To win the funding argument universities need to explain where the money goes

A 2022 report by the National Audit Office warned of “increased financial pressure in the sector”, and that an increasing number of institutions were reporting financial deficits or at risk of future deficits.

Now, in 2024, many of the factors highlighted by the 2022 report are coming to a head.

Analysis published in January modelled that 80 percent of universities would be in deficit if international recruitment decreased by 20 percentage points, and 27 percent in deficit if it stayed the same.

Several institutions have triggered voluntary redundancy processes and some have cut courses or departments as cost-saving measures – and mutterings of mergers and sharing of back-office functions abound.

At the same time, students are struggling as inflationary rises far outstrip the rise to maintenance loans. All in all, it seems that the system isn’t working well for anyone.

The obvious answer?

In response to these financial pressures universities have been calling tuition fees and increases to the teaching grant to rise at pace with inflation. Compared to the devolved nations, the net cost to the Exchequer per home student per year is much lower in England (approximately £7,500 more in Scotland, for example).

Many in England feel the government should contribute more – they want a government which better recognises the public good of higher education and an Exchequer that foots more of the bill. Others have proposed a completely new university financing system, such as a graduate tax, or some combination of a graduate tax and higher teaching grants. Either way, most people who work in the university sector want more money in the system, regardless of where it comes from.

It isn’t clear though, that universities have grasped how hard the case for funding is to make, and the sector doesn’t seem to be rising to the challenge. Universities may not feel like it, but they’ve done relatively well compared to other public services in the last decade.

They were largely spared brutal austerity cuts that hit many public services, and overall have fared better than other parts of the education system. Despite receiving less media attention than HE, it is actually FE that has seen the biggest real term cuts to their budgets, down by two-thirds since 2003-04.

The biggest issue for universities is that things have got worse very quickly, after a period of relative calm. It certainly feels like a crisis for those in them and many institutions are struggling intensely.

But crucially this is not what policymakers and government (and potential governments) see – they see a sector which is apparently extremely expensive compared to other HE sectors globally, and one that has not seen cuts comparable to other parts of the education system. They simply do not see HE in the running for priority investment.

The failed case for cash

It feels unlikely that a Conservative government is going to be willing to pump more cash into universities. Some are holding out hope that a future Labour government will come to the rescue, but I think this is overly optimistic.

If Labour does win the election, it will be inheriting an economy with stagnant growth, low productivity and high economic inactivity, and public services creaking under the weight of funding cuts and pressures. Increasing the public contribution to universities through taxation would be an unlikely move for a Labour government in fear of being called the high-tax party, and certainly not a priority early on in their tenure.

Given Labour’s focus on training British workers as an alternative to skilled migration, it seems that the sector is also being overly optimistic about Labour’s approach to international students. They are equally unlikely to liberalise student migration, and certainly won’t commit to doing so pre-election, wanting to hold the centre ground and bring over traditional Tory voters.

More positively, in private discussions, Labour’s education team offer more grounds for hope for more generous maintenance loans and/or the reintroduction of maintenance grants, which fits quite nicely with their opportunity mission. But more direct funding for universities will not be a priority – partly because the sector has thus far failed to make a strong case for more cash in a difficult fiscal environment.

Where’s all the money going?

Whilst the sector does not have control over the fact that it is competing for funding from other areas of the educational system that have also seen real-terms cuts, I do think universities could be making their case better if they could answer one simple question – why is university education in England so expensive?

The Exchequer cost is small relative to the devolved nations, but only because the price is pushed onto students themselves. English HEIs actually have the largest income per home student per year: they get, on average, £10,220 per home student per year, compared to £7,870 in Scotland, £9,290 in Wales, and £7,620 in Northern Irelands.

OECD figures put the United Kingdom as the third most expensive (per head) higher education system in the world – above many countries with brilliant HE systems such as Canada, Norway, Japan, Finland, Germany.

There are likely to be all sorts of definitional and data issues plaguing the OECD comparison – that the sector seems unable to produce better figures is a problem. Officials in all four nations brief their ministers on what is available, and anyway – those issues almost certainly can’t explain the whole of the story.

That puts the sector in a difficult position – it is reporting funding difficulties at crisis levels, but the data that decision makers can see indicates that they are relatively better funded than other systems.

It leaves the question, why is it so expensive, and why are other countries able to cope with much less relative funding? Or at least what does it cost, how does that compare, and if it’s more expensive, are the positives worth preserving when there are so many other calls on expenditure?

If nothing else, schools get by on £6,000 per pupil per year, and provide 30 hours of tuition per week. They also have libraries, computers, pastoral and teaching staff, and so on.

That comparison always gets a few riled up (I already hear the chorus of “but we are not just big schools!”), but the broader question around how much it costs to educate a student to degree level in England needs to be answered if the sector is to move forward in the fees and funding argument. If nothing else, I wouldn’t imagine a government of any colour is going to give the sector more money if it doesn’t understand where it is going, and why it is needed.

Vivienne Stern, Chief Executive of Universities UK, recently said that this is her least favourite question to be asked, which is probably because the sector really doesn’t have any good answers.

The way university finances work is extremely complex – funding comes from different sources, and there is endless cross-subsidisation. International students cross-subsidise home students. Social science subjects cross-subsidise high-cost STEM subjects. Teaching subsidises research costs. And so on.

But I have yet to see anyone successfully unpick the complex web of our sector’s finances and compare this to our international comparators – and be able to justify why ours is both much more expensive and simultaneously in desperate need of even more funding.

World-leading?

Universities need to do a better job of explaining why they need more money. There is little doubt based on current evidence that English higher education is relatively expensive, and has relatively high incomes.

This, of course, does not necessarily mean that they are not struggling or do not need more funding to preserve the quality of our institutions. What it does mean is that the sector needs to be willing to make a more convincing argument – and face these difficult questions.

They should not shrink from the challenge, which represents a brilliant opportunity for universities to really set out what makes them “world leading” – something the sector often claims to be but regularly struggles to evidence.

It is very possible that what makes English universities so successful (if measured by graduation rates) – high student to staff ratios, low drop-out rates and a significant focus on access and participation compared to other university systems across the world – is exactly what makes it so expensive.

If that is the case, it may be an expensive system worth defending – and worth investing in to preserve. But if the sector is to make this argument convincingly, especially to Labour who have been clear that they want to be “evidence-led” in its policy positions, then it needs to be ready to answer this question – and have the data to back it up.

It is becoming clear that the sector as a whole does struggle to engage with politicians and policymakers in good faith. Responses to questions about how expensive HE is and what level of quality students and the taxpayer are getting for their money are often met with a defensiveness from the sector, with some unwilling to engage in this debate at all.

This is not just the fault of universities and their representatives, exhausted by cynical political hostility, attacks over “mickey mouse degrees” and culture wars. But if the sector is to have any chance of securing a different funding system or increased funding, in any form and from any government, it does need to prioritise answering these questions.

And it should be prepared for the possibility that the answers may raise some difficult and uncomfortable truths for universities, too.