Are there secret government bailouts?
Hugh Jones is a freelance HE consultant. You’ll find a daily #HigherEducationPostcard if you follow him on Bluesky
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Philip Augar – he of the review of higher education funding in England commissioned by Theresa May’s government – wrote a piece this morning in the Financial Times with an interesting snippet:
Three quarters [of English higher education providers] are expected to be loss making by 2025-2026, a handful are getting secret bail outs and 10,000 jobs are under threat.
We knew about the scale of loss-making; we knew about the scale of jobs under threat, but did we know before about a handful of secret bailouts? It may be that I have missed this, but I didn’t think that any bailouts had been given.
Back in the autumn, Jacqui Smith, higher education minister, was busy telling vice chancellors that the HE sector would receive any help the government could give, as long as it didn’t cost anything.
So what’s changed?
No government wants to see an HEI go bankrupt. Even if they make noises like they do, when push comes to shove, help tends to be forthcoming. Take Cardiff, for example. Not the current travails, but back in 1987 when the then University College Cardiff was going bust. Government intervention with funds, and a forced merger with the University of Wales Institute of Science and Technology (UWIST), staved off collapse.
Have we seen a close thing at a current provider? It was recently reported that auditors had raised questions about the sustainability of Coventry University (although its board states that it is still a going concern), and there are several other universities known to be in serious financial distress.
What form might a bailout take? Cash is the obvious one, but bailout cash usually comes with conditions. And for the OfS to be giving bailouts is not in line with its previous policy announcements.
Perhaps direct money from the Department for Education? It may be that the amount of a bailout would be lost in the rounding up of published accounts so could remain secret, at least for now.
Or it may be that the bailout came in the form of guarantees to commercial lenders: knowing that the government would ensure that a university kept gong would be a very comforting assurance for a lender considering calling in its debts.
If it were now government policy that English HEIs should not be allowed to go under, that would be a very big deal. It would change the dynamic for institutions considering how to survive, with cuts in staff, reorganisations and mergers on the cards. Knowing that the government would step in would take the wind from the sails of those pushing for sector reform.
Would it just be big institutions which would be saved? Smaller and specialist providers are under a great deal of pressure – they often face necessarily higher costs – and they have fewer resources to cut. Would the closure of a specialist performing arts school cause the government to act, or would it take a big university closure to force action?
Don’t get me wrong: I believe it would be very good news if the government intended to ensure that English HEIs would, in the final analysis, be protected. But if this policy is secret, then uncertainty will lead to bad decisions.
The sector would benefit from knowing:
- What conditions need to be met for a bailout to happen?
- What would a bailout look like?
- What conditions are attached?
Without clarity on these points, vice chancellors and university governing bodies might make decisions which turn out to be unwise and end up costing the taxpayer more. Transparency would lead to better decision-making and a more stable sector.
I find the notion of secret bailouts a bit surprising as you note in the article. Public funds after all, and if a minister or civil servant is acting, then it will ultimately be discoverable. I find it hard to believe that central government is intervening as to my view there isn’t actually a policy framework on which public funds could be used to rescue HEIs which are not in the public sector (notwithstanding use of public funds or arguments about public interest). More likely, is local government support, determined by local representatives. Parallels with the crisis in FE during and post austerity, a clear case of public money, public institutions, and then a policy framework by which government both provided help and the conditions attached. I’d venture that if the sector started to develop a policy framework for public aid that shows commitment to pay it back, this is more likely than the arguments that the whole sector needs underpinning with guarantees. The FE policy framework very clearly came with the caveat that not all institutions will be worth public money to save, or are fundamentally not viable even with public money intervention. This is the key test, what would a HEI do with the money anyway? If it’s bank/lenders won’t extend support based on a business plan, the case for a public bailout looks even weaker.
Potentially funders could adjust payment profiles of teaching grants, under the table, unnoticed, to help with cash flows. This would be unusual if directed at specific providers but it would be an easy way to provide short term cash flow relief.
But providing any form of secret bail out is a mistake and likely to prolong any agony. A loud public crisis in a provider is much more likely to result in urgent and appropriate interventions to address the issue than a sticking plaster.
From the mid 1990s to the mid 2010s, FE funding agencies brought forward payments to colleges as a one off, emergency measure to assist with short term cashflow problems but from ten years ago they started to manage these advances like loans, to require legal documentation, to charge interest on repayment, to insist on security (making the loan like a mortgage) and, in most cases, to issue a financial notice to improve. Since 2018 ESFA (now DFE) routinely publishes notices though sometimes with a delay because transparency can hit external confidence. A notice to improve issued to a college prompts an FE commissioner visit. DfE has extended some of these rules to academies.
Government and its agencies make various payments in a year to universities so has options to make any of them slightly earlier than scheduled to provide cashflow (sometimes necessary lots of redundancy payments are being made) but if this is going to happen (or is already happening), it is likely that conditions will be attached. Philip Augar’s article asks a couple of good questions about what those conditions should be.