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The writer chaired a review of post-18 education for the May government, 2018-19
The financial crisis facing English universities is the result of a failed free market experiment. Note the “free”. Three quarters are expected to be loss making by 2025-2026, a handful are getting secret bail outs and 10,000 jobs are under threat. Unintended consequences of government policy, a lacuna in regulation and weak corporate governance have combined to undermine a radical shift in higher education dating back a quarter of a century. The situation can be retrieved but doing so requires the government, universities and the regulator to change tack.
The seeds of the market were sown in 1998 with the introduction of undergraduate tuition fees and student loans in England — intended to fund the Blair government’s laudable ambition of getting 50 per cent of young people into HE. But it was the trebling of fees to £9,000 in 2012 (and removing the cap on student numbers announced the following year) that unleashed it. Neither policy was ill-intentioned or individually unwise. But without firm control, the combination proved dangerous.
Encouraged to expand and given the means to do so, universities went on a spending spree. Undergraduate numbers soared; Blair’s target was hit by 2020. But hubristic about further growth and reliant on low inflation and interest rates, a significant number leveraged their balance sheets through asset sales and debt, rather than building reserves as a protection against future headwinds. Wise counsel from governing bodies to keep ambitious vice chancellors in check was rare.
So too was government control. Universities are autonomous institutions but with £1.5bn in grants paid directly to institutions and an annual student loan outlay of over £20bn underwritten by the taxpayer, the public is entitled to expect Whitehall to supervise how its money is spent. Until 2018, this was mainly the responsibility of the Higher Education Funding Council for England, essentially a grant awarding and place-allocations body. It was replaced by a new regulator, the Office for Students, whose wide brief included a duty to monitor and report on financial sustainability. The OfS immediately warned that universities’ growth plans were based on “ambitious assumptions” but it was in set-up mode for two years and in no position to act.
With emerging evidence that a degree was not a golden ticket for every graduate, this should have been a wake-up call; the sector still had the headroom to change. Instead, a joint paper in 2019 from two government departments, Education and International Trade, gave higher education institutions a further reason to defer self-scrutiny.
It set the objective of increasing international student numbers by a third over the next decade. This was high margin business — international fees are double or treble those for home undergraduates and universities responded with a will, hitting the target almost immediately. In 2021, regulations allowing international students to stay and work in the UK for a period after graduating further boosted this lucrative trade.
But the arrival of successive cohorts of international students and their families added to closely watched net migration figures. In 2023, the Sunak government banned most international students from bringing relatives and in 2024’s election year, the then home secretary ordered a rapid review of graduate visas. With economic problems in core markets, international student numbers fell, leaving universities in a financial mess.
Inflation, higher interest rates and the long freeze in the tuition fees are the immediate causes of the crisis (the panel I chaired recommended a cut in fees replaced by an increase in grants) but the underlying causes also need to be addressed.
Guaranteed, inflation-linked fee plus grant increases are essential. But in return providers need to change. If students pay more, universities should be upfront about course employment outcomes. The one-size-fits-all operating model needs to change with more collaboration, segmentation and differentiation between institutions. A commitment to life-long learning would restore a slump in adult education. Governance should be sharper.
The OfS needs the skills to recognise financial mismanagement and the powers to prevent it. These should include clawback of vice-chancellors’ pay in the event of financial catastrophe, a deterrent that has proved effective in financial services, another industry once characterised by weak governance and light touch regulation. A market cuts two ways. Senior managers should be prepared to accept accountability for failure as well as the rewards of success.
