England’s universities still waiting for help to stop slow-motion financial crisis

The “false dawn” is a staple of Hollywood thrillers: where the main characters think they have escaped their nemesis, only to discover they are in more peril than ever.

So it is for England’s universities. Having slogged through years of frozen tuition fees and lashings from Conservative ministers about “bums on seats”, grade inflation and “low-value” degrees, last month’s general election raised hopes that the worst was over. But the plot twist for England’s vice-chancellors is that there is still another mountain to climb.

Owing to a mismatch between political and academic timetables, the change of government has not brought any immediate relief when universities reopen this autumn. Labour’s manifesto promised to put higher education in England on a “secure financial footing” but that will have to wait until at least the next budget.

That may be too long for some, with hints that three or four universities face urgent financial difficulties this autumn. Those most in danger used the low interest rates that came with the period of low inflation of the 2010s to borrow heavily from pension funds and investment banks. Several are now struggling with high debt servicing, and are in danger of breaching the covenants governing those loans, as their main sources of income shrink and their costs rise.

According to one academic, the most likely outcome of the crisis will not be “a mushroom cloud in the sky” but rather a “soft bankruptcy” of increasing redundancies, course closures and larger classes. Building maintenance, mental health support and sports facilities could also be targeted for cuts. “You’ve got to think of it as being like a sinking hot air balloon, with senior management chucking everything out just to stay up in the air,” the academic said.

Mark Corver, the chief executive of DataHE, a higher education consultancy, warns that universities face a longer-term danger if their cuts deter future students. He points to the consecutive annual declines in the proportion of English school leavers going to university as evidence of lower enthusiasm among sixth formers, such as the ones receiving their A-level grades next week.

Corver said: “I hate the word but it’s like the vibe theory of politics – what is the vibe about UK higher education at the moment? In recent years it’s been diminishing chances of getting a place at those universities that are most sought after. And I would argue that there’s a nagging awareness among students that this has something to do with funding.”

Lower acceptance rates, especially at higher-tariff universities requiring top A-level grades for entry, may create “a cycle of disappointing outcomes for students” and lower future application rates by their younger sisters and brothers, he said.

“If universities let that cycle get established we could be in for a period of perpetually dwindling interest in going to university.

“So universities have a very acute and painful dilemma: do they push themselves further into deficit in the short run, on the basis of trying to do what they can to keep overall levels of interest in higher education strong – despite the fact that it’s not currently being funded at a level for them to be able to do that.”

The root of the problem is that since 2012, when annual tuition fees were hiked to £9,000 for each domestic undergraduate, they have barely risen in the 12 years since, despite the government’s promise to increase fees in line with inflation. That only happened once, in 2016, when the fee was raised to £9,250.

For the first few years the frozen fee was not an urgent problem, thanks to the low inflation rates of the 2010s. But since then inflation has accelerated and staff costs have followed, with the Institute for Fiscal Studies estimating that the real value of the sector’s spending on each student has fallen back to the levels of 2011, when tuition fees were £3,375 a year.

The more fortunate institutions have been able to maintain their spending by recruiting international students who pay much higher uncapped fees. But that has got harder, most notably because the last government bore down on student visas as part of its hostility to immigration. Home Office figures show a 16% fall in international student visa applications so far this year, with further falls expected.

The result has been a slow-motion financial crisis, getting worse every year.



The Guardian