This paper is not sponsored by any organisation nor has it been prepared from a party political standpoint. The authors gratefully acknowledge financial support for this research from the Royal Economic Society which supported the work to promote debate on the Economics of Higher Education. Anna Vignoles would like to thank the ESRC for funding towards this research. An earlier draft of the paper was presented at a Symposium on Higher Education and Lifelong Learning held in Bristol in July 1996 and appears in the Conference Proceedings. The authors wish to acknowledge helpful comments on the earlier draft from Tony Atkinson, Sir Ron Dearing and an anonymous referee.