How can the financial crisis in higher education be tackled?

HIGHER-EDUCATION funding represents one of many awkward challenges facing Sir Keir Starmer’s new Government.

Forty per cent of higher-education (HE) establishments are running deficit budgets, more than 50 are cutting jobs this year, and some are facing financial collapse. This is a crisis that cannot be ignored.

The University and College Union at Queen Mary, University of London, is attempting to log all the announced and confirmed redundancies, restructures, reorganisations, and closures taking place, institution by institution (at UK HE shrinking (qmucu.org)), including several Cathedral Group universities. It makes for shocking reading.

Addressing the recent Universities UK conference, the Skills Minister, Jacqui Smith, confirmed that the Government was considering its options, but she gave nothing away about what these might be.

Given the range of other pressing issues on the PM’s desk, we might also ask when this might be. Higher education has struggled to achieve priority status since the Blair years, and there is little sign that this is going to change now.

In a way, this is entirely understandable. Since universities are dependent on public funding, the sector has always found it difficult to compete with hospitals and schools for funding.

This was one reason that David (now Lord) Willetts, the former Conservative Minister for Universities and Science, introduced a new funding system after the Browne review of 2010.

Before Browne, universities were recipients of block teaching grants, issued by central Government to help to pay the costs not covered by tuition fees in a system in which student numbers were also controlled centrally.

Browne’s legacy: the block grants were for the most part abolished, home (UK) tuition fees were raised to a maximum of £9000 per year in England, and student number controls were lifted. The new system transferred much more of the cost on to the students themselves, who, in turn, obtained the necessary finance through the government-owned Student Loans Company.

More importantly — at least, for the long-term sustainability of universities themselves — the lifting of student quotas created an HE market. Simply put, universities that attracted more students secured more fee income, while those that struggled found their lower intake reflected in their balance sheet.

These changes brought public universities closer in operation to private businesses, while also retaining their charitable status.

For Lord Willetts, aside from matching his Conservative preference for a small State and free markets, they were also justified on the grounds of financial sustainability. These changes came with hidden dangers, however, and now we are seeing their long-term consequences.

Much is linked to the inherent weaknesses of market models once put into practice. For example, the HE “free market” is by no means a level playing field: universities are not competing from the same starting position.

UK universities trade on their pre-existing reputations, and, with the best marketing department in the world, some brands are much more resilient than others. This is borne out in the range of HE institutions that are now struggling to balance their books.

If they are — according to market logic — allowed to fail, then it is worth noting that many of these more financially vulnerable institutions are also those that serve some of our most vulnerable communities. Not for the first time, markets may well end up favouring those who had plenty in the bank before the race even started.

Another weakness reflects how, despite appearances, the HE sector in the UK does not really function like a free market at all. This is most striking in relation to home student tuition fees, which have been capped since 2017 at £9250, and which remain controlled by central government.

Fee increases are not vote-winners, and so governments are disinclined to implement them. After the inflation of recent years, the Russell Group estimates that, in 2022-23, English universities supplemented the cost of undergraduate education by an average of £2500 per student p.a.

Especially badly hit are those institutions heavily dependent on home fees and not in a position to attract large numbers of international students, whose unregulated fees can be used to cross-subsidise the costs of teaching home students.

The last Government’s persistently hard-line approach to immigration produced policies that made it increasingly difficult for international students to study in the UK; so this income stream has hardly been reliable, either. Thankfully, the Labour Government has already taken some — albeit limited — steps to change the tone on this front; time will tell how this influences the overseas student intake over the coming years.

Finally, changes to the fees model heightened the recalibration of students as entitled consumers of higher education.

The increase in fees reinforced the perception of the financial burden on students and their families, and this coincided with the establishment of the Office for Students as a government body responsible for ensuring that students received the higher education to which they are entitled, as fee payers. In themselves, these are not necessarily negative developments, and the consequent focus on ensuring high-quality university teaching has undoubtedly generated some positive results.

But they also make fee increases even more politically difficult, while heightening expectations of the student experience sometimes beyond what universities can reasonably afford. In this market model, consumer demands are encouraged unabated, while the resources available are fixed by the rules of the game.

SO, WHAT now for UK universities? Public services are creaking, and substantial tax rises and new borrowing (supposedly) are ruled out; so the levers available to Sir Keir’s government are severely limited. Astute observers of the sector suggest that we might realistically not see any dedicated new money until after the next General Election.

For some universities, this may not be soon enough, and should any face financial collapse, a piecemeal bailout package might help in the short term; but it doesn’t address the structural problems that brought about the current situation.

These longer-term solutions will need to grapple with how far HE can grow in future; what the balance of public and private finance should be; and what the wider consequences of these decisions might be.

One option — an increase in tuition fees for home students — would be welcomed by many working in HE, and would be a simple means of easing the financial pressure on universities. It would, however, be unpopular with students, who would thereby face even higher long-term debts.

It’s heartening to know that our new Government is less hostile approach to universities than its predecessor, and to hear that the “culture war” with universities is over. But what narrative will take its place?

The chief executive of Universities UK, Vivienne Stern, has recently argued that, for every £1 the Government put into HE, £14 is generated for the UK economy. According to Stern, the UK cannot afford not to invest. So, it makes sense to invest in HE as a means to economic growth.

The challenge to politicians and civil servants is clear. Setting aside toxic talk of “woke” agendas is one thing; but will they go as far as presenting universities as a public good, deserving of public investment as a means to both economic and cultural growth? Taking this road will help to restore hope within the sector, and strengthen the case for a sustainable future for all of our universities.

Dr Mathew Guest is Professor in the Sociology of Religion at Durham University.