Higher Education Funding: The End of Illusion?

This article was kindly authored for HEPI by Peter Scott, Emeritus Professor of Higher Education Studies at UCL and Vice-Chancellor of Kingston University between 1998 and 2010.

There are two puzzles about UK higher education in the late summer of 2024. The first, and more easily explained, is the climaxing of serious doubts about the financial viability of a growing number of institutions. The second is higher education’s lack of grip in its efforts to focus political attention on these troubles – despite the arrival of a Labour Government brought to power partly by the Labour sympathies of graduate voters, which might be expected to be more friendly towards universities than its Conservative predecessor.

In truth there is nothing sudden about the financial troubles of the sector. Ask anyone at Goldsmiths et al. The list of institutions threatening job cuts or other retrenchment measures has been steadily growing. But until about a year ago these could to some extent be regarded as special cases, the product of ineffective management or unrealistic strategies or a combination of the two. However, in the past 12 months the erosion of the value of the maximum fee (in England) for home students, combined with the toxic embrace of international student recruitment, whose fees have increasingly been used to fill the gap, within the wider issue of immigration, has led to more general concerns about higher education’s financial sustainability which are hard to ignore. The refocusing of the Office for Students’ remit on financial sustainability, and the recent comments by its incoming chair, have now made this official.

The erosion of the value of fees has had two causes. One, which universities can do little about, has been the high levels of inflation post-Brexit and post-Putin, which have eased this year although the underlying levels of wage rises and the rising cost of services may indicate – not least to the Bank of England – that inflation has not been ‘beaten’. The other, which universities can also do little about (except perhaps to shed their illusions), is that since the Office for National Statistics insisted on a more accurate in-year accounting for the cost of student loans the fee level has been put right back into the political/public expenditure game from which illusionists imagined it had escaped more than a decade ago. Because of its consequences for public expenditure student loans, and fee levels, have become another line in the Treasury accounts – with all the constraints that implies.

The idea of an unconstrained market in international student recruitment has proved to be an equal illusion. At a time of hyper-scepticism about the benefits of immigration any increase in the number of international students is inevitably an aggravation. In the eyes of immigration sceptics this number, like all forms of immigration, must be squeezed down. The previous Government obliged by restricting international students’ right to bring their dependents. The recruitment of Chinese students, the mainstay of many university recruitment strategies for at least two decades, has encountered other headwinds, partly for geopolitical reasons. As with the level of home students what has been happening to international students has exposed the illusion that universities can be somehow ‘above’ or ‘outside’ politics. The disincentive effects of global images and news about recent far-right riots have obviously made things worse.

Despite this the political response to these escalating financial troubles has so far been strangely muted, even from the new Labour Government. One reason is that the quasi-market reforms of English higher education funding under the Coalition and then Conservative Governments more than a decade ago eroded the idea that universities were essentially public institutions. These reforms have encouraged Ministers, beleaguered on all sides by funding demands, to emphasise university ‘autonomy’ and institutions’ responsibility for their own futures, despite themselves still holding the key levers. Another reason is that many politicians, left and right, and many of those who advise them are not convinced that UK universities really are underfunded by international standards – and there are comparative statistics that can be used to suggest that this belief is not entirely baseless. Within the UK it is certainly true compared with colleges and schools. Not much help though to higher education which has to start from where it is.

There remains a striking dissonance between the pervasive enthusiasm for higher education among potential students and their parents – wide sections of the population now regard going to university as a right – and this enduring scepticism on the part of politicians and those who cluster around them. Their lack of response to the manifest wishes of voters can only be explained by the fact that they imagine any financial troubles universities suffer can be safely managed, and any outright crises confined to institutions that can be defined as somehow ‘delinquent’ (terrible management, lousy quality and so on).

Which maybe they can be. But it is hard not to feel that another thing that the UK is internationally recognised to be good at (like public broadcasting or the arts?) is in danger of irreversible erosion. Will UK universities continue to dominate, after the US ones, global league tables, however flawed? Will international students (and staff) still want to come, even if current mean-spirited obstacles are removed? Will the opening up of higher education to less privileged social groups, the other grand highlight of the past half-century alongside scientific excellence, be gradually closed down (‘let them – those kind of people – all be apprentices!’)?

A major problem is that the international excellence argument is inevitably an elitist one, and consequently out of sympathy in an age of soured populism. The access argument, sadly less emphasised by university leaders, also runs foul of the same soured populism. Universities, it sometimes seems, cannot win. Either they are elite institutions, which probably need to be pruned back to the ‘true’ elite, or they are offering useless qualifications that will never get their graduates proper jobs, which also need to be pruned to make headroom for further education and apprenticeships. Sadly there is no instant solution to this lose-lose magical thinking, just careful and persistent persuasion.

Another problem, for which there is perhaps a more immediate solution, is the total lack of system planning in UK – or, at any rate, English – higher education which is another unfortunate effect of the last decade’s quasi-market reforms. Quite simply the abolition of the student number cap, flaunted as the reform-to-cap all-reforms, has been a disaster. There have been two effects. First, the Treasury can never be confident about its future public expenditure exposure. Second, most Russell Group universities have (over?)expanded, if need be by reaching further down the talent chain (as measured by exam grades). That is how they have countered the eroding value of the maximum fee for home students and any concerns about the longer-term sustainability of international student recruitment. The strain, of course, has sometimes shown up in wobbly levels of student (and staff?) satisfaction. But the system-wide impact has and will be concentrated on a particular set of institutions. Another, unintended, effect has been that because ‘top universities’ are much less likely to run into serious financial difficulties politicians can continue to underestimate the threat to the future of UK higher education.

The solutions? Imposing an overall student number cap would restore a stronger sense of stability and predictability into the future, which might just reassure the Treasury as it contemplates an inevitably unpopular decision to allow the maximum fee to be (modestly?) increased. It might also reassure politicians more generally that higher education, and universities in particular, will not be allowed continuously to ‘crowd out’ other forms of tertiary education and training. Similarly it is difficult to see how far down the road of realising its new financial sustainability remit the Office for Students can go without at least considering reinventing institution-by-institution student number controls, within broad tolerance bands like the former maximum aggregate student numbers, to reduce turbulence and damagingly unpredictable consequences.