Briefing
Addressing uncertainty in UK higher ed
HEPI’s latest report has outlined recommendations to create financial sustainability in the UK’s higher education system, including limiting admissions.
By John O’Leary
"Overreliance on international students would be addressed by recalculating the forthcoming levy per international student per year."
"Many universities’ reserves are considered dangerously low."
In brief:
- A report warns that UK universities face financial instability, urging the government to impose strict regulations to curb risky growth and protect the sector’s long-term future.
- Critics highlight dangerous debt levels and overcrowded facilities, where overreliance on international fees and rapid franchising have left many institutions vulnerable to sudden financial shocks.
- Proposed solutions include reintroducing student recruitment caps, mandating bank-style "capital buffers," and capping first-class degrees to restore financial resilience and academic prestige.
Universities in England should face greater regulation because some are taking too many financial risks and ignoring the interests of their students, a former Government adviser has claimed.
Tom Richmond, a policy analyst who advised two Conservative Education Secretaries, has identified eight areas in which institutions’ freedom of action should be constrained, including limiting admissions and placing a cap on the proportion of first-class degrees.
Published by the Higher Education Policy Institute (HEPI), A Degree of Regulation: Building a More Financially Sustainable and Resilient Higher Education Sector, stresses that many higher education providers and academics are delivering a great experience for their students.
But it accuses some universities of increasing student numbers dangerously quickly, particularly on franchised courses, and with an overreliance on international recruits. Others are said to be borrowing excessively and allowing teaching and living conditions to decline unacceptably.
Among the examples highlighted in the report are Northampton University’s debts, which equate to 137 percent of its annual income, and a near-tripling of student numbers at Canterbury Christ Church University, in Kent. Both Cranfield University and the University of Surrey are reported to have debts equivalent to more than 85 percent of annual income.
Richmond, now a podcaster and freelance analyst, said action was needed because the sector faced bleak prospects following a third successive decline in its finances, while the regulator, the Office for Students (OfS) had too few powers to intervene.
“Although the OfS has carried out more monitoring activities and assessments of individual providers since the 2024 General Election, the regulator is currently unable to take the lead in building a sustainable and resilient sector,” he wrote.
The report, puts forward measures for each of the eight areas that could be implemented individually or as a package. It recommends the reintroduction of student number controls that were removed in 2015, to restrict growth to five percent per year. Institutions would be required to report recruitment levels by course.
Richmond expresses particular concern about franchising, which was responsible for some of the more dramatic increases in recruitment.
Under the report’s proposals, government approval would be required for any franchising deal, including existing ones, and providers would be allowed to derive no more than 20 percent of their income from franchising.
Overreliance on international students would be addressed by recalculating the forthcoming levy of £925 per international student per year. By switching to a percentage-based levy only charged on fees above the maximum tuition fee loan for domestic students, the incentive for recruitment would be reduced in order to leave institutions less vulnerable to swings in demand from particular countries.
In addition, financial buffers akin to those introduced for banks after the 2008 crash are recommended to protect against losses because many universities’ reserves are considered dangerously low. Providers would be required to hold ‘capital buffers’, adhere to limits on debt levels and meet minimum liquidity requirements, as well as being subject to ‘stress tests’ to gauge their financial resilience.
The proposed measures to protect students’ interests include requiring providers to guarantee that they have enough space both to teach each course in a single lecture theatre or equivalent facility and to accommodate all students in “suitable living space within a very short travel distance of their place of learning”.
The report cites cases of Manchester and Lancaster universities using live streaming and overflow rooms because there were not enough seats in lecture theatres, while the University of Bristol initially housed some students 30 miles away in Wales in 2019.
A subsequent report published by HEPI, written by Martin Blakey, the former Chief Executive of the student housing charity Unipol, has found that demand for purpose-built student accommodation has now dropped, with very few accommodation shortages being reported and many empty rooms in the existing provision. A rise in the proportion of students living at home is partly responsible, along with a decline in the number of international students.
Also included among measures intended to benefit students is a proposal to cap the proportion in each degree classification. All providers would be limited to awarding 15 percent of students a ‘first’, 35 percent a 2:1, 35 percent a 2:2 and 15 percent a ‘third’.
Some 36 percent of students were awarded firsts during the pandemic, although the proportion fell to 30 percent in 2024-5.
Ministers have expressed concern at the extent of grade inflation over an extended period, although the Department for Education stressed universities’ autonomy in its in response to HEPI’s report.
Universities UK has launched its own campaign to maintain and enhance quality in higher education, which includes a commitment to “retain external reference points and standards across all levels of quality assurance.” Among other responses, Paul Vincent Smith, a lecturer in education at the University of Manchester, found it “a little ironic” to replace a standards-based admissions system with one that was distribution-based in order to preserve quality.
But Rose Stephenson, Director of Policy and Strategy at the Higher Education Policy Institute, said: “This report sets out a series of recommendations that are intentionally forthright. We recognise they may be challenging and will prompt a range of views across the sector. However, they reflect the scale and urgency of the issues facing higher education today.
“If we are serious about building a more sustainable and resilient system, it is important that we engage with these ideas and foster an open, constructive debate about the sector’s future.”
Most of the report’s recommendations would require legislation to strengthen the powers of the OfS and might attract legal action from universities to protect their autonomy. But Richmond said: “Given the pivotal role of higher education in our society and economy, the Government should set new boundaries that aim to curtail excessive risk-taking and promote financial sustainability because, ultimately, the interests of the sector are more important than the interests of any single provider.”