The financial health of higher education

England’s funding Council, HEFCE, recently release its annual report on the financial health of universities. It found that most were in a sound position. However, it also found that financial stability and robustness were not enjoyed by all institutions; some are in a difficult financial position. The report also highlights some of the problems faced in universities that have over recent years under-invested in capital infrastructure. And it sounds a pessimistic note on the future: the English higher education sector may have to anticipate ‘lower surpluses, a fall in cash levels and a rise in borrowing’.

England is not alone in this situation – similar warnings have been sounded in the United States.

One of the problems is that, after all the changes in the institutional landscape and its regulation, the business model of universities has not changed – but whether this traditional model is still sustainable is less clear. If your income is largely based on public money you may experience difficult times when government itself must tighten its belt, but you may tell yourself that your consolation is that your paymaster is predictable and reliable and that, generally, income fluctuations are not extreme. But the experience all over the developed world has been that the state is finding it increasingly hard to meet its obligations to higher education, so that a financially healthy sector may need to target other revenues much more ambitiously.

In the meantime we will need to see how (or whether) universities with an increasingly tricky balance sheet can remain sustainable. There are many who now predict that the next few years will see universities having to close; that would create a very different higher education narrative.

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An office for students?

The major higher education event in the UK this month was probably the publication of the UK Government’s plans for English higher education in their Green Paper, Fulfilling our Potential: Teaching Excellence, Social Mobility and Student Choice. It is amongst other things a fairly comprehensive statement of the priorities and intentions of the new UK Minister of State for Universities and Science, Jo Johnson. In his introduction the Minister sets out his agenda:

‘We will reward excellent teaching with reputational and financial incentives; widen participation of people from disadvantaged backgrounds; provide greater focus on employability; open up the sector to greater competition from new high quality providers; and reform our regulatory structure so that it drives value for money for students and taxpayers.’

Each of these elements has a section within the Green Paper, and I shall return to each of them in due course. On this occasion I want to comment on the Green Paper’s proposals for a new regulatory structure, or as it is put in the document, for ‘simplifying the higher education architecture’. At the heart of this is the UK Government’s proposal to establish a new ‘Office for Students’, which would be a ‘single, light touch regulatory system for all providers of higher education’, and would be both a ‘regulator’ and a ‘student champion’. This new agency would combine many or all of the functions of the current nine public bodies regulating or supporting higher education; but it would also have a particular focus, based on what the government regards as they key reasons for government intervention:

‘(i) information asymmetries between students and institutions and insufficient demand side pressures to ensure quality; (ii) the inability of students, in the quantities desirable for society and the economy, to finance higher education at the point of entry without support; and, (iii) the broader benefits to society of having a highly educated population.’

The frame of reference therefore guiding this reform is that higher education operates in a market which the government needs to regulate to protect the consumer (i.e. the student). This can be compared with the role of the current primary higher education  regulator in England, HEFCE (Higher Education Funding Council for England). This is how HEFCE explains its role:

• ‘ensure accountability for funding and be a proportionate regulator
• act in the public interest and be open, fair, impartial and objective
• be an effective broker between Government and the sector and in doing so, ensure that we are implementing government policy effectively.’

The role of HEFCE is to act as an intermediary between universities and government, and in that setting to recognise and protect also the standards of higher education and the interests of students. That is not the same role as the one now being proposed for the Office for Students, and the Green Paper contains little analysis or argument about what this change might imply and how it might change higher education practice. HEFCE is what is generally referred to as an arm’s-length body – this is a body that ‘delivers a public service, is not a ministerial government department, and which operates to a greater or lesser extent at a distance from Ministers.’ In the higher education field such bodies generally channel public money to universities and monitor performance under various headings; but they provide a voice for the sector in the sector’s dealings with government. If the new Office for Students is principally concerned with student interests, a key support function for universities will be lost – not a minor issue at a time when some institutions are thought to be very vulnerable.

But in any case, it must be doubted just a little whether the new agency will in practice primarily work to support students; not least because most student representative bodies are pretty hostile to the system being implemented.

This reform may not be the wrong reform; but it may need a more explicit narrative that recognises and assesses the fairly fundamental shift in higher education assumptions that it is introducing. That is what is missing.

Becoming very efficient

The latest suggestion that Irish universities have been offered by the government and some others is that they should be able to make further savings (and thus manage funding cuts) by being more ‘efficient’. What does this actually mean? If the ultimate efficiency is what we are after, then of course we should just admit the students and, immediately, hand them their degree certificates without all the awkwardness of teaching and examining. By those means we could get truly excellent results in an amazingly efficient way.

Of course we must accept that the current budgetary environment has implications for funding, but we should stop presenting budget cuts as ‘efficiency opportunities’. I am not suggesting that there is no scope anywhere in the system for cost saving efficiencies, but you cannot know that without analysis.

In the meantime, the same game is being played in England. The Higher Education Funding Council for England (HEFCE) has just announced that over the current year there will be £82 million in ‘efficiency savings’ in the university sector. In reality this has nothing to do with efficiency, it is just a budget cut with an annoying name.

The lesson from all this is, I think, that the discussion about how to handle public funding pressures needs to be conducted more sensibly and more honestly. If it is, the universities will be in a much better position to respond constructively.

Higher education in a recession: cut it or grow it?

Two news items yesterday indicate how it is possible for governments to take very different views as to how higher education should be handled in a recession. In Washington US President Barack Obama unveiled his administration’s $3.8 trillion budget proposals, and amongst these was a7.8 per cent increase for education. The thinking behind that was explained by Education Secretary Arne Duncan:

‘We have to educate our way to a better economy. This is one area where the president is significantly increasing resources because he is convinced this is a long-term answer to the economic challenges that face our country.’

Part of the purpose of the budget increase is, according to the Obama administration, to make the United States ‘the world leader in college graduations by 2020’. In addition, there is a significant increase (to the tune of $3.7 billion) in research funding.

Meanwhile on the same day, England’s universities received the first official information from the Higher Education Funding Council for England (HEFCE) about next year’s allocations to higher education, and here there is a very different story. Funding for teaching is being reduced by 1.5 per cent, and the capital building programme by 15 per cent.  Research funding is being maintained at current levels.

Of course different countries have varying levels of capacity to fund budget items, no matter how important. The United States has the ability to carry and to increase deficits (though not without consequences) in a way that, say, Ireland does not. But all countries are able to set priorities and to discriminate on policy grounds between different aspects of government expenditure. In America a strong focus has been placed on education and it is recognised as a key driver of economic recovery. Appropriate use of money allocated and close monitoring of the effectiveness of expenditure are of course important accompaniments to budget increases But having the capacity to educate the brightest minds and to attract the greatest talent to the country are invaluable supports during a time of economic crisis.

Higher education funding crisis: not just in Ireland

As we prepare for what is universally expected to be bad news for higher education in the coming Budget/Book of Estimates, we may or may not find consolation in the fact that there are similar fears in England. Last Friday Sir Alan Langlands, chief executive of the Higher Education Funding Council for England (HEFCE), suggested that a ‘golden age’ for university funding and development was now coming to an end, and that universities in England were ‘going to see a rebalancing of financial contributions to higher education from the tax payer, from students, from graduates and from employers.’ From the context of the story, I gather that ‘rebalancing’ does not mean a redistribution of the same funding between these different sources, but rather an overall (and perhaps severe) reduction.

In Ireland as in the UK, we shall have to ask some fundamental questions; but the most obvious one seems to me to be whether we can continue to aim for significant increases in higher education participation rates in these circumstances. This latter question is also tied up with the issue of whether we can aim to maintain a position in the global rankings if we continue to pursue volume growth but without resources. Even if we feel that the rankings don’t matter, we need to remember that on the whole they reflect quality-driven performance indicators, so that the implication of sliding down the tables is that quality is eroding.

I personally support the highest possible participation levels, subject to adequate entry qualifications; but it may realistically not be possible to continue with that agenda for now.

Higher education and the link to government

Right now in the United Kingdom a debate is under way as to whether there is a need for a government agency to stand between the higher education institutions and the government itself. In England this agency is the Higher Education Funding Council for England (Hefce), and there are equivalent bodies in Wales and Scotland; but none in Northern Ireland, where the relationship is a direct one without an intervening agency. According to a report in the journal Times Higher Education, a number of influential think tanks have recommended the abolition of Hefce, while others (including some politicians) have argued for its retention.

This may become a live issue in Ireland also, with a continuing search for rationalisation in the public sector and reviews of regulatory and other agencies (which has led to the existing plan for a merger between HETAC, FETAC and the NQAI).  As a sector, we need to take a view of how the process of distributing public funds should be managed, and how our relationship with government should be structured. In other words, we need to have a coherent view on the role and powers of the Higher Education Authority.

It seems to me that there is a continuing very strong case for the existence of the HEA and for a very significant role for this body. The HEA has been important not just as a distributor of funds, but also as a promoter of analysis and discussion on higher education issues. It has managed, with some considerable integrity, to interpret government to the universities, and the universities to government. The relationship between the institutions and the HEA has been a mature one, in that it has been close but not inter-dependent. Given that the HEA is chronically under-staffed, it is wholly unlikely that any notion of merging it with the Department of Education could save any money, as the tasks would still need to be undertaken; but what would be lost, in all likelihood, would be the capacity to assess and develop the mission of higher education in the public and national interest, as well as the capacity to guide the institutions in a context where the institutions have confidence in the integrity of that process.

I would still take the view I have expressed in the past, however, that the role of the HEA would be better expressed in a name that did not have the word ‘Authority’ in it. The current name reflects a tradition still surviving in Ireland of seeing the state and its agencies as a command structure that exercises control over the lives of citizens. A more appropriate modern concept would see the public service as an enabler and facilitator and guide. Maybe ‘Agency’ would express that better.

PS. The ink had hardly dried on this post (metaphorically, of course), when I read that An Bord Snip (see further posts) is recommending that the HEA be merged into the Department of Education and Science. More on all this later.