Written evidence from Dr Dave Hitchcock, with Dr Sylvia de Mars and Dr Emma Kennedy (WOS0038)

Evidence on "Student Distribution" to the Industry and Regulators Committee on the Office for Students (OfS) and Financial Stability in UK Higher Education

Dr Dave Hitchcock is Senior Lecturer in early modern history at Canterbury Christ Church University. Sylvia de Mars is a Senior Lecturer in law at Newcastle University.  Emma Kennedy is a Senior Lecturer in HE Learning & Teaching at the University of Greenwich. This short evidence submission draws on work that Dr Hitchcock and others have produced on the effects of the current “uncapped” market system of student distribution. The submission is focused on Questions 5, 8, 9, and 12 and is intended as an introduction to the important issue of “distribution” in higher education provision.

Introduction

Until 2016, Higher Education places in UK universities were subject to a form of distributional “cap” or number controls for domestic students by HEFCE. This cap was in some respects “hard”, that is it envisioned a maximum overall number of funded places in the sector per year (though in practice this was a product of government funding and was moveable). However, understood locally, the “cap” had the effect of distributing students across a spectrum of institutions and geographies and of formalising longer term financial planning in institutions around student numbers. When combined with block funding grants, radical moves in any market for students were effectively prevented from occurring because no single institution would get funding to grow or shrink by more than 5%. Rather than a “market” for students, the sector effectively had an ecosystem. The cap used the same logic as school “catchment areas”, without the geographical limits, and prevented larger universities from recruiting an unlimited number of students on the strength of brand recognition or by various incentives. Since 2016, universities have been permitted to recruit a functionally unlimited number of students, even for some years to recruit students and then to invite them to “defer” for a year for an additional benefit, effectively stockpiling student tuition fees, or “unit of resource”. Much of the defence of the removal relied on articulations of “student choice”, as if those graduating from A-levels were merely buying a very expensive gym membership for three years, rather than trying to make finely graded judgements about where they would be best suited to continue their education.[1] Many results of this “market” system are now quite plain to see. Many former advocates of a “free market” system have publicly changed their minds. In 2014 the Rt Hon Liam Byrne MP, then shadow universities minister, described the impending system as about an “ethos of “dog eat dog” and “survival of the fittest” that is failing our science base, doing little to remedy our chronic skills shortages or provide students a real choice of paths to the top, that is failing to fuel any real advance in social mobility, and above all, simply isn’t fiscally sustainable in the years ahead.”[2] He was sadly correct in ways he could not have known about in advance.

In Universities Under Fire, Steven Jones articulates the problem well when he writes that:

“When maximum fees were almost trebled to £9000 in 2012, English universities became among the most expensive in the world for home students to attend. Policy upon policy has pushed the sector in the direction of marketplace behaviours, ostensibly by placing its fee-payers at the heart of the system. ‘Putting financial power into the hands of learners makes student choice meaningful’ asserted one 2011 government white paper. But the market is a slippery and ill-defined term, giving the unhelpful impression of a single entity rather than a complex interaction of philosophies, practices and cultures.”[3]

Today’s universities in the UK are treated as political targets to be campaigned against, not as what they are: the most impressive system of research, risk sharing, education and innovation in the country.

Our position: The UK Government should consider and introduce, with DfE consultation and via the regulatory powers of the Office for Students, a “percentage-based” or “tolerance band” system of university student distribution, which does not “cap” the overall number of attendees at university nationally, but which does set limits on annual recruitment and student places locally, by institution. This system should be combined with a up to date funding system for Higher Education and a review of the timing and processes around university admissions.

Evidence Questions:

Question 5: How does the OfS measure value for money for students? How can this be measured in an objective, tangible way that is not based on economic or political judgements about the value of subject areas or types of institution?

The Office for Students (hereafter OfS) measures “value for money” typically by assessing average salaries after 15 months, and then works backward to score degrees and institutions based on the responses of their graduates. This information is gathered by the Higher Education Statistics Agency (HESA), using the “graduate outcomes survey”. This is a narrow definition of economic value—with data obtained very close to the object being studied (i.e. only recently after graduation)—for students themselves or for British society or the economy as a whole and tends to obscure that the net effect of university education is to raise career earnings prospects across the board for all graduates. The OfS also arguably measures “value for money” the way it is told by government to measure it, which is to say, by assessing in percentage terms how many graduates enter “highly skilled” jobs within 15 months of graduation.[4]

It is arguably almost impossible to measure “value for money” in a way that is both “objective” and which refrains from economic or political judgement about the “value” of a degree. But it has been quite clear in data for decades that graduates in non-STEM subjects provide enormous economic net benefits. For instance, SHAPE (Social Sciences, Humanities and the Arts for People and the Economy/Environment) subjects as defined by the British Academy produce over 80% of all successful entrants into the civil service, local government, and the Academy’s sponsored research estimates the total cost of the UK’s ‘linguistic deficit’ in trade terms as annually about £48 billion.[5] How does one estimate the net value of those contributions, or of those workforce deficits?

Question 8: What systemic financial risks are present in the higher education sector? Is there the potential for significant provider failures if these risks crystallise, for example through an unexpected reduction in numbers of overseas students or an unexpected increase in pension costs? Are these risks limited to particular groups of providers or are they widespread or systemic in nature?

Systemic Financial Risks

One systemic financial risk prevalent in UK HE might best be summarised thus: what happens if every student who got AAB in their A-levels decided to go only to Russell Group institutions and to Oxford and Cambridge? This is currently perfectly permissible in law should providers decide to accept all these applicants. Moreover, what would happen to the rental markets of the cities and areas which these institutions anchor, and to the educational and living conditions of those students? First of all, a high number of providers would either fail and potentially need to declare bankruptcy and exit the system or downsize so radically they risked failure in the medium term. A similar effect could be produced by a drastic net reduction in overseas student recruitment, where fees are currently uncapped, which we witnessed during the Coronavirus pandemic and where the effects were only mitigated by government funding.

Another systemic financial risk is the rapidly declining “unit of real resource” which arrives to a provider with each student it takes on. Domestic fees for undergraduate courses have been locked at £9250 since 2017. Inflation has eroded the value of that resource steadily since then, and very rapidly since 2022. Government block funding for teaching activity and particularly for widening participation in HE remains historically low as a percentage of spend. Student maintenance loans remain distinctly disadvantageous to lower-income students, students of colour, mature students, and women.[6] Student loan repayment also continues to change in deeply regressive ways hit by inflation and interest rate changes.

Overall, the funding spectrum for “users” of higher education and “providers” of it remains partial, unequal, sporadically aimed at “picking winners” for political purposes from the vast array of degree specialisms which universities offer, and the stresses of the system disproportionately put at risk both providers and students which fall into the “widening participation” category of educational activity. Universities use their reputational heft to engage in predatory recruitment practices to assure their financial health going forward, unbalancing the sector and risking anchor institutions across the UK economy.

Risk of Provider Failure

There is currently very high potential for institutional failure, so much so that simply searching newspapers for news about universities will currently bring up no less than 4 major institutions in financial distress. Many more cases will be hidden by bland financial reporting and not become public until HESA data is released for the current financial year end. Multiple universities inside same or similar “catchment” areas now directly compete for students in ways that affect their budgets.

Consider the side-by-side student income data (source: HESA returns to 2022) for the Universities of Exeter and Plymouth:

Figure 1: side-by-side income figures in £thousands for Universities of Exeter and Plymouth, year on year to 2021. Source: HESA. So for instance, Exeter’s total domiciled tuition income is now just over £180 million.

Providers at Risk

Question 9: What business models are present in the UK higher education sector? Are these models resilient to the financial risks of the sector, and are universities focusing sufficiently on having a viable business model?

Business Models

Most Universities still incorporate as educational charities. They report to Boards of Governors but are not answerable to shareholders. Their business models often work at odds with their charitable status: they prioritise “growth to stand still” in a period of inflation, they take on significant and risky covenant bets on new estate additions, they pursue profitable accreditation partnerships with SME institutions in search of degree-granting powers, they operate with extensive overseas agency recruitment, and they incorporate subsidiary companies (for example “UniTemps”).

Currently many universities resort to international student tuition, rental income, intellectual property fees and licensing, and similar supplements in order to make up shortfalls in direct funding via tuition. Over 90 to 95% of a typical university annual budget is still, however, funded by a domestic undergraduate tuition rate that has not changed since 2017. Each of the supplements they use to make up shortfall is inherently unstable, and several (like rental income) are also deeply dependant on recruiting as many students as possible, further incentivising predatory recruitment practices and poorer outcomes and experiences for learners. Some Universities earn millions of pounds from long-running intellectual property rights or publishing houses, or gather large donations from wealthy alumni, others possess neither of these advantages. Moreover, income diversification has not made most of these models at all resilient to financial sector risks, as the recent cases of University of East Anglia, and Goldsmith’s University clearly show. University leaders do work hard to find business models that might allow “financial sustainability” for their institutions, but they do so now in a period of rapidly declining resource per student, significant inflation and high rates of interest, aging, sick, and precarious workforces, and often by marking out sectors of their own provision for redundancy and for winding down, and this “resizing” activity comes with real long term costs. University leaders hire in consultants such as DataHE to produce a “size and shape” analysis of their institution, and then often attempt to “follow the market in degrees” trailed by government by emphasizing STEM subjects at the expense of Arts and Humanities subjects, irrespective of any real terms costing of both. Given that the average degree in veterinary science costs about £22,000 per year to resource, and the average Arts or Humanities degree costs about £7,500, this posture makes little economic sense.[7] Moreover, providers are hemmed in first and foremost by the national funding models that allocate resource to them, and numerous other methods of modelling and funding the “business” of Higher Education are available, many of which retain significant contributions from learners to the costs of their education, but which do more to spread out the risk and resource of education across providers.[8]

Question 12: To what extent is the financial sustainability of providers determined by government policy and funding rather than the OfS’ regulation? Is there a need for policy change or further clarity to ensure the sustainability of the sector?

Role of Government Policy in Financial Sustainability

There is absolutely a need for policy change, a government funding model change, and for clarity in order to guarantee the sustainability of the sector. To an enormous extent, the sustainability of providers is determined by government funding choices, regardless of whether or not these choices are disguised as loans that learners choose to take on (and then generally only partially repay over their working lifetimes). It is hoped that the foregoing short precis begins to demonstrate that relationship. Further reading is available in a selected bibliography below the concluding remarks.

Conclusion:

Education is a public good, it is not a market good, as the Robbins report made perfectly clear in 1963 when it wrote that “higher education is so obviously and rightly of great public concern, and so large a proportion of its finance is provided in one way or another from the public purse, that it is difficult to defend the continued absence of co-ordinating principles and of a general conception of objectives.”[9] This does not mean that all “market forces” must automatically be excised from education (nor is this particularly possible to do), but the current system, or rather the deliberate lack thereof, imagines unlimited student choice in where learners might study while attempting in various ways to penalise or influence what they study. This is precisely the wrong way round. It is a primary duty of modern governments to fund, regulate, and support education in various forms from cradle to grave, and all inhabitants of a state ought to have the right to access institutions of learning all through their lives. The net positive economic, social, and cultural benefits of education are almost incalculable. The current state of provision of Higher Education in the UK serves to narrow access and participation rather than widen it, it forces universities to compete for students as if they are a unit of resource, not because they are learners will who go on to enrich their own lives and the lives of others. Government ought to reconsider how HE is funded, how learners are distributed equitably throughout an ecosystem, rather than a “market”, and to refrain from pursuing culture war against the presumed “low value” outputs of the very system that politicians have done so much to bring into existence in the first place.

Government should explore, consider, and implement a distributional system of student places at university, and encourage an ecosystem of learning, not a market for it.

Select Further Reading:

Ainsworth, Peter; McKenzie, Tom, ‘On the benefits of risk‐sharing for post‐COVID higher education in the United Kingdom’ Economic Affairs (2020): DOI: 10.1111/ecaf.12433

Jones, L. & Cunliffe, P. (2020). “Saving Britain’s Universities: Academic Freedom, Democracy and Renewal.” Canterbury: Cieo Institute. https://www.cieo.org.uk/wp-content/uploads/2020/08/SavingBritains-Universities-Cieo-1-1.pdf  (accessed 20/3/2023). Please see the authors’ comments on the necessity of re-introducing numbers distribution on page 35.

*Steven Jones, Universities Under Fire: Hostile Discourses and Integrity Deficits in Higher Education (London: Palgrave Critical University Studies, 2022)

Kernohan, David. “End of Cycle 2022: Provider and Subject level Data” WonkHE website, (accessed 20/3/2023): https://wonkhe.com/blogs/end-of-cycle-2022-provider-and-subject-level-data/

Diane Reay, Miseducation: Inequality, Education and the Working Classes (Bristol: Policy Press, 2017)

6 April 2023