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10 ‘killer facts’ about higher education finance by @nickhillman

  • 7 June 2022
  • By Nick Hillman
  • On Thursday, 9 June 2022, HEPI will be hosting its first in-person Annual Conference since 2019 at One Great George Street in central London, sponsored by UPP and with media support from Times Higher Education – the title for the day is ‘Challenges for the future? The student experience, good governance and institutional autonomy’. The keynote speakers are the Rt Hon. Michelle Donelan MP, the Minister for Higher and Further Education, and the political journalist Michael Crick. In addition, the Conference will see the launch of the annual Advance HE / HEPI Student Academic Experience Survey, which is the most reliable source of information on students’ value-for-money perceptions, workload and wellbeing (and which includes some new topics this year as well) and also a debate on the state of university autonomy. All HEPI University Partners and corporate Partners are entitled to a number of free places – please book here.

Whenever I meet vice-chancellors, they tell me (generally whether I have asked them or not) that their number one current concern is the unsustainability of the funding model for higher education.

These worries are not wholly new and are felt across the UK. Institutions in Scotland and Northern Ireland might well argue they have been feeling the pain for longer than those in England and Wales. But the current raging inflation just makes the pressures worse for everyone.

To take England as an example, no one dare increase the undergraduate fee cap this side of the next Westminster election (due in or before 2024), but university leaders complain the cap will have increased just once between 2012/13 and 2024/25. The welcome increases in the teaching grant (now called the Strategic Priorities Grant) do not make up the shortfall caused by inflation eating away at the income from home fees. It used to be only Oxford and Cambridge that complained that fees plus teaching grants equalled a deficit for each home student. Now that is true on average across the board. So the sector feels in a bind. 

It is an odd position to be in, given that Tony Blair and Nick Clegg among others spent so much political capital trying to make the system more financially sustainable. And in many respects, they succeeded: the underlying legislation for the current fees system remains the old Higher Education Act (2004), passed in the very year that many of this year’s university applicants were born. England’s £9,000 / £9,250 fees have already survived for a decade, longer than either the £1,000 or £3,000 fee regimes. Anyone who thinks the student riots were recent would do well to recall that today’s applicants were infants when the higher fees came in. As they were introduced during the Diamond Jubilee rather than the Platinum Jubilee, no other funding model is even remotely in their memories.

the underlying legislation for the current fees system remains the Higher Education Act (2004), passed in the year that many of this year’s applicants were born

It can sound counterintuitive when the university world says it doesn’t have enough money, given it is widely accepted that higher education was partly protected from austerity by the higher fees and when institutions continue to be so successful, but counterintuitive is different to untrue. For most of the twenty-first century so far, those who have claimed the English and Welsh funding systems are unsustainable have proved to be on a hiding to nothing. But if such funding models are to survive much longer, and the main alternatives (like taxpayer funding and a graduate tax) continue to be so unpalatable outside of Scotland, then policymakers may need to address themselves to the following 10 killer facts about higher education funding once the current leadership battle calms down.

  1. The shortfall in research funding has grown to £4.0 billion for England and Northern Ireland – meanwhile ‘publicly-funded teaching’ has built up to an annual deficit of £0.5 billion.
  2. The consequence is more international students, wherever this is possible, as they cross-subsidise research activity to the tune of £2.0 billion in England and Northern Ireland alone (or thousands of pounds a year each). The research-intensive universities in the Russell Group have typically seen particularly large growth in international students.
  3. Some research that would otherwise happen is not currently happening –the University of Dundee recently topped the Research Excellence Framework rankings for Biological Sciences yet, according to Audit Scotland, the institution ‘has made a strategic decision that it will not target further growth in research, because the university deemed it not to be financially sustainable.’ The consequences of such unavoidable decisions include managed decline.
  4. As Mark Corver from DataHE has shown on the HEPI blog, if we return to something like 1970s-style inflation, then the maximum £9,250 fee for a full-time undergraduate in England by the end of this decade will be worth just ‘around £2,000, less than a quarter of 2012 resource.’
  5. Higher education institutions – like schools – tend to flex their educational offer in response to the funding available. So the challenge of underfunding is not just (or even mainly) institutions going to the wall; it is institutions not delivering for their students. I went to university in 1990, after a dozen or so years or falling per-student funding, and – as I have written about before – the result was an impersonal learning experience that many people simply (and rightly) would not accept today.
  6. Student funding is not just for the obvious costs of teaching and learning, like buildings, edtech and staff; it is also for counselling, careers support and non-academic facilities. So when funding falls, it is not just teaching and learning that suffer – indeed, these other things, many of which policymakers seem to want universities to provide more of, might suffer earlier and worse. We have never been as good as we might have been as a sector at explaining this point. Reluctantly posting a pie chart on an intranet to show students where their fee income goes is not the same as educating policymakers on the point.
  7. Unsurprisingly, students’ value-for-money perceptions have never been lower than during the COVID crisis, yet they were improving immediately beforehand. This suggests that universities can and do strive to improve the situation for their students when they are given the room for manoeuvre to do so.
  8. Day-to-day, as last year’s HEPI / Advance HE Student Academic Experience Survey proves, students care more about living costs then tuition costs (as typically, for home students, the maintenance package does not cover their true costs whereas tuition loans tend to cover the full fee). But there is little let up here either, given the increase in maintenance support is due to be around 2 per cent while inflation is hovering around 10 per cent.
  9. Speak to the big players in the student accommodation market and they will tell you there is a gap between what people outside the higher education sector say student accommodation should be like (eg cheap and not en suite) and actual demand. The newer and more expensive accommodation often fills up first (and, counter-intuitively, it is sometimes the richer students with more social capital who opt for the older and cheaper accommodation). If people want student accommodation to be less expensive, then we need to educate applicants better on the consequences of different accommodation preferences.
  10. One simple idea for reducing the costs of accommodation is rent controls. To some degree, we have these in London in the London Plan, which insists much new Purpose-Built Student Accommodation (PBSA) is ‘affordable’, meaning rent is at or below 55% of the maximum maintenance loan. This is almost certainly short-term good, long-term bad for students and others. At the very least, basing the provision of new student rooms on the official maintenance package is an odd thing to do when the level of each year’s maintenance support is arbitrary, reflecting political priorities. It risks not only fewer new purpose-built student bedrooms but also adverse knock-on consequences for other housing markets, as students search for accommodation outside the PBSA sector.

Reluctantly posting a pie chart on an intranet to show students where their fee income goes is different to educating policymakers on the point.

2 comments

  1. Andrew Connolly says:

    Universities often want the Govt to give them a solution (a new funding model) to problems such as supporting research from the cumulative impact of 10 years real-terms cuts in the home UG fee with more to come.

    But shouldn’t we look within first?

    Universities have largely balanced the books over the last decade by ‘growing out of the problem’. We are brilliant at this; managing income and expenditure (more income/how should we deploy it) but not so good at managing margins (its difficult to cut out loss making activity and growth enables us to avoid the challenge completely). So how much of our problem is unexposed supply-side inefficiency? How can we wean ourselves off the drug of growth?

    The model of a fixed cost base (especially staffing costs in research intensives) supported by income streams that are now almost entirely variable and earned in a market isn’t sustainable either – but no one is challenging the employment model. We need more flexibility in the staff cost base – which is of course anathema as we’re locked into 1970s style trade unionism on employment (increments) and pensions (USS,TPS). Yet the focus is on appeasement not addressing the systemic problem.

    The ‘London Plan’ is a laudable aim. But the sector has partly financed growth by completely outsourcing PBSA to the financial engineers of private operators/developers and their tapping of capital markets. We’ve under acknowledged how much this has supported our own finances. Rampant capitalism has created highly attractive investor-grade asset classes with RPI-indexed returns and it will be difficult to put that genie back in the bottle without undermining investor confidence. In large part, PBSA has ceased to be a form of social housing.

  2. albert wright says:

    Nick Hillman’s observations are always interesting to consider and he is a great supporter for all things University, based on ever increasing budgets for these institutions, predominantly paid for by tax payers.

    However, my own view is that the University sector is already well funded and that tax payer funding could earn a higher return for citizens and society with more money spent on public housing, health and social care and early years education.

    I am not convinced that University based Research has a good return on investment or that we need more undergraduates.

    Statements such as “The shortfall in research funding has grown to £4.0 billion for England and Northern Ireland – meanwhile ‘publicly-funded teaching’ has built up to an annual deficit of £0.5 billion.” is not very helpful. It may be true if you are looking at the cross subsidy within the current total budget for Universities or that you want to approve of annual deficits between income and expenditure.

    However, the apparent problem could be solved if the cost of doing such activity could be reduced by the same amount or the quantity of “output” were reduced to keep within a lower budget.

    Times may be tough for those who work in the academic sector but times are tough elsewhere. There still seem to be people who want to become Professors when a vacancy occurs and enough post graduates to fill University teaching roles.

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