Bankruptcies on the cards

University heads predict that some institutions could go bust within three years as the top-up fees market starts to bite. Anna Fazackerley reports

Splits are emerging in Whitehall over how to deal with possible university bankruptcies when the new top-up fees market kicks in, vice-chancellors revealed this week.

While university admissions are up overall this year, some institutions are privately admitting that they have missed their student recruitment targets.

One old university is reported to be 20 per cent down on its target for new students now that top-up fees have been introduced.

University heads are predicting that as the new market emerges, with fee-paying students growing increasingly selective about where they study, some institutions could face financial difficulties.

Several vice-chancellors with close links to the Department for Education and Skills said this week that officials were minded to let the market run its course without intervening.

One vice-chancellor said: "I am hearing from the DfES that the corollary of creating so many new universities is you have to allow some to go to the wall. You can't save them all, and maybe some are not worth saving anyway.

"I think for some institutions it is definitely an uncomfortable time, because of overseas recruitment as much as the impact of variable fees. It is varies greatly across the sector. I have heard that some old universities are feeling the strain as much as new ones."

Steve Smith, vice-chancellor of Exeter University and chair of the 1994 group of small research-intensive universities, said: "There is a market emerging. I suspect there will be institutions that lose out. The difficult question is, what is the appropriate government reaction?"

He added: "There will be some surprises in October, but the real trouble will be in two or three years' time."

David Melville, vice-chancellor of Kent University, which saw a small rise in applications this year, said: "If someone is 10 per cent down this year and it happens again next year and the year after, then that is serious, particularly if it is a post-92 university that heavily depends on student fees."

But vice-chancellors stressed that ministers might be unwilling to allow any public display of failure, not least because top-up fees were pushed through on a majority of only five votes.

Another vice-chancellor told The Times Higher : "If an institution in a marginal constituency was under threat I think it would be an heroic position for the DfES not to intervene. There would be tremendous political pressure."

But it is widely assumed that the onus will fall on the Higher Education Funding Council for England to identify struggling institutions and try to offer solutions before this crunch point is reached.

This could mean that an institution would be encouraged to change its mission radically or to merge with another institution. Neither option is likely to be easy.

As one university head commented: "Mergers that arise as a result of an institution getting into difficulty are traumatic. It is far from clear that this is the solution if you have two institutions that are struggling."

Bill Rammell, the Higher Education Minister, said: "We don't accept that the new arrangements for funding will inevitably cause financial problems for higher education institutions. On the contrary, they have strengthened the funding available to univer-sities."

He added: "Equally, it has always been true that if an institution is failing to attract the students it needs, then that will have consequences for its long-term sustainability. And that is as things should be."

Mr Rammell said: "Mergers have happened in the past and may happen in future, but it is jumping the gun to conclude now that they are inevitable.

If they happen, the role of the Government would be to help manage any changes smoothly."

Boris Johnson, the Shadow Higher Education Minister, told The Times Higher : "It would be wrong for the Government to strive to save a failing institution, particularly if it is at the expense of more successful universities."

anna.fazackerley@thes.co.uk