Higher education: we need to talk about market exit

“We need to confront the possibility of some institutions choosing – or needing – to exit the market. This is a crucial part of a healthy, competitive and well-functioning market.”

These sparse lines in the higher education White Paper represent the logical conclusion of the free market philosophy. It is only by allowing the weak to fail that you drive the evolutionary process.

Without that yawning precipice, the only real option for dealing with an institution in crisis is merger – the arranged marriages reluctantly consummated under the watchful eye of the funding council.

For free marketeers, this doesn’t do the job of culling the stragglers to strengthen the herd.

But there are grave concerns about what “market exit” could mean, not least for students and alumni, but also for the city or region, and for the reputation of UK higher education as a whole.

View the 2016 Times Higher Education university financial health check

Before the publication of the White Paper, Stephen Marston, former director-general for higher education in the Department for Business, Innovation and Skills, warned that the sector was not “like other markets” where exit is “quick, clean and easy”.

Students, he feared, would suffer from the “very long process” of a university’s demise.

The White Paper’s answer to this is that all providers with access to student loan funding will need a student protection plan “to ensure that students are able to continue to achieve their academic outcomes in the event of the provider not being able to fully deliver their course”.

What is much less defined is the detail – whether, for example, institutions will be required to set aside a certain sum as insurance, and how the mess left by an institutional failure will be cleared up without leaving students high and dry, or graduates with a radically devalued degree. This is highly relevant in the context of this week’s cover story, our annual analysis of universities’ financial health, conducted in partnership with the accountancy firm Grant Thornton.

There have been frequent warnings about financial security – particularly in the run-up to spending reviews – and a longstanding complaint about the effect of inflation on tuition-fee income. This latter issue was addressed by Jo Johnson, the universities minister, last month when he told Times Higher Education that raising the fee cap in line with inflation would “allow institutions to offset some of the real-terms reduction…that they have endured over the past four years”.

Higher Education White Paper: everything you need to know

Johnson’s estimate is that the £9,000 fee is now worth about £8,500 in real terms, while the £6,000 fee is worth about £5,600.

But despite this, Grant Thornton’s analysis paints a picture of a university sector that has, by and large, been making hay while thunderclouds threatened.

Those clouds include the ongoing impact of immigration policy at a time of great reliance on overseas student fees (the most heavily dependent now get more than a third of their income from this source), and the risk of new private providers cherry-picking the most profitable courses.

Whether these and other climatic conditions produce a deluge strong enough to wash any established institutions away in the coming years remains to be seen. What’s clearer is that the government won’t be throwing money at flood defences if the heavens do open.

john.gill@tesglobal.com