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A tale of two spectra

mike boxall | HE | 16 November 2016

Some higher education institutions in England are in rude health, but others face a living death. Time to stop pretending they’re all in it together

The English higher education system is unsustainable. That is the inescapable message from the latest review of the financial health English universities, which looks at the position in 2015-16 and makes forecasts for 2018-19. The review, published on 10 November by the Higher Education Funding Council for England, doesn’t say this in so many words, of course. The funding council has always carefully avoided potentially self-realising predictions of crisis. Instead it concludes that, based on the forecasts provided by higher education institutions, the collective outlook is stable, with projections of positive cash flow and financial surpluses.

The caveat, which seriously undermines that conditional conclusion, is the credibility of those self-asserted forecasts that both home and international student numbers will grow substantially, that staff costs will be contained and that public funding for teaching and research will rise. The funding council barely disguises its scepticism about these assumptions, which fly in the face both of recent experience and of all the indicators of market trends.

Institutions’ forecasts of rising revenues, positive cash flow and strong financial surpluses are plausible for those institutions that have grown home and international fee revenues, research funding and third stream business earnings on the back of £9,000 fees, open-market recruitment and research concentration. But they have done so in a context of virtually static student numbers and market revenues, and hence at the expense of other institutions. The direct consequence has been a number of institutions going backwards over the same period, and experiencing falling recruitment, revenues and surpluses in a worrying downward spiral.

The pattern is shown graphically in the report: averaged predictions of 12 per cent growth in home and EU undergraduate recruitment by 2018 derive from a very wide spread, from a dozen institutions forecasting growth above 40 per cent to another dozen or more predicting falling numbers. Similarly, while nine institutions believe they can grow international fee income by 100 per cent or more, 30 more expect their international earnings to shrink.

In this perspective, which mirrors the spread of recent experiences of actual recruitment and revenue results, conclusions about the outlook for higher education as a whole are not very helpful. Instead two tiers of winners and losers are emerging, in which some institutions continue to do well in the competition for ever-scarcer students and revenues while others face real challenges to their financial and academic sustainability.

Although the English funding council is at pains to state that no universities are currently on its “at risk” list of those facing short-term insolvency, its report and others suggest that there may be as many as 20 institutions caught in a spiral of falling numbers, diminishing receipts and financial deficits. This won’t necessarily lead to outright institutional failures, notwithstanding the government’s apparent willingness to countenance some “weaker institutions exiting the system”. The legal, practical and political barriers to this eventuality remain substantial and untested, especially given that at least some of the struggling institutions are located in relatively poor towns where their demise would be catastrophic to the local economy.

Instead there is a trend to rationalisation by stealth, with many institutions quietly cutting courses, services, staffing and locations. Some of the displaced students and business services are being picked up by local competitors but, for the most part, the impact is reduced choice and poorer experiences for both students and staff. This leads to poor student satisfaction reports, higher drop-out rates and weakened graduate employment performance―which in turn will precipitate bronze ratings in the teaching excellence framework, reduced fee levels and reputational damage. This is the slippery slope to institutional zombie-dom―not actually insolvent but running in diminishing circles with no clear way out.

The funding council report treats the fragility of institutional sustainability as a sector-wide issue, while noting the wide spread of forecast outcomes. It recommends, quite rightly, that all institutions should get real with their planning assumptions and rein back on investments and adventures based more on optimism than evidence. Other recent reports have made the same point. But that will not be enough for the zombie institutions already struggling to avoid living death.

Unlike the old days, when the funding council was able to step in and help such institutions with extra students and funds and life-support plans, there is (probably) no prospect of special treatment for ailing institutions. In many cases, the root causes of their problems stem from being in the “wrong” place and serving the “wrong” people―that is, being located in economically disadvantaged locations and recruiting from educationally disadvantaged communities.

These are of course exactly the locations and communities being targeted through the government’s strategies for local growth, skills development and employment, to be funded (hopefully) and delivered through the next wave of devolution deals. The very universities disadvantaged by national higher education policies have pivotal roles to play in local economic and community development, provided that they, central government and the relevant local authorities and enterprise partnerships recognise and step up to the opportunities.

What the funding council’s review is really saying is that viewing all universities as part of a single spectrum is no longer helpful, either for institutions competing unequally for shares of the same markets, or for national policies that seek to judge the diversity of provision against a single set of quality benchmarks. Rather than seeing winners and losers in the same game, we should aim for every university to be a winner in the different arenas where they can contribute the most.

Mike Boxall is a higher education expert at PA Consulting Group

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