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Four cost-neutral ways to alleviate universities’ financial woes

  • 22 November 2023
  • By Susanna Kalitowski
  • This HEPI blog was kindly authored by Susanna Kalitowski, Head of Policy at University Alliance.

Not a week goes by these days without a story in the print or broadcast media about the dire finances of UK universities. Why? As a university chair neatly put it in these pages, ‘all our costs are rising fast, and our largest single source of income is constrained by law.’

The lack of long-term sustainable funding is incentivising risk aversion on the part of governing boards – the inverse of the ‘radical’ and ‘transformational’ thinking that the Office for Students is keen to see them take. This is a point University Alliance (UA) made in our Let’s Get Technical policy briefing, and why we are advocating for a more strategic approach from the next government.

The current situation is leading to a debilitating triangle of sadness with no end in sight: neither the Government nor the Opposition have shown the slightest inclination they will give universities relief anytime soon. This is even though a) the UK makes the lowest proportional contribution to higher education in the OECD and b) recent changes to student loan conditions have resulted in £2.7bn per cohort windfall for the Treasury.

So, what is to be done? Ahead of the Autumn Statement, Alliance universities have knocked heads together and come up with four ways the Government can alleviate the financial situation of universities in the short term without spending a single penny more.

1. Increase student maintenance support

There is growing evidence of the heavy toll the cost-of-living crisis is taking on students. HEPI has made several valuable contributions, including the findings that 76% of students feel that the crisis has affected their studies, and a record number are in paid employment (55%), as well as analysis that accommodation costs take up all the average maintenance loan. With the real value of these at their lowest level in seven years, it is vital that maintenance entitlements are uprated as soon as possible, and ideally linked to the minimum wage.

The reinstatement of means-tested maintenance grants – so that the poorest students no longer graduate with the most debt – also cannot come soon enough. The good news for the Treasury is that London Economics modelling even shows that it is possible to bring back means-tested maintenance grants without spending additional public money – something that has not gone unnoticed by the Opposition – suggesting it may also be possible to uprate maintenance support without spending more.

2. Welcome international students

The arrival of a new Home Secretary offers the opportunity for a reset of the Government’s approach to international students. Our wider economy needs international students, and we must ensure the UK can continue to compete as a top destination for international talent.

Suggestions from ministers that international students should be discouraged from coming to the UK, repeated references to ‘low-value degrees’ and new limits on visas for dependents for postgraduates are music to our competitors’ ears – and are already having a detrimental impact. However, polls show the public is not in favour of cutting international students. They should be taken out of net migration targets, and the Office for National Statistics should separate out temporary from permanent migrants.

Effective immigration policy that clearly signposts the UK as a welcoming environment for international students is not only essential to the health of the higher education sector, but also helps to forge global partnerships and boost the economy. As your parents would say, being nice costs nothing.

3. Reform pension rules

University pensions have been the source of considerable dispute over the past six years. But just as the crisis over the Universities Superannuation Scheme (USS) has abated, another has reared its head.

The employer contribution rate for the Teachers’ Pensions Scheme (TPS), the second most common scheme after USS, is set to rise by five per cent to a whopping 28.68 per cent from April 2024, at a cost of £125 million per year to universities.

The 80 universities affected, including all UA members, are legally bound by the 1992 Further and Higher Education Act to offer TPS. Differing requirements for pre- and post-92 universities mean there is now a risk of a two-tier system emerging, with the latter forced to absorb higher staffing costs due to a historic anomaly.

The Institute for Fiscal Studies reckons it is time for a comprehensive review of the UK pension system in view of changes over the last two decades, and significant reforms are being mooted on the left and right of the political spectrum. A review of pension rules across the higher education sector, and particularly expensive unfunded schemes such as TPS, could potentially save universities millions at little cost to government coffers, while still offering staff a fair deal.

4. Cut red tape

Universities are rightfully subject to robust regulation, but the current regulatory regime is disproportionate and costly, encompassing the Office for Students (OfS), Ofsted, and multiple Professional, Statutory and Regulatory Bodies (PSRBs). A recent House of Lords inquiry found this is leading to duplication and red tape, and that the Government should seek to streamline the responsibilities of different regulators in the sector as well as reconvene its Higher Education Data Reduction Taskforce.

In UA’s view, a full review of all regulation that affects the post-18 sector is needed to rationalise requirements where possible. One area that is particularly overburdened is degree apprenticeships, which are caught up in a tangle of regulation and unnecessary bureaucracy, which is hampering growth and innovation.

The government must re-double efforts to work with universities and employers to find and implement cost-effective solutions. We will keep pushing for a more sustainable funding settlement in the longer-term, as healthy universities are essential for growing our economy and improving our public services.

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  1. Matt says:

    Add to this: removing the VAT penalty on shared services.

    Universities would be able to work together and cut costs by sharing resources – this doesn’t happen at the moment (despite every university considering it) because the extra 20% charge kills most schemes at the modelling stage, leading to unnecessary duplication all over the place.

  2. Albert Wright says:

    Your 4 proposals make a strong case, particularly in the longer term, but if introduced next year would have implications on cash flow and balanced budgeting, at a time of general hardship and poor economic growth.

    Many people might prefer greater education investment in pre 18 years rather than undergraduates and above.

    Regarding red tape and bureaucracy, you are right that much could be done to reduce costs as suggested but the same would be true about the way Universities operate and more efficiency there could reduce costs.

    Other areas for cost reduction could be in the amount of money being spent in outreach to schools in areas of economic disadvantage to have more diversity in the students being recruited to universities. My personal view is that such initiatives should be suspended so we can study what the costs and benefits are and how this additional cost might be spread beyond universities as I believe the full cost should not exclusively fall on HE.

    Duplication of research is another area for cost reduction across the sector. There seems to be too little coordination relating to the same work being done by different universities under the umbrella of so called cooperative research and increasingly joint research between institutions on different continents.

    Another issue with long term research is evaluating the long term costs and benefits which can take more than a decade to emerge and the factors which are taken into account when calculating the figures.

    Also worthy of more scrutiny is internal cross subsidies between teaching and research.

    While research collaboration between universities and industry does seem to be increasing, is this being done with “fair” allocation of the costsand benefits?

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