Higher Education Funding

Lord Krebs Excerpts

Thursday 12th September 2024 Lords Chamber

Moved by

[Lord Krebs]

That this House takes note of the current challenges of higher education funding.

[Lord Krebs (CB)]

My Lords, it is a great privilege to introduce this debate. I thank my fellow Cross-Benchers who voted for it. I particularly thank my noble friend Lord Tarassenko, who has chosen to give his maiden speech during the debate; I very much look forward to hearing what he has to say, alongside the contributions of other noble Lords.

When I proposed the debate, my title was “The Crisis in Higher Education Funding”, but the Table Office, in its wisdom, preferred the more neutrally worded Motion we are debating today. While recognising the importance of all HEI providers, I will talk particularly about universities in England. As I started to think about today’s debate, I wanted to begin with a fact, so I asked myself: how many universities are there in England? I contacted the Higher Education Policy Institute, and its chief executive said to me:

“That is a fascinating question and almost impossible to answer”.


His best guess is around 150. I checked with the Higher Education Statistics Agency—HESA—which said that, unfortunately, its open data does not list universities. However, it tells us that there are 285 HEI providers. The Office for Students has 121 universities in England on its register. There are 141 members of Universities UK, most of which are in England. Can the Minister, in her response, tell us how many universities there are in England? She is quickly texting to find out.

Regardless of the precise number, we should be in no doubt that our universities are facing a funding crisis. This is not a case of “Crisis? What crisis?”. The interim chair of the Office for Students, Sir David Behan, has referred to a “significant” funding crisis and has said that universities “can’t just carry on”. In its insight briefing of May this year, the OfS notes that 74 of England’s universities will run a deficit in 2024-25 and that the forecasts of recovery in future years made by universities are based on overly optimistic assumptions, so that by 2026-27 nearly two-thirds are likely to be in deficit. The OfS concludes:

“The current financial climate could mean that some universities and colleges face closure”.


It refers to

“the unplanned closure of a university, perhaps in the middle of an academic year, without arrangements in place to support students to complete their courses”.

The OfS clearly takes this seriously, as it has launched a £4 million tender for auditors to analyse what the document describes as “market exits”. Universities themselves are responding to the crisis. Estimates suggest that about 70 universities have in place redundancy programmes or are closing courses or departments.

The main factors leading to this funding crisis are well known and include the following. First, the student fee has not increased since 2016 and therefore has been eroded by about 30% in real terms. The Russell group estimates that its members lose £2,500 per year for every home student they teach. Secondly, most if not all universities have become dependent on income from overseas students to subsidise the rest of their activities. Thirdly, the number of overseas applicants for taught master’s courses has dropped following changes in the visa rules that prevent them bringing families with them.

In addition to these three core reasons, there are other factors. Many universities, for example, have ageing buildings that require upgrading to meet net-zero requirements. Government grants to universities have gone down from 30% to a mere 13% of income in the past 10 years. In my own university, Oxford, out of a £1.6 billion income, 11% comes from government grants. Furthermore, research funding from the Government and from charities does not cover the full costs so, paradoxically, the more successful a university is at winning research grants, the further into deficit it goes. The Russell group estimates that only 69% of full economic research costs are funded. UKRI has said there is a £5.3 billion black hole in research funding. Does the Minister agree with that number? If so, does she think it matters?

Given that we know the main causes of the crisis, what are the options for responding to it? Should the Government take the view that universities are independent institutions that manage their own finances, and that the crisis will be resolved by market forces, or should they take a strategic view of the future shape of universities in this country? So far, the signals have suggested that the Government are inclined to the first of these, a laissez-faire policy, but I hope the Minister will tell us that that is not the intention.

Discussion in recent months has concentrated in particular on whether the Government would allow individual universities to go bust. For instance, on 15 August on “Channel 4 News”, the Minister was asked:

“Are you willing to see a university go bust? Because there are some institutions – you’ll know where they are – that are at that point now”.


The Minister replied:

“Yes. If it were necessary. Yes, that would have to be the situation. But I don’t want that to be necessary. I want us to find a way for there to be financial stability for universities, and most importantly, for the students that they are serving into the future”.


The Minister says that she wants to secure financial stability for universities. How might this be achieved? One answer would be simply to spend more public money on universities. Figures on the Statista website show that our public expenditure on higher education, as a proportion of GDP, is lower than any other country in Europe apart from Luxembourg, about half that of the United States and under half that of France and Germany. Nevertheless, I doubt whether the Minister will tell us that the Government’s response to the crisis is to inject more public funding.

A second option might be to reverse the visa restrictions and encourage more overseas students to come and participate in taught master’s degrees, and allow them to bring their families. According to HESA and the OfS, one in six universities earns more than a third of its income from overseas student fees, and it has been estimated by one source that at least a quarter of the total income for the sector comes from international student fees. There is the question, however, of whether it is appropriate for our universities to be dependent on the cash cow of overseas students. That is worthy of debate, and other noble Lords may wish to raise it. I do not have time to go into it, but I hope the Minister will tell us whether it is the Government’s view that dependence on this cash cow is central to their strategy for the future of the university sector.

A third option, raising the student fee from £9,250 to over £12,000, in line with inflation, would be highly unpopular and might well deter UK students from attending university. The average student debt on graduation is said to be £45,600, and the Sutton Trust reports that, for students from the poorest families, this rises to over £60,000. According to government figures, graduates pay 9% of their income once they are earning over the threshold for starting to make repayments. This is really a swingeing tax on young people. Indeed, if one considers the student loan fee as a graduate tax, those who have done introductory economics will be familiar with the Laffer curve, which might suggest that revenue to universities might actually go down rather than up if fees were increased.

However, I want to suggest that, while the Government should act to help solve the short-term crisis, there is a longer-term question: is the university sector as a whole fit for purpose? Could the crisis be turned into an opportunity to rethink the size, shape and role of the university sector? Once we know how many there are, we might be able to ask, “Is that too many or is that too few?”

The Secretary of State for Education herself has said that it may be time to “reform the system overall”. We know from history that universities are very adaptable. They have adapted in the past and, if government policy changed, universities would adapt to whatever change the Government produced. I very much hope that the Minister will tell us that the Government intend to take a strategic view of the university sector, instead of leaving it entirely to the market.

If she does, perhaps I might make one suggestion—one among many possibilities. A key objective should be to encourage greater diversity of purpose among universities. The current funding arrangements for universities tend to drive them towards convergence. They are essentially competing to climb up the same ladder and I question whether this is desirable. There is of course already considerable diversity of mission among universities and government policy could be deployed to support and encourage greater diversity.

We all know, because it is often said, that the UK has some “world-leading” universities in research and teaching. The Minister said in her Channel 4 interview:

“We’ve got world leading universities in this country. We’ve got four out of the top ten universities in the world. We’ve got 15 out of the top 100 universities”.


I believe she was referring to the recent QS rankings in which Imperial, Oxford, Cambridge and UCL were in the top 10. We are the only country other than the United States to have four in the top 10, and the 15 in the top 100 include two Scottish universities, which is not relevant to today’s debate but nevertheless a very important mark of distinction.

But, even if you take a generous view of what “world-leading” means and go further down the ranking list, a majority of English universities would not be counted as “world-class” or “world-leading”. That does not, however, diminish their importance. Some may be world-class in particular subject areas, while others might be fulfilling important roles such as technical and vocational skills training for the economy and providing training for professional qualifications such as nursing. We should celebrate and encourage this diversity of mission and ensure that government policy supports and steers it.

Suppose, for example, that we were to accept that England could afford to support a relatively small number of research-intensive universities—I put a number in my speech notes but I will not give it because that is a hostage to fortune—with global aspirations for attracting talent, being at the forefront of research in many fields and spinning out companies that will create wealth in the future. Suppose that, at the same time, we were to agree that many other universities should have, as a major part of their mission, training and skills for the local economy, working in partnership with business and complementing the excellent work of FE colleges, to build sustainable skills-based jobs in the area, alongside providing professional qualifications. This initiative could be a genuine contribution to economic growth and to supporting disadvantaged communities. Of course, the reply will be that some universities are already doing that. So what I am calling for is nothing radically new but a more overt recognition of the diverse role that universities can play and the development of government policy to support this diversity.

In summary, my proposal is that the Government should not simply stand back and allow market forces to determine the future size and shape of our university sector. Education is a public good and therefore should be shaped by what the country needs and shaped by the Government rather than by the random exigencies of the market. I have put forward one idea. There may be others for encouraging diversity of mission.

As an aside, some noble Lords may be aware that in the United States, facing declining student enrolment numbers, universities including Stanford have diversified into becoming retirement homes—university-based retirement communities. I just float the possibility that we might be able to solve the social care crisis and the university funding crisis with one manoeuvre. I am not being too optimistic there but just floating a thought.

I look forward very much to hearing what other noble Lords have to say on this and to the Minister’s reply. I beg to move.

--- Later in debate ---

[Lord Krebs (CB)]

My Lords, I thank all noble Lords who have participated in this debate. I particularly thank my noble friend Lord Tarassenko for his excellent maiden speech and thank my noble friend Lord Mair for confirming that you cannot have too many engineers. I was beginning to worry about the balance on the Cross Benches but, fortunately, another newly appointed Cross-Bench Peer, my noble friend Lady Freeman, is, like me, a zoologist; she tells me that I taught her when she was an undergraduate at Oxford. So the balance is maintained, and I am grateful for that.

With the level of expertise in the contributions, we have been very fortunate to have the wisdom and experience of two excellent former Universities Ministers —thank you very much—as well as many other noble Lords who have worked in the higher education sector and have direct personal experience.

I do not intend at this late hour to summarise the many points that were made, but I turn to the Minister’s response, for which I thank her very much. Partly it was “wait and see”, because she said that the Government are reviewing the options for dealing with the current crisis. We have to hold our breath and hope that they come up with a solution. In the here and now, I hope I understood correctly that, on the question of research running at a deficit, the Government are minded to look for ways to increase cost recovery, so that the black hole that UKRI has identified can eventually be filled in. That I welcome very much.

I think the Minister said that she agreed with me that the time is right to take a strategic view of the higher education sector, rather than simply leaving things to the vagaries of the market. I very much welcome that. The third point I picked up was that, although the Government want to be welcoming to overseas students —in my academic career I have taught and supervised graduate students from many different countries, and they have hugely enriched my academic experience and the quality of work that goes on in this country, so I am all in favour of them—they do not intend to change the cost of visas or the current visa restrictions. It will be interesting to see how the message, “We welcome you, but actually we are not removing some of the barriers stopping you coming here”, plays out.

At this point, I simply once again thank all noble Lords who have participated, thank the Minister for her reply and close the debate.

House adjourned at 6.44 pm.