At GuildHE, we represent over 60 institutions that do not fit the traditional, large, generalist, research-intensive mould. These institutions are deeply focused on industrial readiness, employability, specialist skills and regional growth.
They deliver vital skills in geographical areas and sectors where the UK faces acute shortages, and directly support the government’s own missions to grow, increase opportunity, develop a greener future, reduce crime levels and build a better NHS. Whether this is achieved through healthcare, the built environment, teaching, policing, agricultural innovations, law or the creative economy, the future talent pipeline to address these missions depends, in large part, on the success of these providers. However, the current funding landscape does little to protect and support them.
The image of the large generalist, research-intensive traditional higher education institution is the model on which the funding and regulatory system in the UK is based. This model has become the DNA of our systems, which rely on assumptions about the sector as a whole: its strategic missions, delivery mechanisms and capacity. These assumptions naturally impact the incentives and levers that are built into policy frameworks.
Policies often fail to recognise those that fall outside that image, so that smaller, specialist, and non-traditional institutions face increasing threats to their viability. Sector consolidation and investment in the historically-established HE model, as seen in other settings across the world such as Australia and the US, could undermine our global reputation, agility and responsiveness to diverse students and industries.
Challenging these systems, and the methodologies on which they are built, will require the government to embrace innovative models of practice across education, skills and research, even if it comes with some associated risk. Indeed, it will require a brave examination of the effectiveness of the very regulatory and funding systems which are encouraging a level of homogenisation across the sector that could spell its own doom.
To that end, we propose an approach to spending in the next period that focuses on reforms to encourage investment and rethinking the system to make it work smarter.
Invest in the talent pipeline and protect student choice
As part of this government’s vision to expand opportunity, we have seen the beginnings of multiple new strategies and administrative initiatives, including proposals for a new Industrial Strategy, a Get Britain Working strategy, a new ten-year plan for the NHS, reform of higher education and the introduction of Skills England. These new arrivals aim to improve economic growth, encourage efficiency in public services, produce a future skills pipeline and build an investment environment for UK business.
Higher education drives the transformative forces required to raise levels of productivity and improve economic growth. Institutions do this by stimulating the higher-level skills needed in industry, providing lifelong opportunities to retrain and upskill, and expanding opportunities for all to do so. They also do it by cultivating ideas and new knowledge; a cornerstone of productivity and growth.
Alongside these contributions, we need to protect student choice by preserving a variety of institutional types and locations across the country. Doing so is vital to ensuring the widest range of students can access the transformative power of higher education; a power that yields both individual improvements in life chances and direct improvements to employability, our public services and our economy. Furthermore, a system that boasts a diverse range of institutions and provision types is a healthy one that can deliver to local economies and communities across the country and thereby demonstrate ways in which higher education institutions are vital to those beyond us.
Balancing government growth and skills priorities with student choice is not mutually exclusive. Models of higher education that prioritise industry practice, employer needs, innovation impacts and workplace experience can achieve these priorities. The capability to develop high-level specialist skills dynamically in a way which also builds the social resilience required to respond effectively to new, advancing technologies is quickly becoming a standard requirement of our graduates. We need reformed spending to achieve it.
Do things differently, get different results
Minister of State for Skills Jacqui Smith has said that the government is ready to review the education system and develop a way forward that “challenges the status quo.” To genuinely fulfil this ambition, we need fundamental change to the foundational regulatory and funding systems so that diversity in terms of institution, student, and pedagogical approach can survive into the future. If this government is serious about its ambitions to grow and future-proof education and skills, the following reforms are needed.
Reform teaching funding to support priorities
Government should establish funding streams for specific outreach programmes in priority subject areas like creative arts, teaching, healthcare, construction and agriculture. Doing so would acknowledge failures in the prevailing market ideology that implied industrial need for qualified graduates would shape applications into relevant programmes. Identified subject areas required by both our industrial sectors and broader society could provide a clearer rationale for funding allocations than student numbers across current Office for Students bandings.
The Strategic Priorities Grant for 2024–25 has been used to support “work on high-cost subjects, student mental health, degree apprenticeships, equality of opportunity, technical qualifications and a range of other priorities.” It is hard to see how smaller and smaller block grant funding allocations have delivered to myriad priorities and we have yet to see an evaluation of the effectiveness of that funding to support them.
Given the existing financial pressures within the sector, which some suggest should be addressed by increasing tuition fees (presumably within the same funding methodologies), we suggest a more ambitious review of the funding system is needed to drive support to where it is most needed to preserve a healthy, dynamic and diverse sector that can deliver to a wide range of students across a wide range of locations, especially where there are limited routes into and through higher education.
Revise funding for skills, research and innovation to drive growth
The Growth and Skills Levy needs reforming. It needs to better support SMEs, which comprise 99 per cent of all UK employers and account for 61 per cent of total employment. SMEs are critical to most sectors, but they make up the majority of some identified as crucial sectors in the government’s Industrial Strategy, including life sciences, advanced manufacturing and the creative industries. Data from the Department for Culture, Media and Sport suggests that the vast majority of businesses in the creative industries are micro-businesses. To meet the government’s own industrial ambitions, it must not only reconsider how funding can be delivered through and to those SMEs, but also how investment in training could be flexed.
Recent announcements by the government indicating plans to defund all Level 7 apprenticeships feel tone-deaf for those working in construction, healthcare, engineering and data science fields. To our minds, more technical skills training in fields meant to drive economic growth, which includes a wide range of skills at different levels, is not only a good thing, but is a necessary investment if those ambitions are to be realised. This is not to say we should fund L7 at the expense of lower level apprenticeships. Rather, we are advocating for investment in apprenticeships at all levels indicated as necessary by employers in those sectors where critical skills shortages have been identified as key barriers to economic growth and improvements in our public services.
But it’s not just about skills training via apprenticeships. It’s also about generating new ideas and innovations to help us work more productively and unlock our abilities to deliver more with fewer tangible resources. To deliver that ambition, both research and innovation funding streams need reform. Higher Education Innovation Fund (HEIF) thresholds should be lowered to remove systemic biases that disadvantage smaller and specialist institutions. Research funding should be adjusted to provide reasonable minimum levels of allocation to all institutions where excellent research is being generated. Doing so would dramatically broaden the UK’s research base rather than deepen it by funnelling greater levels of funding to points where research is already established, thereby expanding research and development capabilities by widening the pool of contributors.
Doing so would support a regional growth strategy. It would spread money to areas where infrastructure still needs development and could provide incentives in geographical areas where ERDF funding has been lost. Local authorities in non-mayoral regions should also have a clear role in shaping research and innovation policies, with greater collaboration and knowledge-sharing between them and MCA regions to create a more balanced and inclusive approach to regional development.
A call for an inclusive funding model
Higher education in the UK is built on a long history of tradition, prestige, and excellence. However, in a time of economic uncertainty and shifting international alliances, we must now innovate to maintain our position on the world stage. While large, generalist institutions continue to play a critical role in advancing knowledge and global competitiveness, they are just one part of the type of healthy higher education ecosystem needed to support 21st century democracies to deliver economically and socially for their citizens. Smaller-scale, specialist and non-traditional institutions with expertise in vocational, professional programmes are equally vital.
The government has already acknowledged the importance of skills development, regional growth, and public sector workforce expansion in words, but these priorities must be reflected in its spending decisions, policy frameworks and implementation plans. The coming fiscal choices will contribute to whether the UK’s higher education system remains diverse, dynamic, and globally competitive—or whether it risks stagnation.
Policymakers face a critical choice: will they promote a more balanced and inclusive approach to funding that embraces risk to boost excellence in research, innovation, and skills development? The future of our sector, the UK’s ability to meet its domestic goals, and the growing need for clear, strong and sustainable geopolitical values, depend on it.
