The Post-18 Funding Crisis is Reaching a Head

Robbie discusses the OfS’ latest report on the financial crisis in post-18 education, where smaller institutions and further education providers face severe deficits while larger universities flourish. Disadvantaged students may be hit hardest by these growing challenges.

The State of Higher Education

The Office for Students’ (OfS) recent update on the financial sustainability of higher education (HE) paints a bleak picture of the health of our universities, one that is somehow bleaker than most in the sector had anticipated. Rising deficits, severe cashflow problems, and lower-than-expected recruitment are just some of the challenges providers will face in the coming years. These headlines are indeed worrying, but beneath them the OfS’ findings show that not all HE providers are affected equally.

Missing Middle

One key finding of the OfS’ report is that increases in the number of UK undergraduates have been concentrated in the larger, higher-tariff providers, while medium and small institutions have seen decreases. Most concerningly, student number have decreased by nearly a quarter in providers predominantly offering Level 4 and 5 qualifications. Highlighted in the 2018 Augur Review of post-18 education as the ‘missing middle’ in the skills system, these qualifications are a vital piece of the puzzle in meeting skills demands and boosting productivity; in some cases, the economic returns for students taking Level 4 and 5 qualifications even outperform Level 6 degrees.

These lower-tariff providers are not only important for skills demands; they are for many students, particularly disadvantaged students, a more accessible route to entering higher education. Our analysis of Department for Education (DfE) data on HE participation revealed that disadvantaged students are half as likely to progress to lower-tariff HE than their non-disadvantaged peers, compared to one third as likely to progress to high tariff HE. While neither of these figures are particularly attractive, it is nevertheless the case that allowing the decline of these providers serves only to halt progress in widening participation in HE for those from disadvantaged backgrounds.

The Risks Ahead

The breadth and depth of provision offered is not the only risk to access and participation that may be on the horizon. The stark financial position of providers set out by OfS has led to many in the sector urging universities to consider mergers or cost sharing to shore up their finances. This too should be viewed with caution – the efficiency gain of merged institutions has been found in research to be a small and often transitory. But there are further concerns to mergers – new research from the United States has shown that living further from a provider makes a student less likely to continue studying, and this effect is larger for more disadvantaged students.

The funding crisis is equally concerning for students already attending university. Reductions in teaching staff may result in larger student-staff ratios, something international research has shown has a detrimental impact on student achievement and interest in learning, as well as adversely affecting staff wellbeing. Moreover, historically the UK already spends proportionally less on teaching staff than other similar countries.

It isn’t just HE providers feeling the squeeze. Last month I analysed financial returns from colleges and universities and found that, compared with HE providers, FE providers were more likely to be in deficit, the size of their deficits was larger, and they were less able to meet their debt obligations. The latest OfS modelling shows that the financial state of the FE sector is now rivalled by their HE counterparts. Both sectors play an important role in providing an accessible and effective post-18 system. Ensuring the system can operate effectively in the long-term necessarily means that both sectors must be financially sustainable.

The Way Forward

For those sympathetic to this view, and concerned by the points above, the government’s response will be disappointing. Bridget Phillipson, the education secretary, has said that universities “must do more to make their finances work”. This view may be informed by the fact that as viewed as a sector, HE funding per-pupil in the UK is higher than in most comparable countries. Whilst that may be true, the risk to students is not spread evenly, and it looks like, yet again, disadvantaged students have the most to lose.

The scale of the crisis is clear. The government must urgently set out its approach to preventing the collapse of institutions in the short term, as well as provide more clarity on the scope and nature of the reform to come. Without this, we may not only see further stalling of efforts to broaden participation, but a real drag on the government’s core mission to grow the economy.

The Labour government promised a ‘joined-up’ post-18 system in its manifesto – it may have got it, but not in the way anyone hoped for. Recent analysis shows a financial crisis in both FE and HE, bringing some worrying implications for students.

Robbie Cruikshanks, Senior Researcher for Higher Education for Education Policy Institute (EPI)