The Brexistential threats universities now face

Image: IKON

It’s going to be a hard few years. Even if the worst predictions don’t come to pass, the guaranteed uncertainty will be difficult to manage. I haven’t written this to scare you. I’ve written this because I think it’s important that we take seriously the risks that Brexit poses to the underlying financial health of the higher education sector, and it is vital that the sector ensures these serious threats receive the attention needed.

Underlying this analysis lie two key assumptions, neither of which might prove to be true in the end (and we’d probably be better off if they weren’t). First, that there isn’t going to be a snap back to Remain via a second referendum, or other less-than-constitutional means. Secondly, that things will take some time to shake out, with short-term fluctuations (over the two-year Article 50 period) leading to a ‘new normal’.

Home student recruitment, and how to pay for it

There’s no immediate reason to think that overall student demand will decrease, for full-time undergraduates at least. However, with the near-certainty that the UK’s credit rating will decline and the cost of government borrowing will rise, we could see the return of student number controls. A parliamentary briefing from January this year presents a clear demonstration of the scale of the headache for the Treasury by putting numbers on the size of the borrowing which the government has to undertake in order to lend on the money for student loans:

“The Government has projected that the outstanding cash value of publicly owned student debt in England will increase to around £100 billion in 2016-17, £500 billion in the mid-2030s and £1,000 billion (£1 trillion) in the late 2040s. The real (2014-15) value is expected to exceed £100 billion around 2018, £200 billion in the late 2020s and stabilise around £300 billion by the middle of this century.”

While the government (any government) would probably want to continue the growth of higher education, not least to keep young people out of the unemployment numbers, the sheer scale of borrowing required to sustain the status quo might not be affordable in the context of expensive borrowing and other demands on public finances. There are other options available, such as reducing the fee cap, which would put the squeeze on providers.

International student recruitment, and whether to let them in

The declining value of the pound – if it stabilises at a new lower level – could present a fillip to overseas student numbers as the UK’s otherwise high prices become more competitive. There will probably be a fall in EU numbers as tuition fees rise and access to loans is taken away. Students probably won’t be inclined to apply for programmes due to finish in more than two years’ time as there is currently no guarantee they’d be allowed to stay in the country, let alone stay on a fee below than of non-EU international students.

We also need to be aware that pricing is not the only factor that determines recruitment. Brexit is also a global PR disaster. The message we have given the world is that we don’t want to play any more and we are heading off to sulk in the corner. Brand UK and brand UK-HE need some serious attention. Universities – in conjunction with the British Council – need to tell the world that we’re open for business and still have a world-beating university education to offer.

One of the more perverse outcomes of Brexit could be the removal of students from the immigration numbers. Let’s assume that future governments will continue to have relatively (increasingly?) low migration targets, but that the impending economic down-turn means that the pragmatists will make the case for the role of exports in the recovery; students could be removed from the targets with a renewed emphasis on their in-and-out status.

Research income, and how to stay competitive

It is possible that there could be continued access to European research funds, but that depends on the outcome of withdrawal negotiations. It seems wildly over-ambitious to predict that we’ll see the same level of funding from these sources. We may become more difficult to do international business with, and may not be able to participate in or lead as many research partnerships. It is also possible that we will see a brain drain as we lose both ‘soft money’ contract researchers due to short-term ups and downs, as well as senior researchers due to the longer-term health of the sector and the increase in relative attractiveness of either other European, North American, Asian or Australasian institutions. Expect boom times for the head-hunters, particularly those with the best international networks.

Investment, and how to pay for it

Since February 2011, the European Investment Bank has lent over €2.6 billion to UK universities. The top five borrowers are:

ProjectAmount (€)
University College London365,697,608
UK Knowledge Economy Programme326,104,915
University of Edinburgh316,812,546
University of Oxford278,823,365
University of Ulster182,626,164

It is not the case that without membership of the European Union our universities would become unable to borrow, but it might become more difficult. The UK government, banks and international institutions will continue to fund projects in this country. Universities that need to raise capital could issue more bonds (as many have done in recent years) which could be attractive to investors if the government’s credit rating is downgraded.

A new government might decide that we need a large dose of Keynesian stimulus. Universities should be on the front foot to make the case for investment in research and teaching facilities to create both a short-term GDP boost as well as the necessary foundations for the long-term growth. Investment in this area could also retain and attract research stars.

What’s the diagnosis?

In the best of all possible worlds, government would see universities as a key part of national infrastructure and a foundation for economic and social development. In that scenario, higher education would receive new capital investment directly in facilities, stable income from student loans via government borrowing, and increasing income from the freedom to recruit more international students. However, we can’t be confident that this will happen. We cannot be sure that anyone will care given the enormity of the problems facing the country and the cacophony of competing voices. Why higher education, not roads or hospitals, or incentives for the private sector and support for the financial sector?

Universities, the sector’s agencies and everyone who cares about UK higher education need to battle fiercely to make the case – based on all the evidence they can muster – for their importance to the future of the nation. We are in a high-stakes game; playing higher education’s cards wrong might be disastrous.

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