One of life's battles is between analytical rigour and political feasibility. Politicians claim both, but when the chips are down mostly give greater weight to politics. Academics should follow logic wherever it leads, and the most distinguished do so even in a hostile political environment. Scholars were overrepresented among the active opponents of the communist regimes in Central and Eastern Europe. In the UK, examples of counter-cultural social policy proposals include support in the late 1980s for judicious experiments with competition in the delivery of healthcare within the National Health Service (Barr, Glennerster and Le Grand, 1988), and agreement with the Conservative policy of GP fundholding in the 1990s (Glennerster and Matsaganis, 1993), to which Chapter Seven refers.

Another example, the focus of this chapter, is an early proposal for financing higher education in part via a graduate tax (Glennerster et al, 1968) – a policy originally proposed by Milton Friedman (1955). At the time, the idea of a graduate contribution was simultaneously an anathema and visionary. Since then, the question of how to pay for universities has become central, with widespread agreement about widening access, but debate about how best to do so. To many, it is obvious that higher education should continue to be ‘free’ (that is, paid for by taxpayers) because, they argue, the introduction of fees will deter demand. That view informed Labour Party policy in the UK until the 1990s (and for many Labour supporters to this day), and the policy of the Conservative and Liberal Democratic parties into the 2000s.

This chapter discusses controversial reforms of higher education finance in England in 2006, arguing that – contrary to popular belief – they are strongly progressive. It explains why those reforms have the shape they do, looking through the twin lenses of the economics of information and the major changes in higher education over time, notably sharp increases in size and diversity. A central conclusion is that a regulated market is a more suitable model for higher education than central planning. This line of argument does not deny that higher education matters also for other reasons: to promote cultural values, to protect the freedom of ideas and to pursue new knowledge for its own sake.