Higher Education Funding

Motion to Take Note

Moved by

That this House takes note of the current challenges of higher education funding.

My Lords, it is a great privilege to introduce this debate. I thank my fellow Cross-Benchers who voted for it. I particularly thank my noble friend Lord Tarassenko, who has chosen to give his maiden speech during the debate; I very much look forward to hearing what he has to say, alongside the contributions of other noble Lords.

When I proposed the debate, my title was “The Crisis in Higher Education Funding”, but the Table Office, in its wisdom, preferred the more neutrally worded Motion we are debating today. While recognising the importance of all HEI providers, I will talk particularly about universities in England. As I started to think about today’s debate, I wanted to begin with a fact, so I asked myself: how many universities are there in England? I contacted the Higher Education Policy Institute, and its chief executive said to me:

“That is a fascinating question and almost impossible to answer”.

His best guess is around 150. I checked with the Higher Education Statistics Agency—HESA—which said that, unfortunately, its open data does not list universities. However, it tells us that there are 285 HEI providers. The Office for Students has 121 universities in England on its register. There are 141 members of Universities UK, most of which are in England. Can the Minister, in her response, tell us how many universities there are in England? She is quickly texting to find out.

Regardless of the precise number, we should be in no doubt that our universities are facing a funding crisis. This is not a case of “Crisis? What crisis?”. The interim chair of the Office for Students, Sir David Behan, has referred to a “significant” funding crisis and has said that universities “can’t just carry on”. In its insight briefing of May this year, the OfS notes that 74 of England’s universities will run a deficit in 2024-25 and that the forecasts of recovery in future years made by universities are based on overly optimistic assumptions, so that by 2026-27 nearly two-thirds are likely to be in deficit. The OfS concludes:

“The current financial climate could mean that some universities and colleges face closure”.

It refers to

“the unplanned closure of a university, perhaps in the middle of an academic year, without arrangements in place to support students to complete their courses”.

The OfS clearly takes this seriously, as it has launched a £4 million tender for auditors to analyse what the document describes as “market exits”. Universities themselves are responding to the crisis. Estimates suggest that about 70 universities have in place redundancy programmes or are closing courses or departments.

The main factors leading to this funding crisis are well known and include the following. First, the student fee has not increased since 2016 and therefore has been eroded by about 30% in real terms. The Russell group estimates that its members lose £2,500 per year for every home student they teach. Secondly, most if not all universities have become dependent on income from overseas students to subsidise the rest of their activities. Thirdly, the number of overseas applicants for taught master’s courses has dropped following changes in the visa rules that prevent them bringing families with them.

My Lords, the Government are readying us for grim times ahead, though my noble friend the Minister remains genial and I am so glad to see her in her place.

I gently submit that we cannot afford not to refund our universities. It was an extraordinary dereliction on the part of the previous Government, by freezing fees for years on end, to allow the present crisis in the funding of higher education to develop. An extensive and thriving university sector is crucial to our economic, social and cultural progress. The new Government should not contemplate institutional bankruptcies, market exits or enforced mergers. These would be too damaging for students, staff, the academic enterprise, host communities and local and regional economies. The Government should treat investment in the HE system—and schools as well—as capital investment. Human capital, intellectual capital, is the capital that is most valuable in the 21st century. If the accounting conventions do not permit this, disregard them. The markets will not mind.

In those relatively carefree days of opposition back in March when she delivered her Mais Lecture, my right honourable friend the Chancellor distinguished between the then Government’s indiscriminate constraint on all government borrowing and Labour’s willingness to allow a greater freedom to borrow to invest. She spoke of the virtues of supply-side policies to enhance human capital and spur innovation, and of the wastefulness of excessive austerity. Her vision was of a smart and strategic state which would identify sectors in which Britain could enjoy comparative advantage in a global marketplace. Higher education is an obvious instance. Investment would be fostered in partnership with business and the OBR would report, as indeed it already has, on the long-term benefit of capital spending decisions. She said:

“Investment matters not just for what it can physically build, but for the ideas it can nurture”.

She praised the part played by our universities in enabling Britain to rank in the top five countries in the Global Innovation Index and made the point that innovation must be nourished with reliable sources of funding. To grow our economy, she also noted, we cannot rely on just a few pockets of the country but must mobilise the human potential in every town and city.

So the Chancellor herself has provided the clear rationale for borrowing now to invest in a rescue package for our HE system. Of course, it must be a well-designed package, drawn up not only with Universities UK but with business leaders and others, and not a bailout of poor academic leadership and weak management.

My Lords, I congratulate the noble Lord, Lord Krebs, on calling this debate and thank him for his exciting vision for our universities as the care homes of the future. I declare my interest, especially if we are talking about care homes; I am a visiting professor at King’s College London. His speech correctly identified the pressures that universities face, on both their research funding and their teaching funding. They are linked in various ways, including because overseas student fees, which used to help subsidise the cost of research, are increasingly being used to subsidise the cost of teaching, which puts extra pressures on research funding. The DSIT capacity to do research is being cut because the DfE will not increase teaching fees for undergraduates.

I think it is important that we tackle the pressures on the cost of teaching students through an increase in the fees that they pay. This is important, above all, because of the interests of students themselves in a well-funded higher education. It is also in the interests of the wider economy to have well-funded, effective higher education, with good-quality teaching.

I particularly draw the Minister’s attention to an excellent piece of research showing the economic benefits of universities, and of creating more universities, by two academics at the London School of Economics, Professor John Van Reenen and Anna Valero, who now both happen to be in the Chancellor’s Economic Advisory Council—a very useful place for them to be located.

If we are to increase funding for teaching in universities, the Minister has a mechanism available to her—fees. There may be arguments for more selective funding of research. The UKRI budget is already allocated in a pretty selective way; a very high proportion of current research funding goes to the most prestigious, elite, research-intensive universities. More research funding could be allocated, if that is what the noble Lord, Lord Krebs, wants, but it would not tackle the underlying need to have better-funded teaching across the entire sector.

My Lords, UK universities are a source of national pride. Their reputation for research and teaching attracts not only the brightest and best of UK students but those from all parts of the world. However, they are, as the noble Lord, Lord Krebs, set out so brilliantly, currently under severe financial pressure as they face challenges on multiple fronts.

I think it was Lord Dearing who commented that the beneficiaries of higher education are the individuals, the state and employers. Should these not also be the people who contribute to our universities? We are well aware that the income from students has not kept pace with inflation, but successive Governments have been reluctant to raise student contributions, knowing the hardship that many students face. Government contributions are essential, of course. Perhaps we might look to employers to increase their funding, not only for teaching, which is troubled and has seen the cutting of some important programmes, courses and provision, but for research, where funding has also faced limitations.

Our woeful decision to leave the EU has seen a huge decrease in EU students studying here. It is to be welcomed that we have seen a partial about-turn on funding from Horizon, which made such an impact on our research through both collaboration and funds. We hope that the EU will welcome our return to fully participating in a programme to which UK researchers contributed so greatly.

Anti-immigration policies have had a dangerous effect on the UK’s reputation for welcoming overseas students. Those students provided not only much needed income but, perhaps more importantly, diversity and international friendships, which greatly enhanced the experience for home students. The changes to immigration policy have sent out messages that the UK does not welcome those from overseas. These damaging moves include the hit on dependants. Students and their dependants are not permanent residents—the vast majority will return to their home countries after their period of study—so why such a vicious policy?

My Lords, the UK’s whole post-18 education system surely needs not only a greater funding stream but more institutional variety, and increased flexibility in its offerings.

There is currently a systemic weakness. The missions of individual institutions are not sufficiently varied. They nearly all aspire to rise in the same league table. Most of their students are between 18 and 21, are undergoing three years of full-time, generally residential, education, and are studying a curriculum that is probably too narrow even for the minority who aspire to professional or academic careers. Even worse, the school curriculum is too narrow as well.

Students should be able to choose their preferred balance between online and residential courses, and to access distance learning of higher quality. We need a blurring of the damaging divide between technical and university education, and a consequent shift towards the attitude that a vocational diploma has the same status as a degree. We should abandon the view that the standard three-year full-time degree is the minimum worthwhile goal. The core courses offered in the first two years are often the most valuable.

Moreover, students who realise that the degree course they have embarked on is not right for them, or who suffer problems of various kinds, should be enabled to leave early with dignity, with a certificate to mark what they have accomplished. They should not be disparaged as “wastage”. More importantly, they—and everyone else—should have the opportunity to re-enter higher education, maybe part-time or online, at any stage in their lives. This path could become smoother if there were a formalised system of transferable credits across the whole system, as urged in the Augar report supported by the previous Government, and a flexible grant or loan system.

Admission to the most demanding and attractive courses is naturally competitive, but the playing field is still far from level. Many 18 year-olds of high intellectual potential have had poor schooling and suffered other disadvantages, often dating from their pre-school years.

My Lords, I am grateful to the noble Lord, Lord Krebs, for focusing the attention of the House on the HE crisis and for the opportunity to contribute to this debate. I look forward to the maiden speech of the noble Lord, Lord Tarassenko.

As the Bishop of Sheffield I have close ties with both universities in the city, the University of Sheffield and Sheffield Hallam University. I am told that those two institutions support more than 19,500 jobs and generate more than £1 billion annually for the local economy. I know at first hand that they bring a rich cultural diversity to our city. What is true in Sheffield is true across the country: universities are generally hugely beneficial to the communities within which they are situated.

The Church of England believes that higher education should be in the service of the common good—that is to say, not merely the private good of personal enhancement but the public good of benefit to the community and society that it derives from the education of its citizens. For example, working together, Sheffield University and Sheffield Hallam University support communities across South Yorkshire in a variety of ways, and I would like to celebrate just three. First, they have partnered with local and national government to create the South Yorkshire investment zone, bringing jobs and billions of pounds in private investment to the area. Secondly, their students volunteer and work on placement years across health, education, social care, law and other areas, directly impacting the experience of local people of these essential public services. Thirdly, their HeppSY partnership supports those at risk of missing out on HE to make informed and inspired choices about their future.

Civic activities such as these are seriously threatened by the financial crisis in HE and the perfect storm currently battering the sector. In the past few years, as noble Lords have mentioned, there has been a drastic drop in EU students while international students from further afield are facing visa restrictions. UK students have been poorly placed to cope with the cost of living crisis, and I gather that a lower birth rate in the early 2000s means that there are reduced numbers of young people in the cohort currently in sixth-form and FE colleges. As a result, there has been increased competition between institutions for the same smaller pool of students, and the pinch has been felt most keenly by the smallest of our HE institutions.

My Lords, I add my congratulations to the noble Lord, Lord Krebs, on securing this debate and declare an interest as a professor at King’s College London, a trustee of the Council for the Defence of British Universities and a member of the Augar review of post-18 education and funding in England.

We are all very aware of the declining value of student fees, but I also emphasise to noble Lords the precipitous decline in direct government top-up funding for high-cost subjects. A university gets little more for a home student in chemistry or bioengineering than for one studying business or law, with horribly distortionary effects. We highlighted this in the Augar review with, I have to say, minimal effect. We have some special problems in this country, but this is a global issue, and that is what I shall say a little about now.

Countries everywhere have expanded student numbers, often at speed. They recognise citizens’ aspirations and the importance of graduate skills, but the background is sluggish growth. University is still a route to most of the best jobs, but the average return for a degree inevitably falls and government budgets are under increasing strain. The simplest response to this is always to reduce per-student funding. At the moment, England has higher levels of support per home student than any other part of these islands. Scotland has student number controls and has recently reduced the number of places it funds, and still spends markedly less per student than England. Northern Ireland has lower fees and lower funding. The Republic of Ireland is committed to demand-led enrolment without student fees, although it levies a so-called contribution. Its enrolments have risen, but its spending per student has gone down substantially. The European University Association confirms that this is the modal pattern: enrolment up, total government spending often up, spending per student down. In the USA many states are cutting funding for their public systems, and if you talk to Australian or Canadian vice-chancellors it feels like you are still at home. The challenges, the worries, the difficulties and the solutions that are not quite as attractive as they seemed are all the same.

My Lords, the parlous state of our universities—extending far beyond, although deeply interrelated with, their funding crisis—was a subject of considerable discussion at Green Party conference last weekend, so I thank the noble Lord, Lord Krebs, for securing this timely debate.

I am going to focus on the deeper and broader problems of which the funding crisis is a symptom rather than a cause. The University and College Union (UCU) fringe, at which I spoke at Green Party conference, summed it up with “Cancel the Market”. The chair of the Office for Students recently claimed that the “golden age of universities” could be over. That is not how recent decades look to growing numbers of academics and other workers in universities, to students or to the communities that house them.

Forced by neoliberal ideology to become competitive businesses, with control taken from communities of scholars and put into the untender hands of business managers, universities have certainly grown their shiny, glass-fronted buildings—and their debt loads. They have added to GDP with massive student fees that weigh —unpayably—on their graduates for decades. They have presided over growth in staff numbers—increasingly, low-paid workers on zero-hours and other insecure contracts. Universities have bulged across disadvantaged communities and then risked dumping them deeper in the financial mire. I was in Hull last night, where one in 10 academic staff faces the chop and the city faces a significant economic blow.

The neo-liberalisation of the university is a trend that has progressed, to varying degrees, around the world. It has been accompanied by the meteoric rise of the work of the website Retraction Watch—exposing fraud and error at startling levels—and the replication crisis, a growing area of literature and of great concern. This is not an accident. It is what the market—what publish or perish—demands: volume and rankings, not innovation and sense.