For the past five years, Grant Thornton has carried out an annual independent analysis and review of the financial health of the UK higher education sector. This year’s review, Thrive or survive?, highlights the current financial stability of the sector, but also advocates the need for change to meet the challenges of a rapidly changing world.
Our analysis shows that universities have continued to benefit from the additional funding derived from the introduction of income contingent student loans, as well as from capital development previously funded by the government. This has been particularly beneficial to the newer universities and has resulted in strong balance sheets, large cash balances. In the view of the Higher Education Funding Council for England, the sector is in a stable overall financial position.
However, some of the challenges from the past remain and, with the speed of change, some are increasing in importance. Institutions that grow and thrive will do so because they have planned to adapt for the future and will inevitably look very different from the past. For others, the future is far less certain.
The future of higher education will be shaped by a number of different factors, including the demands and expectations of students; collaboration with industry and commercial organisations, both for research and to meet the skills and requirements of employers; the ability of institutions to react quickly to changes and to operate globally as well as in the UK; the free movement of students and academics around the world; and by different, more wide-ranging forms of both competition and collaboration.
Some of the most important drivers will include:
The attitude and perception of students
Students now incur significant personal debt so those considering higher education place increasing emphasis on getting a return on their investment. Universities will need to provide prospective students with accurate data and clarity in their messages.
A significant dependence on overseas students
The increasing numbers of overseas students in UK universities has been welcomed, but factors outside the control of universities could cause a shift that could leave those dependent on overseas students exposed. International and domestic political pressures mean the net immigration of students could change quickly, while global competition for students is intensifying. We are also likely to see a rising trend for UK students to undertake their studies overseas. The increased global mobility of students has the potential to create devastating effects on institutions overly reliant on international students.
Technology and digital changes
The evolution of massive open online courses (MOOCs) continues and has now entered a phase of experimentation and foundation-building, with change occurring slowly and steadily, largely under the media radar.
The rise of alternative providers
We have seen developments in this area over the past few years, but the removal of the student number control, the option of lower cost courses and, in some instances, closer links with future employers, may make alternative providers increasingly attractive to students. For some institutions increased competition may result in a decline in student numbers and a need for significant and timely restructuring, if they are to remain sustainable.
Good governance
The pressures on university management and leadership teams, including non-executive board members, will intensify. Governance will need to evolve to ensure that informed and effective decisions are made.
Financial sustainability
All these changes are likely to impose significant financial pressures on individual institutions, in addition to inflation capped student fees on UK/EU students, rising staff costs and increasing pension liabilities, and capital and maintenance costs that will now rest with the institution as opposed to being publicly funded through the Exchequer.
It is an obvious and easy statement to make – even if it is more challenging to deliver in practice – that institutions need to maximise their income from commercial sources, alumni and other philanthropic donors, as well as managing their costs effectively.
Future perspectives
How universities might look in the future is dependent on a whole range of factors, but the most significant factor is technological and digital change.
We anticipate a landscape of fewer but financially stronger institutions, some being real global players. There will also be a clearer divide between those institutions that carry out research, those that specialise in academic and other specialist teaching and those that provide vocational and skills based training qualifications.
Such a framework will provide better choice for students, meet the requirements for world class research and offer resulting benefits to society and to our economy by fulfilling employers demands for workforce skills.
David Barnes is head of higher education at Grant Thornton
To receive a copy of our latest financial health review, please contact louise.hughes@uk.gt.com.
