‘Contagion’ risk if UK university goes under, warns report

The UK government has been urged to ready a multibillion-pound loan scheme in case any institution goes under, accompanied by a more “proactive approach” towards financial risk management.

This is the recommendation in a report that sees the higher education sector as being ill-prepared to deal with large-scale institutional failure.

Produced by consultancy firm Public First alongside the University of Warwick, the report makes the case that students have no additional rights above other creditors if their university goes into administration or liquidation.

It warns of the danger of wider impacts of “contagion” – both geographically within a university’s locality, and to the wider ecosystem of teaching and research in the UK because international students could be deterred from coming.

And the report says that because of the interrelated nature of higher education, the “disorderly exit” of one institution could have knock-on effects across the sector, potentially reducing student choice.

“In practice, exit – orderly or otherwise – of an institution from the sector has not been adequately prepared or planned for,” said Stuart Croft, Warwick’s vice-chancellor and president.

“Action is required to both protect students and to ensure that the reputation of the higher education sector is safeguarded.”

The report calls for a three-stage process, which it says would foster a more robust approach towards risk management, including a “rebalancing” of the Office for Students (OfS).

Underpinned by a new statutory direction from the secretary of state for education, this would allow the English sector regulator to take a more proactive approach to managing and forecasting financial risk, the report says.

The next stage would involve the creation of a £2.5 billion “higher education enhancement and transformation scheme”, which would offer repayable loans to institutions that can make a compelling case for restructuring, pre-empting either exit or forced closure of provision.

The report also makes the case that a new higher education commissioner within the Department for Education is needed to oversee financial sustainability. This person would manage the fund and act as primary liaison between the sector and the government.

The final step of the process would be to create a new special administration regime for higher education – modelled on one in further education – which would allow for a “more orderly form of exit”, the report adds.

“For the new government, this issue ought to be near the top of their priority list,” it concludes.

“Everyone benefits from a flourishing HE sector; and everyone shares the risk from a disorderly exit.”

Jonathan Simons, partner and head of education at Public First, said there was no playbook for how to manage institutional failure at scale.

“Given the current political and economic environment, the absence of a plan in current legislation or policy is leading to an unsustainable level of uncertainty for university leaders, for students and for government,” he added.

patrick.jack@timeshighereducation.com