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Reports of universities facing financial difficulties have recently intensified, with many institutions making cost-cutting measures and some even facing potential mergers.

Sector concerns over university balance sheets have been widespread for years, and had reportedly appeared on the risk register drawn up by Keir Starmer’s chief of staff Sue Gray (dubbed ‘Sue’s shit list’) prior to the election that returned Labour to government after 14 years.

Beyond the budgetary implications, the funding position of universities also poses a risk for social mobility and economic growth. Significant gaps remain between the proportion of disadvantaged individuals attending university compared to their more advantaged peers. The most recent data shows that 29% of children eligible for free school meals attend higher education, compared to about 49% of those not eligible for free school meals.

While the number of those on free school meals attending university has doubled in the past 15 years, the gap between them and their better off counterparts has increased slightly in the same period. This trend is explained by the dramatic expansion of higher education provision in recent years, boosting participation across the board without significantly reducing participation inequalities.

Tuition fees

This expansion was predicated on the financial sums adding up. When tuition fees were raised to £9,000 in 2012 for UK undergraduate students, the income from those fees covered the costs for universities to deliver their courses.

However, as inflation has risen, this income has fallen short of covering costs of educating UK-domiciled undergraduates. Consequently, UK higher education has increased the number of international students, whose higher fees compensate for the loss of income among UK undergraduates.

A decline in international student recruitment, partly due to immigration policy changes, has further exposed universities to financial shortfalls  concerning UK-domiciled undergraduates.

Lower participation rates overall?

In this context, particularly with the government asking universities to find cost savings, it seems unlikely that universities would further expand their number of UK undergraduates. This would likely lead to a stagnation or a decline in the proportion of disadvantaged students attending higher education.

Another headwind is the rising number of 18 year olds, expected to peak in 2030 and further increasing the number of young people expecting to attend higher education. Should universities choose not to increase capacity, competition for places will grow, potentially leading to a lower proportion overall of young people attending higher education.

Impact on poorest students

In addition to their already lower participation rates, two additional factors suggest that the poorest students will be most affected by any cost-driven reduction in higher education provision.

First, the alternative scenario is that participation rates for better off students decline. In a  zero-sum world, where places are frozen due to financial constraints, merely sustaining (never mind increasing) current participation rates for poorer students would necessitate universities admitting fewer better-off students.

A deliberate targeted reduction in higher education participation rates for some young people because of their parents’ incomes looks hard to justify, but it would also generate significant opposition. It’s hard to envision middle-class parents accepting that their younger children would have reduced access to higher education compared to their older siblings, or their neighbour’s older children. It’s also hard to imagine the government ignoring the outcry that would result from a reduction in middle class university participation.

The second reason why poorer children would be unlikely to see an increase in their higher education participation rate is that they often require additional funding or bursaries to cover their living costs. Children in poverty live in households in poverty, and their parents or guardians cannot afford to support them in paying for rent, food or utilities.

With maintenance grants and loans lagging inflation, disadvantaged students require even greater support from universities to escape poverty. In a cost-savings approach, universities would be incentivised to enrol students who can pay their own way over those who cannot. Such a decision would also impact an increasing number of young people: the proportion of pupils eligible for free school meals has risen sharply, from around one in six a few years ago to nearly one in four today.

Widening participation: opportunity for win-win

It’s important that universities don’t simply seek greater funding from the government without examining how they can improve their widening participation efforts. At TASO we have helped the sector in providing evidence of what works best to increase participation, with all providers being held accountable through their access and participation plans.

While there is a risk of stagnation on opportunity, there is also a potential double win-win if widening participation efforts work: benefits for both government and universities, as well as for graduates and the economy.

Those who grow up in poverty and attend university are more than 20 percentage points more likely to be employed and to earn up to £20,000 more each year than their peers without further qualifications. Therefore the funding crisis in higher education is also an access and opportunity crisis.

If university finances are not addressed, the likely consequence will be that fewer children who are living in poverty today attend higher education in the future. That will mean reduced opportunities for some, putting brakes on the development of their skills and on the wider economy.