New Government, familiar problems

This is an updated version of a blog post originally published by HEPI on 12th May 2025.

The higher education sector had high hopes of a new government last July. Early messaging from ministers suggested that they were justified.  The Guardian quoted Peter Kyle, the Science Secretary declaring an ‘end to the war on universities’. Speaking to the Commons in September 2024, the Education Secretary Bridget Phillipson said that “the last Government ..use[d] our world-leading sector as a political football, talking down institutions and watching on as the situation became…desperate. I [want to]…return universities to being the engines of growth and opportunity”.  In November, she announced a rise – albeit for just one year in the first instance – in the undergraduate tuition fee, with the prospect of alleviating pressure on HE budgets.

Ten months on the hopes look tarnished as financial, political and policy challenges mount. The scale of the higher education funding challenge is deepening, it seems by the week. The OfS has reported that four in ten universities will report a deficit this year.  Restructuring programmes are underway in scores of universities, with some institutions on their second, third or even fourth round of savings.  The White Paper on immigration proposing more stringent compliance thresholds, a reduction in the length of the post-study work visa, and the mooted levy on international fee income threatens the financial lifeline which overseas student recruitment has been for so many institutions. 

There are eerie echoes of headlines and comments under the last government.  The Daily Telegraph declared that a ‘record number of universities [are] in deficit’. The Times claimed that universities who appeared to report relatively poor progression to graduate-level jobs were to be ‘named and shamed’. Following the success of Reform UK in local elections, some backbench Labour MPs have been sharply critical of universities: “I would close half our universities and turn them into vocational colleges’, wrote the Liverpool MP Dan Carden (BA, London School of Economics, since you ask), whilst Jonathan Hinder, MP for Pendle (MA Oxford) declared himself “happy to be bold and say I don’t think we should have anywhere near as many universities and university places”. Philip Augar, who reviewed skills funding for Teresa May’s government wrote in the Financial Times that the “English higher education market is broken” as a result of a “failed free market experiment”.  Jacqui Smith, the Minister for Higher Education used the pages of the Daily Telegraph to argue that “universities…seem to have lost sight of their responsibility to protect public money”  It seems terribly familiar: a sector in financial crisis, losing political traction and friends.

Policy direction now appears to be unclear. The English higher education sector is still largely shaped by the coalition government’s decisions between 2010 and 2015. Its key design principles include uncapped student demand since number controls were abolished in 2013, assumed cross-subsidies across and between activities allowing for institutional flexibility, access to private capital markets since HEFCE capital funding was removed in 2011, diverse missions but largely homogenous delivery models based around traditional terms and full-time, three-year undergraduate provision, underpinned by jealously protected institutional autonomy. These features of HE policy may be familiar, but in truth some are relatively recent, and are under strain from tensions between what the nation wants from its university system, what universities can offer and what the government and others are willing to pay for.   

Moreover, the sector we have in 2025 is not the sector which the 2017 Higher Education and Reform Act envisaged. The government’s impact assessment of HERA envisaged a reshaped sector with something like 800 HE providers by the mid-2020s.  This did not happen, though the impact of private capital, often channelled through established institutions as well as now rapidly growing for-profit providers should not be under-estimated as a longer-term transformative force in the sector.

We are expecting both a three-year comprehensive spending review and a post-16 White Paper in a couple of months’ time. In my 2024 HEPI paper, ’Four Futures’, I sketched out possible scenarios for the future of higher education. Challenges are intense. The near frozen undergraduate fee is reducing the unit of resource for undergraduate teaching as costs rise. Undergraduate demand seems to be softening amongst (especially disadvantaged) eighteen-year-olds. International student demand remains volatile and subject to visa policy.  The structural deficit on research funding deepened.  ‘Four Futures’ outlined four scenarios, summarised in table 1. 

Table 1: Four Futures – the scenarios summarised

Of course, we all want a mixture of cost control, thriving universities, regional growth and research excellence, but it is difficult to have all of them. Governments and universities need to set priorities based on limited resources, so there are choices to be made and trade-offs to be confronted for both policy makers and institutional leaders.  

Government needs to make decisions about universities in the context of competing and changing policy imperatives. It needs to balance restoring government finances, allocating resources to other needy sectors, securing economic growth, and, more obviously important than a year ago, protecting sovereign intellectual property assets and growing defence-related R&D. The secretary of state’s letter to Vice-Chancellors in the Autumn set out priorities for economic growth, engagement with place, teaching excellence, widening participation and securing efficiencies, but did not unpick tensions between them.  That depends on articulating a stronger vision for higher education given government’s priorities and resources and the economic challenges facing institutions. 

Such a vision should be a task for the forthcoming White Paper. Given the wider challenges which the government is facing, this may not be easy. But without a much clearer articulation from government of its priorities for the sector, derived from a vision for the shape, size and mission of universities, we are likely to see a continuation of the current messy and unpredictable landscape which is undermining confidence both within institutions, and  among potential applicants, employers and partners. 

Research and knowledge creation will need to be at the core of that vision, with sharper policy distinctions on the relationship between fundamental and translational research.  Government will need to think harder about the interventions – nationally and institutionally – which drive teaching excellence and student outcomes.  It needs to articulate far more clearly than it has so far how it sees universities manage the tensions between selectivity and wider participation, between access, retention and outcomes given the deep inequalities in educational attainment across the system.  It also needs to decide how and where it wants institutions to compete, and how and where it wants them to collaborate. Policies and incentives then need to align with and  support those decisions. And most of all it needs to address the question of financial sustainability, which means decisions on the shape and size of institutions. 

But there are urgent choices too for institutions, and those need to be made quickly in many universities.  Institutional and sector efficiencies are vital, and are a preoccupation of the UUK Carrington Review, but they need to be considered in the light of sustainable operating models for both academic delivery and professional services. Institutions need a clearly articulated value proposition, communicated strongly and effectively and which can drive the operating model. In the past, too many universities have tried to do too many things;  with resources scarce, choices cannot be ducked. Institutions need to think more clearly about their role and position within the sector and the ways in which this shapes their responsibilities and priorities at local and national level.  In too many cases, those decisions have been overly distorted  by the often absurd influence of published league tables – nationally and internationally.

There is a further consideration which links the choices facing the government and those facing individual institutions.  If a core strength of the English system lies in its diversity and its distributed excellence, individual institutions need to think about their place in, and responsibilities to, the wider HE system. For a sector characterised by intense competition, that is a profound cultural shift, over and above the economic and legal challenges of collaboration. But it’s important to get this right now: partly because of the current financial woes, but also because of the precipitous fall in the number of eighteen-year-olds which will impact the sector in the 2030s.

The higher education sector now is not the sector we have always had, and therefore it won’t be the sector we always have. How the sector collectively, and institutions individually confront choices is a test for policy makers and institutional leaders.

The original blog post can be found here: New Government, familiar problems – By Chris Husbands – HEPI