A brutal budget for strategic priorities from the Department for Education

This year’s real terms cut in Bridget Phillipson’s letter? £539m.

To be fair, a decent chunk of that is the coming to an end of a three year, £450m a year capital programme announced back in 2022.

A tiny £84 million capital funding pot will remain, distributed via a bidding competition whose complexity will bear little relation to its overall value.

But even on the recurrent side, we’re looking at a Department for Education (DfE) cash cut of £108m – or £158m in real terms.

It’s a cut so deep that even student premium funding – which is supposed to help providers out with the costs of supporting disadvantaged and disabled students – takes a hit. That’s right – even the magic money twig is getting a prune.

And despite the letter coming on the day the government announced an intention to work towards association to Erasmus+, it’s completely killed off the cash it used to allocate to providers to support participation in Turing.

In real terms, this year’s settlement represents a cut to what used to be called the teaching grant of over 40 per cent when compared to a decade ago – although it does have to stretch across far more students, so in reality it’s worse than that.

Add it all up, and students will be paying some 68 per cent more than they were in 2017 (via higher long term recovery of their loan debt) for what will almost certainly be a worse experience.

Even the word count has been cut – just 1,389 words, down from 1,822 last year, with a promise of a proper broader strategic priorities letter for the regulator to come later in the year.

Where the axe is falling

Part 1 covers the usual stuff (“vital contribution”…”embarked on a reform programme”… “students and communities” and so on), there’s a request to work with DfE to allocate whatever will be left next year, and we’re reminded that there’s a comprehensive spending review on until 11th June.

DfE also wants to review and reform the SPG from 2026-27 so that:

• High-cost funding can be more effectively targeted towards priority provision that supports future skills needs and the Industrial Strategy;
• Student access and success funding best supports and is targeted effectively towards students from disadvantaged and underrepresented groups to participate and progress in HE, with clear demonstration of impact of interventions.
• The impact and effectiveness of the SPG more broadly can be demonstrated through improved and proportionate evaluation, aligned to wider regulatory requirements and adhering to public money guidance.

Work actually started on that via an OfS consultation that ran over a year ago, the results of which remain a mystery.

So where is the axe falling? The ability to deploy Mickey mouse pops up first, with a direct instruction to kill off high cost subject funding for media studies, journalism, publishing and information services courses, with any savings to be spent on Price Group B – any subject involving a lab, basically.

Per-student funding rates for other high-cost subjects and for the nursing, midwifery and allied health supplement are all to be frozen in cash terms.

There’s then a bunch of legacy funding streams being abolished – the £3m for accelerated full-time UG courses, the £14m for intensive postgraduate courses, the £4m postgraduate taught supplement, the £24m degree apprenticeship development fund and the £6m that was handed out in level 4 and 5 skills top up funding.

Not so premium

If you’re counting, you’ll note that all of that only tots to about £61m, (notwithstanding that it’s rates rather than totals being frozen in some cases).

Also for the chop is the allocation to support providers with the costs of supporting both outward and inward mobility schemes. Astonishingly, on the same day that we were promised some jam tomorrow in terms of future re-association into Erasmus+, this £21m has also been abolished entirely.

It means that roughly half of the savings are coming from the student premium for disability and disadvantage.

The wheeze here is that to avoid a headline cut in the per student rates, Phillipson is choking off any funding for students studying at franchised-to providers that are not on the OfS register in the Approved (fee cap) category.

Given the vast profits being made in the urban area office block business schools, that will feel fairly painless inside Sanctuary Buildings – but the extent to which it was reaching them anyway, and the extent to which it can be cut from their profits via higher franchising fees remains to be seen.

In other words, it’s not really clear whether franchising-from universities or franchised-to providers will take the cut – but it really didn’t make any sense for the London Nelson Churchill Trafalgar College of Business, Finance and Profit or whatever to be trousering £4,000 a student in profit, all while their franchising universities and sales agents took a cut, only for OfS to be allocating extra funding to reduce the risks of poor outcomes. The profit motive in the throughput is doing that all on its own.

The problem is the unfortunate effect of missing the egregious profits being made in the office block business schools that are on the register, but catching students studying in the long tail of often charitable micro providers specialising in theology, dance, etc, as well as a raft of further education colleges.

Even in those cases, we don’t really know whether the top ups were reaching the end-provider given that the franchising fee is so opaque (“commercially sensitive”) – but this is very much an end to the level playing field. We might hope for something more surgical in the upcoming reform programme.

Influence and control

If we look back to the old HEFCE guide to funding from the first year of “proper” 9k fees funding, it’s possible to spot how little influence that government now has over what happens and where.

Back in 2015, fees weren’t enough for some subjects. Grants were needed to top up shortfalls so these courses could continue to be offered at scale and quality.

Equality isn’t cheap. Universities serving higher proportions of disadvantaged, mature, disabled, or part-time students often incur extra costs — for outreach, support services, flexible delivery, and retention interventions. Fees alone wouldn’t cover this work, especially where such students might be less likely to complete or generate full fee income. So targeted allocations filled that gap.

Postgraduates weren’t fully supported by loans. Many postgraduate taught students lacked access to fee or maintenance loans at the time, limiting universities’ ability to recoup costs through tuition. HEFCE grants helped protect and sustain postgraduate education, especially in intensive or vocational subjects.

And yes, we then got PGT loans, and yes, they then declined in value so much that we’re basically back to square one on support needs.

Crucially, fees didn’t incentivise system-wide goals. HEFCE used its grant levers to support the system in ways the market alone wouldn’t — supporting strategically important but vulnerable subjects (e.g. chemistry, modern languages), promoting student success, and encouraging inclusive institutional behaviour.

The further the pot declines – in cash terms, real terms and per-student terms – the fewer levers the government has to steer the system, which it then takes pot-shots at when it doesn’t do what it would like it to do on an aggregate basis.

The point is that if this is the reality of the emerging fiscal envelope, and the government still has system-wide ambitions, even if DfE is able to fiddle with student loan terms to extract more student loan borrowing from the Treasury, it will still lack the ability to determine where (and on whom) those loan vouchers are spent.

Holding providers to targets on minimums is not the same as incentivising providers to do what you’d like them to do.

And so it all points towards one of three options for that reform programme:

1. Vague “I want [the Royal] you to do X” only to be disappointed
2. Some form of student number controls
3. Or even a levy for redistribution on the domestic fee

Whichever way DfE chooses, it really does feel like managed decline at this stage.