UK universities stand out globally in terms of student access and success, international prestige and quality of research, but all this comes with significant costs – costs which the country is currently struggling to meet. This challenge, of finding a sustainable way forward for the higher education sector, was the subject of a discussion hosted yesterday by the Policy Institute.

The event followed the publication of a new paper by Professor Shitij Kapur, Vice-Chancellor and President of King’s, in which he outlines some of the most pressing issues for the country’s universities – namely that many are now operating close to a deficit, while English graduates are on average the most indebted in the world and face a decreasing graduate premium in the labour market, and staff are increasingly feeling the pressures of declining resource and increased workloads (and, he might also have added, increased regulatory expectations – an issue that is too rarely addressed in debates about funding).

In the discussion, Kapur highlighted government funding policy as a major cause of the current crisis. Tuition fees have increased only £250 in the past 12 years since the current system was put in place. Educating home-fee students is now, on average, loss-making for universities.

Moreover, government-funded research only contributes 80% of the full economic costs of conducting research. UK universities’ core educational and research activities are therefore made possible only thanks to the high fees brought in by international students – a precarious situation, especially given a political environment that is increasingly hostile to international students.

Kapur concluded that government must increase tuition fees and fund 100% of research costs – even if the latter means that less research gets funded overall. However, he also argued the sector needs to question the assumption that a country the size of the UK needs 154 universities, most of which have similar missions, expectations and aspirations around excellence in education and research.

He pointed to more differentiated systems – like China, South Korea, Singapore and California – that the UK may learn from, and noted that Canada and Australia are also experimenting with increased differentiation.

Vivienne Stern, CEO of Universities UK, made the case for “massification” – the idea that university should be for significant proportions of the population and not just the elite – and argued that the sector needs to better communicate its value as an economic investment. She referred to evidence of a correlation across OECD countries between participation in higher education and GDP per capita and that public investment in higher education yields a profit, in part thanks to increased National Insurance and Income Tax contributions of graduates over their lifetime.

Stern’s most pressing call was for an increase in tuition fees in line with inflation, and for the government to recognise that their recent policies regarding international students pose a significant and unnecessary risk to university finances.

Professor James Purnell, Vice-Chancellor of University of the Arts London, largely endorsed Kapur’s and Stern’s arguments. However, he recognised the difficult political environment for universities, noting that some in government believe the university sector should be reduced in size and capped, despite persistent and significant demand for higher education from young people and their parents. Like Stern, Purnell concluded by stressing the urgency of a robust debate and decision about international student numbers.

Lord David Willetts, former Minister for Universities and Science, agreed with the need to increase tuition fees, at least in line with inflation. His secondary key priorities included increased funding for high-cost subjects and student maintenance, citing his experience that student representatives far more frequently complained about maintenance than about tuition fees.

However, he offered a vehement defence of the current system and several specific points of disagreement with Kapur’s assessment. Willetts believes higher education will simply not be a priority area for additional government funding and that the system of loaning fees to graduates, who then repay once they start earning above a minimum threshold and benefiting from their degree, is both the most reasonable and politically viable option. While Willetts argued that the system could and should be tweaked as policy needs and debates evolve in relation to how quickly debt should be repaid and how much loan write-off would be acceptable, there was unfortunately not time for him to be pinned down on how much tweaking might be needed in the near future to avoid a worsening crisis.

Willetts also critiqued the differentiation argument. On differentiation of mission, he countered that a more common view at UK Research & Innovation – the public body which directs research and innovation funding – is that such funds would ideally be more, rather than less, widely distributed across the sector. And on differentiation of fees, he maintained there is too much disagreement among its proponents about how this should work for it to be a feasible approach.

Willetts pointed to the fact that the current system has delivered not only greater access but also increasing numbers of students being offered their first choice of course to demonstrate that it is largely working. And he aligned with Stern in his support for massification, arguing that we may need more, rather than fewer, universities to accommodate the combination of a population bulge and an increasing demand for university access.

An issue that clearly needs to be debated more thoroughly is what financial failure for a university means. Kapur argued that one reason why we must not allow a university to fail, in the short-run at least, is that it could produce an unhelpful kneejerk reaction. In his 2017 book, A University Education, Willetts wrote of how politically, economically and socially difficult it would be to let a university go bust, and that he sought assurance that the Office for Students – the regulator and competition authority for higher education in England – would in principle have the power to make loans to failing universities to protect the interests of students. But this may be no assurance at all when dozens face the risk of operational deficit and higher education policy seems an increasingly politicised issue.

Dr Eliel Cohen is a Research Associate at the Policy Institute, King’s College London.