Tough questions for government and institutions to fix higher education’s finances

For Alistair Jarvis, both the sector and the government have work to do if universities are to remain financially solvent

Alistair Jarvis is Pro Vice Chancellor (Partnerships and Governance) at the University of London.

We are all familiar with the context. Over the last decade, funding per student has not kept pace with inflation.

This is the case across all four nations of the UK. A growing problem has become even more severe through a period of high inflation and by recent visa policy changes that have reduced international student applications to many universities.

The Office for Students (OfS) has warned that many English higher education providers have declining surpluses, cash flow, and net liquidity. A growing number are projected to fall into deficit in the coming years. Many universities are making redundancies. Many universities are struggling to maintain the quality of the student experience at the current unit of resource.

So what could a new government do? I have four questions for them. But it is not credible to make the issue solely government’s problem. We must also ask, what could universities do? I have four questions for us, too.

Questions for government

Let’s start with an honest assessment of where we are politically. There is little political or public support for a significant tuition fee increase or for substantially more direct public funding for universities. With a tight fiscal position, universities are unlikely to be the priority focus for major new investment. The chances of a Labour government “riding to the rescue” of universities with a generous new higher education funding policy, seems unlikely. So my questions are focused at no cost, lower cost or targeted interventions.

Can a new approach to immigration policy for international students be found which allows for growth?

The Labour leadership will not want to fight a General Election with pledges which suggest they are “weak” on immigration. A liberal immigration policy may make it harder for Labour to win some of the seats it needs for a majority. However, Labour could send a much more welcoming message to international students. There could be a positive change in narrative, and a revamped international education strategy with stronger political backing.

At the same time, there might be positive reforms to the Graduate route, perhaps building a more generous offer aligned around areas of particular need or strategic importance. Above all, a Labour government could make some sensible choices about how it wants to establish its own objectives and targets for immigration – making a distinction between short term migration for work and study, and longer term migration and settlement.

Could costs be saved by reducing regulatory burden?

Regulation is important. Politicians and the public understandably expect a high-quality education and value for money. Student experience and the quality of provision will rightly continue to be a focus of regulation. However, the regulatory approach of OfS, Ofsted and others, including the new proposed Skills England could be more targeted, more risk-based, and less bureaucratic, with more join-up between regulators and more transparency about the nature of the assurances that are sought. In recent years, many universities’ approach to changing regulation has been to increase the sizes of their legal teams, data teams, and compliance teams. It is highly debatable whether this is cost effective or good for the student experience.

Can anything be done about the costs of the teachers’ pension scheme (TPS)?

It is not fair that those universities in TPS pay 28.68 per cent in employer contributions to their primary pension scheme, while universities in the Universities Superannuation Scheme (USS) pay 14.5 per cent employer contributions. This puts TPS institutions at a competitive disadvantage, with less money for salaries, people, systems, infrastructure, services that support students, and less money for research.

Could government make targeted funding interventions?

Radical funding changes may be off the short-term political agenda – but the challenge of sufficient funding will grow. Labour’s (vague) policy is to make the system fairer for students, but there is no clear policy on financial sustainability for universities. Schools, colleges, and apprenticeships appear to be of higher priority for public funding. However, targeted funding interventions deserve proper consideration.

There could be opportunities for universities to benefit from new funding linked to social and economic priorities such as investment in green energy, NHS reform, regeneration, or public sector innovation. Perhaps this could take the form of new, competitive funding pots requiring collaboration with out of sector partners.

I have previously pitched the idea to government of a University Transformation Fund. 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 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 deciding proactively on a new direction. The transformation would be university-led, market-informed, social and economic need-focused, and government supported.

Questions for university leaders

Are universities spending their money on the right things?

King’s College London vice chancellor Shitij Kapur recently commented

Having been in five English-speaking institutions in four continents…I have been struck by the difference in staff:student ratios across nations while delivering seemingly similar student experience and outcomes.

If UK universities’ staff student ratios are more generous than many of our key international competitors, we should be asking both whether this is financially sustainable, but also, fundamentally, whether it is necessary to deliver good quality education and student experience.

Universities have grand ambitions for their estates and infrastructure but it may be that there are instances in which additional costs are being generated for only marginal gains. For example, capital investment plans could be reviewed to be confident that they are matching modern student needs and that they are sufficiently flexible to adapt as those needs shift further. The balance between investment in physical estate and digital infrastructure may need another look – especially where institutions are pursuing marginal competitive advantages with bespoke digital solutions where an “off-the-shelf” product might do the job perfectly well.

The sector also needs an honest debate about the balance between staff pay and pensions, and whether there would be demand for, and value in, a more flexible model that allowed staff to make choices about whether to take higher pay now in exchange for lower pension contributions, or invest more into their pension, depending on their current life circumstances.

I do not have a view on what any particular institution might decide to do on any of these issues, but I do think they each deserve a more detailed discussion given the increasingly difficult financial situation.

Could more be done to improve student retention?

I was struck by a recent conversation with Paul Le Blanc, President of Southern New Hampshire University (SNHU). Under Paul’s leadership, SNHU has grown from 2,800 students to over 160,000 learners. The average student age is 32, and is frequently the first in their family to study for a degree. Most students work, often full-time, while studying. One fifth are former members of the armed forces.

SNHU’s model has an impressive focus on student retention. The first response time for student enquiries is an average of eight minutes. There is detailed data tracking and use of metrics, automatically flagging concerns to a team of student advisors. Student advisors proactively call a student where a concern is flagged to offer support. Interventions are tailored to the student with an overarching aim to maximise retention and course completion.

Importantly, decision making is highly devolved to individual advisors, whose toolbox of interventions includes granting extensions, arranging additional study support, ordering IT equipment, providing grocery vouchers and releasing hardship funds. Many UK universities could say they have adopted elements of this model; some may argue they have all of it, but I know of none that executes the model with this degree of efficiency and integration of different parts of the system.

Have we got the right balance of staff, spending time on the right things?

There is no single “right” model. It depends on the university’s mission, student demographics, the education and research offer, and the needs of its communities. However, it’s reasonable to consider staff related questions: whether the balance between professional services and academic staff is right at your institution; whether we have the leaders (at all levels) with the skills and experience needed for current times; or how much time academic staff should be allocated for unfunded research. It is also worth thinking through whether systems and cultures are working as efficiently as they could, especially if standard ways of working mean that academic staff are spending more time on paperwork than on teaching and research.

Are universities organised effectively and efficiently?

It is not clear that the way that work is organised in universities serves the best interests of institutions, staff or students. Although shared services in higher education have a somewhat chequered history, we should at least consider whether every university needs its own (but often very similar) professional and support services – procurement team, HR department, finance function, IT support. There could be lessons from local government, where radical shared services models have been introduced to address huge budget cuts. We might also find savings by radically increasing joint procurement – for libraries, for student record systems, or for digital learning platforms.

Looking to governance structures, we should be looking for the right balance between accountability and efficiency. I often wonder whether it would be possible to reduce the number of committees, therefore reducing the staff time spent on writing papers and servicing committees. We need to ask ourselves how much of our governance approach is effective and necessary, and how much is simply bureaucracy that has mushroomed over the years because there was never a very good reason to make it stop.

When I visited the University of Sydney last autumn, I learnt about its AI services hub, a growing team that offers support and solutions to any part of the university. The concept is simple – bring your process or problem and the team will help re-engineer with a focus on both improving the service and generating cost savings. It has delivered many millions in savings and improvements in both student and staff services.

The hope

I will end with some signs that give me hope. There is strong international demand for coming to the UK to study; growth in demand from some international markets; a growing desire for UK transnational education offerings; positive demographic shifts in England with the 18 year old population growing every year to 2030; potential new opportunities from the introduction of the Lifelong Learning Entitlement. UCAS projects that there could be up to 30 per cent more applicants by 2030.

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, community cohesion, and much more.

There are universities in the UK that have survived, indeed thrived, for over 900 years. We are resilient, adaptable and innovative. I am confident that this will continue to be the case.

5 responses to “Tough questions for government and institutions to fix higher education’s finances

  1. Thanks for posting this Alastair – a good assessment of the sort of issues that we face….and some sense of optimism that these issues are solvable.

    Perhaps unsurprisingly I will pick up on the regulatory data burden.

    You’re absolutely right that there is scope for significant savings in this space, based on the amount of duplication that providers face across the myriad of data machines that we have to engage with. It is perhaps a consequence of a siloed approach to funding and regulation (OfS, ESFA, SLC etc…) and is likely to require a significant push from a new Minister if meaningful rationalisation is to be achieved.

    We need to shift the data conversation from “reducing burden” to “reducing duplication” if we are to unlock any meaningful change in this space. I set out the details a few months ago here:

  2. Thanks for this – I would say though that sharing services is already quite prevalent and the use of purchasing consortia does allow for substantial efficiencies. Also, as well as TPS, government is supposedly still consulting on mandatory LGPS membership, though this seems well and truly in the long grass. But it could provide much assistance with running costs if not mandatory and would avoid any workarounds – like creating more subsidiaries – which are the only option for some HEIs.

  3. Increase in TPS contributions from 16.48% in late 2010s to 28.68% in mid 2020s caused entirely by reduction in discount rate from CPI+3% to CPI+1.7%. Discount rate used in public sector schemes is based on long term growth rate. If a different basis for selection was used in future, or better still, long term growth forecast improved, then TPS contribution rate might fall

  4. Thanks Alastair – good to nudge the discussion towards what universities can do, need to do, if the tuition fee stays at £9,250 for the next few years and international student numbers drop further. Cost savings, restructuring within institutions, reducing duplicative and costly regulation are all important. I would add that there is a need for more binding agreements with local colleges to work together to grow local labour market focused HE in the college and the university, each playing to their strengths – with people of all ages in work who need new skills to stay relevant in a changing labour market. That collaboration could bring new income from employers and use capacity that will overall reduce costs per student

  5. The Southern New Hampshire University (SNHU) student retention model is impressive, but how well do you know the structure and shape of student support at The Open University? Their innovative approach over 5 decades has proved highly successful and it could well be that other HEIs might benefit from sharing the student support service offered by the OU.

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