If a local authority run secondary school, at financial year end, has a surplus of greater than 5% of their annual budget (8% for primary schools), then it gets a stern letter from the council telling it that is has what is known as “an excessive balance”. Many councils actually have procedures to deduct revenue from the following year’s grant until such balances have fallen below the level deemed excessive.
The message is clear; taxpayers have contributed those funds to be spent on children, and simply putting them away in the bank beyond a level equal to 5% of annual revenue is not prudent, but wasteful.
In 2014, universities cumulatively salted away 48% of annual revenue.
So let’s get a few things clear. Yes, universities are independent, and as such (rightly) not under such close government oversight of revenue. Yes, the bulk of revenue is tuition fee income, which is ultimately paid by the graduate and isn’t really state funded in the same way. Yes, it is sensible to put money aside to protect against likely future shocks around income flows. Yes, universities need to invest in capital projects to recruit students in a competitive atmosphere. And yes, the balances are not evenly distributed.
But none of that justifies such a high level of collective reserves. At a time when public services across the country are facing ongoing austerity as a result of the spending review, government has a duty to look hard at every element of spending, to ensure maximum value for money across the board. And although a tremendous amount of activity is underway, the same HEFCE data quoted above shows that universities have cumulatively made efficiency savings of around £1.1bn between 2011/12 and 2013/14 – or 1.5%. Professor Sir Ian Diamond has noted that over the next few years, the efficiency drive in the sector will need to continue. I would suggest a better phrasing would be “significantly increase”.
At the same time, from a public policy perspective, we have an economy that is crying out for more higher level technical skills. The Royal Academy of Engineering forecasts that the UK economy requires 830,000 more engineers by 2025. A quarter of firms who need employees in science, technology, engineering or maths already report difficulty recruiting and a third anticipate problems in the next three years. 20% more construction staff are required in London and the South East from 2014–2017 compared to 2010–2013, with a particular focus on skilled construction workers and managers.
And the UK will require an additional 500,000 technicians between now and 2022. Taken in the round, and as a result of a shrinking of what are traditional lower middle or clerical style jobs which are being destroyed through automation, technology and globalisation, the Skills Commission estimate that by 2020 half of all jobs in the UK labour market will be in upper occupational levels, defined as managerial, professional or associate professional.
Universities can, should – and do – play a role in delivering these types of qualifications, often in partnership with colleges. Around 10% of full time and 28% of part time students at university are enrolled on higher level technical qualifications such as Foundation Degrees and HNDs, and many colleges now offer HE within their setting – indeed 8% of all HE students study principally within an FE college. Such collaboration is welcome and should continue.
However there are reasons to believe that the FE sector should play the lead in much of this type of higher level technical training, for the reasons outlined by Sir Frank McLoughlin in his report on features of best practice vocational teaching and learning.
The difficulty is that the two halves of our tertiary education system are simply not in balance. And nowhere is this more apparent than in their respective funding situations, and the related issue of financial access for students to attend different institutions. Whilst universities, as outlined above, have never been in ruder financial health, the Public Accounts Committee will today hold a hearing to see what can be done about a Further Education sector where the famously restrained National Audit Office have indicated that upwards of 1 in 4 FE colleges could be effectively bankrupt by 2020 without dramatic changes in circumstance.
That’s why our report recommends reallocating up to £532m of HEFCE grant away from universities in the Spending Review towards supporting FE. This £532m is made up principally of the Student Opportunity Funding, as well as smaller sums for students attending London institutions, some institution-specific high cost provision and some very high cost STEM funding.
This is not to say that these sums of money are not serving useful purposes – indeed, the Prime Minister has rightly focussed on increasing access to HE from low participation communities as being an important area of activity. But, in much the same way as the BBC has been required to take on the costs of meeting a laudable public policy goal (paying for the over-75s licence fee) from its own funds, we argue that universities are in a strong enough position to take on this responsibility themselves without being specifically funded to do it – and where individual institutions can’t at the moment, they have considerable scope for further efficiency gain to release such funds.
Importantly, depending on the level of reallocation which BIS might make, we further recommend that any remaining grant funding in this area is specifically tilted towards universities with the smallest reserves. This would support those in most need, as well as – deliberately – acting as an incentive to spend those reserves in coming years, and bring them down to a more reasonable level.
Alongside this reallocation of grant funding, we argue for an extension of the student loan system for tuition and maintenance to be offered to FE students for the first time, so that young people (and ideally, in time, older workers looking to retrain), can make decisions based on which route best suits them, rather than where the funding incentivises them to go. We also recommend an expansion of the current system of Industrial Partnerships to bring employers into qualification design, and for new Institutes of Technology to be able to award their own high level qualifications rather than having to be validated. Taken together, we believe that this could drive a resurgence in higher level technical education alongside a flourishing HE sector.
No one likes the concept of ‘robbing Peter to pay Paul’. But the facts on public spending cuts are stark, as is the difference in starting positions between FE and HE. As I have written before for Wonkhe, universities have continued to defy political and economic gravity. It is time for them to return to earth.
UPDATE: the third paragraph was amended after original publication to clarify the point about university revenue