As public funding bleeds away, universities consider their future

Clouds ahead for university managers. EJP Photo, CC BY-NC-SA

Spring in UK universities sees the funding letter drop on the mat of the vice chancellor’s lodge and like an English April, no two years are the same.

Coalition ministers are keen to tell us that the present funding regime is designed to encourage universities to rebalance their activities away from the pursuit of research excellence towards undergraduate teaching. In reality, the outcome of their policies has been a reduction in both teaching funds (for this year and next) and research funding – the five-year real-terms freeze is in fact a 12.5% reduction.

While the free-market Tories and orange-book Liberals of the coalition have sought to shrink other parts of the state, they have found it more difficult to contract the university sector.

There would seem to be a dawning recognition that this outcome is less desirable than previously thought and that the quasi-public-private entity of the university may in fact be part of the solution in an economic recovery.

As a result of the significant rise in funds drawn down from the student loan book by private providers for mostly sub-degree qualifications, the government was required to make an immediate in-year correction to its university budget of £570m for this year, and a further £860m for 2014-15. It is this latter cost reduction that is reflected in this year’s funding letters universities received from the Higher Education Funding Council for England (HEFCE).

HEFCE has attempted to spread the pain across the sector: while science and research have had their budgets ring-fenced, there has been a 5.9% reduction in teaching budgets. Higher Education Innovation Funding, known as enterprise funding, has been upheld but some student bursaries have gone, as a complex mix of students from the old and new fee regimes move through the system.

Compared to other aspects of public spending in this parliament, the present fees and funding dispensation for universities is often thought of as relatively benign, if not outright generous. However, this latest round of cuts points towards further trouble ahead.

It is now recognised, almost, universally that this funding regime is not sustainable. This year the department for business, innovation and skills, asked the Treasury for an additional £5.46 billion to cover its departmental expenditure limit as a result of the shortfall in student loan repayments.

Wishful thinking. chrisangle, CC BY-NC

In the previous three financial years, similar allocations were requested to a total of £7 billion. It is hard to imagine that such bailouts will be allowed to continue unchecked after the May 2015 election.

There is a very real risk that any future adjustment in the department’s expenditure will be reflected in a sharp correction in university budgets. This might be the last fair weather letter from HEFCE to vice chancellors for a while.

Limit to demand

However, in his pre-budget statement the chancellor George Osborne committed to an additional 30,000 student places this year in advance of removing student number controls altogether from 2015. Depending on the mood of the electorate this promise may never be realised, because Labour is unlikely to carry through with it.

It is to be paid for by the sell-off of the student loan book. Details of the proposal remain sketchy. It is not clear how this unlimited expansion is to be squared with on-going cuts to the higher education budget.

Two things, however, are clear enough in this scenario. First, there is a natural limit to the demand for full-time undergraduate education in England. The promise of continued enlargement for universities is curtailed by demographic considerations and the majority of any future expansion will come at sub-degree level offered by alternative providers. As with this present round of budget cuts, the growth of the private and for-profit sector may continue to bleed funding away from the established university sector.

Second, as the different funding streams allocated by HEFCE continue to shrink, universities will become more and more addicted to the undergraduate loan book. This will put pressure on the recruitment scramble across the sector.

It will result in homogenisation for some and a squeeze on less competitive institutions that will be driven to seek alliances with further education colleges and the alternative providers of low-cost education.

Short-term thinking

Mass higher education is just plain expensive. The present funding regime is an attempt to produce an impossible outcome: to avoid the state paying for a very important, necessary and expensive activity of which the state is a primary beneficiary.

Student loans, graduate taxes and all such variations will always be expensive options. As long as we persist with trying to pay for higher education through debt accumulation, off-ledger accounting, and technocratic fixes, the question for the sector will continue to be that of the sustainability of the funding system.

But this is the wrong question to ask. As vice chancellors sit down to deal with their spring funding letters they should not ask themselves how much money the sector is about to receive, but rather what sort of sector do we want to become?

We are now entering into short-term thinking mode a year out from a general election. Perhaps the unpleasant correction that might follow will compel us to address this more significant question and to recognise that universities need to get back in the queue for money from the public purse of direct taxation.