Higher anxiety

3 Sep 09
The good news is that record numbers of young people are applying for degree courses. The bad news is that higher education does not have enough funding and some universities are at financial risk. Stephen Court reports
By Stephen Court

03 September 2009

The good news is that record numbers of young people are applying for degree courses. The bad news is that higher education does not have enough funding and some universities are at financial risk

Higher education has never been so popular. Last month, there were record numbers of A-level passes, feeding into an unprecedented level of applicants for undergraduate degree courses this autumn. Further down the higher education supply chain, things are also looking good. Earlier this year, 77% of young people aged 11 to 16 ­surveyed said they were likely to enter higher education, up five percentage points on 2008.

All this is feeding into a higher education boom: the total number of home and international students in the UK increased from 1.8 million in 1997 to 2.4 million a decade later.

It is likely that the current recession is benefiting universities, with more young people wanting degrees to improve their chances in a tough labour market. This is alongside the mature students returning to university to retrain or increase their skills.

But not everything is rosy. With the recession particularly hitting the employment of young people, the jobless rate for graduates has risen. Large employers, such as BT, are scrapping their graduate recruitment schemes. In addition, the government’s tightening of funding for new places in higher education means that this summer thousands of highly qualified A-level students have been unable to gain university admission.

For the past decade, the government has been consistently seeking to boost economic performance through an increase in participation in higher education, on the basis that higher skills levels are needed to maintain international competitiveness. Ten years ago, then prime minister Tony Blair set a target of 50% of young people participating in higher education by 2010 (a target looking highly unlikely to be reached – participation levels were at just 43% in 2008). Now the government wants at least 40% of the population to have a higher education ­qualification by 2020.

Since the recession began, HE has played a prominent part in efforts to get the UK back on economic track. The government is funding initiatives by universities to help support individuals and businesses affected by the recession, providing access to training, professional development and other support. Facing record demand, the government has recently provided an additional 10,000 full-time places in England for the new academic year, on top of 3,500 new full-time university places for 2009/10 announced in March. Despite this, it is ­estimated that up to 40,000 university ­applicants might miss out.

The boom in higher education comes with a substantial price tag. Total government spending on higher education in the UK in 2007/08 was £11.5bn. Just over £1bn was spent on student support for England alone – following the reintroduction of means-tested maintenance grants – and close to £1bn on the annual cost of providing student loans at less than the market rate.

The government has been just managing to maintain the unit of funding resource per full-time equivalent student year on year in real terms. This followed years of reductions in the unit of resource under the previous Conservative government – a decline that led to the introduction in 1998 of fee payments by full-time undergraduates (since revoked in Scotland). Since then, variable top-up fees have been introduced in England, Wales and Northern Ireland, bringing in an additional £1.3bn a year in England alone.

Now two issues are putting the unit of resource under strong pressure. On top of previously announced value-for-money savings, the government, following this year’s Budget, announced that a further £180m would be pruned from higher education spending in 2010/11. Because the government’s April to March financial year ­overlaps with the academic August to July financial year, the Budget savings have translated into £65m being taken from provisional allocations for university teaching already announced for 2009/10.

The tuition fees from the 10,000 extra full-time places will help, but the government has confirmed that these will not be accompanied by any extra funding for teaching, and that they will be in a limited number of subjects. The Higher Education Funding Council for England has said the places are for full-time undergraduates in subject areas that will support the government’s ‘New Industry, New Jobs’ policy. These include ­science, technology, engineering and mathematics (Stem). The places are being supported by the government through the provision of student support and loans towards the tuition fees that institutions will charge, but do not come with additional HEFCE grant. In addition, HEFCE has warned institutions that ­over-recruit that they will be financially penalised.

A number of institutions – including large research-intensive universities specialising in Stem subjects – have told HEFCE they do not want any of the new unfunded students. Other institutions have opted for growth in the hope that extra students will attract public funding in future years.

The danger is that these pressures will undermine the amount of funding per student, in turn jeopardising the quality of their learning experience. And any threat to quality could damage the UK’s international reputation for university education, putting at risk the valuable income streams from the growing numbers of overseas students who pay ­top-level tuition fees. Meanwhile, initial reports suggest that international student numbers for 2009/10 are down because students are being put off by the highly bureaucratic points-based immigration system for gaining study visas, introduced by the ­government in April.

Later this year – against the backdrop of the recession and the coming general election – the independent review of top-up fees is due to start. The fees are at present capped at slightly over £3,000 a year and any increase would have to be agreed by Parliament. University leaders have already looked at various scenarios. They have concluded that: ‘At a fee of £5,000, students on the whole remain relatively price insensitive, but if the fee were to rise this would start to influence students’ decisions about whether to enrol in higher education.’

How likely is it that the fee cap will be lifted? University vice-chancellors maintain that top-up fees have not undermined the attempts to widen participation in higher education by students from under-represented groups. A 2008 report by Universities UK, which represents the executive heads of universities, found no significant change in the ethnic, social class or age profile of accepted applicants across the four years that straddled the introduction of top-up fees – 2004/05 to 2007/08. However, opponents of the fees – including lecturers’ representative the University and College Union – say the fear of debt puts off potential students from disadvantaged backgrounds.

In July, Business, Innovation and Skills Secretary Lord Mandelson hinted that fees might rise, saying: ‘Any institution that wants to use greater costs to the student to fund excellence must face an equal expectation to ensure that its services remain accessible to more than just those with the ability to pay.’ He added that, in terms of a university education improving social mobility: ‘We are doing better, but not well enough. I am impatient about this progress and intend to turn up the spotlight on university admissions.’

There is likely to be more on this in the autumn, possibly as early as this month. This is when Mandelson publishes the government’s response to reports commissioned by the former Department for Innovation, Universities and Skills on the framework for higher education over the next 10 to 15 years.

Performance indicators published by the Higher Education Statistics Agency show that the proportion of young full-time ­undergraduates from disadvantaged groups increased by less than one percentage point in the UK between 2002 and 2008. This was despite almost £2.5bn having been spent in England alone over the period on widening participation, hardship funds and the Aim Higher programme for widening access.

In August, the House of Commons innovation, universities, science and skills select committee put Parliament on a collision course with universities by asserting that the principle of fair access to higher education was ‘paramount’ and overrode institutional autonomy. The committee declined to make a recommendation about future fees, but said that the review should ‘look at the alternative methods of securing the funds needed to sustain a strong higher education sector, and should not be concerned exclusively with the appropriate level of fees within the current structure’.

The National Union of Students has called for a graduate tax to replace the current regime, under which students take out a loan to pay their fees, and repay this once they are in employment and earning more than £15,000 a year. NUS president Wes Streeting said: ‘The current recession is a stark reminder that excessive levels of debt are unhealthy, both for individuals and the economy. We believe that higher education should be free at the point of use for all students, with graduates making a contribution according to how much they are benefiting financially from their own use of the system.’

The NUS would also like to replace the current bursary system in England and Northern Ireland with a national scheme (Wales already has one). At present, if – as virtually all do – a higher education institution in England and Northern Ireland charges the maximum fee (£3,225 in 2009/10), it has to provide a bursary to at least make up the difference between the fee and the full maintenance grant (worth up to £2,906 in 2009/10).

So the minimum bursary in 2009/10 will be £319, and some universities are offering this. But the majority offer substantially more a year – for example, up to £2,906 (Leeds), £3,225 (Oxford), £3,250 (Cambridge), £3,300 (Imperial College), £4,000 (Liverpool) and £4,262 (University of Bedfordshire).
Providing competitive bursaries, as well as administration costs, make big inroads into the extra income institutions receive from top-up fees. Add to this the recent estimates of additional income needed to improve infrastructure, as well as to ensure the sustainability of teaching and learning, and the case for extra funding for the sector grows. In the 2008 calendar year, institutions increased pay by 8%, and at the end of July last year, UK higher education institutions had a net ­pension liability of £2.9bn on their balance sheets.

Just how solvent is the sector? Last December a joint university/trade union review of finance and pay in higher education concluded that although most of the institutions were financially stable in the short term, the levels of surplus and investment were ‘too low confidently to assure a sustainable future’. No university has gone bankrupt so far, but risk-monitoring by the HEFCE indicates that several institutions have given cause for concern.

In order to safeguard university viability, there is a three-year delay between HEFCE discussions of institutions at risk, and ­making these discussions public. The most recent public information relates to monitoring carried out in November 2004, when two institutions – the then University of Luton and the Birmingham School of Acting – were in category 1: institutions whose health is considered immediately at risk.

Since then, Luton has merged with part of De Montfort University to form the University of Bedfordshire, whose latest accounts, for the year ending July 31, 2008, showed a £1.1m operating surplus. The Birmingham School of Acting, connected at the time to the then University of Central England, has since become a faculty of Birmingham City University, which posted a £1.5m operating surplus in 2007/08.

A further ten HEIs were in category 2*, for institutions ‘whose health is likely to be at risk in the near future unless action is taken by the institution as a matter of urgency’. The identity of five of these has been kept confidential. Those publicly identified were: the Conservatoire for Dance and Drama, which had an operating surplus of £190,000 in 2007/08; the Courtauld Institute of Art, which had a £1.2m operating deficit in 2007/08; Dartington College of Arts, which merged last year with University College Falmouth (which had a £1m surplus in 2007/8); the University of ­Greenwich, which had a £7.4m operating surplus in 2007/08; and Trinity College of Music, which has since merged with the Laban Drama College – the merged institution had an operating surplus of £400,000 in 2007/08.

It is likely that HEFCE is closely monitoring the health of London Metropolitan University at the moment. Because the LMU over-reported student numbers in the past, HEFCE is clawing back £36.5m, and the institution’s future recurrent grant has been cut by approximately £15m. In ­response, the university is seeking to cut 550 jobs.

In 2007/08, the most recent year for which data are available, UK higher education institutions had an operating surplus of £490m – 2.1% of total income. However, that figure included 29 (out of a total of 166) that had an operating deficit. By contrast, HEFCE advises institutions to have an operating surplus of at least 3% of total income.

Last December, before the full extent of the recession was known – and before the Budget set out additional savings and the extent of public debt – English institutions forecast an operating surplus for 2008/09 of £124m, growing to £363m by 2011/12. They forecast that recurrent HEFCE grants would steadily drop as a proportion of income, while tuition fees would rise in importance. Staff costs were forecast to remain at around 58% of total expenditure over the period.

HEFCE concluded that ‘the overall financial results for the sector in 2007/08 show a positive and financially sound ­position’. Cash balances were strong and reserve levels were healthy. However, it said the Transparent Approach to Costing data – the methodology used by HEIs in the UK for costing their activities – indicated that when adjustment was made for the full economic costs of activities, including teaching and research, the sector was more than £1bn in deficit.

Something has to give – and indeed might already have started to do so, with an estimated 4,000 jobs cut or at risk in the sector since the start of the downturn.

That in turn might already be affecting student attitudes, because the 2009 ­National Student Survey showed a one percentage point drop in overall satisfaction levels compared with the previous year. Universities will need to be careful that they do not harm the goose that lays the golden egg.

Stephen Court is senior research officer at the University and College Union

Did you enjoy this article?