Public accounts committee says institutions ‘potentially exposed to significant financial risks’, with 80 declaring annual deficit
Universities in England face danger from financial instability and falling student satisfaction, according to a report by MPs that blames the government and regulators for failing to ensure students receive value for money for their time in higher education.
The report, by the public accounts committee (PAC), says some universities are heavily reliant on overseas students’ fees, using that income to cross-subsidise research and other activities – leaving them “potentially exposed to significant financial risks” if international student numbers fail to keep growing.
The committee notes that the number of universities with budget deficits has risen for four years in a row, with inflation, the freeze on domestic tuition fees, pension costs and policy changes on student loans and minimum entry requirements making it likely that students will be affected by course cuts, lower quality teaching or restricted access, or even closures of entire campuses.
The report concludes that the Office for Students, the higher education regulator for England, has failed to make sufficient progress “in getting a grip on the long-term systemic challenges facing the sector”.
Susan Lapworth, the interim chief executive of the OfS, said: “In the main, universities and other higher education providers entered the pandemic in good financial shape, and there is evidence that the sector in aggregate is well placed to recover from the challenges of the last two years.”
The Department for Education said: “Despite the challenges faced by universities and colleges in recent years, the most recent reports from both the [National Audit Office] and the OfS make clear that, overall, the sector remains financially resilient.”
However, the PAC notes that 80 higher education institutions have recently reported annual deficits, while 20 institutions have been running deficits for three years or more.
The MPs are also critical of the DfE’s failure to anticipate the financial impact of recent A-level grade inflation on student recruitment, “which meant more students were able to take up places at high-tariff providers, and many medium- and low-tariff and specialist providers were undersubscribed.”
Meg Hillier, the Labour MP who chairs the PAC, said: “The A-level fiasco of 2020 and grade inflation have a long-term impact on higher education, adding to deep systemic problems in the financial sustainability of higher education. The number of providers in deficit rose dramatically in the four years up to the onset of the pandemic.
“Too many providers are too heavily dependent on overseas student fees to maintain their finances, research base and provision – that is not a satisfactory situation in a sector that government is leaning on to boost the nation’s notoriously, persistently low productivity.”
The two years of pandemic-related over-recruitment by selective universities has had a knock-on effect this year, with fewer students receiving offers.
In another report published on Wednesday, the Institute for Fiscal Studies (IFS) says university students from the poorest households are seeing the value of their maintenance loans shrink as inflation increases more rapidly than forecast.
The IFS’s economists predict that next year the value of government support for living costs for the poorest students will fall to its lowest level for seven years. “As a result, even students entitled to maximum maintenance loans will have to make do with substantially less than they would earn working in a minimum-wage job,” the IFS says.
It calculated that a 22-year-old student would earn £1,000 more than the maximum loan if they worked in a job paying the national minimum wage.
Ben Waltmann, a senior research economist at the IFS, said the real-terms cuts in support would cause hardship for students on tight budgets. “Bizarrely, this is happening because student maintenance loan entitlements are routinely adjusted based on outdated inflation forecasts, and forecast errors are never corrected.
“This makes no sense at all. The government should use more up-to-date forecasts and correct for any errors in the following year to avoid permanent cuts. Alternatively, maintenance entitlements could be tied to earnings on the minimum wage,” Waltmann said.
Larissa Kennedy, the president of the National Union of Students, said: “We’re hearing from students who are working three jobs to make ends meet, who can’t even afford to travel to their university library, and who are cutting back on cooking food due to spiralling energy costs. Our research has shown that thousands more are relying on food banks and buy now, pay later loans.”