King's College London

Huw Morris is an Honorary Professor of Tertiary Education, Institute of Education, UCL’s Faculty of Education and Society.

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Introduction

Recent discussion about the future of higher education funding in the UK has focused on requests from university leaders to government ministers for increases in the undergraduate student fee for UK students, as well as relaxation of the controls on overseas student recruitment and improvements in research funding. This approach could be characterised as an Oliver Twist strategy after the famous request, ‘please, sir, I want some more!’.[i]

To date the Oliver Twist strategy has not been successful. Opinion surveys have revealed a mismatch between what the public believes is an acceptable student tuition fee, £6,500 to £7,500, and vice-chancellors’ assessments of a desirable fee, £13,000.[ii] It has also revealed that while most of the public view investments in research positively, they would like to see more of this expenditure focused on where they live.[iii] Finally, while young graduates see the benefits of overseas student recruitment, a majority of older people without a degree are more sceptical.[iv]

Faced with this mismatch in views, and before the next Comprehensive Spending Review in 2025 or 2026, now is good time to look again at the cost-effectiveness of different forms of higher education and to consider what lessons can be learned from the past. To borrow from Dickens and to paraphrase Mr Micawber, how can a strategy be developed which gets us to, ‘annual income [43 billion] pounds, annual expenditure [40 billion]…., result happiness’. And avoids ‘annual income [43 billion] pounds, annual expenditure [44 billion] pounds…, result misery’.[v]

Interest in the cost-effectiveness of higher education is not a new concern. There has been a long-running and increasingly prescriptive interest in the efficiency of providers. This interest has moved through four distinct phases from (1) ministerial encouragement to (2) directly imposed cuts and tighter regulation and on to (3) market mechanisms to increase cost-effectiveness and more recently (4) direct intervention in the management of institutions.

1. Encouragement to improve cost-effectiveness

Many modern histories of higher education in the UK give pride of place to the Robbins review in early 1960s which it is commonly believed presaged a major expansion of university provision. What has been given less attention was the Labour government’s response to the review and the decision to limit the costs of expansion through the creation of a polytechnic sector. As Peter Mandler demonstrates, this concern predated Anthony Crossland’s time as Secretary of State for Education and Science and can be traced back to the concerns of the Treasury and previous Conservative administrations about the cost.[vi]

Concern about the cost-effectiveness of higher education continued in the late 1960s when the Minister of State for Education and Science, Shirley Williams, provided the Committee of Vice-Chancellors and Principals with a list of 13 proposals for improving cost-effectiveness.[vii]

1. The possible replacement of student grants by a system of loans for undergraduate courses.
2. The possible replacement of student grants with a system of loans for postgraduate courses.
3. Restrictions on the recruitment of overseas students.
4. A requirement that students who received a grant should work in related jobs for a period of time after graduation.
5. Greater use of part-time and correspondence courses.
6. Two-year degree courses for the most able students.
7. Two-year non-degree courses for less able students.
8. Introduction of a period between school and university to help school leavers decide whether they wish to proceed to higher education study.
9. More intensive use of buildings and equipment, including reorganising the academic year.
10. Increased sharing of facilities between adjacent institutions.
11. More UK students for the same level of funding.
12. Development of student housing associations to provide residential accommodation.
13. Increased staff-student ratios.

Concern about cost-effectiveness remained a cross-party issue, as revealed by similar proposals from Margaret Thatcher when she became Secretary of State in the early 1970s.[viii] The initial reaction by vice-chancellors to the proposals was dismissive and limited progress was made over the next decade with these suggestions.[ix] The failure to act in response to these proposals revealed the difficulties that leaders of independent, loosely coupled higher education institutions face in galvanising collective action to improve cost-effectiveness.[x] History reveals that it is easy for the staff in these institutions to cooperate to gain more government funding or new market opportunities (witness the introduction of PhD degrees in the 1920s and the expansion of international student numbers in the 2020s), but difficult if not impossible to gain collective agreement to reductions in costs.

2. ii) Cuts to funding and tighter regulation

Recession in the 1970s and the election of a Conservative government in 1979 ushered in big cuts to public spending. Faced with these reductions, the University Grants Committee spread the pain unevenly, focusing the biggest cuts on what they considered to be the least prestigious institutions. The scale of these cuts was eye-watering, eg: Salford -44 per cent, Aston -31 per cent, Stirling -27 per cent, Aberdeen -23 per cent, Sussex -21 per cent and Hull -20 per cent.[xi] Despite these large cutbacks none of these institutions closed or were forced into the hoped-for mergers. Instead, they reduced staff and student numbers and increased their income from other sources.[xii]

A backlash against the way in which reductions in funding were organised in the early 1980s led to the commissioning of the Jarratt Report in 1985, which sought to encourage change to university governance and management modelled on corporate practice.[xiii] It also provided the context for a more targeted approach to research funding.[xiv] However, this was not without its own costs. The first Research Assessment Exercise in 1994, following the conversion of polytechnics to university status, cost £47m.[xv] The cost of the most recent Research Excellence Framework in 2021 was £471m.[xvi]

Increases in the number of universities in the 1990s raised concerns that institutions were cross-subsidising this activity at the expense of teaching as they sought to improve their reputational standing. These concerns led to the introduction of the Transparent Approach to Costing to provide university leaders with feedback on spending. A review in 2021 by KPMG found that institutions found this information helpful, but burdensome to collect.[xvii] Meanwhile, more recent analysis has found that research cost recovery varies from 39.4 per cent to 72.3 per cent, with the remaining 60.6 per cent to 27.7 per cent of research costs being covered by the surpluses achieved from international student fees and student accommodation, where this creates a surplus.[xviii]

Cost-effectiveness through market competition

The global financial crisis in 2007-8 prompted the commissioning of the Browne Report on higher education funding and student finance.[xix] The government responded to this review with legislation which introduced variable undergraduate student tuition fees of between £6,000 and £9,000 (not the ceiling of £12,000 proposed by Browne) with an expectation that most providers would compete on cost and offer courses at an average fee of £7,500 per annum.[xx] Contrary to expectations, all universities in England increased their fees to the highest level and while there was more competition between providers student perceptions of the value for money provided by these courses declined.[xxi]

In response to these changes two higher education institution efficiency reviews were undertaken for Universities UK.[xxii] These reviews recommended that university leaderships should improve cost-effectiveness through better use of data, improved estates usage and shared services. These recommendations were not as extensive as those made by Shirley Williams and Margaret Thatcher four decades earlier and were not implemented across the now much larger university sector.

Concern about the costs of higher education were echoed again in the Augar Review in 2019, which commented on the very high cost of higher education in the UK by comparison with other OECD nations, a view echoed in a parallel government-sponsored analysis of costs by KPMG.[xxiii] In the light of these analyses, the Augar Review’s final report recommended that undergraduate tuition fees should be reduced to £7,500 with additional payments to be made to fund STEM and other high-cost courses. This proposal was not adopted, but the maximum undergraduate fee was not increased and with inflation its real value has now fallen below £7,000 when measured against the Consumer Prices Index, or lower if other measures of inflation are used.[xxiv] Increased cost-effectiveness was achieved in many higher education providers in response to these changes through increased staff-student ratios and reduced capital investment. In others, the need for this change was avoided through the expansion of international student recruitment and transnational education activity.

4. Direct intervention in the management of institutions

The last of the government measures designed to encourage greater cost-effectiveness by universities was the Higher Education Restructuring Regime (HERR) introduced at the beginning of the Covid pandemic. Modelled on the arrangements operated by the Further Education Commissioner, this scheme offered access to government loans to higher education institutions in financial difficulty, in exchange for agreement from their governing body to abide by a review by an independent team of management consultants.

The HERR arrangements were actively considered by three universities and taken up by one, but it has been suggested that they had a beneficial impact on the risk appetite and financial commitments made by institutions that did not take up the offer. This meant that the challenge of potentially relinquishing management control and governance oversight encouraged the leadership teams of these institutions to introduce cost reduction measures that made them more efficient. Whether these and subsequent changes made all institutions cost-effective in the eyes of all their stakeholders is a moot point. What is much clearer is that this was not the first of this type of intervention. As others have documented, there have been regular interventions to save institutions from insolvency and to steer them towards greater cost-effectiveness.[xxv]

As we contemplate the changes that might be needed in the future, it is important to remember that there are 404 higher education providers in England and at least a further 50 in the devolved nations of the UK. Of these providers, there are 165 universities and of the 80 that took part in the recent PwC financial analysis for UUK, 36 per cent were predicting a deficit in the financial year 2024-25, rising to 80 per cent if international student numbers fall significantly.[xxvi] Meanwhile, 50 universities have announced plans for staff redundancies.[xxvii] Having noted these reductions in a minority of institutions, it is also important to note that, over the period 2010/11 to 2022/23, among the 220 higher education providers monitored in the Higher Education Statistics Agency, income rose from £24bn to £45bn and staffing grew by 56,930.[xxviii]

Meanwhile, there was a significant reduction in the volume of higher education provided by further education colleges, often in the most deprived communities in the UK. Over the same period the income for these institutions declined from £7.5bn to £6bn and staff numbers fell by 12,162.[xxix] In short, a crisis for some in the last two years has not to date been a crisis for all over the last 14. There has been expansion in many institutions with high reputations and also in some lower-cost institutions which are better able to meet the changing patterns of student demand, particularly the Open University. Meanwhile, some of those institutions caught in the middle have found stagnant fee levels, reduced international student recruitment and the expectation of engaging in significant levels of research more challenging.

Conclusion

There is a significant mismatch between the views of the general public and university leaders about the fee that should be paid for undergraduate higher education. Faced with these views, politicians belonging to all the major political parties in the UK have been reluctant to commit to increasing university funding in the foreseeable future. With income reducing and costs increasing, it would seem sensible for institutions to adopt the Mr Micawber strategy outlined earlier. The specific actions that will enable a better balance to be struck between income and expenditure will vary between institutions and are unlikely to be advanced effectively by central diktats.

History does not provide a good account of the success of ministerial encouragement of cost-effectiveness measures, targeted cuts, increased regulation or market-based competition. What does appear to have been more successful is the sharing of learning between institutions about how to raise income and targeted intervention from government agencies through loan funding to help institutions reduce costs when in difficulty. The specific ways this can be made to happen are the things we should be talking about now.

[i] Dickens, C. (1839). Oliver Twist, p. 29. Richard Bentley.

[ii] Lister, J. (2023, October 8). Public Attitudes to Tuition Fee Reform. Public First. https://www.publicfirst.co.uk/public-attitudes-to-tuition-fees.html

Muir, R. (2022, August 21). University bosses call for tuition fees to be raised by up to 40% to £13,000-a-year. Mail on Sunday. https://www.dailymail.co.uk/news/article-11131489/University-bosses-call-tuition-fees-raised-40-13-000-year.html

[iii] Williams, T. (2023, February 28). Financial pressures ‘erode public support for research spending.’ Times Higher Education . https://www.timeshighereducation.com/news/financial-pressures-erode-public-support-research-spending

[iv] Migration Observatory. (2023). UK Public Opinion toward Immigration: Overall Attitudes and Level of Concern. https://migrationobservatory.ox.ac.uk/resources/briefings/uk-public-opinion-toward-immigration-overall-attitudes-and-level-of-concern/

[v] Dickens, C. (1850). The Personal History of David Copperfield, p. 124. Bradbury and Evans.

[vi] Mandler, P. (2020). The Crisis of the Meritocracy - Britain’s Transition to Mass Education since the Second World War. In International Journal of Lifelong Education (Issue 1). Oxford University Press. https://doi.org/10.1080/02601370.2021.1889141

[vii] Shattock, M. (2012). Making Policy In British Higher Education 1945-2011. McGraw Hill Education.

[viii] Merrison, A. (1975). The education of Ministers of State. Higher Education Quarterly, 30(1). https://doi.org/10.1111/j.1468-2273.1975.tb00780.x

[ix] Greatrix, P. (2021, April 20). Unlucky for some Shirley Williams 13 Higher Education Suggestions. WonkHE. https://wonkhe.com/blogs/unlucky-for-some-shirley-williams-13-higher-ed-suggestions/

[x] Trow, M. (1988). Comparative Perspectives on Higher Education Policy in the UK and the US. Oxford Review of Education i, 14(1), 81–96.

[xi] Sizer, J. (1987). The impacts of financial reductions on British universities: 1981-84. Higher Education, 16, 557–580.

[xii] Taylor, J. (2005). The Legacy of 1981: An Assessment of the Long-Term Implications of the Reduction in Funding Imposed in 1981 on Institutional Management in UK Higher Education . In Åse Gornitzka, M. Kogan, & A. Amaral (Eds.), Reform and Change in Higher Education: Analysing Policy Implementation (Vol. 8). Springer.

[xiii] CVCP. (1985). Report of the Steering Committee for Efficiency Studies in Universities. https://education-uk.org/documents/jarratt1985/index.html

[xiv] Kogan, M., & Hanney, S. (2000). Reforming Higher Education. Jessica Kingsley Publishers.

[xv] Houses of Parliament. (2002). Select Committee Report on Science and Technology Second Report. https://publications.parliament.uk/pa/cm200102/cmselect/cmsctech/507/50702.htm

[xvi] UKRI. (2023). New Future Research Assessment Programme reports published. https://www.ukri.org/news/new-future-research-assessment-programme-reports-published/#:~:text=The%20headline%20cost%20of%20REF,cost%20of%20panel%20member%20effort

[xvii] KPMG. (2021). Review of TRAC. https://www.officeforstudents.org.uk/media/78f19d2c-3363-46ba-be30-612c1de1a749/review-of-trac.pdf

[xviii] Office for Students. (2024). Financial sustainability of higher education providers in England: 2024. https://www.officeforstudents.org.uk/media/ly1buqlj/financial-sustainability-report2024.pdf

[xix] Lord Browne. (2010). The Browne Report: higher education funding and student finance. https://assets.publishing.service.gov.uk/media/5a7f289540f0b62305b856fc/bis-10-1208-securing-sustainable-higher-education-browne-report.pdf

[xx] BIS. (2011). The Government’s response to Lord Browne’s Review. https://dera.ioe.ac.uk/id/eprint/3910/1/11-1046-govt-response-to-browne-review.pdf

[xxi] Neves, J., & Stephenson, R. (2023). Student Academic Experience Survey 2023. https://s3.eu-west-2.amazonaws.com/assets.creode.advancehe-document-manager/documents/advance-he/Student%20Academic%20Experience%20Survey%202023_1687527247.pdf

[xxii] Diamond, I. (2011). Efficiency and effectiveness in higher education: A report by the Universities UK Efficiency and Modernisation Task Group. https://dera.ioe.ac.uk/id/eprint/26242/1/EfficiencyinHigherEducation.pdf

Diamond, I. (2015). Efficiency, effectiveness and value for money.

[xxiii] Augar, P. (2019). Post-18 Review of Education and Funding: Independent Panel Report.

KPMG. (2019). Understanding costs of undergraduate provision in Higher Education Costing study report.

[xxiv] HE Insight. (2023, April 20). Updated modelling: Inflation and the English UG tuition fee cap. HE Insight. https://heinsight.co.uk/updated-modelling-inflation-and-the-english-ug-tuition-fee-cap/

[xxv] Warner, D., & Palfreyman, D. (2004). Managing Crisis. Open University Press.

[xxvi] PWC. (2024). UK Higher Education Financial Sustainability Report. https://www.pwc.co.uk/government-public-sector/education/documents/higher-education-financial-sustainability-report.pdf

[xxvii] Foster, P., & Gross, A. (2024, May 1). UK universities warn of more course closures and job cuts without state help. Financial Times. https://www.ft.com/content/2fc917c7-3be6-4dd1-b48a-ef71f5e7c96a

[xxviii] HESA. (2023, December 5). Higher Education Student Data. HESA. https://www.hesa.ac.uk/data-and-analysis/students

Wolf, A. (2015). Heading for the precipice: Can further and higher education funding policies be sustained? https://feweek.co.uk/wp-content/uploads/2015/06/Issuesandideas-alison-wolf-digital.pdf

[xxix] Department for Education. (2024). Further education workforce: Academic Year 2022/23. https://explore-education-statistics.service.gov.uk/find-statistics/further-education-workforce

Learning and Skills Improvement Service. (2012). Further Education College Workforce Data For England An analysis of the Staff Individualised Record (SIR) 2010-11. https://repository.excellencegateway.org.uk/SIR%202010-11%20report_0.pdf

Wolf, A. (2015). Op. cit.