No austerity here: The extension of the Jubilee Campus at the University of Nottingham. Photo: Arcaid/UIG Via Getty Images

Degrees of failure: why it's time to reconsider how we run our universities

They have grown vast—and vastly expensive. Time to stop and ask whether something's gone wrong
July 14, 2017

Among the world’s major institutions, only the Catholic Church has operated, uninterrupted, for longer than the universities. They are the source of how we think and what we know, and have formed western elites for centuries. They still do, but in the last half-century they have been transformed—in size, but also in their social impact and political importance. In England most universities have been enjoying a glorious 21st century. But the sector now looks politically isolated and unstable, with Brexit simply adding to a set of deeprooted problems.

Early medieval Oxford, England’s oldest university, had a few hundred students: rising to 4,500 on the eve of the Second World War. Today it has 25,000, and that makes it one of our smaller elite research institutions. University College London now has 38,000 students, twice as many as a decade ago. Manchester pips this at 39,000; Edinburgh and Sheffield are close behind. Other European countries are the same: the original University of Paris, centred in the Sorbonne since the 13th century, is now just “Paris IV”: one of thirteen large campuses spread across the city.. Bologna, the oldest university of all, enrols 82,000. Over the last half-century, the growth of universities has been, quite simply, staggering. This isn’t just a first-world phenomenon. Emerging economies are stacking up far more students at a given national income than developed economies ever did.

This means, of course, student votes can shift elections—witness Jeremy Corbyn’s surprise success in June in seats such as Canterbury (home of the University of Kent). It also has turned the UK’s university sector into a country-wide economic giant. Only the tech sector outpaces higher education’s growth rate around the world, and it employs far fewer people. You don’t, furthermore, get many tech start-ups in Lancaster or Huddersfield, but in both towns, the university is a dominant physical presence. Their combined annual turnover in the UK is now £33bn—on a par with legal services, and half as much again as pharmaceuticals. Universities bring £11bn a year directly into the UK economy in international payments, largely fees; and international students spend another £5bn on rent, food and leisure, making higher education one of our few reliable, huge and thriving export industries.

House-building may be lagging, but campus-building is not. In deprived Wolverhampton, the university has a £250m investment plan with a brand new Business School and science centre; at Nottingham Trent, in a city with yet higher deprivation, it’s a new plaza, new teaching block, and a new Pavilion Building. In London, mighty UCL is projecting capital spending of £1.25bn over a decade, and King’s, my own university, has just occupied a large chunk of the Aldwych.

Why has this happened? Is it all good news? And can it go on? To the first question, the answer is partly that tertiary education is becoming the new global norm, but also specific choices made by Westminster politicians. To the second and third, the answer is no—it is not all good news, and it can’t go on forever as politics is suddenly making plain. To grasp why unending expansion may be neither welcome nor sustainable, we need to ask what individuals and policymakers hoped that all this extra university education would achieve, and where hope and reality have parted company. And that in turn explains why England’s fee-based system is suddenly the centre of wide-open political debate.

"Any rational appraisal of university expansion must consider whether it is likely to create new skills and ideas"
Crudely, there are two major ways in which education has a direct impact on the economy. First, there is investment in skills— that is learning to do new useful things, or, in the jargon, “developing human capital.” This is usually a good idea and, if it’s not prohibitively expensive, makes us more productive. But there is also a second economic effect of education, to “signal” and “sort,” and in a very general way. People sink time and money into proving, via education, that they are more desirable to employers than others. By having more qualifications, more bits of paper, they should move up shortlists, and land interviews.

This works for the individual, if it helps them into a higher-paying job. Signalling can also make hiring cheaper and more efficient for employers if it genuinely indicates which applicants will be quicker to learn, or more likely to work hard. But signals aren’t always very accurate; and when education is used in this way, there is also a risk of an expensive and wasteful spiral. If everybody spends years re-certificating skills they already have, just to land a job they could already have done, or taking qualifications simply to stay ahead of the next person, then society is wasting a lot of time and money that could be better used elsewhere.

Universities today are not just huge economic entities, but they are discussed, overwhelmingly, in economic terms. Any rational appraisal of when university expansion is a good idea—and when it is a costly waste of time—must surely start by considering when and whether it is likely to create new skills and new ideas. If expansion creates ever-more innovative entrepreneurs who transform the economy, then it is hard to imagine investing too much in it. But if the chief effect is to raise the qualification barrier to a job in back-office accounts, then expansion might already be out of hand. No such analysis has, until now, played a major role in our policy-making. If we just continue with higher education business as usual, we risk taking large sums of money from many people for little reward, while for no good reason depriving others, who lack the right piece of paper, of opportunities.

From small beginnings

Britain entered and left the Second World War with just 21 universities. A quarter of university students were in Oxford and Cambridge, a quarter in London, a quarter in the four ancient Scottish universities, leaving the other 14 with only the final quarter between them. And numbers were small: only 2 per cent of the population went to one. Universities were irrelevant to most people’s lives.

But post-war, things started to change. The 1944 Butler Act made a full secondary education available to all. Grammar schools were free and expanding, and growing numbers of children left school with formal qualifications. In a fast-growing economy, middle-class parents (and voters) were ambitious for their children.

The new “plate glass” universities—Sussex, York, Warwick— were conceived and approved in response to the resulting wave of demand, well before the iconic Robbins Report of 1963. What Robbins codified was a principle: namely, that any 18-year-old “qualified” to enter higher education should be given the chance. By the mid-1960s, 10 per cent of the age cohort was entering higher education. In fits and starts, a mix of individual ambition, voter pressure and Whitehall paternalism drove a long expansion over the next 30 years.

Robbins always insisted that expansion was a moral necessity. It was unacceptable, he argued, that young people should be excluded if they had reached a standard that would once have secured them university entry. Looking back, one is struck by how little “competitiveness” economic productivity or “skill needs” entered any discussions of education policy. It wasfar more about the ability of people to benefit fromeducation in terms of intellectual growth andcharacter formation.

By 1990, about 25 per cent of young people were going to university, and the policy language had started to change. Education was discussed increasingly in economic terms. School reform was driven by concerns that we were falling behind our competitors on test scores and therefore, it was assumed, on the economic front as well. Universities were seen as engines of growth and productivity. Tony Blair was a true believer that the path to national prosperity was paved with educational ambition, and on the eve of the millennium, he announced a new target for Britain: 50 per cent participation in higher education.

This was far higher than Robbins ever envisaged. It signalled a major change in how the universities were conceived. Instead of scrambling to keep up with rising numbers of ambitious youngsters with A-level passes, the government now proposed to drive expansion from the centre. Universities would be its main weapon for promoting both growth and social equality.

Today, we have reached Blair’s 50 per cent. Instead of 21 universities, “Universities UK,” the sector body, counts 135 members.And with the 2017 Higher Education and Research Act, the English government has embraced new “providers,” encouraging them to set up and recruit, and envisaging yet higher participation as well as more competition for existing universities. In this way, the expectation runs, both the students and the country will get richer.

In part Blair was simply following global trends—the spread of white-collar employment, parental ambition, and the faith that education would beget growth were making universities bigger everywhere. But his target has made the UK an outlier—one of the very top Organisation for Economic Co-operation and Development (OECD) countries for young adults attending university. Britain is also distinctive in two important ways. First, it has a disproportionate number of “top” institutions. Second, we are more or less uniquely committed to universities, as opposed to any other form of tertiary education.

Decline and rise

For British academics, and probably students too, the heyday of university life came straight after the Second World War. British universities, tiny and cosy by today’s standards, enjoyed enormous autonomy over degree content, expenditure and admissions. Wealthy Oxford and Cambridge enjoyed the highest prestige, but there was no fixed hierarchy, and the standards for a first-class degree seem genuinely to have been quite uniform across the sector.

None of this could survive rapid expansion. In addition, the economic crises of the 1970s brought downward pressure on spending per student. “Efficiency savings” in the “unit of resource” meant, in ordinary speech, less being spent on each student. As the numbers kept growing, governments cast around for ways to fund yet more students. At the end of the 80s, they moved to phase out means-tested maintenance grants for living costs and replaced them with subsidised loans. But charging fees remained unthinkable: when Thatcher’s mentor, Keith Joseph, did think about it, he was quickly slapped down.

With more students, but less money per student, class sizes rose and teaching hours fell. Politicians hoped, as they do today, for technology-driven savings, but teaching and research remained stubbornly labour-intensive. With rising productivity pushing up pay for highly-skilled hires elsewhere in the economy, UK higher education faced a bad case of the “cost disease”: the fate of any low-productivity sector competing for good staff. Save British Science, a campaign which started in 1986 with a 1,500-signature letter to the Times, was probably the single most effective force in convincing politicians that quality was falling calamitously. Money was needed. A decade later, Labour and the Tories reached an agreement that would transform the university sector. Whichever won in 1997 would introduce student fees to inject additional, private funding. New Labour duly did so.

Opponents warned this was the thin end of the wedge, and so it has proved. Since the early, modest and flat fees of £1,000 a year, we have moved to notionally variable “home” fees of at first £3,000, and now over £9,000 a year. Each change has been driven by rising costs and each has been fraught. In 2004, Blair had a majority of over 160 in the Commons: for the legislation authorising the £3,000 “top-up fees” this fell to just five. The sudden post-election jump in 2010, to £9,000 a year, was accompanied by student riots and the ruin of a Liberal Democrat Party which had pledged to scrap them. The policy, however, survived all the controversy, and today England (though not Scotland) has one of the most “privately-funded” higher education systems in the world.

Opponents predicted that fees would deter large numbers of low-income young people from attending. They were wrong, because of the “income-contingent loans” that finance them. Repayment starts only if and when a graduate’s earnings exceed a threshold (typically about £21,000), with repayment rates rising gradually thereafter. These arrangements mean that a very large part of the loan book will never be repaid, piling up a liability for the taxpayer instead. But whoever really foots the bill, fees have transformed English university finance.

While the 1980s and 90s saw relentless declines in spending per student, the last “austerity” decade has been a time of plenty for English universities, as their fee income surged: less so in no-fee Scotland. Gains are not, however, evenly spread. In Robbins’s day, local authorities paid fees only if students passed their A-levels, and governments funded a set number of allocated places. Today, anyone offered a place has the right to a loan, with no academic preconditions, and universities can enrol as many students as they wish.

The result is intense competition for students, huge increases in marketing budgets and all those new buildings. Some universities are enormously over-subscribed, and have chosen to grow. Others scramble for students and have shrunk. It isn’t hard to guess which is which. A run of decisions has turned our university system into one of the most nakedly hierarchical on earth.

To those that have

British universities include far more “top” institutions than our size would suggest. For example, in the most recent Times Higher Education list of the world’s top 25, the UK is the only country aside from the United States with multiple entries, and it has five in all. Why is this so? High “home” fees do of course help, but in truth they are only a small and recent part of this success story. Far more important are two decisions taken back in the lean years towards the end of the last century. One was to charge fees to foreign students. The other was to hand out research funding in a deliberately concentrated way.

Back in 1979, the Thatcher government announced that it would no longer pay the fees of overseas students. Universities were vociferously opposed; but having lost the argument they piled into aggressive recruitment. Fees for non-EU (“international”) students are uncapped and uncontrolled. Students are proactively recruited, often using agents who receive commission. By 2007, 16 per cent of overall teaching and tuition revenue in England came from international student fees; by 2014, 24 per cent. This money is paying for academic staff, libraries, sports facilities, for research and for ambitious building programmes. Other European countries came late to this. Most do now charge international students, but we recruit more, and charge more: Russell Group undergraduate fees of, typically, £17,000 to £20,000, are more than twice the average Dutch or Swedish levels.
"The higher a reputation, the more international students can be attracted, and the more they can be charged"
And why have they come here in ever-greater numbers? “Early adopter” advantage in marketing probably; plus cheaper travel, the rise of the Chinese middle class and the global reach of English, for sure. But, above all, reputation is the draw. And where does that reputation come from? Research. For it is research which other academics, across the globe, can observe and judge. It determines rankings on league tables. And those league tables, in turn, now drive student choice. International tables such as Shanghai’s Jiao Tong list, or the UK’s Times Higher Education rankings, only hit the media in the early 2000s. But since then they have become more prominent. While spending a lot on research doesn’t guarantee quality, in modern science it’s pretty much a pre-condition. And so “top” universities need a lot of money.

Which takes us to that second key decision: to allocate research funding in a highly unequal and formal fashion. The Thatcher/ Major years were a time of rapid growth in student numbers, and steep falls in per-student teaching grants. Ministers and regulators concluded that, to maintain research quality, they must channel most research support to a few select institutions. And so “quality-related” funding was born.

Today, £2bn is handed out annually to support “research infrastructure.” It is doled out on the basis of periodic peer assessments of every “research-active” academic in the system, and aggregated across an institution: and unlike specific research grants, the university can do what it wants with the money.

This second stream of funding places elite universities in a strong position to pay for expensive research teams, and to win additional project-based funding. It is important in giving us a far more hierarchical university system than most other European countries, as well as more “top” institutions. Just six of them, in the southeast’s “golden triangle” of Oxford, Cambridge and London, attract a good fifth of the pot.

To those who have, it shall be given. The higher a university’s reputation, the more students it can attract, the more selective it can be, and the more it can charge international students. At the London School of Economics, 44 per cent of students are international: it’s 35 per cent at UCL, 27 per cent in Edinburgh. That plummets to 10 per cent in Northumbria or Lincoln, and just 3 per cent in the universities of Staffordshire or Gloucestershire. No wonder the Russell Group universities can pull in an average of £3,000 more teaching income per student than the “new” universities.

A university-only universe

“More means worse” was the great worry at the start of Britain’s huge university expansion. At the top research end, this hasn’t happened: on the contrary, we’re strikingly over-represented in the global leagues. But we have another distinctive feature. The UK—and especially England—is unique in the extent to which almost all higher education takes place in full-blown universities, all of them doing everything that universities do. Has that been a good idea?

No it has not. It is extremely expensive, a bad bargain for the taxpayer and the student. And it means that we lack, and indeed have progressively destroyed, other institutions which can deliver parts of tertiary education better.

Britain once had a network of respected technical colleges. Colleges of Advanced Technology were meant to crown that system, but were hastily turned into universities as demand for degrees ballooned. In the 1960s, 30 polytechnics (known as “polys”) were expressly created as an alternative, offering full degrees, but with close links to local labour markets, and the same stress on part-time, adult study as the Victorian technical colleges. But they lasted a bare quarter century: in 1992, they all became universities.

There had, by then, been “mission creep”—the polys were offering more humanities and social science degrees. Many staff envied the prestige of the “old” universities. But their abolition put us out of step with the rest of the world, and it was barely discussed at the time. One historian describes “a remarkably casual White Paper which read more like an executive summary than a serious analysis.” The decision was sealed, it appears, by overseas student demand. Ministers were persuaded that they would only pay large fees if they were coming to a “proper” university. If polytechnics were going to balance their budgets, universities they must be.

In a 50-year period, our polytechnics were conceived, established, abolished and pretty much forgotten. Nothing about this was inevitable. In 1970, just after the UK polytechnics were set up, Germany established Fachhochschulen—distinctive technical universities. Today, they thrive, and are central to the country’s engineering excellence. The US has community colleges. Canada has well-resourced tertiary colleges, specialising in vocational diplomas. Or take the Netherlands. The Dutch haven’t created a university since 1976. Instead they expanded their respected “higher professional education” system, taught in Hogescholen which are close to the vision once held for polytechnics. By contrast, since 1976 in the UK, we have created another 89 universities (although a few have since merged), and not a single major alternative institution.

Shorter tertiary qualifications are relatively more common in Scotland, but in England they have virtually disappeared. For English school-leavers, expensive full-on degrees are the only serious game in town. This peculiar situation cannot be explained by the English labour market. On the contrary, the fixation on degrees goes hand-in-hand with enduring skills shortage in technical occupations.

Around one in three graduates, meanwhile, now do jobs which are clearly “non-graduate” in their content and demands. Education, as I have described, plays two major roles in the economy: as a creator of skills and a source of signals. The graduates who are stuck entering data or serving lattes suggest that many of those extra years in the lecture halls are indeed merely raising the qualifications bar, rather than generating economic growth via new skills. The frightening decline in the UK’s productivity growth is certainly not what 50 per cent participation was supposed to deliver.

In this situation, you’d expect “signalling” to be more and more evident: and so it is. Where you study, and what subject you take, are increasingly important. In England, university students typically graduate with hefty debts, a system justified by the fact that having a degree “pays” in later life. Yet there are universities in England where average graduate earnings are no higher than those for non-graduates. New official data released in June underlined the huge differentials across institutions, which closely mirror their prestige. As a subject, economics is one of the top “earners.” But for economics graduates of the University of Central Lancashire, median earnings five years out are just £18,900 (or almost £10,000 below full-time median adult earnings). At Essex, they can expect £34,000. But LSE economics graduates, five years into work, have a median salary of £55,200—and for the top quarter among them, it’s £120,000. This sort of detailed information simply reinforces the pressure to attend “top” universities, and intensifies the strain on those already struggling. From the student side of things, the promise that those super-sized debts are a fail-safe investment is looking decidedly dubious.

Virtually all English students now graduate with large debts. Yes, the loans are income-contingent, but they are still big. And yet it isn’t rational to walk away. In an economy where more of your cohort has a degree, it takes a brave and perhaps foolhardy young person to gamble on doing without one. A degree may not guarantee a great salary and a stimulating job, but increasingly the lack of one closes many doors.
"Large numbers of young people joined the “Corbyn surge” on the back of the costliest of Labour’s many spending pledges—the promise to abolish tuition fees"
As employers plump automatically for graduates, we are probably heading—for better, or worse—towards near-universal

tertiary education. And so far, our governments are wedded to past practice, pushing the same distinctive university-only model, with the same blind faith that it will generate more wealth for everyone. One of parliament’s last actions before the June election was to pass a new Higher Education and Research Act. It creates a new powerful regulator for the English universities, with novel powers to tie the fees to “quality” measures of the regulator’s devising. But its principal purpose, as expressed by its ministerial sponsor, Jo Johnson, is to ease the setting-up of still more new universities by giving new players, including private ones, faster access to the government’s fee-and-loan-based regime. This is supposed to increase competition for students, and will surely serve as yet another spur to degree enrolments. The preceding White Paper proclaimed: “Doubling the number of universities per capita is associated with over 4 per cent higher future GDP per capita.”

That statement, if taken literally, would indicate that dividing each of our large universities into three or four smaller ones would more than compensate for the worst estimates of the economic hit from Brexit. That is palpably absurd. But it is surely also time to question the basic assumption behind this claim. Is funding, and encouraging, more extra degree courses the best thing for growth and social welfare?

An unsettling future

Britain has been set on a path of open-ended university expansion, made distinctive by its large number of top research universities, its steep hierarchies, and its lack of other tertiary choices. High fees, high levels of debt that won’t be repaid, and growing evidence that many degrees don’t “pay” much at all were bound to destabilise this system in the end: but never, it has appeared, quite yet.

And then came the June election. Large numbers of young people joined the “Corbyn surge” on the back of the costliest of Labour’s many spending pledges—the promise to abolish tuition fees and re-introduce maintenance grants. This was a commitment made by a party that didn’t expect to win. Delivering on it would have meant cannibalising other social spending, and probably killing at birth the green shoots of new technical education initiatives, launched in the pre-election Budget with genuine cross-party support. No feasible replacement grant to the universities could possibly have replicated current income levels. And abolishing fees would be the opposite of progressive: 50 per cent of the cohort may now be in higher education, but among the prosperous classes, it’s closer to 100 per cent.

Labour didn’t win, you might respond. True, but the success of this offer is not one that any party can or will forget. Labour, of course, will not be in a mood to, but nor will the Lib Dems after their own battering on the same question in 2010. One early response was from the former Labour schools minister who describes himself as the “moving force” behind Blair’s 2004 fee reforms. Andrew Adonis argues that near-uniform £9,000 fees indicate a cartel, and is referring universities to the Competition and Markets Authority (CMA): but the universities already go through the CMA mill regularly, with no evidence of anti-competitive behaviour.

What of the Conservatives? They can hardly ignore a campaign offer that very likely cost them their majority and they aren’t: the very top of the Conservative Party now admits that the current HE funding settlement may not be so settled after all. First Secretary Damian Green, May’s closest ally and effective second-in-charge, conceded that fees are now “a huge issue,” with “real strain” over whether all university courses are “actually [going] to be valuable.” This generated shock headlines that the Tories were going to abolish fees: highly unlikely, but the response recognises a game-changer.
“The best-paid LSE economics graduates soon earn £120,000; at the University of Central Lancashire the median is £18,900”
Universities are now the gatekeepers to adult life for whole generations. Young people, and not just in England, feel squeezed and resentful. In Scotland, “free” higher education has been paid for by starving further education: but it’s a popular policy that is painted as, and largely seen as progressive. In Germany, short-lived student fees were abolished after widespread protests, leaving cash-starved university managers unhappy and powerless. French universities are desperate for more money, but even the market-minded government of Emmanuel Macron sees fees as politically toxic. Now, across the spectrum at Westminster, “Something Must Be Done About Fees” is suddenly perceived as a blunt political reality. The politics of HE funding are bumpy again.

For England’s highly-paid Vice-Chancellors, high fees and world-class research are the core of success. They behave like the CEOs the government urged them to be, rewarding themselves like business leaders, and focusing, business-like, on maximising revenue and reputation. Several admit quite openly that they tempered any criticism of the recent Higher Education Act for fear of losing an inflation-linked fee increase. Instead, they have lobbied to head off any limitation on international student numbers and for the government to neutralise any short-term effects of Brexit, whether it is EU student recruitment, EU research funds, or freedom to hire and keep EU staff.

It is hard to imagine these Vice-Chancellors, however entrepreneurial they may be, developing a shared strategy for a new financial settlement that will keep everyone in business when (not if) this one cracks apart. The universities themselves may not understand yet that the old settlement is crumbling, but they need to, fast. The boom days for campus-building may well be drawing to a close. And if Brexit and other immigration controls curtail international income at the same time as voters revolt against the high home fees, then the sector could before too long be looking at a serious crisis.

As for the rest of us, perhaps we will, finally, have the discussion we never had. Are more and more university graduates the answer to any economic question? And if not, then what should higher education look like by the middle of the 21st century?

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