Too small to succeed. Where the OfS higher education financial review should start

The news that the Government is planning to increase the undergraduate tuition fee cap to £10,500 over five years, then allow it to rise with inflation is nothing but a holding measure while the OfS carries out its review evaluating ‘the financial health and management and governance capability of HE providers to ensure that the interests of students are safeguarded throughout any financial adjustments or transition, including potential market exits.’ 

In non-procurement speak, what this really means is that the Government is betting that the HE sector will prove incapable of sorting itself out and that the OfS (advised by its newly appointed £4,000,000 fee consultancy partner) is preparing to step in and do it for them. 

With the continuing undergraduate fee cap and international student numbers now in decline thanks to the restrictions introduced by the last Conservative government, it is no surprise that 40% of universities are likely to be in deficit this cycle. Most were making modest surpluses the previous cycle before the then Government decided to shoot the Golden Goose. Unsurprisingly the universities that were already in deficit in 22/23 were mostly small institutions whose fixed administrative and teaching costs were spread across low student volumes. Small institutions with neither the reputation nor the resources to recruit high margin international students.

The evidence that size and financial viability are directly correlated is so obvious that reducing the number of mini universities seems a sensible place for the OfS review to start. This is tough for universities to do on their own, though to their credit we have recently seen the absorption of Writtle University College into Anglia Ruskin and the merger of City and St Georges to form City St Georges, University of London.

Where next? 

Perhaps Bishops Grosseteste in Lincoln which managed to run up a £3.2m deficit on a total income of a mere £21m in 22/23. Meanwhile, down the hill, the well-managed University of Lincoln made a surplus of around £6m on an income of £240m. Bishops is currently advertising for a new V-C. I suspect his/her tenure will be short-lived.

Or Plymouth Marjon University which achieved a deficit of £2.5m in 2022/23 on a total income of only £29.6m, while in the city centre, the University of Plymouth achieved a surplus of £13.4m on a gross income of £265m. Sooner or later, Marjon is going to have to run up the white flag and ask to be rescued. Hopefully the OfS will get there first.

There’s at least a dozen other vulnerables, none of which qualify as ‘too big to fail’ each of which could be absorbed into larger local and better managed universities. 

The OfS is right in taking this long overdue initiative. The HE sector will emerge fitter and leaner as a result.