Who decides the future of universities?

There’s two stories about universities – a story about quality and a story about money.

In most economic sectors, the two are conflated. Cost is a marker of quality, quality is clearly metricised, and the relationship between the two allows consumers to make informed choices. Despite the fervent wishes of every education minister since Charles Clarke higher education doesn’t work like that.

Public service

A largely unhelpful scaffold of market-based language and ideas has built up around the sector. Students have been encouraged by government to see themselves as consumers, universities likewise have been forced to adopt the idea of students as income streams. When we hear the rhetoric, when we see lazy calculations of cost per contact hour as if that actually meant anything, it is jarring. These are the rules of a different game, and they don’t really work.

Mass higher education, the way it is currently structured and funded, is a public service. It’s a public service in the same way that the NHS is or Multi-Academy Trusts are – providers run on a quasi–commercial semi-autonomous basis while the overwhelming majority of income comes from the taxpayer. Young people are encouraged to aspire to the quality of life that a university education can bring, government pays, and graduates pay what is to all intents and purposes a time-limited progressive tax rate increase to cover the costs. Graduates who enter some economic sectors (finance, medicine, law) will earn more and repay in full – those who enter others (nursing, teaching, the arts, social work) will not.

If you think this is a dumb way to fund a public service you are absolutely right. It is – as every education minister since Charles Clarke has ruefully realised – a manifestly idiotic idea to base the ongoing viability of a public service on current demands and trends in the aspirations of school leavers. Any exogenous shock to these trends will cut capacity in a way that bears no relation to likely future demands.

The magnificent seven

There are, to my mind, about seven universities with serious ongoing financial problems. This is all in public data, and it is notable that despite precarious situations the “persistent rumours of bankruptcies” have not actually resulted in any bankruptcies.

More undergraduates than ever enter university each year, suggesting that more than ever are finding a course that meets their needs. We are at the very bottom of a demographic dip in UK 18 year olds, meaning that any capacity lost because of Covid-19 or the entirely predictable and avoidable financial crisis that will follow, will need to be redeveloped over the next three years to offer a similar admissions rate. The alternative is telling young people with aspirations and ambition – and their parents – that there will be no chance for them to attend university.

Liquidity is not the problem, solvency is. There is no fundamental issue with university finances in nearly all cases, other than an inability to respond to a sudden and rapid downturn in applications due to an external factor. The financial pressure has played out very differently in universities than in other sectors- as funding is based entirely on student numbers at the start of each year (bring back the HEFCE tolerance band!) the cut in income will hit in September. Furlough schemes and emergency loans work for shops, factories, and restaurants – where the fall in income is immediate and costs need to be met. Pre-2012, Covid-19 would not have presented a financial risk to universities.

A problem of definition

Show me a “clearly less deserving” university with high dropout rates, or poor graduate employment prospects and I’ll show you a university that widens access and offers applicants from all backgrounds a chance at social mobility. Show me a “poor quality” course, and – actually, just show me a poor quality course. Nobody has managed so far, and I’ve never found one in the data. If widening participation in HE is your “flawed model” then I suspect it is your model of society that is flawed.

The sector is able to attract private finance on attractive terms because of the way it sits on the boundary of the public and private sector. It’s always instructive to read credit rating agencies reports on the sector as a proxy for the market appetite for risk – Moody’s are surprisingly bullish on the sectors chances – noting diversity of income, usable reserves, and (get this) a “positive policy environment”.

That said, even though the future looks bright, the next three years will see the effects of a lower than expected 2020 recruitment. Staff will lose jobs, departments and research centres will close – meaning courses will be cut. Universities will take on more private debt, making them less flexible in the expansionary years that will immediately follow. A handful – most likely smaller, specialist, providers and those who focus on taking higher education to new applicant markets – may encounter serious financial problems. Perversely enough, the biggest risk to most of the sector is the Office of the Independent Adjudicator ruling that providers must refund last year’s fees.

Universityclosures.xlsx

Ministers may get to feel dynamic and effective by letting an otherwise successful higher education provider fail simply by their own inaction – and then will be forced to scramble to deal with the local and national issues that such a closure will generate. And more applicants will chase less places.

UK HE has always been a competitive market (again like the latter years of the NHS or the schools sector) – but that market has always fostered competition on quality and innovation, never on price or solvency. We’ve had more than fifteen years to learn that sticker price has no impact on investment decisions that improve the quality of graduates’ lives, and wider society, far beyond a mere salary uplift.

There is, of course, scope for examining university bailouts case-by-case. As every provider is facing almost exactly the same problem it feels perverse, and it would probably end up costing far more than a loan scheme tailored to the sector and a January start to term. You also enter the realm of “picking winners”, anathema to Conservative governments in normal times.

In an office in Whitehall, Iain Mansfield will be playing with a spreadsheet trying to find defensible metrics for giving one university a better future than another. His Teaching Excellence and Student Outcomes Framework was a diverting side-show – a chance, frankly, for me to flex my statistical muscles and spot the over-egged assumptions and gross simplifications. As the devaluing of National Student Survey metrics for year 3 demonstrated, the temptation to put a finger on the scales to prod the outcomes in a way that matches your prejudice is all consuming.

The Times is right to demand that the whims of politicians should not control the future of the sector. I’d like to keep the spreadsheets of the SpADs away from it too.