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"No Deal Brexit" Adds Uncertainty to Higher Education in the UK

A "no-deal Brexit" would affect university budgets unequally — some institutions would find their financial situation severely affected.

August 15, 2019
 
 

UK universities are currently making decisions in a climate of multiple uncertainties. There is sluggish growth in the global economy while the latest figures on the UK economy indicate that the country is teetering on the edge of recession. A major factor is Brexit and the inability to agree on a deal with the EU. 

The referendum that took place over three years ago was barely won by those who wished to leave the EU (52% to leave; 48% to remain). In July this year Theresa May stood down and Boris Johnson was elected Leader of the Conservative Party on the promise to leave the EU on October 31st2019 on a ‘no deal’ platform if necessary. On July 24 Johnson became Prime Minister with a parliamentary majority of 2, which has already decreased to one following a loss in a by-election. The country is now on a ‘no-deal’ footing, and the universities have reason to be anxious.

Added to this are three other major factors amplifying uncertainty for every HE institution. The first is pension reform: in the UK the Pensions Regulator, a body established by government, oversees workplace pensions and has powers to direct employers to hold sufficient funds to provide agreed-on pensions to their employees. The USS (Universities Superannuation Scheme) that covers universities established before 1992 was found to have an accounting deficit of £8.4 billion in their pension fund coupled with a steep rise in annual costs as retired members lived longer. As a result, huge cost increases are burdening university budgets. 

In 2018 employers contributed 18% (gross) of salaries to a pension fund; in October 2019 they are due to contribute 22.5% and on April 1, 2020 the contribution is scheduled to increase to 24.9%. Considerable industrial action has taken place as the contribution from members was projected to grown from 8% to 11.7%. After negotiations in early August, a 21.1% contribution was deemed acceptable from employers and 9.6% from members. A response from the Pension Regulator is awaited. No final figure is yet agreed to but even the shift from a contribution of 18% to at least 21.1% is considerable for any institution. The uncertainty poses a serious challenge for universities.

The second major uncertainty is whether or not the recommendations of the “Review of Post-18 Education and Funding” (Augar Report) published at the end of May, will be enacted. Currently, the main source of funding for universities in England is tuition fees paid by individual students. This has been set at £9250 per year and individual students were leaving the university with debts of £30,000, which was not only politically unpopular but also affecting the housing market. Augar proposed a fee drop to £7500 a year. However, with university budgets calculated on tuition of £9250, the drop to 7500 would be unsustainable for many institutions. Indeed, one Vice-Chancellor interviewed for this research said “If pension changes go through and Augar is enacted, we are technically bankrupt.” Whereas Theresa May was wedded to the idea of a drop in fees, it is believed that Boris Johnson is not. The decision is in his court.

A further uncertainty is the competition for national students. To complicate things further, there has been a dip in the birth-rate and the number of 18-year olds has dropped for both 2019 and 2020. While there does not appear to be a drop in applications, a decision made in 2015 to remove the cap on the number of students that can be admitted to an institution and put in place without safeguards, has brought about cutthroat competition for the students applying to university. Universities, desperate to maximise their student numbers, have taken to making unconditional offers to student applicants. In the past, universities would offer admission contingent on a threshold grade on the Advanced-level examination. For the 2019 intake, 38% of all students (97,045) have been given unconditional offers and 80% have received guarantees of a place. Many are ‘unconditional conditional’ which means that if the student is prepared to make that university a first choice on their list, the offer will become unconditional. As a result no university knows how many students it will have. This year almost all universities have gone into ‘clearing’, a system that places students after universities determine which courses have availability. As one interviewee put it, “The effect is a shrinkage of some universities. If students do not take up places, staff become redundant.” 

Which brings us back to Brexit. If the ‘no deal’ posed by Boris Johnson takes place, the following will immediately happen: no access to European Research Council funding, nor to Marie Curie Actions funding, nor to EU structural funds under the main Horizon 2020 research programme (The UK had been awarded 80 billion euros). The UK would no longer participate in Erasmus exchange programmes (over 200,000 had taken part) and would be likely to lose the 125,000 EU students studying in the UK. There would be no transition period and networking and research collaboration with EU colleagues would become more difficult. The transmission of research data may be affected, as would be the movement of time sensitive samples for research. The knock-on effects on university budgets would affect institutions unequally, but some institutions would find their financial situation severely affected.

How can universities best respond to such a situation? Some major hike in pension costs is inescapable: Augar may not happen, but the chances of a ‘no deal’ Brexit appear high. Vice-chancellors and boards recognise the severity of their situation and proffer the following advice: keep staff numbers flat; close the capital programme; be financially prudent; find replacement sources of funding; and try to maintain intellectual networks. 

The concluding piece of advice will be applauded by all leaders of HE institutions: “Stick to the core principle of delivering meaningful research and valuable student experience.” How this will be funded remains to be seen.

 

Note: This essay will be presented as a paper Consortium of Higher Education Conference (CHER) in Kassel, Germany, on August 28. 

Heather Eggins is a Fellow Commoner at Lucy Cavendish College, University of Cambridge, and Visiting Professor at Sussex University and at Staffordshire University UK. She works on higher education policy and is particularly interested in the impact of government decisions on higher education, access issues, quality and gender. Her latest book is “The Changing Role of Women in Higher Education” (Springer 2017).

 

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