One of the UK’s most successful global industries—higher education—is facing mounting financial pressures. Over one-third of higher education institutions are currently operating at a loss, with some requiring government bailouts and others being forced to cut staff and courses. Labour’s recent move to permit a slight increase in university tuition fees in England to £9,535 annually signals that the government is acknowledging the sector’s struggles, even though this is not a comprehensive solution.
Universities are integral to the post-18 education system, which requires a holistic approach. The government has taken steps in the right direction, starting with the creation of Skills England just weeks after the general election. This new arm’s-length body will manage the growth and skills fund, previously a levy on large employers but now expanded to cover other training forms and apprenticeships.
Addressing the Gap in Further Education
Further education (FE) has also received attention. While past Conservative governments have made efforts to elevate the status of technical and vocational education through modest funding and qualification reforms, FE funding remains stuck at 2004 levels in real terms. This funding shortfall limits opportunities for young people who do not attend university and hinders adults seeking to reskill, contributing to a severe skills gap in the UK. Rarely highlighted in political discourse, the FE sector received an unexpected boost in the recent autumn statement: an additional £300 million in revenue and £950 million in capital investment.
Although Labour has initiated improvements for post-18 education, the financial commitments were part of a one-year spending review. The future of this progress depends on upcoming discussions between the Treasury and the Department for Education regarding the sector’s funding over the next three years.
Collaboration and Strategic Investments Needed
Skills England faces the challenge of building relationships with employers, local governments, colleges, and universities to address this skills gap. The recent autumn statement also included an 8.5% real-terms increase in research and development funds for the new Department for Science, Innovation, and Technology. However, academics and industry professionals are eager to see specific implementation details. Within further education, some colleges cannot meet demand for critical subjects, such as construction, engineering, digital skills, health, and social care. Many have added new courses but are still unable to satisfy demand due to insufficient funding.
Meanwhile, the adult education budget—currently set at a meager £1.4 billion—must stretch to accommodate nearly a million students over 18 years old. Unlike demand-driven budgets, this amount is predetermined and should be adjusted based on actual demand. Moreover, the funding rate per student, unchanged for 14 years, needs to be linked to inflation.
Rethinking Higher Education Funding
In higher education, many advocate for the abolition of tuition fees. However, until high-quality, well-funded technical and vocational options are available to those not attending university, this idea will appear inequitable. A panel I chaired in 2019 recommended freezing universities’ income per student until 2023 and then linking it to inflation. This would have shifted the funding mix between student fees and direct government grants, reducing student costs while increasing taxpayer contributions. Although I still support a fee-grant mix, the Treasury favors student loans, as grants represent a direct cost, while loans only affect public finances through unpaid portions.
Recent changes to student loan terms, including a 40-year repayment period for English students, mean a higher proportion of loans will be repaid, reducing taxpayer costs. This allows room to index-link tuition fees and maintenance loans while reinstating maintenance grants for disadvantaged students—addressing one of the most inequitable aspects of the current system.
Accountability and Efficiency in Higher Education
Reforming university finances requires increased accountability. Students need protection from underperforming courses with poor employment and continuation rates compared to similar programs. Taxpayers deserve assurance that their contributions are wisely spent. As government funding to universities rises, regulators gain more influence over institutions. Resistance to modular, lifelong learning must end, with students able to access loans in smaller increments.
New funding should come with clear performance standards, enforced by the Office for Students, and a commitment from universities to review their operational models. Institutions need to scrutinize costs and consider sharing support services. Governing bodies must address strategic questions, adapt to changing demographics, and shift from past optimism to a realistic approach.
While traditional teaching and research models will continue to suit many institutions, others may need to restructure or partner. Though difficult, these changes are necessary to create a well-funded, coherent tertiary education system.
