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UK Higher Education must not Sacrifice Capability

UK universities continue to be ranked as some of the best in the world (1), but for how much longer?

The economic contribution

There can be no doubt about how important HE is to the UK economy. In February 2024, a House of Lords In Focus report (2) summarised the contribution of HE to the economy and levelling up, stating that it is estimated that the ‘economic footprint’ of HE providers across the UK resulted in:

768,000 full-time jobs
£71bn in terms of gross value added
£116bn in terms of general economic output

This included their ‘direct‘ impact (£46n) and also their ‘indirect and induced’ impact (£70bn), such as spending flowing from suppliers and employees of the industry. These figures excluded spending by international students which is estimated to be a further £14bn.

This economic contribution is going to change very rapidly and very negatively in the immediate future. The reports from the OfS in 2023 (3) and Universities UK in 2024 (4) highlight the critical issues facing the sector including impact of inflation on fees and running costs, decline in international student recruitment, the contribution to cost of pension schemes and the need for investment in facilities and environmental policies. A stark calculation was presented by the Association of Heads of University Administration (5) and the argument states:

Fees originally set at £9,000 for 2012 entry and have increased just once since that time to £9,250.
Fees are now worth only £6,150 in real terms (a 32% reduction). If they had increased by inflation, they would now be £13,530.
The practical implication of this is that an institution with 12,000 full-time, home, undergraduate students in 2023/24 might have expected £162.4m had fees kept pace with inflation. They will actually only receive £111m; a funding gap of £51.4m.

The impact is already being felt

The realisation of the issues raised in these reports is already occurring; these are no longer a forecasted risk but an actual financial crisis. Some universities are now faced with significant financial challenges and taking dramatic long term transformational actions to ensure ongoing financial sustainability. Widespread cost cutting, redundancies, closing courses and mergers/acquisitions have already started. There is a very real and unprecedented risk of universities becoming insolvent and failing. It is not clear if the government will then be faced with having to bail out these universities and what that means for the academics and students, and to the wider global perception of the UK HE sector. A recent survey (6) offers some interesting insights into the challenges and priorities of academic leaders and funders and their perceived readiness to deal with them.

At their heart, universities rely on the brains of the academics they employ. Whilst AI and new technologies will challenge some existing ways of working, there is still a need for these thinkers. This is the true value of a university and losing these people to redundancy or other departure will have a significant long-term impact. It takes many years to build the skills and whilst salaries will be the biggest cost to most organisations, the savings should be found elsewhere first. If universities lose their people they lose their capability, so all other avenues must be prioritised before taking the personnel cost cutting option. In such a brains led environment, the people are the capability that need to be protected.

The estate as an enabler to transformation

The space in an estate is expensive to create, use and maintain. The estate typically has the largest impact upon borrowing, one of the highest revenue costs and attracts most of the capital investment. It is one of the biggest drains but is also one of the biggest enablers to transforming an organisation. The importance of the estate in reducing costs, increasing revenue, and transforming an organisation is therefore critical. With all the changes that universities will be facing they will still have capital programmes, carbon reduction targets, backlog maintenance and space utilisation issues to deal with. The estate will be at the heart of any transformational change assessment as it impacts or is impacted by almost all changes that an organisation may be considering.

It would be a mistake for universities to simply reduce capital spending. Spending less on infrastructure, facilities and equipment to protect cash and limit borrowing can lead to the insidious decline of the estate. This has been seen in the NHS and the recent announcements regarding the extent of backlog maintenance and the use of capital budgets to prop up maintenance spending. Staff and students will still demand high quality facilities for research and teaching, and they are expecting to attend net zero universities. The ability to make well considered decisions around estates priorities and scenario testing options will be critical.

In this financial crisis all universities will be impacted differently. Some will shrink (potentially to the point of insolvency), some will consolidate (batten down the hatches and focus on their strengths) and others will see an opportunity to grow (perhaps by merger or acquisition). The estate will be a key factor in these strategic plans.

In summary…

Whatever your views on the cost and fees of HE and the HE system itself (which no government seems to want to address), it has to be acknowledged how important this sector is for the long-term success of the UK economy. HE plays a critical role in our towns and cities, culture and education of future generations. In my experience the estate is an essential enabler to making transformational changes. If you look at the estate first, you will be able to protect the academic talent.

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