Higher Education Finance Crisis - Lessons from FE

The suggestion in the recent Immigration White Paper that universities could face a 6% levy on their international student fee income put another nail in the coffin of those in the Higher Education sector hoping for relief from escalating financial pressures. While of course there are many differences, the situation faced by the HE sector is very reminiscent of that faced by the FE sector ten years ago. The question has to be asked: can HE learn lessons from FE’s period of crisis a decade ago?

In 2015, the House of Commons Public Accounts Committee published a report, “Overseeing financial sustainability in the further education sector”, which examined in depth the scale of the financial crisis facing England’s Colleges. The report noted that a growing number – around 70 -  of colleges were likely to be financially “inadequate” in 2015/16, due to a combination of cumulative funding cuts, and rising running costs. In response, Colleges were having to cut courses, make redundancies, and freeze investment in buildings and equipment. Sound familiar?

Looking at the causes of the crisis, the PAC pointed to an “ overly complex” oversight regime for colleges, government funding decisions made at short notice without proper consideration of their impact, practical support for colleges to navigate emerging risks being far too little and late, and no assistance available to help leadership teams develop effective change management strategies.

Interestingly, our current Education Secretary, Bridget Phillipson, was a member of the committee, having just been re-elected for her second term as MP. She will have therefore seen all the evidence presented and been party to all the discussions on which PAC’s recommendations were based. It’s tempting to speculate what impact this experience might have had on her thinking as she confronts today’s financial crisis in HE. Is the SoS having déja vu?

We are about to have an online event with David Hughes, CEO of the Association of Colleges, who started this job in 2016, right in the middle of FE’s financial nadir. What, we shall be asking him, does he make of the challenge facing our partners in HEIs up and down the country? During his tenure he has seen the number of FE Colleges shrink from 313 in 2016 to the current total of 218, a reduction of over 30%. This was triggered by the Area Review process, which ran from 2015 to 2019, effectively cajoling colleges into a series of mergers, designed to make them more financially resilient and sustainable. As the PAC observed, it was far from clear in 2015 whether this would actually work, but there’s no doubt in retrospect that it helped support a sector that – while far from financially comfortable – is much stronger than it was before.

There are significant differences. Unlike universities, most colleges have quite specific catchment areas, enabling the Area Review process to take a highly geographical approach, looking at patterns of provision and potential duplication in clearly defined localities. Many universities, especially those that have been around for centuries, are far less dependent on public funding than colleges, and continue to be financial powerhouses. Their ability to generate large amounts of income from teaching international students, or through research, is unmatched by any FEC.

But the position of the many universities specialising in applied and vocational education is not that different from FE. They tend to be much more place-based in their patterns of enrolment and much more dependent on tuition fee income. Given that Universities UK have established a “Transformation and Efficiency Task Force” to tackle the financial challenge with an “all options on the table” remit, it’ll be interesting to see if any of the lessons from the FE crisis are reflected in their findings. We’ll be able to get an inside view of how the work of the Taskforce is progressing in a few weeks’ time at our online event with Dame Sally Mapstone, President of UUK.

One clear lesson emerged from the FE Area Review process. While there may be strong rational grounds for mergers or other forms of partnership, other factors - institutional culture, internal politics, historical rivalries, and yes, big personal egos -   are often considerable barriers to progress. The small team of FE Commissioners – a role established by the DfE in 2013 – proved highly effective in conducting the sort of off-the-record, behind the-scenes diplomacy needed to knock reluctant institutional heads together. As they were all recently retired College senior leaders, they had not only expertise, but respect and credibility, which proved invaluable. As HE grasps the restructure nettle, it will need something equivalent, with the Office for Students, as the sector regulator, the most logical body to host anything similar to an FE Commissioner. And it just so happens that Edward Peck, previously a member of the Augar Review Panel, just about to retire as VC of Nottingham Trent University, and a highly respected figure, is about to become the new Chair of the OfS.

The main reason for HE to look closely at the FE experience is that it worked. It kept the FE sector’s head above the financial waters until relief arrived, years later, in the form of increased funding. But in the end, of course, increased government spending will underpin any solution, and to assess the prospects of that, we’ll have to wait for June’s Spending Review and the expert view that the nation’s leading fiscal guru, Paul Johnson, will provide at our forthcoming annual Summer Lecture & Reception.