The writer is the National Centre for Universities and Business’s head of policy and engagement
Universities are among countries’ greatest assets in their mission to drive economic growth. However, in countries like the UK, they are also increasingly in trouble. High inflation has chipped away at the value of teaching grants and tuition fees, which are now worth a third less per student than in 2012, according to National Centre for Universities and Business analysis. Government data shows that university research faces a deficit of more than £5bn per year, which is being cross-subsidised largely through international students’ fees. This has led England’s university regulator, the Office for Students, to warn that nearly two-thirds of universities risk running into deficit by 2026/27.
The issues facing UK universities are systemic and a warning to other countries. Without policy intervention, financial pressures will worsen, requiring universities to take difficult measures to remain viable. This could mean dialling down activities that offer low or uncertain financial return, even if the wider returns to the UK are high. We may see greater focus on subjects or research areas that cost less to deliver, a reduction in work with businesses and charities, and fewer initiatives to support local areas and entrepreneurship.
Catastrophic consequences
This would not just be catastrophic for universities, students and the jobs they create, but also for the country’s economic growth prospects. This message was starkly set out by a group of UK and foreign business leaders in their open letter to then prime minister Rishi Sunak in May, urging him to “choose to invest in the UK because of the talent, skills and innovative ideas that can be found here”. It also urged the government to create an environment for UK universities to “remain at the cutting edge” and lamented the sharp decline in international student applications amid the then-government’s migration policies. Their comments underlie how universities, and the international ecosystems they create, directly and indirectly drive business investment.
The new Labour government has an opportunity to arrest the feared decline of our university sector by creating the conditions for them to thrive. Its manifesto commitment to conduct a major review of higher-education funding is welcome and must move quickly. Admittedly, the policy options are not easy. Public funding is stretched and raising domestic tuition fees would be challenging. However, investing sufficiently in the university sector is essential to the UK’s future. We must build on our strength in research and higher education to nurture the talent and ideas that businesses need to open up new markets and unlock productivity gains.
Too important to fail
Some argue that universities should simply make achievable efficiency savings or be allowed to fail. This argument wrongly implies that easy efficiency gains would not impact the breadth or quality of what universities deliver. It also often assumes that universities in financial distress offer little value to the economy.
This is an argument universities must engage with, rather than simply dismiss. Many UK universities are regarded as world-leading in research and innovation. However, the economy does not simply benefit from a few institutions that feature in the top 100 globally. Universities across all parts of the country catalyse economic activity and drive individual opportunity.
The UK has one of the highest tertiary attainment rates in the OECD, at 51%. Most students complete their courses successfully within three years and go on to earn substantially more than non-graduates in every part of the UK. This comparatively high tertiary completion rate and the graduate premium must not be taken for granted.
Any sector with the longevity and scale of higher education should be challenged to adapt and evolve. However, the drivers of change should be strategic and focussed on the positive missions universities help to deliver, not financial pressures. If left unresolved, an unsustainable funding model will undermine all types of universities across all parts of the UK. This would hamper growth, investment and opportunity, making the country’s tertiary education system a warning — rather than aspiration — for the rest of the world.
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