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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
It is a rare politician who takes on a complex problem that offers little electoral dividend just ahead of an election they expect to lose. This reality is troubling Labour strategists who fear that Conservatives are parking a number of issues in the file marked “another party’s problem”. One such toxic parcel is the brewing financial crisis in UK higher education.
What makes this particularly sad is that the great universities are one of the UK’s success stories. World rankings show Britain boasts more top rated institutions than the rest of the EU put together. Oxford, Cambridge and Imperial rank in the top 10. Four more are in the top 50. The UK has long been a leading destination for international students and academics.
And yet universities face severe challenges, a situation not helped by a government that feels no great love for a sector it accuses of breeding anti-conservative values. Tories argue with some justification that there are too many undergraduates, often taking courses of limited economic value in the arts and humanities, and that the country needs to shift focus towards vocational skills.
Most pressing is a deepening funding crisis. Undergraduate tuition fees in England, capped at £9,250 (£9,000 in Wales), are being eroded by inflation, while research and teaching grants are falling as a percentage of income. Universities UK estimates the £9,250 will be worth £5,800 by 2025-26. The research-intensive Russell Group institutions claim English universities made an average loss of £2,500 per domestic student last year. (Scotland, with a different funding model, has similarly tight budgets.) There is a shortfall in funding for postgraduate research. Universities are also under further financial pressure over pension payments.
Until now the solution has been to rely on the uncapped fees of international students. Yet recent changes to the immigration rules mean declining applications. Some universities, like York, have responded by lowering the entry requirements. A PwC report for Universities UK concluded that universities would face a deficit if the boom in recruiting foreign students ended.
Some of the challenges must fall to the universities. A few are experimenting with closer collaboration on courses and back-office functions. Some complain they will have to cut courses but universities should not be exempt from belt-tightening. Ministers privately insist that they are prepared to see even a major institution fail.
Meanwhile, the value of outstanding student loans is expected to reach £460bn by the mid-2040s. Recent changes to the repayment rules have improved the prospect of recouping the money but 39 per cent of students will still not repay their loan in full.
Universities are now campaigning hard for the £9,250 tuition fee cap to be index-linked, an argument that makes economic sense, but neither main party is in a mood to countenance any increase. Without yet saying how, Labour has pledged to reduce the debt burden on graduates without any extra cost to the taxpayer. Unless governments of either colour want to significantly increase public funding, which seems unlikely, there are no easy answers. But there are some obvious questions to ask.
Should students be removed from the immigration statistics since a clear majority ultimately leave the UK? Immigration hawks might cry foul but it could ease the political pressure to claw back student visas. While there are undoubted abuses of the student visa there are strong arguments against making it harder to recruit foreign students who are not only a source of income but bolster British soft power.
It is worth asking if the current student loans system in England is working. Students are faced with decades of debt. Universities still feel underfunded but it is politically difficult to raise fees and the government is paying out billions that will never be recouped.
Ministers could raise or abolish the £9,250 fee cap to create a genuine market but this might price poorer families out of elite universities or the courses that lead to high-status professions. Should the state simply spend more in grants to courses in spite of tight public finances? If so, should it guide universities on what to offer?
Finally and most crucially, does the entire model still serve both society and the individual, when too many graduates are emerging with degrees that do not guarantee them the career they could once expect? Should undergraduate places be scaled back, mergers encouraged and more students pushed towards job-focused alternatives? They could, as advocated by one Tory think-tank, look to the US tiered model or support an elite sector with higher central funding, with the rest of higher education evolving towards vocational skills.
Perhaps, but parties see the dangers of rationing the dream of a university education. Patently not every college can be a world-beater; too many may be offering a range of courses instead of specialising or addressing regional needs.
Each question raises unwelcome political and societal issues. But while both sides acknowledge the challenges, they appear to be relying on the institutions, or just osmosis, for a solution.
As the parties look beyond the election, they must reflect on where they hope to see higher education 10 years from now and start asking how to secure the future of one of the nation’s undisputed competitive advantages.
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