Jim Knight on the wider impact of financial pressures facing the UK higher education sector
The other day I woke up as normal. Chris Evans was on the radio and I was surprised to hear him talking about a study that found that Cambridge University contributes £30 billion a year to the UK economy. Not only was this a more serious story than normal for Chris, but I wondered how it fitted with the warnings from the National Audit Office (NAO) of serious financial stress in the university sector?
This report found that the number of higher education (HE) providers with in-year deficits has risen from 1% to 15% in the last five years and that 20 have been in deficit for at least three years. This covers the full range of types of institution, suggesting more systemic problems.
This really matters. Britain is defined globally by the strength of our universities, and they are in danger of spiralling into financial crisis.
According to Universities UK, the sector contributes £95bn to the economy, and supports 815,000 jobs. We are the third most popular destination for international students globally, and have the highest degree completion rates in the Organisation for Economic Co-operation and Development (OECD). Finally, the research is world class with the third-highest publication output globally.
Behind that strength the university business model is collapsing. They get most of their money from Office for Students (OfS) funding, fee income and research grants. When the Coalition raised tuition fees in 2012 funding was reduced. This was OK for a while, but fees have been capped since 2017, inflation is soaring and OfS funding is nowhere near filling the gap. Government funding of HE is now the lowest in the OECD.
The Institute for Fiscal Studies found that spending on students has fallen by 18% in real terms in the last ten years. UK students pay the highest fees in the OECD and are getting less in return. Universities are already making a loss on teaching domestic students and are having to scrabble about to make ends.
There are big consequences.
The UK economy is struggling with low productivity and low growth. The answer to both is more investment in our people, more of us collaborating better with machines, and more cutting-edge research.
The march of artificial intelligence and robotic technologies means that we can only succeed with higher levels of skills and learning. A healthy university sector is vital for employers and to give workers the skills and confidence to outcompete machines.
The research picture is particularly bleak. OfS data tells us that in 2020-21 only 71% of research costs in England were covered by funding. That gaps needs to be covered from teaching funding or by finding other income or the research will simply dry up.
For university towns the stakes are even higher.
Universities are big employers and property owners. Students bring income to the local economy through rents and consumer spending. Research generates start-up businesses and innovation. Hence Cambridge University adding so much to the UK, especially in East Anglia.
The business models of our universities are falling apart. Without a new financial deal some will fail, and with no idea whether the OfS and the Treasury would be able to save them. Local authorities are going bust and getting help, what about universities?
Rumblings from the Home Secretary Suella Braverman about reducing international student numbers, the removal of EU structural funds, rapidly rising costs, and the ever-present threat of another pandemic all pose new concerns that the OfS and the government as a whole must be alive to.
Universities are often a community’s biggest employer, so we need to be confident that people will not be abandoned should it fall victim to the harsh financial headwinds the whole sector is facing. The stakes are simply too high to be caught asleep at the wheel.
Jim Knight, Lord Knight of Weymouth is a Labour peer and former education minister
Published 23rd March 2023