education, 21(6), 551-
571.
Hodgson, A., & Spours, K. (2000). Expanding higher education in the UK: from ‘system
slow down to ‘system acceleration’. Higher Education Quarterly, 54(4), 295-322.

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Murray, J. (2009). The wider social benefits of higher education: What do we know
about them?. Australian Journal of Education, 53(3), 230-244.
Purcell, K., Wilton, N., & Elias, P. (2007). Hard lessons for lifelong learners? Age and
experience in the graduate labour market. Higher Education Quarterly, 61(1), 57-82.