Beyond COvid: The Digest

The financial fragility of UK higher education

August 24, 2020
  • Our focus this week is on the financial fragility of UK higher education.
  • Registration is open for our upcoming webinar on the economics of a Covid-19 vaccine
  • Read our In Brief and Reflections sections to see the latest research and analysis around economic recovery and reform Beyond Covid.
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In  Focus: The  financial fragility of UK higher education

  • The government’s U-turn over A-Level grades threatens to destabilise the finances of a number of universities, shedding light on financial precariousness within the higher education sector.
  • The decision to abandon the algorithm and instead rely on teacher assessments was welcomed by many as e.g. “the best solution in a chaotic situation”, in light of the “manifest unfairness” of Ofqual’s grade standardisation process. 
  • ~~Because these assessments are more favourable, this has led to an unprecedented number of students qualifying for a place at their first choice of institution.
  • ~~Oversubscribed universities are now contractually obliged to accept a record number of students while ensuring physical distancing.
  • This means that a number of universities, mostly outside of the Russell Group, now face a sharp drop in student recruitment as students are let into their top choices instead. As a result of lower student numbers, these universities could face a “crippling financial shortfall”.    
  • ~~Universities are now far more reliant on tuition fees than before the 2010-15 Coalition government’s reforms. As fees have increased, government teaching grants have fallen, as has research funding - by 12.8% since 2010.
  • Covid-19 had already pressured university finances because of a collapse in international student numbers and the loss of their fees.
  • ~~International student fees have become a “core element of university finances” over the past few decades, making up over half of Russell Group universities’ fee income.
  • ~~This increases the sector’s risk exposure - in particular, a reliance on Chinese students’ fees could leave UK university finances subject to geopolitical risk.
  • The move to a more marketised higher education system has not only increased universities’ dependence on fees, but also on capital markets.
  • ~~University borrowing from international capital markets has skyrocketed in recent years - tripling between 2017 and 2018.
  • ~~The Financial Times’ Education in the Age of Finance column (2016-2020) is a useful resource, collecting evidence that the financialisation and marketisation of universities was creating “an education system extremely fragile to exogenous shocks.
  • As universities borrow more to meet their financial challenges, the risk is that some may be too big, prestigious or otherwise important to fail, opening the door to moral hazard.
  • ~~A recent study from the Universities and Colleges Union has emphasised the fundamental importance of many universities to their local economies, calling into question whether such institutions can be allowed to fail.
  • ~~While the pandemic has brought this issue to the light, concern over moral hazard in higher education - and flip-flopping over bailouts - predates Covid-19
  • Aside from undermining universities’ financial resilience, there are widespread concerns that marketisation - an increased dependence on competing for student loans - is affecting the quality of education for the worse.
  • ~~Onward’s Will Tanner writes: “a large share of UK research funding is dependent on decisions taken by students and governments around the world, rather than by UK institutions or policymakers”.
  • ~~The Financial Times’ Tom Hale has written on the flaws of applying market mechanisms to higher education, citing National Audit Office research on the lack of consumer protections for students.
  • ~~The Augur Review raised questions over the amount of money universities spend on marketing to attract students and their fees.

Watch the latest Discussion Series webinar: Professors Allyson Pollock, Sir Chris Ham and David McCoy discuss how our experience of the pandemic could and should change how our health service is structured.

In  Brief

  • The FT’s editorial board has criticised the government's decision to scrap Public Health England in the middle of a pandemic
  • Daniel Button argued in the New Economics Foundation’s blog that scrapping Public Health England could stymie efforts to act on health inequalities.
  • The government extended the ban on evictions. Luke Murphy of IPPR was quoted in the Huffington Post suggesting that the one-month extension of the eviction ban should last for at least another six months, drawing from private rental market reform proposals in a previous report.
  • ~~IPPR published a report on rentier power and the coronavirus crisis back in May.
  • Economic Times of India reported on potential changes to the Federal Reserve’s monetary policy, where longer term ‘aggressive stimulus measures’ are needed to help recovery.
  • Vice News revealed that companies engaged in fraud, corruption, environmental destruction, and other damaging behaviours have ‘accepted billions of public money’ through the Bank of England’s Covid Corporate Financing Facility (CCFF).
  • The government announced details of the forthcoming Environment Bill last week, setting legally-binding targets on environmental degradation from 2022, such as biodiversity, air quality, water and waste. 
  • ~~On the same day, the Environment Agency endorsed a proposal to weaken water standards in England’s polluted rivers, a move criticised by campaigners
  • The Institute of Innovation and Public Purpose (IIPP) have produced a working paper on managing nature-related financial risks for central banks and financial supervisors.
  • Jubilee Debt Campaign releases a new data tool to track government debt, with the headline figure that debt in developing countries has doubled in less than a decade.
  • ~~A new article from academics Kevin Gallagher, José Antonio Ocampo and Ulrich Volz proposes a major issuance of special drawing rights (SDRs) through the IMF to provide support for developing economies ensure public responses are not imperilled by financial crises.


  • Larry Elliot in the Guardian writes that last week's reports of V-shaped recovery in financial markets will occur without a tangible recovery in the real economy and central bank policy is increasing risks of a financial crisis.
  • One Nation Conservatives have published the One Nation Recovery Papers, a series of recommendations for a green recovery; including a ban on internal combustion engine cars, introducing a green gilt and greener homes.
  • Christine Berry writes for the Guardian, arguing that economic disruption can be harnessed for good, but the government “has no vision beyond trying to preserve the pre-crisis economy”.
  • ICYMI: Last month, the World Economic Forum called for a great reset of capitalism in the wake of the pandemic, in a commitment to "jointly and urgently build the foundations of our economic and social system for a more fair, sustainable and resilient future".
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