Back up higher education reform with the funding to maintain quality

As responses roll in on the government's plans for HE reform, Lily Bull paints a stark picture of universities stuck in a funding deep freeze

Lily Bull is a policy analyst at the Russell Group

The responses are now in for the Department for Education’s consultations on higher education reform and lifelong loan entitlement – including proposals for minimum loan eligibility requirements and student number controls.

Although the overall funding envelope for universities wasn’t up for consultation, the Russell Group and others across the sector took the opportunity to voice and evidence concerns about government decisions that will inevitably start to undermine the future quality and international competitiveness of teaching and research.

Loss leaders

Even before the decision to freeze tuition fees until 2024-25, teaching domestic students in universities had shifted from universities breaking even to making a loss, and deficits were already projected to increase. In 2021, analysis from the Office for Students found that the funding for teaching per full-time equivalent student (FTE) in England had declined by 19.3 per cent since 2018-19. Frozen fees but without a corresponding rise in the grant funding government provides to the sector, alongside a growing number of students, are all factors.

We don’t believe that the government is unsympathetic (or unaware) of these funding challenges. In fact, in the HE reform consultation DfE acknowledges the need to build a more sustainable system for students, institutions, and taxpayers. Despite this, and notwithstanding the welcome HE investment announcements accompanying the consultation document, the changes represented real term cuts for funding.

Our analysis shows that with tuition fees frozen for another two years until 2025 – at a time when cost pressures are multiplying – the average deficit universities in England would incur for teaching each undergraduate student would increase from £1,750 in 2021-22 to approximately £4,000 in 2024-25, with all subjects continuing to face deficits in some form.

While the government’s £750m investment over the next three years is welcome, it will be stretched pretty thin. The £450m capital pot is a continuation of existing annual capital funding, so the new money is actually more like a £300m uplift to the strategic priorities grant.

However, this will not cover the increased deficit pressures. Those working in arts and humanities subjects are likely to be particularly concerned as the government’s guidance for how the funding should be spent for the year ahead makes clear much of this additional investment should be focused on the highest-cost courses such as medicine, chemistry, and engineering.

In response to increasing deficits, universities will continue to be flexible, work more efficiently where possible, and look for new ways to generate other income. But like many other organisations – and most individuals – in this climate, university finances are being stretched and they are running out of levers to pull to make the numbers add up.

Erosion of quality

Without further support, the decline in the unit of resource will inevitably start to impact on the quality of teaching and learning in the longer term. Depending on the structure and priorities of the university, each will respond in different ways. Across the sector we risk seeing increases in class sizes, lower staff: student ratios, reduced investment in practical teaching, infrastructure, support services, and/or reduced intake onto courses with the largest deficits which are often STEM subjects.

Where budgets can be shifted around to cover the increasing deficits in teaching, universities will have less money to support other activities such as funding research supporting their students, their local communities and delivering on wider government ambitions. Without sustainable funding for teaching, it will be hard to justify the more ambitious spend we’d want to see on new government initiatives such as supporting raising attainment in schools or expanding modular provision through the lifelong loan entitlement.

Ultimately, the main degree of freedom universities have for covering teaching deficits is additional income they may be able to secure from teaching international students. However, it is not as if universities haven’t thought of this already; and with the world heading into some difficult economic, social and geopolitical head winds, a significant UK expansion in the international HE market may prove a challenge.

We understand the problems the government faces in managing the public purse and appreciate the need to focus on supporting the UK population. Looking to the future, we are hopeful for an opportunity to put the sector on a more sustainable footing, recognising the high quality and value of teaching and research at UK universities, and the importance of maintaining our international competitiveness as a strategic asset for the nation.

We are expecting a new funding settlement in two years’ time – post the next general election. But we urge the sector to come together now to support the government, and if possible garner cross-party support, to develop a funding formula from 2024-25 that will be fair to students and allow universities and the government to maintain the quality of Britain’s higher education sector.

3 responses to “Back up higher education reform with the funding to maintain quality

  1. It would be hugely helpful if the HE industry set out some credible and meaningful information on the cross-flows of cash in relation to its major spend items – say, undergraduate teaching costs, the propping up of research activity that fails to cover overheads, and (for some Us) servicing hefty debt used for extensive new-build projects over the past decade. So, we need clarity as to, for example: how much of the international students fee income is transferred to supporting R and how much of it is used to support T; how much of the Home UG fee income pays for academic time that is then diverted to R activity; how much of student fee income is spent on administration or on debt-servicing. Until Us are both more open over and perhaps also more sophisticated in their financial analysis, it is not surprising that some are sceptical about their claiming to be under-funded and about their demands to be sent more money lest ‘quality’ decline (at the same time as degree-grade inflation is rampant and hence, seemingly, the ‘quality’ of graduate output is surely ever-increasing…).

  2. Well said, particularly, “Until Us are both more open over and perhaps also more sophisticated in their financial analysis”.

    It seems few, if any Universities can provide the cost for subject level, undergraduate teaching.

    Until they are able to do this and share the information, it is impossible to compare how well money is spent on different courses within a university and the “same” courses at different universities.

    Once this information is available, we can start investigating which courses and institutions provide the best value.

    It should also enable us to change the funding allocations and reform or abolish the student loan system. We know that the costs to train a doctoror a lawyer or engineer are different but have no idea of the actual costs. It is really stupid to believe the right figure for every course at every university is £9,250 a year.

    It is disgraceful that £ billons are spent in circumstances of financial illiteracy.

  3. There’s a wealth of data on all of this – that’s also subject to a ridiculous level of independent audit reinforcing its credibility. The OfS publish an annual analysis of costing data showing that in the UK home teaching runs at a 4.4% deficit, international teaching at a 32.1% surplus, funding the 43.4% deficit in research.

    While these numbers have varied over time, they illustrate the long-standing structural business model of UK HE whereby international fee income funds the research deficit, with home teaching broadly washing its face. But as Lilly’s article points out the compounding effect of the decade-long home fee freeze is now biting and the deficit on home teaching will increasingly become a noticeable drag, presenting a new challenge on managing our finances.

    You’re also asking for more granular detail on costing teaching. Individual Us will have this to varying degrees. Medical Schools will have big deficits compared to large surpluses in Business Schools. Does this really matter – what matter’s is that leaders understand their margins and are managing a portfolio of activity to balance their finances.

    But costing teaching is not an objective science. As a result of the last 2 years A level results a number of discipline intakes surged but this doesn’t mean their unit costs have plummeted (although mathematically they have). Each year teaching numbers by discipline ebb and flow according to the market, the art of offers and admissions and A level trends. Income is now largely fully variable while the cost base that supports it is still largely fixed. Academic workloads also ebb and flow, partly driven by direct teaching demands but also by policy direction and career development. All this means that unit costs by discipline ebb and flow every year – largely as a result of mathematical variations in the denominator. Teaching isn’t like making widgets – or like doing a bounded research project which is easy to cost.

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