How to fix the UK’s higher and further education finance system

The writer is president and vice-chancellor of the London School of Economics

It is almost impossible to earn a decent income in today’s economy without either university education, further education at college or technical and vocational training. As automation and artificial intelligence make routine and repetitive jobs redundant, this trend towards needing a certificate of some sort will accelerate. And investing in skills will be key, especially in ageing, service-based economies such as the UK.

But across developed nations, higher and further education face a trilemma in balancing access, quality and affordability. Most manage to achieve two of these — broadly speaking, the US system marries ease of access with quality but tuition is expensive; continental Europe manages access and affordability better, but its universities have done less well on quality than in the US or UK. For this country, the best hope of resolution would be a comprehensive review of the objectives and financing of tertiary education — with broad political support.

The UK has rapidly increased access — the proportion of adults aged 25-34 with tertiary education almost doubled from 29 per cent in 2000 to 57 per cent by 2021. This has been enabled by a student loan scheme requiring graduates to pay back based on their earnings.

But the story on quality is more mixed. The UK is home to some of the world’s leading universities but also has a tail of institutions that do not deliver good teaching or prospects. The Office for Students, the regulator, is concerned about courses with high dropout rates and low subsequent employment.

On affordability, the finances of the university sector are increasingly unsustainable. Tuition fees have been frozen at £9,250 for six years (about £6,500 in today’s money). In the last academic year, English universities lost £1,750 for every UK student they educated. That annual loss will increase to approximately £4,000 per home student by the time they graduate in 2025. They have been subsidised by high tuition fees paid by international students, which also help fund research. Attracting talented students from around the world is a great success story for the country and generates £26bn in economic benefit annually, but it is not a lasting solution.

If university funding is an emerging crisis, the situation at institutions that train those who do not go to university — further education colleges — is already dire. Since 2010, there has been a steady decline in per-student spending down to the levels of about 20 years ago. That is no basis for developing the skills needed for good jobs nor for addressing unequal opportunities. With employer investment in training and apprenticeships also on the decline, non-university routes to fulfilling jobs are also dwindling, exacerbating our productivity and inequality problems.

What is to be done? Improving skills is a top priority for all political parties and critical for economic growth, productivity, tackling inequality, levelling up the regions and social mobility. But the politics is complicated. The Dearing review of 1997, which enjoyed extraordinary bipartisan support before and after that year’s election, led to the first introduction of student fees to maintain quality and fund expansion of undergraduate numbers. Thirteen years later, Lord Browne’s independent review of higher education finance reported, and was acted on, in part by both parties in the coalition government; it enabled a successful boost to access. In 2019, Sir Philip Auger led a review that made changes to student loan terms and, importantly, enabled the creation of a lifelong loan entitlement.

To avoid a crisis in tertiary education, we need new answers, particularly in light of the impact of inflation on students’ living costs and the finances of universities and further education colleges.

Political leaders across the spectrum should support an independent review with a mandate to address the urgent problems facing tertiary education. This should retain existing positive features — such as repayment of student loans linked to income — but put it on a sustainable financial footing in time for urgent decisions after the next election. This might mean tiering of the system to allow institutions to specialise more in research or teaching while funding mechanisms could allow for different operating models. It should also fund research properly, if the UK is serious about wanting to be a successful knowledge economy.

Ideally, all parties should commit to engage with the findings in their manifestos and the commission report soon after the approaching general election. This is the only way to secure political consensus on an issue crucial for the public finances, the economy, and the chance for all citizens to engage in the meaningful work central to a good life.


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