On the Brink

Universities are in serious financial trouble - what can be done about it?

Cardiff University, which has a £30 million hole in its budget as is cutting jobs and courses

Back in the summer of 2023 I wrote a post on the developing financial crisis in higher education. Somewhat naively I assumed that because the current trajectory was so clearly unsustainable that a prospective Labour government would have to intervene quickly to stop things getting worse.

They were and are aware of the problem. “University insolvencies” appeared on Sue Gray’s pre-election “shit list” as one of the six worst problems about to be bequeathed to the new government (none of which have been solved).

But Gray is long gone and so far all the government has done is increase university fees by inflation for one year. Which would have been more useful if it hadn’t been immediately eaten up by the rise in employer national insurance contributions.

Unfortunately for universities the “shit list” turned out to be a lot longer than Labour had anticipated and there are more pressing priorities. It doesn’t help that the higher education sector has so few friends these days. Saving universities isn’t high on the list of public concerns and no opposition party is keen to press the issue. Indeed the Conservatives and Reform are happy to continue using HE as a rhetorical punchbag.

In the absence of a strategy Labour figures are starting to join in, with a particular focus on Vice-Chancellor pay. One anonymous “Whitehall source”, in a triumph of cliché, told the Times that:

“A hard rain is going to fall on universities that continue to be so blasé about executive pay increases while letting down students…The days of the unaccountable ivory tower are over.”

In the Telegraph, the HE minister Baroness Jacqui Smith attacked VC pay and claimed universities have “lost sight of their responsibility to protect public money”. Meanwhile the migration white paper published last week seeks to reduce the number of international students on which HE has become increasingly financially dependent.

It's true that some institutions are struggling, with student experience suffering, and that some courses have been missold to desperate people in low or middle income countries looking for a way out. But that’s because of the incentives that government policy have created. These problems can only be fixed through policy.

Smith did promise “a package of reforms” as part of a skills white paper to be published this summer. But if these are underwhelming or wrongheaded we will start seeing bankruptcies fairly soon.

The public might be unbothered by universities’ troubles right now but that will change if they cease to exist. Many are one of the top three employers in their town or city. In the North East, for example, more than twice as many are employed by universities as in car manufacturing. As Tim Leunig notes universities are one of the top three exporters in over 100 constituencies (nearly all of them Labour), more than any other sector.

In the rest of this post I’ll recap on how we got into this mess, then look at why things are about to get worse, and what the government needs to do to avoid this.