David Maguire warns that, without action, one university failure could collapse the higher education system
For as long as I remember, since first becoming a vice-chancellor in 2011, there have been sector sirens forecasting impending financial doom and consultants offering services to help mitigate the impacts.
In the past decade, senior teams have always had levers to pull to raise income and reduce costs whenever they have needed them. If home undergraduate student numbers are down, then we grow international postgraduate taught provision; if delivery costs are escalating, then we scale back staff recruitment or capital maintenance, and so on.
But 2024 is different. All the levers have been pulled and still expenditure is outstripping income. For some, this is happening already and it’s in the not-too-distant-future forecasts for virtually everyone.
Higher education media is riddled with stories of accounting deficits, headcount reductions, lowering entry grades to try to meet new entrant student targets, greater use of international agents to buttress recruitment, RAAC issues, and more. And these are only the tip of the iceberg. For every public story a lot of trimming and cutting is going on unnoticed.
All the vice-chancellors I talk to (and it is quite a few) are nervous and some are forecasting real challenges in avoiding breaches of banking covenants and making payroll. The recent independent report by PwC, commissioned by Universities UK, sets out clearly just how precarious the sector finances are. It clearly demonstrates that the challenges are not those of a few extreme, badly managed cases, but are systemic and sector-wide. Only relatively small changes in some key income streams could lead to a tipping point for the sector.
Domino effect
My experience of the private sector is that when an organisational failure occurs it is usually sudden, shocking and often catastrophic. If one major university were to go to the wall, imagine the impact on the confidence of potential students, lenders, parliamentarians, philanthropists, and the whole community. Could a single failure lead to a domino effect? We need a grown-up conversation not about the market theory of allowing exits but the potential existential impact of a loss of confidence and a run on universities. Organised mergers or exits are much less expensive and stressful than chaotic rescues.
How did the sector get into this situation? The reasons are fairly well known and understood—but nonetheless difficult to deal with. The lifting of the student number cap stimulated a market in home undergraduates. This meant a big increase in marketing and recruitment costs for everyone, which allowed prestigious universities to grow at the expense of others. The impact of Brexit (fewer European students and research grants) and Covid (reduction in student participation) are still being widely felt.
In England, fees for domestic students have been capped at £9,250 since 2017 and are now worth only around £6,000 in 2012-13 prices. This means that funding per student is at its lowest level in more than 25 years. High inflation has meant university costs are rapidly rising.
Finally, and in some ways most disconcerting, is government rhetoric that appears to support reducing the number of students and the taxpayer share of national investment in education and skills. For international students this includes tightening visas, increasing costs, stopping dependents and reviewing post-study work. Recruitment of home students is being affected by the extra emphasis on apprenticeships and reducing value of student maintenance.
Time for sacrifices
Something has to give. Many people are proud of the UK’s higher education system and the incredible contributions it makes to the economy, social justice and levelling up, to name just three areas. There are many reasons why UK universities are revered around the world for quality and impact. A world of reduced funding will mean bigger class sizes, less research- and practice-led teaching, fewer research outputs and research students, a diminution of student support and a loss of personalisation. Ultimately, the country will get what it pays for.
This is not just about numbers and financial projections. It all has real impact on the ground. Here at the University of East Anglia, we have undergone a significant change programme that has had consequences for staff morale and life at the university. We have had to reduce the number of courses we offer, increase our staff-to-student ratios, reduce the amount of money we’re able to put into support services and cross-subsidise fewer postgraduate researchers.
We’re also unable to invest in our physical or digital infrastructure to the extent we would like, and we have challenging choices to make as we push to achieve our net zero ambitions. But there is a silver lining. We have been through challenging times and are now able to look ahead. Our new Strategy 2030 was launched last month and outlines our plans to refocus over the coming years—including a clear plan to rebalance our finances.
Radical solutions
It is clear that universities now need to think the previously unthinkable. Radical solutions are needed to deal with ever-larger funding gaps. Many of the more progressive universities are examining ways to improve staff productivity, asset utilisation, service efficiency and the use of modern technologies. There are lessons to be learned from service-focused sectors about interaction, availability and efficiency. At the same time, it is important that universities don’t undermine their commitment to great research and teaching.
Much of this can be avoided or mitigated by additional support from government for high-cost subject areas and student maintenance, and by raising fees in line with inflation. There also needs to be support for restructuring the sector. This could take the form of encouraging mergers based on geographic and disciplinary proximity, facilitating shared services, and serious plans for dealing with the catastrophic failure of a large institution. We can invest now to avoid failure, or we can pay more later to resolve the aftermath.
In the long term, government, employers and students will get the quality of provision that they are prepared to fund, so it is up to all of us to look for achievable solutions.
David Maguire is vice-chancellor at the University of East Anglia
A version of this article also appeared in Research Fortnight