Across the UK, providers are struggling

The New Year’s policy buzz in England is the scary possibility that some major institutions, not alternative provider minnows or small specialist colleges, may fail.

A possibility rather than a probability if the Office for Students’ generally optimistic assessment of the overall financial health of the sector is accurate.

But, however likely or unlikely, the failure of a major institution would pose challenges difficult to resolve with existing policy tools such as student transfers and involuntary mergers. The impact on local and regional economies would be considerable, and the political fall-out unpredictable.

Same story, different government

Meanwhile the policy buzz in Scotland is that free tuition (for Scottish domiciled students) is becoming unsustainable.

The Scottish Government is unable, or unwilling, to maintain adequate funding for universities and – especially – colleges. As a result the gap between funding per (Scottish) student and per home student in England has widened. Well qualified applicants are being denied places because of the student number cap, compounded by the drive to recruit more students from socially deprived backgrounds.

The interesting question is whether these two policy buzzes reflect separate funding challenges north and south of the border or whether they are just different manifestations of the same problem, chronic underfunding of UK higher education compounded by the complacency of the political class reluctant to acknowledge there is much of a problem except perhaps as a political stick to beat their opponents.

Creative accounting

The roots of the English funding challenge date from when the Office for National Statistics put a stop to the magical thinking in the early years of the high fees that the bulk of the State funded loans to pay these higher fees could be hidden off the books. This revealed the real cost of student loans in terms of public expenditure.

Two consequences flowed from this revelation.

First, it made it very unlikely that any UK Government would be in a hurry to raise the cap on the maximum fee universities could charge, because any increase would feed through into higher public spending. So institutions have been left to cope with an erosion in the value of their fee income by, according to some calculations, as much as £2,000 per student.

Second, the Government now has every incentive to toughen up the conditions under which graduates repay their loans – frozen income thresholds that trigger repayment in the first place, interest rates on outstanding loans, longer terms and so on. That is the way to reduce the burden of outlay on student loans on the public finances. This toughening up has already started.

The result? Graduates face a heavier burden of debt. Institutions now have to absorb significant cuts in the unit of resource that match the decline during the 1980s and most of the 1990s. The effect of the removal of a student number cap has been not so much to increase overall numbers – to the relief of the Treasury no doubt – but to redistribute student numbers around the system. Universities higher up the esteem pecking order have grown, as partial compensation for the erosion in the value of fees. Other institutions face recruitment difficulties and bigger deficits. Against this background a heightened risk of institutional failures is inevitable.

Unit of resource

On the face of it things look different in Scotland. The problem is that the Scottish government has not provided sufficient money to maintain the unit of resource for Scottish domiciled students, already lower than the equivalent figure in England, as Universities Scotland has pointed out not only in its reaction to the Budget but in evidence to a Scottish Parliament committee. The upshot is a strong feeling that Scottish universities are somehow being held back by the dogma of free tuition.

In fact their funding is not as mean as first impressions suggest. The total all-years funding for Scottish students is actually higher than for all UK students in England – but, of course, it has to be spread over four years rather than three, which explains the lower unit of resource. Edinburgh or St Andrews also get a third more fee income than Oxford or Cambridge from their English students, of which they have a large number, because of 4-year undergraduate degrees. Mean minded economists calculating the cost per graduate, and corresponding levels of public investment, might reach some interesting conclusions…

At root the problem is the same. When public money is at stake there is no escape from Nye Bevan’s politics as the “language of priorities”. Cunning plans to evade that logic which magic up alternative funding regimes that reduce the burden on public spending, reduce graduate debt and deliver extra income for institutions are typically of the Corporal Baldrick of Blackadder fame variety. In Scotland universities have to openly play the public expenditure game because of free tuition. In England universities are almost equally, although less transparently, caught up in the same game.

This inevitable competition is made more difficult by the fact that many politicians, at Westminster and Holyrood, seem far from convinced about the seriousness of the funding challenge higher education faces – despite cost-free acknowledging the importance of universities for future skills and world-class science (and so innovation and productivity). Reactions seem to range from “they should diversify their income”, “they complain too much”, “they’ll muddle through” to, on the right fringe, “time’s up for woke-ridden universities”

Meanwhile the UK Government, in the grip of toxic post-Brexit xenophobia and obsessed by immigration, is attacking another key income stream for universities, fees paid by international students. In the backwash, any ambitions about Global Britain are abandoned, of course.

But the probability of institutional failures is also heightened by this twin threat, a declining unit of resource and now curbs on international student recruitment.