Next government must make hard university funding decisions, fast

Why are universities in such financial dire straits? According to one sector leader, it’s because they are losing money on two of their three income streams, while their third source is under attack by the government.

“We are already in a state where teaching home students operates at a loss, doing research operates at a loss, and the international student market has been diminished by the government’s rhetoric and policy. And those are the three areas where universities get their income,” said Rachel Hewitt, chief executive of the MillionPlus association of modern universities that includes Bath Spa, Wolverhampton and Sunderland.

“So we are in a volatile place for funding at the moment. We’re seeing, across the sector, different types of universities being hard hit in terms of having to make difficult decisions to secure their future.”

Related: Universities in England risk closure with 40% facing budget deficits, says report

That situation was laid bare in a report by the higher education regulator, the Office for Students, which forecast that 40% of England’s universities would run budget deficits this year and that closures and mergers were on the cards.

Some university leaders are warning that the position is even worse than the OfS’s forecasts. “It’s difficult to imagine that beyond the very short horizon – maybe one or two years maximum – that the sector will be sustainable or thriving if the unit of resource stays as it is,” said Prof George Holmes, vice-chancellor of the University of Bolton.

“At the moment it’s probably costing north of £11,000 [a year] to teach a student for any university, and in the Russell Group they are quoting £12-12,500 a year to teach a student.

“If the unit of resource for teaching doesn’t rise to that sort of level within a reasonable time horizon of one to two years, then the sector could face multiple universities in serious trouble.”

But so far, the sector’s turmoil – which has seen more than 50 universities already announcing course closures and redundancies – has attracted little political attention.

“I think Labour will not want a focus on their funding policy this side of an election, because there’s nothing to be gained in making it an election issue right now,” said Hewitt.

Holmes said he has told Gillian Keegan, the education secretary, and Bridget Phillipson, the shadow education secretary, that bailing out universities by raising tuition fees for domestic students would be politically toxic.

Instead, Holmes says central government needs to fill the gap by making grants of £2,000 and upwards for teaching each student in the short term.

Related: UK universities report drop in international students amid visa doubts

“But the next thing they would have to put in place is student number controls, or some form of arrangement to control the numbers. Because otherwise what you’d get is some vying for numbers, and some universities left without students and others overflowing with students.

“If I were secretary of state or a minister, in whichever government, I’d say we need to stabilise the sector, and we also need to put in place student number controls so we don’t destabilise it by creating a feeding frenzy for those who want to get more students to generate surpluses,” Holmes said.

Holmes also thinks a grant could be subsidised by a levy on international tuition, effectively redistributing some of the fees gained by more prestigious universities, which are able to charge far higher tuition fees to students from abroad.

But figures are showing a steep decline in international students applying to study in the UK next year as a result of the government’s earlier moves to restrict student visas.

Should the government make further moves, perhaps by restricting access to the graduate visa route that allows international students to stay on for two to three years after graduations, that decline may become a collapse.

Vivienne Stern, chief executive of Universities UK, said universities had come to depend on international fee income, which is uncapped, as opposed to domestic tuition fees, which have hardly budged since they were set at £9,000 back in 2012.

“One of the big problems we’ve got right now is that the tuition fee in England has basically been frozen for 10 years, and everyone understands that inflation has had a big impact and universities are not immune. Whatever happens, an incoming government – whoever forms the next government – will need to reinstate the link between the tuition fee and inflation,” Stern said.