This HEPI blog was kindly authored by Matthew Howling, Principal Associate at Mills & Reeve LLP; Poppy Short, Partner at Mills & Reeve and Richard Sykes, Partner at Mills & Reeve.
There was not one dropout from the 25-strong esteemed group of university and sector group leaders who attended our joint dinner with HEPI on 10 October 2024 at the Royal Society in London. This demonstrates the willingness of leaders from across the UK to come together to discuss ways to confront the challenges facing the higher education sector. While under Chatham House Rules, the conversations were open and there was a sense that university leaders were keen to share their own insights and develop a way to carry on the conversation in a safe space.
The current challenges stem from external headwinds but also from the internal structures within which institutions operate. There was a sense that while the sector leads from the front in terms of research collaboration, in reality this doesn’t extend to strategic collaboration. Universities compete for students in a market where the fee cap prevents ‘normal’ competitive behaviour. However, it was clear our university leaders are open to turning the dial on this given their collective responsibility towards students, even if that responsibility is a moral one with no basis in law.
So why are universities so competitive? Partly, that is baked into a system where the funding follows the student. However, it is also possibly because the growth of the sector has led to fragmentation, with a greater distinction than before between Russell Group, ‘pre-92’ and ‘post-92’ institutions. With the material increase in participation, there is now a significantly bigger spread of needs between students at higher tariff, medium tariff and lower tariff universities. And yet, arguably, universities haven’t adapted to this. How can they when they are autonomous institutions with charitable objectives to achieve and a bottom line that is increasingly difficult to balance? Given this landscape, universities need to give more strategic thought to the needs of the broad spectrum of students who now participate in higher education if the system has developed into one where institutions are encouraged to grow their numbers at the expense of others.
The fact that so many institutions are now forecasting a deficit suggests that, unless the sector reorganises itself, there is a significant risk of failures. This would mean the sector failing its students and, more generally, the regions in which institutions operate. While there was a genuine feeling that it was repugnant for the sector as a whole to allow this to happen and to focus its attention only at the level of individual institutions, changing the environment is going to be extremely challenging.
Cross-institution initiatives involving strategic subject planning within a region might help to protect vulnerable subjects but may be seen as anti-competitive in the current environment. Given declining student numbers, should the sector contemplate a level of managed decline, with the sector shrinking from its current size and offering? What is the role of mergers in the current environment? The costs and complexities of mergers mean that there must be a significant push factor for the parties to derive the benefit they need from them.
A key theme in the discussion was that, in the current environment, both universities and the regulator must acquire ‘strategically focused’ skills that, to date, they have never considered necessary. Also, it is worth examining the difficult position that university governors are put in. As external volunteers, they can often bring invaluable experience and expertise to governing bodies. However, because day-to-day management is typically delegated to a senior management team, there is an intrinsic risk that plans by the executive team are not sufficiently understood or scrutinised. Inertia remains an issue and institutions are also arguably not set up, structurally or culturally, to think about strategic collaborations or structural change. It would be an extremely difficult decision for trustees to take on another institution which might threaten their own university’s solvency, academic rankings and student outcomes. Is a model where we are now asking charitable governor volunteers to oversee a multi-billion-pound university sector still fit for purpose?
The feeling of those at the dinner was that the Office for Students and the Department for Education should be more proactive in steering institutions to reorganise themselves to be more viable and more effective. In contrast to the banking sector, the Office for Students has never set itself out as a prudential regulator. Although financial sustainability and viability are conditions of registration, the OfS has never aimed to protect higher education providers from risks that could jeopardise their financial health and the Department for Education has historically not been interventionist in its approach. The relationship between universities, the regulator and government must materially develop for the sector to move in the right direction.
Despite these challenges, there was an optimism in the room that a new government was an opportunity to consider these relationships afresh and it was generally felt that more conversations are needed. Universities are a key part of helping the UK solve the significant economic challenges it faces, helping to create growth and develop an economy built on research, innovation and skills. Above all, there was a willingness to be more open and work together as a sector to find solutions. With that, the evening concluded, but the commitment to continue the conversation was clear.