A higher education transformation fund would catalyse university reform

The inflationary undergraduate fee and student maintenance increase announced earlier this month are welcome, albeit modest, changes to the financial picture for universities.

These small, short-term funding interventions positively signal that government is listening to the financial concerns of universities and students – but these are not changes that will make a fundamental difference to tackling the significant underlying financial challenges across the higher education sector.

Alone, the interventions to date are not a credible response to the stark statement and commitment in the Labour Party Election Manifesto of June 2024:

The current higher education funding settlement does not work for the taxpayer, universities, staff, or students. Labour will act to create a secure future for higher education.

However, the modest funding changes were accompanied by a significant commitment to further action, with five government priorities for reform of the higher education system set out in a letter from Secretary of State for Education Bridget Phillipson to heads of institution in England:

1. Play a stronger role in expanding access and improving outcomes for disadvantaged students.
2. Make a stronger contribution to economic growth.
3. Play a greater civic role in their communities.
4. Raise the bar further on teaching standards, to maintain and improve our world-leading reputation and drive out poor practice.
5. Underpinning all of this needs to sit a sustained efficiency and reform programme

These priorities were coupled with comments that emphasised the expectation that reforms would be a shared responsibility of government and higher education:

… I recognise these as shared objectives… I am committed to respecting the autonomy and diversity of the sector… But I am clear too that this agenda needs a real change of approach, both from the government and from the institutions you lead … I want to work in partnership with you… over the coming months to shape the changes to government policy that will be needed to support these changes.

Finance and reform

Speaking at the Festival of Higher Education – organised by Wonkhe and the University of London – on 12 November, David Behan, interim chair of the Office for Students said that he reads Bridget Philipson’s letter as “an invitation to have a conversation about finance and reform.”

Building an effective higher education transformation fund should be a central part of this conversation. It should be a flagship policy that would deliver positive impact for the economy, communities, students and universities.

Universities have the capabilities to play a central role in the social, economic and civic renewal that the UK needs – economic growth, health innovation, green energy, cultural renaissance, good jobs, technological opportunities, and community cohesion. The capabilities, knowledge, experience and skills in the higher education sector are well placed to meet the five government priorities for reform. However, some institutions are in such challenging financial positions, they need financial support and transformation to be on a secure enough footing to maximise their positive impact.

A higher education transformation fund – bringing together finance and reform – could support significant reform of some institutions, enhancing their positive impact on society and putting them on a more secure financial footing. The transformation fund should be supported by government funding, aligned with the five government priorities for reform, but it should respect the autonomy of universities to shape their own specific priorities, decisions and future direction.

Higher education transformation worked example

This is how a higher education transformation fund could be structured:

• A university would acknowledge that its current model or portfolio needs significant change to meet current/future social and economic needs, and ultimately be viable in the market.
• The university would build a business case for change, focused on transforming to meet social and economic priorities. The university would demonstrate how the transformation would allow them to better meet one – or more – of the government’s five priorities for higher education reform.
• The government would provide time-limited and specific transformation funding to support the costs of transformational change, with the university expected to report back against agreed milestones.
• This would not be about being restructured by external actors, but about a university deciding proactively on a new direction. The transformation would be university-led, market-informed, social and economic need-focused, and government supported.
• The government, in particular the Treasury, would understandably want assurance that public funding is being used effectively for the purposes it was granted. The transformation fund money could be given as loans and then converted to grants on completion of hitting a set of agreed targets. This is quite similar to a model that HEFCE once used for their strategic development funding.

And here is a more specific example of how it could work in practice:

A university submits a bid to the transformation fund. The proposed transformation is to refocus a university’s programme portfolio to launch 10 new programmes that meet specific regional skills needs. Also, to close 10 current programmes that are costly to run but are not well aligned to regional skills needs. This transformation requires hiring new staff, developing programme content, developing some new facilities and buying some equipment. The cost to deliver this transformation is £20 million.

The university proposes a transformation plan with objectives, timescales, targets and an outlined on the funding required. The bid is aligned with at least two of the government’s priorities for higher reform “make a stronger contribution to economic growth” and “sustained efficiency and reform programme.” Arguably it could also be aligned with “play a greater civic role in their communities” and “raise the bar further on teaching standards.”

In this example, the university proposes five specific targets:

1. launch the ten new programmes for autumn 2027 entry
2. recruit a total of 3,500 students to these new programmes by the 2028 intake (second year)
3. ensure that there are staff and facilities that allow for an intake of at least 2,000 students a year across these 10 programmes
4. continuation and student outcomes data for these new programmes meets agreed targets
5. closing – and teaching out – the ten legacy programmes by 2029

The government offers £20m of loan funding over three years to support the transition through 2025–26, 2026–27 and 2027–28 financial years. For each target met, part of the loan converts to a grant. For simplicity, in this example, £4m is converted from loan to grant for each of the four targets met.

If a target is not met, the university is expected to pay back a proportion of the loan by an agreed date. There would also be a clause that the intention of the loan is to bridge to a sustainable position – not a bailout. The proposal would include modelling and future forecasts.

A well designed transformation fund could enhance the positive impact on universities and put institutions on a more sustainable financial footing. The fund would drive progress towards the government’s higher education reform priorities by supporting universities to play a stronger role in expanding access and improving outcomes for disadvantaged students; to make a stronger contribution to economic growth; to play a greater civic role in their communities and to raise the bar further on teaching standards. The transformation fund would offer practical government support to drive efficiency and reform while respecting the value of university autonomy.