Top universities preparing to take over failing former polytechnics

Jo Grady, general secretary of the UCU, warned over the weekend that universities faced “catastrophe” without a bailout from the Government.

“Anything short of an emergency rescue package for the sector will be insufficient to stave off catastrophe,” she wrote in a letter to ministers.

Labour is understood to be considering a range of options to ease pressure on universities without changing current rules. An industry source said one under consideration could include scrapping proposals from the Conservatives to crack down on online learning at universities.

Sir Keir Starmer hinted on Monday that Labour would not scrap a Tory crackdown on student migration despite the funding crisis.

The Prime Minister acknowledged the previous government’s ban on foreign students bringing dependants to the UK had led to financial pressures on the higher education sector.

But he signalled he did not have any plans to reverse the policy, insisting it was “right” to get migration levels down as they were currently “too high”.

Determined to deliver brighter future

Ms Phillipson is set to give a speech in Parliament this week to usher in a change of rhetoric on foreign students. Talking about “opportunity” more broadly, she will use a more welcoming tone on international students, in a move thought to be part of efforts to encourage more applicants from abroad.

The Education Secretary said on Monday that universities were expected to manage their own budgets before seeking help from the taxpayer.

Speaking to the BBC Radio 4’s Today programme, she said: “Universities are autonomous and there are expectations around how they manage their budgets, and I would expect them to do that without seeking any calls on the taxpayer.

“I’ve been going through a process of, with officials, urgently understanding what we need to do in order to shore up the sector because I am determined to deliver a brighter future for our universities, to secure them in terms of their finances into the future.”

She said last week that Labour had “no plans” to raise tuition fees, but would “make sure we are putting universities on a more sustainable footing overall”.

Frozen tuition fees, which have been capped at £9,250 since 2017 despite the fact that inflation hit a 41-year high in 2022, mean that universities are grappling with a massive real terms funding shortfall.

Tuition fees have plunged

If fees had been adjusted for inflation, they would have been worth £12,600 in 2023/24, meaning universities have been grappling with a £3,350 real terms cash shortfall per UK student. As a result, UK tuition fees have plunged from 58pc of university income in 2010 to just 33 per cent. Universities have increasingly turned to foreign students, who pay higher fees, to fill the gap.

Between 2015-16 and 2022-23, the number of universities operating with a deficit has surged from 21 to 37, according to Telegraph analysis. This means that one in four universities are making a loss on their day-to-day operations.

At 10 universities, this deficit was worth five per cent or more of their operating income, up from just four institutions seven years earlier.

There are thought to be particular concerns about universities with high proportions of Nigerian students after a currency crisis in the country, which could hammer student applications next year.

Nick Hillman, director of the Higher Education Policy Institute (HEPI) and a former government adviser, said ministers would not realistically let a university go under.

He told The Telegraph it would be politically toxic and institutions were often the biggest employers in their area, but the Government was unlikely to have the cash to support multiple institutions.

Mr Hillman said: “The single most valuable thing that universities own is degree-awarding powers, the right to give British degrees. So the really interesting question is would you let a foreign company or even a foreign university take over? Because that is a way to do it in a way that doesn’t cost the Government lots of money.”

Ministers have many options: none of them are good

By Glen O’Hara

Recent arguments about our universities have mostly focused on politics: “wokeness”, censorship and cancellation. But in reality that’s just knockabout and froth. What really shapes and irks them is something much simpler. It’s called money.

Home tuition fees in England rose to £3,000 in 2006, and then to a maximum of £9,000 in 2012. For a while, those numbers represented a one-off windfall. But for the past 12 years, fees have risen only once, to £9,250 in 2017.

The real value of home fees has now plunged by more than a third, and that dive accelerated markedly in the inflationary crisis that followed Russia’s attack on Ukraine.

Gradually, every course, however cheap, started to make a loss on home undergraduates. Universities ended up haemorrhaging £2,500 per home student, £1 billion in total.

For a while, international students, whose fees are not capped, made up the shortfall. But even that market has gone into recession in the past year or so. Conservative ministers withdrew the right for most of their dependants to come to the UK and the number of foreign applications is now plunging.

Several universities are rumoured to be on the brink of insolvency. That won’t mean a big “Closed” sign hanging on their door, but it will bring in the formal regulator (the Office for Students) or the Government to either clean up the mess or dispose of the assets.

Labour will then be faced with a huge problem. The cost of time and money to put things right could be huge. The political fallout could overshadow anything they achieve in schools and colleges. Their own MPs and activists simply might not wear a rash of bankruptcies.

The ministers responsible, Bridget Phillipson and Jacqui Smith, for higher education, don’t have many good options. The system needs a cash injection, and fast. They can raise fees, perhaps selling that as an emergency measure while they try to sort things out – but Phillipson has indicated that they don’t want to do that. They can restructure graduates’ payments, though they’ve been made so eye-wateringly steep in recent years that there seems little mileage that way.

Then the options get tougher. Phillipson and Smith can try to convince the Treasury to stump up some cash to pay for future inflation. Chancellor Rachel Reeves would likely turn that down.

At the moment, the Department for Education seems to think mergers and downsizing will save them enough to muddle through, but forcing universities together will prove complex and time-consuming.

Maybe they could pull some newer universities into a regional skills system, along with further education colleges – but they don’t have any money either. Which just brings us back to letting some universities go to the wall, an unpleasant and improbable surrender for a government that wants to spread opportunity and boost growth.

Labour is in a cul-de-sac the Tories were happy to build for them. Getting out will be extremely tough, and probably very painful.

Glen O’Hara is professor of modern and contemporary history at Oxford Brookes University. He is the author of a series of books and articles about Britain’s recent history, and is currently completing a history of the Blair government’s domestic policies.