Privatisation storm looms for universities

With more pressure piled onto universities in recent weeks as term begins, it looks like something is bound to break soon. The crisis in admissions and examinations is only generating a sense of foreboding. Add to this the increase in numbers and accommodation shortages and it is like those heavy sultry days of summer that herald an impending electrical storm.  Some might say that the government is deliberately increasing the pressure on universities to the point where they will have to take radical action. A combination of reduced fees, lower teaching grants, over-regulation, unsustainable pensions, inflation, and staff costs opens the door to letting in the cold chill of privatisation. Some universities will already be looking to reposition themselves using a model not unlike that in the USA. Indeed, this could emerge faster than expected. However, this move could completely negate earlier attempts at equalling access and create even more chaos. It will simply favour those who can pay.

Sustainable funding trumps other considerations.

The funding of a university is complex at the best of times due to multiple sources of income bound by many different conditions and expectations. Top of the list of worries at every university is survival and sustainability. Financial instability and uncertainty fuel a lack of confidence that filters down to staff and students alike. Because of this, now is the time for the government to bolster confidence. Instead, they seem intent on generating instability. My time on the planning and finance committee of a Russell Group University up to 2017 revealed the strains endured in ‘normal’ times. Since then, more regulation and maximum fee caps have increased the organisational burden. It is simply much less efficient than setting an overall teaching grant allocation and capped student numbers. But capping of numbers has to be generous and must offer equality and wider access. As a result, planning would be simplified to allow resources to be secured in the longer term and deployed with more confidence. However, the system must not be restricted to those who can afford it most. This is precisely what privatisation would achieve without adding considerable safeguards on access and funding. Instead, the current situation has the potential to be totally chaotic if it continues unchecked.

Looking to private enterprise.

Meanwhile, most universities will at least be considering the idea of a significant investment through the private sector. This is in its infancy in the UK and there are eleven universities in the ‘Private Universities  2020 Rankings’ that  provide a template

However, this could turn out to be an albatross that is hard to shake off without state support.  The idea of spinout companies to exploit research is firmly embedded in the culture of most universities. Therefore, spinning out companies tasked with subcontracting teaching is not such a hard step to take. Indeed, many are moving in this direction. The main problem for universities lies with their charitable or charity exempt status. This means tax exemptions as long as they comply with the charity law and the Office for Students regulations updated in 2018.  The way around this is to legally set up an associated non-charitable organisation whose profits can be used to support the parent charity.  Associations and arrangements such as these are eating into the sector in areas such as administration, services, and accommodation.  Making moves into teaching provision is politically more sensitive but attractive to some universities if they can bypass expensive pensions and trade union recognition. To this end the University and College Union has an ongoing campaign to challenge the drift toward private provision (‘Fighting privatisation in tertiary education’). 

Launched in the USA, the private provider INTO is around to make profit and has arrangements with seven universities in the UK and nine in the USA. They offer a fee-paying teaching facility for “international student preparation for study in English-speaking universities” separate from the main university.  Further subcontracting activities, such as apprenticeships, are encouraged under government guidance for using funding to offer education and training.

One step beyond.

One good example of a university prepared to go further is Coventry University. It has set up a parallel institution called CU Coventry (an unfortunate play on words implying ‘goodbye’). This is a wholly owned subsidiary of Coventry University that offers degrees awarded by itself as Coventry University. It has outreach bases in London and Scarborough.

Launched in 2012, the Guardian reported it as “No frills university college offers half price degrees”.  It is fee paying and staff positions are advertised via the Coventry University portal. The operation presents a major challenge to staff in the existing university. Indeed, UCU launched a significant rear-guard action to ensure at least union recognition to replace the university organised ‘Staff Consultative Group’ (USG).  An ’Early Day Motion’ in Parliament in April 2018 rang a loud alarm in claiming that staff were not consulted about the USG. UCU union recognition was quickly achieved in June 2018 after an acrimonious campaign.

With universities beginning to exhaust ways to generate ‘other revenue streams’, the temptation to ‘cross the Rubicon’ to full control through privatisation is surely tempting for some. But for most it would take considerable investment from outside, probably from the USA.  The brands that are the UK university may in turn tempt such investors, but only on their commercial terms.

The idea of privatisation is not a new one.

In many ways the idea has been around as long as there have been universities. A drop in state funding always brings this notion to the front of the minds of university leaders. Back in June 2009, the leader of Imperial College London was reported as saying “up to five leading institutions should cut their ties to the government to avoid funding cuts”. The objective then was to force the fee cap to be raised and this was successful (BBC 2nd June 2009 ‘Privatise’ top UK universities’). However, it was accompanied by legislation that opened the door to more private universities and these appeared soon after. There is every reason to expect the same to happen again. By 2013, Andrew McGettigan’s timely book ‘The Great University Gamble’ was a detailed and prophetic analysis of what lay ahead in the marketisation of our universities. In terms of loans and fees, much came to pass. But we could be entering another era of chaotic privatisation.

The privatisation seeds were sown in universities earlier during the crisis in university funding of the 1980s inspired by the cuts of Margaret Thatcher. Speaking at an education seminar held by the Prime Minister at Downing Street in the 2nd of October 1985, Lord Beloff, former head of the private University of Buckingham, was well received as he made reference to USA private universities. He stressed that changes needed to be made to ‘British culture’ with ‘increased fees’ and ‘costs rising more rapidly than general inflation’. His solution was that “there should be an experiment in the privatisation of two or three universities. The annual grant to these universities should be compounded as a capital sum and then the university should be left to sink or swim”. The conditions today seem somewhat familiar.

The pressure on grants, fees and loans is rising.

The issue of reform of fees and loans has simmered since the report of the Augar Review emerged in May of 2019  The idea of reducing fees to around £7,500 per annum for all university students was mixed with the idea of minimum entry grades for students to be eligible for a loan in the first place.  Augar was the legacy of outgoing Prime Minister May and the recommendations have been shelved since its release. However, the post pandemic turmoil has led to another look. To this end, the government appears to be close to releasing a major review of university arrangements. This was reported in The Guardian with an exclusive (9th July 2021) that ‘Ministers to overhaul university funding after long consultation’. They may have jumped the gun and a very useful series of reports on university fees and funding has since been released by the House of Commons Library this week in  ‘Student finance explained’ (23rd September 2021).  It is made clear that the government’s review is pushed back to the autumn of 2021. No doubt it will accompany the spending review and has been delayed for the new team at the Department for Education to consider. They do not have much time.

It has long been expected that cutting the burden of loans for the taxpayer would play a part in the spending review in the Autumn, so this comes a little surprise. Freezing or cutting fees along with setting minimum grades for students are under consideration. However, there are real consequences that we should not ignore. Last week, Ben Waltmann and Jack Britton of the Institute for Fiscal (IFS) studies released a ‘New IFS student finance calculator’, based on inflation predictions from the Office for Budget Responsibility (OBR) last March. Another OBR report is due on 27th October that could add to the problem further. There are no easy choices as the IFS conclude that it will be “impossible for the Chancellor to save money without hitting graduates with average earnings more than those with the highest earnings”.

Cuts are coming.

Despite this, it has long been expected that cutting the burden of loans for the taxpayer would play a key part of the spending review in the Autumn, so this comes as little surprise.

The recent House of Commons Library offer reports in detail the reality and consequences of bringing back grants, reducing the fee cap, lowering the loan repayment threshold, increasing the loan interest rate, and extending the loan term.  More controversial are their observations in ‘Student finance in England: How much do graduates pay back?’.  Currently the Resource Accounting and Budgeting (RAB) charge sits at a staggering 53% with the government expected to cover a £9.4 billion loss of the £17.6 loaned this year in England (‘Financial Year 2020-21Student loan forecasts for England’).  The cumulative effect of this is beginning to mount year on year and to frighten the government. 

Meanwhile the government has been far too slow to react. It took until January 2021 for an ‘Interim Conclusion of the Review of Post18 Education and Funding’  following Augar to emerge. There was no mention of minimum grades or fees, so it could still take more time to reach a conclusion.

Reducing teaching grants in favour of fee income.

The stripping out of most, even all, of the annual teaching grant to be replaced by fees was assumed to be an end point of government policy going back almost ten years. This approach was supposed to allow caps on student numbers to be lifted in a false marketplace with differential fees. However, some teaching grant persists at a relatively low level. Instead, every university charged the same maximum fee to avoid being accused of offering ‘cut-price’ degrees. This is not really a market when prices are fixed.

The result is a single fee structure that causes cross subsidy of more expensive STEM courses by other courses in the Arts and Humanities. Not to be deterred, the government is cutting the meagre grant teaching grant for these subjects while adding a small increase in STEM grant. In the end, this is all a side show for the main event, even though some Arts and Humanity courses may fold as a result.

The main act is likely to be an overall cut in fees that will mean STEM subjects will need some extra subsidy. At that point, the numbers will have to be capped as concluded by TEFS (11th June 2019 ‘Augar Under the Microscope: STEMing the Tide’).

The latest moves by the government destabilise the system.

The idea of privatisation is bound to emerge from a system that is becoming destabilised. Most of the recent speculation on funding emerged as a follow up to comments made by Education Secretary, Gavin Williamson at a HEPI event on 24th June 2021. In ‘Education Secretary at HEPI conference: learning from the crisis’ , Williamson asserted that the Augar recommendations were  an “excellent starting point”.  If his ideas start to play out with the new minister, they will become a major challenge to the old order for many institutions.  Citing the Office for Students’ Proceed statistics,  that looks at the likelihood of students “finding professional level employment or embarking on further study in the year after they graduate”, it seems this measure will become the benchmark for funding and bring some courses to a shuddering halt.

On the 19th July Williamson informed the OfS of its funding arrangements with ‘Strategic Priorities Grant (SPG) funding’. This came after the January announcement of the  Guidance to the Office for Students — Allocation of the Higher Education Teaching Grant funding in the 2021 -22 Financial Year.

The priority is to limit the so-called funding for ‘high-cost subjects’ to strategic priorities in Medicine, Nursing and applied subjects, all sciences, engineering IT.  Interestingly, the latest letter has offered a reprieve for Archaeology as a subject since some universities were closing hitherto successful courses.

This put considerable stress on universities as it asked them to expect pressure on funding for all other subjects. London weighting will also be removed, and capital funding will now be allocated as part of a “strategically targeted bidding process”

On hardship funding it seems this will still be reallocated from student premium funds and the “one-off funding of £20 million” may simply be that.

Inflation storm clouds ahead.

Recent rises in energy costs and supply problems in general were predictable for the last five years. The known effect of rising inflation is another major problem waiting in the wings. This may not be a short-term issue. Those who remember the high inflation of the 1970s fear the same happening again. By 1975, it was nearly 25% and well above that of other comparable countries. Yet, it now seems inevitable there will be an inflation surge in the UK. The impact of the post-Brexit/post-pandemic period will further add to destabilising university finances. Mark Corver of Data HE recently looked at this and provided a timely warning to institutions and students with ‘Universities, students and inflation. What if high inflation returned?’. He observed that “governments hesitate far too long before increasing fees. In the meantime, universities are made threadbare, their teaching quality damaged in a way that cannot be quickly restored”.  On a solution he hesitates to mention the ‘P’ word, privatisation. However, his idea that “The best guard for universities against the risks of a high inflation world would be to address the underlying tensions. Most importantly, finding a durable way to fund the growing demand for university education” sounds ominous.

Over regulation of universities increases the cost burden.

Most people think that a university is autonomous and independent in its operations. This should leave academics and administrations to freely develop new ideas across all disciplines and develop science and technology in the spirit of openness. But this is a very muddy pond with little clarity below the surface.  The Teaching Excellence and Student Outcomes Framework (TEF) is only one onerous expectation and constraint piled on others.

The principle of ‘he who pays the piper calls the tune’ has always operated to some extent. The latest from the Office for Students illustrates the extent to which the tune is being called. A ‘Consultation on regulating quality and standards in higher education’ in November 2020 has been followed up in July 2021 by another ‘Consultation on quality and standards conditions’. The accompanying press release ‘New conditions will allow regulator to clamp down on poor quality and standards in higher education’ sets the tone for the impending thunder and lightning.

It may be the straw that breaks the camel’s back.

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