University funding: policy choices

Universities face criticism for getting into financial difficulties – but deliberate policy decisions are leaving the squeezed middle high and dry

May 25, 2023
Source: Getty

You might have got the impression that universities are in a tricky financial spot at present – but England’s universities minister sees things a little differently.

Appearing before a House of Lords inquiry into the Office for Students, Robert Halfon insisted that English universities were generally doing fine (Times Higher Education’s own inquiry into the regulator can be read in our features pages this week).

If “the vast majority are able to be in good financial health while a few are not”, Halfon said, that “may be down to the management of that particular university, rather than the funding system”.

This was punchy stuff from a minister who, to be fair, has made no secret that his priorities are skills and employability, reiterating to the Lords that he was not interested in “just giving HE more funding”.

A rather different tone was set in a panel discussion last week involving financial experts and university leaders, reflecting on the question of financial sustainability.

Assessing the findings of a new report on the topic by THE and EY, the discussion focused on the travails of “mid-tier” universities and the extraordinary confluence of issues they are facing.

Diana Beech, chief executive of London Higher, served as policy adviser to several ministers, so her words carried weight when she warned that “some of the biggest risks come from disjointed or ill-thought-out policy-making”.

“We are seeing that in frozen fees here in England, with the real-terms value of those fees at £6,600, not the sticker price of £9,250, with inflation pushing that down even further,” she said.

In this context, it is no surprise that universities turn to ever more international students – Beech pointed out that one in four students in London is now international. “That’s great, but it’s also a ticking time bomb for how we fund our institutions,” she said.

“There’s also the disjointed nature of policy, because on the one hand you’ve got certain sectors and industries crying out for more nurses, for example, or more doctors, and you’ve got the government granting medical schools; but then you’ve got no subsidised health places – so those institutions have no choice but to take international students.”

Matt Robb, a partner at EY, pointed out that marketised systems inevitably result in winners and losers – an answer, perhaps, to Halfon’s question about why some are faring better than others.

The OfS is currently formally monitoring the finances of 30 higher education providers, and has also written to 23 to express concern about the proportion of Chinese students, requesting contingency planning for any “sudden drop” in numbers.

These interventions highlight the shaky ground on which many universities have had to build their financial foundations – not only in England, but in other marketised countries too.

Asked for his view of the scale of the risk currently facing the sector, Robb told last week’s panel that “the most active part of EY working with universities right now is the restructuring business”.

He added that if a funding system was to be built on international student fees, then a “consistent liberal and welcoming immigration regime” was essential. Add your own pithy observation here.

This latter point will be particularly keenly felt in light of an impending ban on dependant visas for students on UK master’s courses – a measure that is likely to hit the “mid-tier” particularly hard.

Reflecting on the vulnerability of institutions outside the elite, Susan Shaffer, vice-president and senior credit officer at Moody’s Investors Service, explained that “because that challenged mid-tier do not have a global reputation they have to work much harder to recruit international students, and a lot of it is relationship-based so you can end up with a lot of students coming from a certain pocket – a certain area of India, for instance.

“If the visa process gets jammed up in that area, or something goes sideways, then perhaps half of the students in a specific master’s programme that a university was counting on just evaporate.”

Again, it would be easy to paint this as a pickle of universities’ own making, but with domestic students on the cusp of being loss-making under the current funding arrangements in England, it is not clear what else universities are expected to do.

As Robb put it in the THE/EY discussion: “Government policy can remain irrational longer than you can remain solvent.” It’s a dilemma many universities will feel they face today.

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