UK universities find themselves on a financial precipice, with new research from Oliver Wyman suggesting more than six-in-ten have negative operating figures. The researchers contend the solution may be to target higher education more at “industry skill gaps” – but that may risk decimating the arts and humanities departments of institutions across the country.

The marketisation of higher education in the UK is a process which has been unfolding gradually for 25 years, now. Initially, the move was argued as offering universities a route to reducing government spending on higher education – with less than half of the population availing themselves of it – while opening up new revenue streams for universities to boost innovation.

However, the loans that the UK state brought in to allow students to pay for courses upfront is largely unpaid – and as of 2023, the UK had an outstanding student loan debt of more than 225.85 billion – suggesting the burden to the tax payer remains, one way or another. At the same time, the stream of international students – who fee-charging universities increasingly leant on for income, as they could be charged higher amounts – has faltered since the Covid-19 pandemic, and this has left many universities in a deepening financial crisis.

As reported by the University and College Union, 70 of the UK’s 290 higher education providers have announced restructures or redundancies recently, as they contend with declines in income. Meanwhile, the Office for Students contends that some 40% of universities are running unsustainable financial deficits. Among the institutions in most danger are Huddersfield, York, Coventry and Kent – which are reporting severe deficits.

To try and help understand the situation, new research from Oliver Wyman has examined how the post-lockdown years have impacted university funding – and what can be done to counter the trend. According to the study, which focuses on Anglosphere universities, a significant number of universities across Australia, New Zealand, and the UK experienced a net operating loss in 2022 — a stark contrast to the state of these sectors in 2018, when less than a quarter were in deficit.

Looking at the findings, the UK’s supercharged leap into marketisation may have been behind its current fortunes. Britain now has the lowest portion of direct government funding for university research in the Anglosphere. In fact, at 25%, its portion of state funding is less than half that of the US – which was used as a model for marketisation.

Even with no regulated limit on student fees in the market, the US still sees 57% of university research funding come directly from the government. And Singapore receives an even larger 82%. In contrast, universities in the UK, New Zealand and Australia must find an additional $1 to $3 for every $1 of research funding they receive from the government – and it is clearly taking a toll on their balance sheets.

As noted earlier, many UK institutions have tried to raise those funds from international students – with a quarter of their student body now coming from outside the UK. In contrast, only 5% of US students are not domestic. This means that the UK’s higher education sector is much more exposed to the volatility of international markets.

James Twaddle, a partner at Oliver Wyman, explained, “Sustained growth in international student numbers has relied on consistent demand from key countries, such as China, India, and other geographically adjacent regions. Political uncertainty, rising cost of living, and improvement in local institutional offerings all pose risks to long-term sustainability for international recruitment.”

In the years following the Covid-19 pandemic, there has also been greater student uptake of digitally delivered education. This shift has created an environment for non-university higher education providers to offer lower-cost services that generate further competition – and also tap into the needs of students amid the inflation crisis of the last few years. By the reckoning of Oliver Wyman, this means 66% of UK universities are now facing negative operating results – threatening their stability in the years ahead.

Exploring what universities might do to shore themselves up, Twaddle suggested that adopting “a wait and see approach in the hope that governments step in and provide further funding” could be risky, and that they might instead opt for a more proactive route that sets them up to “be sustainable in their own right”. However, they will need to think beyond scale, which has historically been a key avenue to drive financial sustainability, with larger student cohorts supporting investment in research and other strategic priorities.

Instead, he contended, “By itself, scale is unlikely to support long-term sustainability, given the current scrutiny on international education and slow — or even declining — population growth in university-aged populations domestically. As such, universities may need to rethink not only the role of their institution and how this translates into future size and shape, but also the funding sources and operating model that will set them up for success. Approaching this in a structured way will ensure coherence between the various choices that, collectively, drive university performance.”

A long-standing fear among critics of university marketisation is that certain disciplines will fall by the wayside, or become the preserve of the most elite, expensive universities – because they do not demonstrate immediate ‘value’. That may be what the future holds for the strategies of universities drafting strategies to funnel funds into courses that will draw students with the promise of employability. And when it comes to drafting such a strategy, Twaddle suggested that universities would need to provide a greater level of “industry-relevant education”.

“As constraints on the number of student places increase, the value of each enrolment will become more important. From a financial perspective, universities may seek to increase the mix of full-time students or focus recruitment efforts on higher margin programs. However, any attempt to maximise yield needs to balance the educational and societal objectives of the institution, such as meeting skills shortages in particular disciplines. This may lead to greater representation of equity groups within the student population or a focus on courses aligned to industry skill gaps.”

This is not something especially new, of course. The University of East Anglia made headlines in 2011, when it announced it would be cutting its famous music school – while it was investing in an increasing focus on its business and science output, that it perceived as more sustainable in terms of profit. More than a decade later, the university is now contending with an enlarged deficit. As it sought to deal with this, it announced job cuts – which according to union representatives there, saw 31 of 36 cuts aimed at the arts and humanities department.

Looking ahead, it seems like an ominous trend for the sector as a whole. Whatever the crisis facing universities, from here on in, the solution will always be more market – and less of the transferable skills, critical thinking, debate and social analysis that universities contribute to society, which just as much important as plugging ‘industry skill gaps’.