In response to recent data showing a worrying financial outlook for higher education institutions, Professor David Maguire, Vice-Chancellor at the University of East Anglia (UEA), and Dr Alex Bols, Chief of Staff at UEA, argue more Government action is needed to make the sector financially sustainable.
In our response to the Government’s Industrial Strategy consultation, we make the case for higher education as a foundational sector in driving national economic growth, with universities essential for meeting the high skills, research and innovation needs of the economy and supporting the eight growth-driving sectors. However, the acute financial situation facing the higher education sector puts this at risk.
The Office for Students published (15 November) the unsurprising news that the number of universities they expect to be in deficit has increased from 40% to 72%. UCU estimates that at least 77 universities are going through some form of restructuring, reorganisation or redundancy programme and this is probably a conservative estimate.  All institutions are looking at efficiencies and cost savings and there are just two kinds of institutions – those that are doing this publicly and those that are doing it out of the public eye. Basic extrapolation suggests that as many as 10,000 jobs could be lost across the higher education sector this academic year. If this was at a single location it would be heralded as a national crisis.
We were pleased that the government announced an increase in fees by inflation for next September, but as the OfS report showed this doesn’t even cover the increasing National Insurance costs announced in the budget. At UEA, for example, we estimate that the fee changes will bring in around £2.7m a year but the additional NI costs will be about £3.8m a year. Furthermore, the NI costs are being introduced from April 2025 and so adding almost £1m of unexpected in-year costs to this year’s budget.
For those who have bemoaned the ‘increase’ in the home undergraduate fee cap, it is worth stating that in real terms in 2025 it will be cheaper, by almost £3000, to attend university than in 2012.
At the same time the level of full economic cost recovery from research, the second biggest income stream for most research-intensive universities like UEA, continues to decline. In 22/23 it was just below 70%, meaning that universities are subsidising research to the tune of 30%.
A focus on ‘sustained efficiency and reform’ was emphasised by the Secretary of State in her letter to the sector as one of the five priorities for reform. Here at UEA, we have been trying our best to stay ahead of the declining real funding curve, going through a major change programme last year. This is never easy, but our portfolio review saw a reduction of courses by 20% as well as other significant non-pay savings, including reduced investment in research, focusing on statutory or regulatory compliance for maintenance to the physical estate, as well as reducing travel costs. This has also had to be accompanied by major cuts to our biggest expenditure line, staffing.
We have just announced a new round of financial savings following continued high inflationary cost increases and a significant drop in international student numbers over the Summer, particularly in postgraduate taught courses, consequent on the changes to the visa criteria introduced by the last Government. It is not possible to make cuts of such magnitude constantly without expecting this to impact on the range and quality of provision. Developing a long-term sustainable funding model for higher education must be a key plank of the Government’s higher education reform package currently being developed ahead of next Summer.
Universities have always curated their course portfolios but this is likely to become an ever-more regular process to ensure an agile response to our changes in income. We do however have concerns about regional access to key courses, especially for disadvantaged students, in areas like East Anglia where there are few universities within easy commuter distance. Â
We have also made the case that sharing services with other organisations currently comes with VAT costs, something that we could potentially consider with other major public organisations – including the regional hospital and research institutes co-located on the Norwich Research Park – if the Government removed the VAT costs to further incentivise collaboration.
From our experience in business, we are aware that it is much more traumatic and expensive to manage institutional failure after bankruptcy than it is while they are a going concern. Although UEA plans to remain financially sustainable, we have called for a transformation fund to support universities to respond flexibly to reorganising their structures and also to take advantage of the opportunities offered by technology and other ways of transforming their operating models. Such a fund could be used by those considering merger, something that has mainly affected the smallest providers but is increasingly becoming a feature of the sector, these include the mergers of City and St George’s Universities; Writtle University College and Anglia Ruskin University; University College of Osteopathy and Health Sciences University, as well as several other independent providers in the last couple of years. We are aware of several other high-profile initial discussions that foundered at an early stage because of the lack of incentives.
We believe that the UK higher education sector is at a perilous point in its history. If we are not careful, everything that has been achieved in terms of economic impact, social mobility, discovery science and international influence could be blown away without careful stewardship and adequate funding. Universities are working hard to adapt and change and think the previously unthinkable. A disappointing aspect of the OfS Financial Sustainability report, published on 15 November 2024, is it presents an ‘unmitigated’ assessment of the sector’s finances based largely on 22/23 university financial data when we know the 23/24 data will paint a significantly worse picture.Â
All the universities we know are working furiously to deal with the tough financial reality of serious cumulative teaching and research underfunding for years. In spite of all the mitigation work, the basic economics of universities mean that for everyone expenditure is exceeding income either now or in the near future. Without imminent action from the Government, we face a managed decline of the sector, and possibly the unmanaged, catastrophic failure of a few providers. Not only do we need additional funding, we need stability through the next parliament, and support for the transformation that is in the interests of students, taxpayers and, yes, universities.
