Universities are struggling financially amid frozen domestic fees and growing political hostility to international students. But while the public finances are stretched, July’s general election could allow a policy reset.
In the first of two articles (part two here), four senior figures suggest what a new government might realistically do.
This is a perfect time for any UK government to be bold and brave regarding a higher education system that must play a significant role in shaping the country and making it thrive.
Other contributors to this article will cover the financial challenges facing our great British universities, which do need to be addressed; I want to highlight three other areas for our next government to focus on.
First, we must build economic growth through university innovation and spin-outs. The government-commissioned independent review of university spin-out companies that I chaired last year made a series of recommendations to boost growth and competitiveness, all of which were accepted by the government and are now being adopted by many universities. It focused on the early spin-out or licensing phase that falls at the intersection of the university, founder and investor, but our report also hinted at what was needed further down the commercialisation track to capitalise more fully on the pipeline of ideas from university discovery research and translation.
The next government must continue the very welcome current support for basic research and innovation, but it must also develop a nationwide industrial or innovation strategy that better coordinates the various elements within the entire pipeline, as well as improve a few areas. For example, we need to incentivise more investors to come to the UK. The £320 million to facilitate the chancellor’s Mansion House reforms of the finance sector is a good start, but we need more capital and a broader menu of finance options that match the opportunity offered by our university sector, particularly at the scaling-up stage of company growth.
The ambition of the London Stock Exchange to encourage companies to list there – yes, changes are needed, but myths also abound. Planning policies that encourage growth and prosperity are needed so that companies can breathe and expand, with ease and at pace. We want our publicly funded research ideas to spin out into companies that stay in the UK, positively impacting the local economy and creating exciting ecosystems around our anchor universities for future collaborations.
Addressing the UK’s regional unevenness is important, but we must not asset strip where there’s excellence. Rather, we should facilitate new clustering of activity in other regions to facilitate growth and knowledge- or asset-sharing between all regions. And we must encourage and facilitate investment beyond STEM, noting that the UK has enormous depth and breadth in the social sciences, creative arts and humanities, which also lends itself to innovation opportunities. If we get this right, we’ll create an innovation ecosystem built on British values that goes well beyond a “me too” Silicon Valley ambition. It will rival anywhere in the world.
The second area a new government should focus on is using the privileged position of universities to take a globally collaborative and longer-term approach to solving grand challenges, such as climate change. Curiosity-led, politically undirected research is the basis for our academic excellence in the UK, but universities’ natural tendency to collaborate across geographical boundaries and beyond the confines of an electoral cycle arguably makes it easier for us to take on global challenges (as Oxford did with the Covid vaccine) than it is for governments. Across universities (and their accompanying spin-outs), we have extraordinary potential solutions to challenges in everything from energy to health and social policy. We need the next government to work alongside us to deliver solutions at scale and at pace.
Lastly, we need a rational and positive approach to international students and collaborations. I cannot stress enough the extent to which international collaboration and talent drives much of the above. Nor should we underestimate the soft diplomacy that our international students and staff undertake abroad, having lived, studied and worked in the UK. This needs to be nurtured and supported, while recognising there are some challenges to address.
A lot to consider and take on. We stand ready to work alongside the next government to help drive prosperity in its widest definition and boost the UK’s reputation and global brand.
Full funding for research and high-cost subjects
England’s current model of funding higher education clearly needs a comprehensive rethink. But there isn’t the slightest chance of that happening in the next couple of years. No incoming government, in its first year or two, is going to index-link fees or raise the interest rate on student loans and use the projected “savings” (from higher future loan repayments) to increase grants.
It could, however, do two things that would set things on the right track for the future. The Strategic Priorities Grant is currently used for a range of purposes in addition to high-cost subjects, including student mental health, degree apprenticeships and equality of opportunity, but an incoming government could put the entire amount into the teaching grant for very high-cost subjects, especially STEM. And it could introduce full-cost funding for research, accepting that this will reduce the total volume.
Both these changes are cost-neutral. But both would reduce the pressure on universities to engage in constant cross-subsidisation of expensive courses and activities. They would move us closer to alignment between universities’ financial incentives, academic excellence and the country’s economic needs.
Our current approach explains not just the intense drive to recruit overseas students, but also the expansion of low-cost subjects: in both cases, the aim being to generate a surplus that can be funnelled into higher-cost subjects and research. In other words, we have a system that, by its nature, distorts university decision-making and soaks up senior management and administrative time and attention. Note that the “cash-cow” departments (such as business studies) often have steadily worsening staff-to-student ratios, both absolutely and relative to other subjects.
We need to recreate a funding model that is structurally appropriate. There is a public interest in research and a public interest, as well as a private one, in education, so the government should pay properly for research and provide direct and transparent support for teaching, not via complicated back routes. If a subject costs more to teach and is valued and valuable, it should get a significantly larger teaching grant, as it used to and as happens in most other countries.
I was a member of the Augar review, and we strongly recommended a rebalancing, with teaching grants once more playing a larger role. But Treasury resistance to increasing direct grants is enormous, and while the government accepted many of our recommendations, this one went nowhere. Meanwhile, inflation has now reduced the real value of the fees well below what we envisaged.
The overall underfunding of universities isn’t an “English disease”. Declines in the unit of resource are as bad or worse in Ireland, Scotland, Wales and Canada, and the pressures are likely to remain severe. But England could at least address the perverse incentives and distortions that its current system creates, ready for better times.
Alison Wolf is the Sir Roy Griffiths professor of public sector management at King’s Business School, King’s College London.
More direct public investment in teaching
The UK’s university funding conundrum is like a puzzle box. Pushing a single button will not be enough to resolve it. The solution is more likely to lie in making several changes together or in sequence.
The first moves must be to stabilise the situation. In the wake of last week’s Migration Advisory Committee recommendation that the Graduate Route visa be retained, we need the government to end speculation about its future to shore up international recruitment.
The next moves are more complex as the problem has slightly different characteristics in the four UK nations. In England, though, it has to be inflation-linking both the maintenance loan and the fee loan, along with introducing maintenance grants for the poorest students. These should be done together and with urgency to stop the slow-motion train crash that is taking place in both student and university finances.
But these should only be the first moves: solving the whole puzzle has many other steps. The big principle we should have in mind as we work our way through them is that, in England, the balance between public and private funding for higher education has swung too far in the direction of the individual graduate. This offends the principle set out in the 1997 Dearing Report that the costs of higher education should be shared by its beneficiaries, and it undermines the design of the income-contingent loan system as originally envisaged.
If we don’t address this, we might well find ourselves in a situation where the costs are such that students who would benefit from entering higher education decide not to do so. This doesn’t just matter from the individual point of view. The UK needs to encourage and support greater participation in higher education.
The labour market continues to demand it, with more than 11 million extra graduates likely to be needed by 2035 and 88 per cent of new jobs likely to be at graduate level, according to the Department for Education. The economy needs it, with labour and skills being the only consistent factor in driving growth in productivity in recent years, according to government research. And society needs it – not least because if we are going to make progress towards a more equal society, narrowing participation gaps in higher education is a key tool.
Direct public investment in teaching must be part of the answer, although pressure on public funding means that, right now, making the case feels like throwing ourselves at a brick wall. It may feel less like that the more we connect what universities can do with what the nation needs of us. So the next piece of the puzzle is to be found in a laser-like focus on the contribution universities can make to growth, productivity and stronger public services.
What can we do differently, better or more consistently to play a more effective role in better economic performance? How can we earn the nation the headroom to invest in the conditions for growth? This will be a major focus of the white paper that Universities UK is starting to put together, with the aim of generating recommendations for the sector as well as for an incoming government.
What can we do to reduce cost pressures through the action universities can take themselves? What can universities do differently? What could government do to lift cost burdens off universities’ shoulders? Flexibility over participation in the Teachers’ Pension Scheme might be one such move. Finding solutions to the low cost-recovery rate on research is another.
This puzzle can be solved, but only piece by piece.
Vivienne Stern is chief executive of Universities UK.
Reunite ministerial portfolios
Universities are essential, both locally and nationally. As well as the £130 billion a year they contribute to the UK economy, they equip people with the skills required for their careers and conduct research that helps us understand and improve our world.
But, as others on these pages have indicated, higher education urgently needs to be put on a more sustainable financial footing. The number of institutions announcing redundancy and restructuring plans continues to grow. Of particular concern to us at the British Academy are the major impacts on our disciplines – especially the humanities and arts – and the consequences for students, researchers and staff. This is something we are monitoring and compiling evidence on via our SHAPE (social science, humanities, arts for people and economy) Observatory.
The humanities and arts are not merely a “nice to have”. Our research shows that graduates of these disciplines underpin many UK economic strengths – from the creative industries to law, financial services, architecture and marketing; not to speak of the crucial cultural and social value they bring to people and planet.
Given the paucity of public funding, the most plausible routes for addressing the crisis in higher education funding are increasing domestic tuition fees and/or turning on the taps of international students. Both of these may have political downsides, but perhaps will be regarded as the least bad options – particularly following last week’s Migration Advisory Committee report, which showed that abuse of the graduate visa system has been greatly exaggerated. We’d welcome an urgent and swift review of higher education funding to deliver a sustainable model that delivers a wide breadth of subjects and is resilient to regional inequalities in provision.
The higher education policy system hasn’t functioned well since the ministerial briefs for education and research were split in 2020. While the 2023 machinery of government changes has produced a strong research department in the Department for Science, Innovation and Technology (DSIT), leaving higher education policy in the Department for Education (DfE) has cemented a worrying lack of policy coordination across the sector. Reuniting the education and research portfolios under one minister who sits across both departments would help to ensure government understands and can act upon the fact that to achieve its research agenda, it needs sustainable universities.
Research is an international endeavour and global collaboration is essential for the UK to maintain its thriving innovation environment. The British Academy has called on the government to reduce barriers to international collaboration and research mobility with a substantial cut to the costs of visas and associated fees, as well as pushing for more stable and sustained funding for international research collaboration.
Our rapidly changing world requires a flexible, creative and multilingual workforce. For universities to deliver that, we need a coherent, sustainable funding and regulatory framework to prevent the department closures that reduce student access and choice, as well as threaten the UK’s world-leading reputation for research.
Hetan Shah is chief executive of the British Academy, the UK’s national academy for humanities and social sciences.
