My article on ‘Understanding University Finances’ has attracted some attention. It was intended to be a simple, and insofar as possible, objective guide to the operation of university finances. Reasonably enough, I have been asked what should be done about the financial sustainability challenge that my prior analysis identified. This time then, let us talk about solutions. What would it take to put our universities on a sustainable financial footing?
I plan to keep clear of politics and this is explicitly a technocratic perspective on higher education (HE) policy and how universities should respond. I pay less attention to the devolved administrations than I ought, for which I apologise.
Framing the Challenge
Let me start with some initial framing propositions. They will not come as a surprise to long-term followers of @profserious.
If the UK aspires to be a high-skill, knowledge-based economy and to promote opportunity, it is right to drive towards high participation rates in HE. This was, and remains, sound policy.
We cannot build a democratised, that is mass, system of HE on an elite model. It is neither effective nor affordable. We must change the way we do things, or the system will fail under its own weight.
The UK HE system has delivered globally recognised excellence. This is not simply attributable to one part of the system, but rather to the system as a whole.
The graduate premium, that is the difference in lifetime earnings between individuals who have a university degree and those who do not, has declined marginally, and in some (not all) parts of the country. This is readily explained by the supply of high-skilled jobs – UK industry and business are generating too few – the growth in the number of graduates, and substantially by the rise in the minimum wage. HE remains a very good deal for the UK and for those who undertake it.
It is unlikely that the HE system will secure significant additional public funding in either the short, medium or long-term. There are too many calls on public resources and, whilst HE does drive prosperity and growth, these effects are longer-term and lie beyond the political cycle. The public spending challenges elsewhere are more immediate and pressing. It is, I would suggest, naive to assume that this can be addressed by simply lobbying more effectively.
Whilst the UK undergraduate fee has declined in real terms, and there is no evidence that the fee has inhibited participation (it is underwritten), it is clear that it is close to the limit of public acceptability. There is, I judge, limited scope for significant rises in the fee level. We are already pushing the ceiling on what overseas students will pay.
What Should be Done
The sector is too fragmented, with too many sub-scale providers. This is neither efficient nor resilient. There needs to be consolidation, or radical collaboration. Such consolidation confers long-term benefits but incurs short-term integration costs. The government could mitigate this through structural support, combining grants and long-term loans.
We need a diverse sector, but the voices calling to focus research in a small range of institutions or to reinstate the binary divide are backward-looking and unrealistic. Government must treat higher education as a system, not a loose collection of competing parts. Universities need to resist the impulse to homogenise.
I might be inclined to take a more radical look at student fees, including subject differentials, but I am uncertain that there is a collective will to do this. It is imperative that student fees are index-linked, though I recognise this might take them through the politically significant £10,000 mark relatively quickly. At the risk of making the system less progressive, I would be inclined to reduce the interest rates charged but also reduce the thresholds for repayment to sharpen individual decision-making.
Overseas students are one of the UK’s principal and most successful services exports. They fund UK skills and innovation. Steps to limit access by overseas students to UK HE are a gross policy error, and, ironically, a political failure too, with limited effect on addressing public concerns on immigration and immediate damage to local economies. We sacrifice a key soft-power asset in a contested geopolitical setting.
Universities have a responsibility to maintain smaller disciplines and sovereign UK expertise and capacity. A narrowly competitive approach damages this. We need greater collaboration to secure the system as a whole. This could reasonably be supported and facilitated by regional government, principally the Mayoral Combined Authorities.
There is greater scope for shared services. This is inhibited by the VAT position: educational services are VAT exempt, but this does not necessarily extend to shared enterprise services and the VAT is irrecoverable. It is not clear that the exemptions available are suitable. Removing these barriers would allow universities to share costs without penalty. We need to create models and templates for shared services. There is a clear convening role for government and sectoral bodies.
If universities are to deliver a high-quality student experience at a lower cost, they will need to focus on experiential learning and to use more efficient digital means to convey associated knowledge. Our pedagogy will need to change substantially. Universities will need to embrace disruption. This digital transformation will be costly in the short term. Again, the government could facilitate this through structural support, combining grants and long-term loans.
Our existing workforce model is not fit for purpose. In each area of operation, we cannot simply expect ever more from staff. Skills, roles, responsibilities, reward, and workforce composition require challenge and rethinking. In the longer term this may go some way to addressing the sector’s fractured workplace relations. This is not about tinkering with workload models – it is about reconsidering how universities work from the ground up.
We are over-regulated and our response has rendered us insufficiently agile. Government needs to step back. The Office for Students (OfS) is a failed regulator, imposing costs and bureaucratic burden. It serves neither students, its ostensible purpose, nor does it effectively connect the Department for Education’s (DfE) policy direction to the sector, its implicit purpose. It should be abolished.
Government cannot reasonably devolve functions to universities without providing the funding to deliver them. Universities no longer have the margin to substitute for the shortcomings of other services. At the very least, this needs to be a dialogue recognising that universities are committed to public purpose.
The sector used surpluses generated when the funding situation was more favourable, and interest rates low, to invest in the estate and facilities required for expanded participation. This was sensible, but we cannot in the current constrained environment afford to use these inefficiently. Universities will need to maintain an increasingly strong focus on asset utilisation and business process efficiency.
Government should accelerate the implementation of its plans for the NHS workforce. The ‘Long-Term Workforce Plan’ was significantly more ambitious than the ‘10-Year Health Plan’ nevertheless Universities have a major role to play. This is an opportunity where immediate government priorities and university capacity align – we should seize it.
Research funders, principally UK Research & Innovation (UKRI), recognising that the cross-subsidy to the research system from overseas students has been redirected by government to support domestic undergraduates, must re-evaluate the funding arrangements. This may entail simply less research, but funded at something nearer its real cost. I favour a rebalancing, with a greater amount distributed through dual support to universities rather than through project grants. This would be more efficient. Clearly, business and industry need to invest more in UK R&D, closer to global comparators, and government should be more demanding in this regard.
If we are serious about securing the future of our universities, it is time for both universities and government to, as they say, stop rearranging the deckchairs and start building a better ship.
“I plan to keep clear of politics and this is explicitly a technocratic perspective on higher education (HE) policy and how universities should respond.”
Political Scientist here: this plan of yours is logically impossible - there is no policy without the politics.
I might humbly submit that university leaders’ collective failure to understand this is at the root of the problems the sector is in. For such an important UK industry, universities have long been woeful both individually and collectively at the political tasks that are essential to secure their interests, and as a result have become useful punching bags for government.
Where financial services has managed to socialise its risks and privatise its profits by narrating itself as the ‘commanding heights’ of the economy (it is not), universities have allowed themselves to be regarded as a public service by the public, regulated like one by government, including becoming responsible for providing other public services such as mental health support, but with its revenues and risks privatised.
To fix that, we’re going to need some politics.
Very interesting. Agree with most (not on the OfS - it may need reform, for sure, but HE definitely needs a regulator), especially on the unfeasibility of an elite model for a system of mass education, and the excessive fragmentation of HE at present. Relating to ‘the voices calling to focus research in a small range of institutions or to reinstate the binary divide are backward-looking and unrealistic’ - certainly (and I also know of plenty of awful snobbery in the RG, for example one privileged academic who told another from a working class background that she shouldn’t expect to be able to get a job in the RG) but the 1992 Act was not the best way to get beyond this. It should be superseded by a new act which makes provision for a wide range of different types of providers, including technical education, and other alternatives that go beyond the university/polytechnic dichotomy. Replacing this with a de facto ‘one size fits all’ model, as I feel the 1992 Act did, was not the solution, and creates unrealistic expectations for both staff and students.