Are universities back to doing more with less?

As the Autumn Statement approaches we know the Chancellor will have a series of tough decisions to make.

By backing the UK’s universities there is an opportunity to boost the significant economic impact they are already delivering, creating new high-value jobs, and enabling them to continue providing employers with the pipeline of highly-skilled graduates they need.

Ultimately, universities are the engines that will help deliver the growth the Government wants to see.

Looking to the future, we need to ensure we have a resilient higher education funding system to support students and boost the UK economy. We predict per-student funding will be at a historic low point by 2024-25, yet universities are doing more and more to support skills, productivity and growth, and domestic demand for higher education is continuing to rise.

Now is the time for a more open conversation about the current funding landscape for educating students, how we have got here, and the choices universities are facing if the current model persists.

Funding hits a low point

At the heart of the issue is the growing funding deficit universities face for undergraduate teaching. Earlier this year we published analysis that showed on average in 2021-22, English universities needed to cover a deficit of £1,750 per year to educate one UK undergraduate student. We projected this will increase to approximately £4,000 per student, per-year by 2024-25, with all subjects facing deficits.

There are two main drivers of increasing per-student deficits. Firstly, policy decisions have reduced the real-terms funding available to universities to educate students. Secondly, despite a decrease in funding, universities are stepping up to meet the increased demand for student support services and outreach. We explore these in turn:

Policy decisions

This graph shows how the funding that English higher education providers (HEPs) receive to teach one undergraduate student has changed over time. Please note that this analysis uses March 2022 inflation figures, so this is likely to be a conservative estimate, but the trend and takeaways will remain the same.

Approximation of undergraduate education income per student in English HEPs in 2020-21 prices (RPIX).

The graph shows that rather than increasing real-terms per student funding over time, the introduction of higher fees mostly replaced other sources of funding (capital and grant). Looking ahead fees are set to be frozen at £9,250 until at least 2024-25 – currently they are only worth £6,500 in 2021-22 terms. Announced increases to the teaching grant will not be enough to rectify the impact of inflation and we project that by 2024-25, per-student funding will be substantially lower in real-terms than before higher fees were introduced. Indeed, it will be at its lowest point this millennium.

Increased demand for other activities

This decrease in real-terms income has been accompanied by universities stepping up to meet the changing needs of their students. This includes significantly increasing support for wellbeing, counselling and career services, new investment in digital learning innovations such as online libraries and increasing the delivery of school outreach programmes and widening participation initiatives.

Unfortunately, research, the other sizeable activity in our universities, also incurs a deficit. Historically universities have been able to cover the deficits by cross-subsidising from other surplus generating activities including international student fees. However, as we undertake more ground-breaking research and train up the next generation of top researchers, the deficit universities are required to cover is steadily increasing. In 2020-21, UK universities ran a total deficit of £4.2bn on research activity, an increase from £2.2bn in 2008-09.

Doing what we can

To try and meet this shortfall, our members are working hard to both boost surplus generating activities, such as philanthropic donations or revenue from conference events, and deliver efficiencies that create savings whilst preserving the quality of education and research. Universities are also looking to cover some of the deficits by scaling back or delaying investment in facilities such as lecture theatres, lab spaces or new equipment. However, high-quality infrastructure and state-of-the-art resources are critical to the sector’s ability to deliver world-leading education and research – this cannot be a long-term solution.

In any case, this combined activity will not be enough to cover the increasing deficits in research and teaching and without additional financial support our universities will be forced to make difficult choices that impact staff, students and research activity. These choices will become more severe as both student demand and the cost of delivery increases. Each university will respond in a different way depending on their financial model and strategic priorities, but possible decisions universities will reluctantly have to make include:

• Controlling student intakes and increasing class sizes
• Reducing the courses they deliver with particular pressures on higher-cost STEM provision
• Reducing student support services or the resources that enhance the broader educational experience.

Increasing deficits in teaching could also impact other areas of university activity. For example, some universities may be forced to reduce the quantity and variety of research performed or cut back on civic activities reducing the local and global impact of universities.

We need a new funding approach

In the short term, amid the tough decisions that are facing the Chancellor at this time, we strongly encourage providing additional support to students to help them through the cost-of-living crisis and to commit to protecting the previously announced spending commitments on higher education and research which, even in their current form, are insufficient to keep pace with the pressures on university resources.

In the longer term we would encourage the government to engage with us and the wider sector to design and deliver growth-friendly policies. An essential part of this will be developing a new funding approach that is resilient enough to allow UK universities to remain globally competitive, affordable for students, fair to the taxpayer and will protect the pipeline of skills and innovation needed to help the UK economy recover and grow.

Combined, these activities will allow our universities to do what they do best – educate students to fill the skills gaps of the future, deliver high impact research activity and in doing so raise the long-term performance of the economy.