Many things have changed for universities over the past decade. But only a few are truly fundamental. One of those has been the explosive growth of competitive revenue in the system. In less than a decade running undergraduate provision has changed from state-allocated number-controlled stasis to fully competitive business. And big business at that.
The data brings home the scale of this change. Undergraduate recruitment alone has turned into a competitive market of the first order with £20 billion a year of competitive revenue flowing through it in 2019. Uncertain competitive revenue has displaced grant income so that it now makes up almost all income at many universities. Many universities now find themselves with fully competitive revenue flows comparable to some of the UK’s largest listed companies. If universities were added to the familiar FTSE groupings on a competitive revenue basis, higher education would be the largest industrial sector.
Competitive revenue has grown rapidly
The seismic change was the progressive removal of full-time undergraduate number controls in England that started in 2012. This policy was rapidly expanded to cover almost all students and affected other countries too, most significantly Wales. Full-time undergraduate recruitment is now effectively uncapped and fully contested at English and Welsh universities. Universities in Scotland and Northern Ireland participate in the market for international and “rest of UK” students but are essentially protected from competition (through allocated numbers) for their home and EU students.
Segmenting the most recent 2019 UCAS data by these domicile and study permutations lets us estimate how much competitively sourced revenue has been in the full-time undergraduate system each year. We need to make a few assumptions on international fees, course length and progression rates. We’ve also calculated the revenue from student accommodation. This is based on an estimate the proportion living away from home, and what they spend on rent from the student income and expenditure survey. Not all of this goes to universities (perhaps more should), but it is intrinsically part of FT UG place. And so, we would argue, part and parcel of the revenue that is being competed for between universities.
Figure 1 shows the size of the competitive market in FT UG on this basis. Prior to 2012 competitive income in the FT UG market was small. Around £2Bn a year from overseas students’ fees and their associated accommodation. When English number controls were partially removed in 2012 this started to grow. And as more controls went, and these increasing contested entry cohorts percolated into registered students, steadily replaced income from number controlled “allocated” students, the economic value of the market increased further. Our calculations on the latest UCAS data for 2019 entry put the size of the competitive market in FT UG at £20 billion for the first time. This, needless to add, is a lot. HE has become, almost overnight, one of the largest competitive markets in the UK.
Figure 1: Total competitive revenue resulting from FT UG
Tuition fee competitive revenue has reached £14 billion this year, and the large majority of that market is around providers in England (Figure 2). As you would expect, students from England are the major “purchasers” in this market (Figure 3). But overseas students are also significant as they are contested across the UK and have increasingly higher levels of fees. Students from Scotland and Northern Ireland are trivial participants in this market. Almost all Scottish students take up places in their number control system. Most NI students do too, though a lack of places there forces around of third of them to participate in the English market, though their absolute numbers are too small to show up here.
Figure 2: Competitive revenue from FT UG tuition fees, by country of university
Figure 3: Competitive revenue from FT UG tuition fees, by student domicile
The university as a business
As total competitive revenue has grown, so has the competitive revenue of individual universities. The HESA finance data is at a fine enough resolution to have a go at dividing up total income into competitive and non-competitive sources, covering not just UG fee income but PG too.
Tuition fee income for overseas and postgraduates is “competitive”. Whereas funding council or government grants are taken as “non-competitive”. For undergraduate tuition income, we’ve set it competitive/non-competitive according to the permutation of domicile of student and country of institution. Revenue from accommodation and conference hosting is treated as competitive, but investment income and donations from alumni as non-competitive. There will be approximations and simplifications in this, not least the sometimes very large “Other” category. But, overall, it’s a good measure for capturing total competitive revenue across universities in a consistent and comprehensive manner. On this basis, the total income of the sector was £38bn in 2017-18, with £32bn of that being competitive, and just over half of that being tuition fees at English universities.
Figure 4 shows the level of competitive income for against the proportion that forms of the university’s entire income. We’ve used a logscale for the competitive revenue (because of its large range). And we’ve restricted it to the 150 largest providers by competitive income (with a bias towards FT UG providers). Many universities have competitive revenue of hundreds of millions a year. A few have competitive revenue around the one billion a year mark. And for universities in England and Wales having 90% of your total income as competitive revenue is common. There is very little buffer of non-competitive income left.
Figure 4: Competitive revenue, share of total income (Y) and value (X)
University leaders will be familiar with these dizzying strings of zeros from their accounts and budgets. But it is the extent that the total income for the university is now competed over, and could disappear, or double, in short order that is new. How far universities have moved over the past decade is shown by comparing their competitive revenue to the data on public listed companies.
Figure 5: The competitive revenue of universities and selected listed companies
Figure 5 shows the distribution of competitive revenue of our 150 universities to companies in the FTSE100 and FTSE250 groupings. We’ve subset this to those incorporated in Great Britain, excluding investment companies, and converted US Dollar and Euro revenues converted to approximate Pounds. We’ve reduced the income of universities to just their competitive revenue component, and compared this to the total reported revenue of the listed companies. Many universities are individual competitive market participants of national rank in terms of competitive revenue, overlapping heavily with the FTSE250 group.
The FTSE groupings are determined by market capitalisation – the value investors put on the company through what they are prepared to pay for its shares, considering its profit, prospects and numerous other factors. There isn’t any equivalent figure for universities. But revenue is an important factor in market capitalisation. Simply for the purposes of comparing these two worlds, let us suppose that the rankings were dictated only by revenue. And that our 150 universities were listed companies entering these rankings determined only by their competitive revenue (compared to existing FTSE350 companies).
Figure 6 shows the industrial sector composition of the UK’s leading companies on this alternative perspective (remembering that we are dealing with a subset of the index since we have excluded investment companies and others). Many universities would be large enough in terms of competitive revenue to displace existing FTSE350 members. We estimate around 20 universities would be large enough to enter this new index, making higher education the largest industrial sector by participants in the process. Most of these 20 would slot in alongside the revenue of existing FTSE250 companies. And many more hover only just outside. Despite the large number of universities, the overall scale of the competitive market they are in makes them individually the peers of leading competitive businesses.
Figure 6: Industrial sectors of leading companies on a competitive revenue grouping
The market mindset
The government in England wanted to introduce a market into full-time undergraduate higher education. The data shows that it has succeeded on a gigantic scale. The reforms, strong underlying demand from 18-year-olds, and ever-growing international recruitment have pushed competitive revenues to £20 billion for the first time this year. This is a fully competitive market of the first rank. And it has come into being in very short order. It didn’t exist a decade ago.
Most universities in England and Wales are now dominated by competitive revenue, income that can be doubled (or be totally lost) by being better (or worse than your peers). The change and the huge growth of the overall market as has propelled many individual universities into a world where the scale of their competitive revenue that would not look out of place amongst the country’s leading companies. HE has become big business. And individual universities are big businesses. Regardless of whether they see themselves that way.
Of course, universities are many other things too. But we believe it is this aspect of their role as competitive businesses in a large scale market that is changing their context most profoundly. Our experience is that, so rapid has this change been, that the culture and operating structure has tended to lag this reality. Being successful in big business needs a different set of corporate capabilities than those that have served universities well in the past. Our focus at dataHE, using data better, is a good example of that. But is just one of many adjustments to be made. Over the next decade, we think successful universities will demonstrate a strong market mindset: knowing their context as big business and adding the new organisational capabilities that this demands.
This analysis used published data from HESA and UCAS. The London Stock Exchange has information on the FTSE350 index and its constituents.
The business is flourishing because students are just used as bodies entries; there is no value for money; students are buying false promises.
It is a Ponzi scheme ,well know to those who make money ; DFE,SLC,QAA,OFQUAL OFS are aware about this fraud degree ,however,their are still pouring public money in courses of null value,leaving students with huge debts and zero achievement ,hence the diplomas awarded are not having any academic credentials.
HESA,HEPI they are aware as well; I don”t know how accurate the statics when is coming to prove value for money and students progressions ,however,when is coming to evaluate how flourishing the businesses are and counter the bodies entries there is no doubt about it
Emilia, this diatribe is entirely devoid of substantiation of any kind and does a huge disservice to our Higher Education sector, the institutions and individuals within it and the students themselves, whose interests you presumably feel you are representing.
The perception that graduates are encumbered with huge debts stems from a flawed understanding of how student finance works, and there is simply nothing in the student finance system that resembles a Ponzi scheme either in structure or intent.
You make vague assertions about “courses of null value” but cite no examples whatsoever nor do you explain what you regards as the “value” of higher education. You presume that prospective students share your assumptions concerning value and imply that they are incapable of making their own judgements.
If you are going to make wild accusations about the conduct of the above listed professional bodies, would you at least extend the courtesy of offering some evidence to support your claims?
Very interesting work, thanks for this.
Do figures 1-3 use only UCAS data? If so, the magnitude of the competitive revenue in UK HE is an underestimation in relation to overseas students. A 2013 report suggested that only 40% of non-EU undergraduate applications are processed through UCAS (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/340601/bis-13-1082-international-education-accompanying-analytical-narrative-revised.pdf).
My own research shows that some UK universities -primarily, post-1992 ones- do offer a direct application service for overseas students, clearly a sign that universities are “adjusting” to market dynamics.
Yes. Headline figures on UCAS acceptances and HESA FT UG first year non-EU students indicate the UCAS data records around two thirds of this group. The scope and definitions differ a bit so it is hard to be sure. And those people in the UCAS system are arguably more contestable between UK providers. The total market in FT UG overseas fees will be larger than what the UCAS data shows though, for this partial capture reason.
The later analysis on competitive revenue includes overseas fees directly from the HESA finance data. So any non-UCAS recruitment (including PT and PG) would be included there.
Thanks, Mark. I completely agree with the idea that students applying through UCAS are more contestable between UK providers. However, is the funding coming from students applying outside UCAS non-competitive? Or are students that use UCAS and those that don’t essentially different markets? I understand these questions don’t have an straightforward answer, I’m just trying to make a reflection about the nature of HE markets in the UK…
Mark, splendid analysis as always, and it makes a good story, but I doubt if the change is as sudden as you suggest. For most institutions, more than 20 years ago the competition for revenue from student numbers felt just as intense, with consequences which could have been just as cataclysmic. Admittedly HEFCE then might have moderated a massive fall (to protect the students, not the management), which OfS have said they will not (see GSM), but whether organisational culture and operating structures have lagged I rather doubt. If anything, some have pushed (too far) ahead of the curve. I feel this is if anything a rather Russell-Group oriented analysis. It’s not news to most of the rest, and probably not to more than half of the Russell Group either.
There are 53 mentions of competitive in this article – remarkable. But it’s a very odd competitive market, isn’t it? Most of the buyers are not playing with their own money, because student loans are not real loans – they are more of a tax on future income. Access to student loans constitutes a a huge market distortion. Many postgraduates have financial support from employers. There is no independent way to validate the product because the likes of QAA, Ofqual etc are embedded in the system and have little interest in rocking the boat too much. And of course, there is no competition on the price of the product in England at UG level – a massive and notorious market failure. And as for the sellers, despite rumblings that a few are in financial trouble, no big physical university will be allowed to go under, with wages unpaid and students told to go home. At worst, a failed university will be smoothly merged into a more successful neighbour and the show will go on, much as before. So nobody is risking very much in this “competitive market”.
So yes, a competitive market, but only up to a point.
It is different. Non-UCAS overseas students are probably much more likely to be generated by dedicated early-pipeline work in the source country. So they aren’t subject to competition at the moment of application in the same way as the considering-several UCAS applicants are. But they are still competitive we would say. Just that the competition stage is earlier (and probably more costly).
Thanks for the further comments.
Yes, there has always been a part of the sector which has had to work hard to recruit. But during the mid-1990s English MASN to 2011 period total controls numbers were generally lower that aggregate demand. We think this had the effect of putting a demand floor under less well placed universities. Because the more attractive couldn’t expand, ‘forcing’ demand towards places they might not otherwise have considered. That floor under demand isn’t there anymore in England and Wales.
In terms of have institutions adjusted to this context. No doubt it varies a great deal. We can only reflect what we observe in our specialism: many universities don’t have the level of in-house data analysis that would be typical elsewhere given the scale of competitive revenue they are dependent on.
Certainty the market does have some more unusual features. We’ve taken a very simple perspective. From the point of the view of the university, can they double or lose all of a particular stream of income simply by whether they are attractive or not relative to others. Regardless of what ultimately funds that income stream. Or the ways in which they might compete for it. If the answer is yes we treat it as competitive revenue in the analysis.
Hi Marc
I’m new to data analysis, and a friend suggested I look at and analyse HESA data, and read this article and the one from March by David K…
I’d like to ask you about your article. Maybe I’m missing something or being too nit-picking… you’ve claimed here that in 2012 there was an increase in income because of changes in regulation… however Figs. 1-3 show an increase in income in 2011 and 2014, not 2012… can you show me where I might be going wrong?