Higher Education: Financial Sustainability

Universities understand that growth in international student numbers must be sustainable and that the experience for those choosing to study here should be truly world-class. However, policy changes under the previous Government, such as restrictions on dependant visas, increased visa and immigration costs, and threats to the future of the UK’s post-work study offer, have had a significant impact on the attractiveness of the UK as a study destination, as well as the perception of the UK as an open and welcoming country.

A key finding from IDP’s “Emerging Futures 6” report was that the biggest influence on study destination choice for prospective students was post-work study opportunities, and indeed work opportunities. I commend the Secretary of State for Education for reaffirming the Government’s commitment to supporting and valuing international students. Will the Government back that up by committing to maintaining the graduate route on its current terms for the duration of this Parliament?

Another significant financial risk is membership of the teachers’ pension scheme, which affects a lot of universities. Universities that are statutorily obliged to be members of the TPS—primarily modern post-1992 universities—are now required to pay pension contributions of around 29% for 58,000 members of staff compared with 16.4% in 2019, which is a very significant increase. That is one of the highest employer contributions of any pension across the whole country. Universities cannot exit the TPS or take actions to reduce the employer contribution, and they have not been granted the same additional funding as schools and colleges to meet the cost of the scheme. Will Ministers in the Department for Education commit to working with Ministers in His Majesty’s Treasury to explore how universities can be provided with flexibility to allow consideration of alternative pension pots?

I will turn to the structural issues in university research funding, and in my background as a research scientist, that was something I faced daily prior to my election to this place. Research funding risks seeing the UK’s world-class capabilities and competitive advantages being eroded. Despite recent increases in investment, the current system relies on disproportionate and growing cross-subsidy from universities to make research viable, which, given the current financial challenges faced by universities, has produced a huge gap in funding.

To cite the VCs that I have spoken to recently, research operates at a loss, which is a significant issue that they face. It is estimated that for every pound of public money invested in university research and innovation, the country gets back £10 a year—a huge return on investment. But in 2022-23, UK universities incurred a £5.3 billion deficit in research activities. In short, the system is structurally unsustainable. Although the Budget recently highlighted how serious the Government are about funding university research, we urgently need an ambitious and long-term approach from the Government to funding university research. I would welcome the Minister’s views on that point.

Why does all this matter? The UK’s performance in HE and research is exceptional, in my opinion and life experience, and it surpasses significantly our international counterparts. UK universities deliver the highest degree completion rates across the OECD. They are recognised as world-class and generate £25.6 billion of export earnings, while broadening the UK’s soft power and strengthening global relationships. The UK has the third largest share of the world’s academic publications at about 6.3%—that is what I spent much of the last decade of my life producing—behind only China and the United States, with an even larger share of the world’s most highly cited publications at 13.4%, which is a great achievement and shows how good our universities are.

The latest figures show that the UK higher education sector’s teaching, research and innovation activities had an economic impact of £265 billion, so we are talking about a huge sector here. This impact is felt across the country, including in the east midlands, which I represent, where universities contributed £6.3 billion in gross output and £4.2 billion in gross value added to the UK economy. These figures include contributions from my former employer, the University of Nottingham, and a range of other excellent institutions across my region, all with unique and valuable offerings to their communities and beyond.

Underfunding will restrict universities’ ability to drive inclusive economic growth and the UK’s global competitiveness, and to provide opportunities to current students that are comparable to previous years. Sustained funding that ensures a high-quality student experience and enhances the UK’s ability to deliver world-leading research and innovation will rapidly accelerate the positive contributions of our universities.

The current funding system in England affects students’ ability to meet living costs, which touches on points made by the hon. Member for Strangford, and it is hard to make the most of the range of experiences and activities that make up university life. Frozen household income thresholds and a failure to adequately uprate the maintenance package with inflation mean that the average student’s maintenance loan is estimated to fall £504 short of covering their living costs each month. That particularly affects disadvantaged students, who are forced to take on higher levels of debt and find paid employment, which limits their ability to study. I commend the Government for last month announcing an inflationary increase to maintenance support for students in England, but will they commit to reintroducing maintenance grants for students from the most disadvantaged backgrounds? Can they indicate a timeframe of when that might be possible, if it is indeed possible?

Greater effectiveness and efficiency are necessary for our universities to thrive in the coming decade. They must reform and do things differently, and prioritise some things while deprioritising others. Operating models need to evolve to become more effective and efficient. I know from conversations with vice-chancellors that universities in all four nations in the UK are already making significant changes to adjust to these pressures, including in some cases through significant restructuring and transformation programmes. Indeed, around the time of the election, as I was leaving my former employment, my own university was going through a significant redundancy package.

Without a small change to the overall context, many universities will be forced to make cuts that are in the interests of their institution but not the national interest. Such cuts will jeopardise the crucial role that all types of universities play in their local communities. Some have a profoundly local mission of educating the public sector workforce for their local areas, while others attract amounts of investment. They all play a part throughout the country.

Many of our universities are currently making difficult decisions, which colleagues will know, I am sure. This means closing degree courses that may have low student demand but are of national strategic importance, such as modern foreign languages and arts and humanities courses. We are losing a lot of those courses. There is a real risk that certain courses will be available in a limited number of institutions only, meaning that they will slowly recede out of the reach of students who cannot travel to study or cannot meet highly competitive entry requirements.

Diminished financial stability for universities clearly has potentially harmful repercussions for students, staff and our wider national economy. Therefore, it is essential that change is not just about doing more with less. Universities’ underlying operating models need to evolve to become more efficient and as effective as possible. They must be supported by the Government to do so at the national level.

My understanding is that Universities UK, the collective voice of 141 UK universities, is committed to establishing a cross-sector transformation and efficiency taskforce to seek savings through greater collaboration. The task force is one of the main recommendations from Universities UK’s recent report “Opportunity, growth and partnership: a blueprint for change”, which I strongly encourage colleagues to have a good read of. The taskforce will be established by the end of 2024 and will report for the first time in summer 2025.

The taskforce will take a three-step approach. First, it will evaluate progress and lessons learned since the last major review into sector efficiency, identifying what has been achieved in the past decade while looking forward to the next and making recommendations to unlock opportunities that lie ahead. Secondly, it will identify opportunities for savings through greater collaboration between universities.

There are already some great examples of collaboration. The UCAS system is effectively a shared service, with the university sector’s IT network run by Jisc. Individual universities have found creative ways of working together to share resources, such as the shared out-of-hours IT service set up by Northumbria University, which is now used by a third of universities around the country.

Finally, the taskforce will bring university leaders together to look at structural changes, creating regional groupings of universities, or even mergers and acquisitions where appropriate, which could deliver savings in the long term. I strongly encourage the Government to engage with the sector as deeply as possible as it embarks on the creation of the taskforce.

I will now turn to the steps necessary to support our universities so that they can in turn support our nation’s renewal. Universities UK’s recent blueprint report recommends a two-phase approach for universities and Government. Phase 1 requires some immediate steps, including

“increasing funding for teaching to meet the real costs through a combination of index-linking fees to inflation”

each year and restoring the teaching grant to previous levels. The Exchequer now only contributes 16% of the cost of funding a student through higher education, with the other 84% picked up by the graduate in England. The balance needs redressing through increased Government investment.

Other parts of the first phase outlined in the report include

“ensuring policy stability in relation to international students in order to achieve sustainable, managed growth”

and

“working with the sector to establish a sustainable solution for universities in relation to the significant increase in contributions to the teachers’ pension scheme”.

Finally, Government and the sector should have

“a clear plan to implement should an English university find itself in severe financial distress.”

That is a very real possibility at the moment, although alleviated by the Government’s recent efforts.

The report also recommends:

“Plans to manage the immediate situation and to protect the reputation of the higher education sector should be in place, with the support of independent experts, to guide the institution”

in financial difficulty

“in finding a viable way forward. There are different possible models for such an intervention, but it is crucial to protect students and others who depend on the university, including local public services.”

To summarise, the second phase of the taskforce effort will involve some longer-term steps, which will probably include developing a contract

“with the university sector to deliver sustainable, managed growth in international student recruitment”,

changes to the way that VAT is charged so that it is easier for universities to share services and, finally,

“introducing a transformation fund to enable and accelerate changes to universities’ operating and business models in order to achieve greater efficiency.”

While the recent tuition fee cap increase, announced by the Education Secretary, allows breathing room for some universities—a difficult decision though it was—the University of Bedfordshire is experiencing significant issues due to changes introduced by the previous Government. The impact of the policy restricting those on student visas bringing dependants has resulted in approximately a 16% decline in applications across the country this year, and for institutions such as the University of Bedfordshire, that policy has been detrimental. Every level of leadership—from the vice-chancellor through to the student union representatives from Beds SU, including representatives of the Unison trade union—has raised that matter with me, emphasising the worry it is causing. The university has previously been held afloat by international admissions, but with ever-declining numbers that is not sustainable. I should be grateful if the Minister would confirm whether her Department has done any impact assessment to establish whether that policy change has been positive for higher education settings.

Fundamentally, none of us want to see our higher education settings close their doors, and I am proud that this Labour Government are committed to fixing the foundations and delivering change for students, as well as undertaking a major package of reform to deliver value for money for taxpayers and students, ending the cycle of students being asked to pay more while getting less. The University of Bedfordshire does so much to raise the status of our town and bring investment, enterprise and employment. So, as we fix the foundations of now, it is vital that we support it to deliver the high-class, transformative education that students expect and deserve, to break down those barriers to opportunity, as it produces the future leaders of tomorrow from all backgrounds and all socioeconomic circumstances.

The earlier mentions of foreign students by the hon. Members for Erewash and for Luton South and South Bedfordshire (Rachel Hopkins) were pertinent, and I will now move on to that issue. The combination of the visa crackdowns and the rhetoric about foreign-born students placed further stress on the sector. The upshot is that the Office for Students suggests that about 40% of universities are likely to run a deficit this year. Locally, the University of Gloucestershire—based in my constituency and those of the hon. Member for Gloucester (Alex McIntyre) and my hon. Friend the Member for Tewkesbury (Cameron Thomas)—tells me that, of a turnover of £85 million, £65 million is from tuition fees, and around £20 million of that is from foreign students, but this year it has reductions in foreign students for both the January and autumn intakes. As I said, this is not just about the visa issue; it is also about rhetoric. The university tells me that its agents who recruit students from abroad say that the feedback from those students is that they are perhaps not quite so wanted in the UK as they once were, so they are selecting degree courses in Australia, America, Canada—elsewhere, where they feel more welcome.

The result is a £4 million hit to the University of Gloucestershire’s tuition fee revenue. That is significant. As a result, the university is closing some courses and consolidating others, reducing student choice. Some courses combining multiple humanities are the first to close; fashion is likely to go as well. That said, the university is doing what the Liberal Democrats have suggested too—cutting non-teaching costs and innovating.

The university is also taking advantage of Cheltenham’s cyber-security future. It recently opened a new £5.8 million cyber and digital centre, which will help cement Cheltenham’s position as the cyber capital of the UK. That places the university in the same sphere as CyNam, the local industry group, and alongside high-performing small and medium-sized enterprises that drive the local economy.

That kind of innovation has to be at the centre of what universities do in the future. However, the university warns that the benefit of the £300 tuition fee increase the Government offered this year is likely to be wiped out by the changes to national insurance for employers. I would like the Minister to respond to that point later.

The challenge for the new Government is to put things right, change the rhetoric and reinstate as much fairness in the system as they possibly can. We know that that is not going to be easy—we have all had challenges in the past, haven’t we?—but the Liberal Democrats cannot support an increase in fees at this stage. Reports now suggest that fees are to break the £10,000 barrier fairly soon and rise to £10,500 over the next five years. Before we could support that, more work is needed to undo the failures of the previous Government and restore fairness to the system.

The successes of the system, which we should note, are that it has hugely increased participation rates, causing participation in England to grow dramatically faster than in the devolved authorities in Wales, Scotland and Northern Ireland. In particular, it has dramatically increased the participation of the poorest people in our society. We can measure that in three different ways. We can look at free school meals: the proportion of those on FSM going to university has doubled, while the proportion of non-FSM kids going to university has gone up by about a third. We can look at the participation of local areas metric, which is the sector’s own measure of localities from which not many people go to university. We can see that, in both absolute and relative terms, the disadvantage gap has shrunk.

We can also use, as Universities Wales does, the index of multiple deprivation. Looking at the bottom fifth of the index—the fifth-poorest areas in each of the nations—we can see that although Labour-run Wales and England had similar numbers of people going to university back in 2006, at about 13% or 14%, the participation of poorer students has grown much more rapidly in England; it is up to 33%, compared with just 20% in Wales. That is because we made some difficult decisions, from which there have been benefits.

Much of the growth of higher education is a good thing. My generation was the first in my family to go to university. It was wonderful; it was a great experience, and it is generally a very good experience for most people who go. Universities are a wonderful thing because of not just the research and wonderful teaching that goes on in them, but the wider benefits to the community and the impact on their local society. I remember going to the University of Huddersfield as a teenager; if somebody looked nonchalant and like a student, they could just wander in and read all these wonderful books. That is just one of benefits they bring to lots of our country.

However, not all is perfect in the garden, because a university education is not cheap. We have put in a lot of resources, and while the decision to hold down the resources in recent years in order to hold down the costs for students has reduced the funding per student in real terms, it is still above the level it was at when I went to university; it is still higher in real terms than it was in 1997. But university really is not cheap for the students. The Government have just raised tuition fees to £9,535 a year. A maintenance loan for people who are not at home is £10,227, or £13,348 for those in London. After a typical three-year degree, a student is paying back £59,000, or £68,000 in London. That is a lot of money.

The Government have already increased fees once in this Parliament. Having promised to reduce the cost for graduates, they increased fees instead. There must be a decent chance that fees will continue to go up from now on—unless the Minister wants to contradict me on that. Yet, over the last decade, we have worried a lot about the financial plight of younger people. Ever since David Willetts’s amazing book “The Pinch”, we have been thinking about how we can make it easier for younger people to get on in life. Having these huge amounts to repay—and, in some cases, rather high marginal rates—makes it much more difficult for them.

We can see that, as has been alluded to, the point at which somebody starts repaying their loan to make the system financially sustainable for taxpayers has reduced over time. In 2005, a person had to be earning about 30% more than someone working full time on the minimum wage to start repaying. As of next April, a person can earn 2% less than someone working full time on the minimum wage and still be repaying. This has become more like a graduate tax. It is not quite like a tax—people do not repay it if they are not earning—but it is high.

If somebody is a postgraduate on top of that, or has a couple of kids and ends up being hit by the high-income child benefit charge, they face extraordinary marginal rates, even on middling incomes. In the £50,000 to £60,000 range, if a person has one postgraduate loan or two kids, they can end up paying a 70% marginal tax rate as a young person. That is insane. The Government have made the decision not to reform the high-income child benefit charge, so the problem will go on and get worse.

All of that context is by way of saying that, yes, there are pressures in higher education, but there are also pressures on young people; it is not easy. So before we increase charges further, increase tuition fees even more and tip in more money, we absolutely must think about reforms. Advocates of higher education, including me, say, “Look, there is a lot of higher education that is brilliant for people’s earnings and a good economic investment.” However, we know, because of the decision taken by the last Government to create the longitudinal educational outcomes database, that not everybody benefits from going into higher education, at least not economically. The seminal report on this issue by the Institute for Fiscal Studies stated that

“seen over the whole lifetime, we estimate that total returns”—

combining the perspective of both the taxpayer and the student—

“will be negative for around 30% of both men and women.”

For about 30% of people, at least in economic terms, this is not working out.

Now, economics is not the only thing in life, and it will always be worth us funding some things simply for their own sake—if they are beautiful and good and we think they are nice—but let us not forget that a lot of things that are economically beneficial are also beautiful, true, interesting and worthy in their own right. For example, it is cool to know that the word “Lent” comes from the Old English word for “lengthen”, because plants grow in the spring, which is when Lent is. That is the origin of the word, and it is cool to know things like that. It is also cool to know how to build an ion drive, how monoclonal antibodies work or innumerable other things in the hard sciences and other subjects as well.

We will always want to spend on some things that are just worth it in their own right, but the question is how much. If we are spending £20 billion a year on student loans, and let us say, hypothetically, that the IFS is about right, and that about 30% of that is not worth it, that is £6 billion. That is about 10 times what we spend on the Arts Council. How much do we want to spend on higher education that is not economically beneficial? Should thinking about some of those courses not be the first port of call before just increasing taxes on young people?

We could potentially do things to reform the system, as the last Government were starting to do, which would be of benefit to both the young person and the wider economy. We are not doing a young person a favour if we put them on, for example, some creative arts course and say, “This will be great for you. You are going to be the next Jony Ive. You are going to design the next iPad. You are going to have great outcomes. This degree is going to take you where you want to go”, when that is not true. Some people have fantastically low earnings. They feel like they have been lied to; they feel like they have been mis-sold something. Thankfully, that is not the median experience of students, but it is the experience of quite a lot of students. We have to worry about that.

I am totally sympathetic to those who say, “Let’s find more resources for the best of HE,” but we also need to have the conversation about HE that is of lower economic value—if I can call it that—before we just start increasing taxes even further on young people who are so hard pressed already. There are many questions about how exactly we would do that, and lots of technicalities, but in principle that should be our first port of call. Finding those resources would either let us do more in high-value higher education or let us help the perpetual Cinderella sector that is further education, or we could take the burden off of young people a bit more.

It is not for me in this debate to set out our entire vision of how we would reform HE, so I have a couple of questions for the Minister. In particular, I want to encourage her to talk about a decision taken this week by the Office for Students to stop accrediting new institutions. That has numerous consequences that are bad. First, it is a block to brilliant new entrants such as the New Model Institute for Technology and Engineering in Hereford, Dyson and other places that have come in and been brilliant additions to the higher education sector. It also potentially locks very large numbers of young people out of student support. What estimate has the Minister made of the number of young people who will now not be able to access student support as a result of that decision by the OfS this week? Secondly, how long will this “pause” go on for? I saw Ministers defending this decision, and it was initially presented as a pause. I hope it is not a permanent end to any new entrants coming into the sector. Will the Minister tell us a little about when she plans to end this pause?

We have been playing a game of cat and mouse across Parliament about the national insurance increase. Bizarrely, one Department—Defence—has answered the question of how much the national insurance increase will cost it. Defence can answer it, but seemingly no other Department can. The questions I asked the Department for Education a month ago about how much this is costing schools, universities and so on have somehow not been answered. The same is true across about 50 domains in Government. We cannot have a meaningful Parliament and we cannot have meaningful discussions in this building if the Government are not prepared to answer basic questions about the consequences of their own policies.

The Government want to say, “We are giving you this wonderful increase in spending” in whatever field it might—maybe it is childcare or schools or something outside education—but that actually turns out not to be true. The university sector has worked that out for itself. We know exactly how much the Government are putting in, because of the fees increase, and we can see that that seeming gift is completely wiped out by the national insurance increase. The Government are giving with one hand and taking away with the other. In other sectors, they are just refusing to answer the question. That is really poor.

When the Minister stands up today, can she promise me that she will finally answer the question I asked a month ago, not just for higher education, but for childcare and schools, and tell us the most basic information that taxpayers and voters deserve to know? How much is the national insurance increase going to cost our public services? Why do the Government think they cannot answer this question? It is genuinely disgraceful.

I have every sympathy with those who are under financial pressure in higher education institutions. In some cases there has been misadventure, where people have taken out ridiculous loans that are now rolling over, or they have become very exposed to one type of overseas student. I was intrigued to hear the contributions from the hon. Members for Erewash and for Luton South and South Bedfordshire, encouraging the Government to allow more students’ dependants as a way of selling higher education. I remember a speech in this House—I think it was yesterday—where one hon. Member stood up and condemned the open borders experiment of the last Government. I thought, “This is a wonderful, road-to-Damascus moment from the Labour party. They finally agree with people like me and do not want to endlessly increase immigration in an attempt to prop up high education.”