Analysis: First proof that fees don't work

September 13, 2002

Public funding cuts have cancelled out tuition fees on universities' bottom lines. Claire Sanders reports on UUK's latest findings.

Tuition fees have not improved university finances, according to two major reports from Universities UK.

"The sector has returned to at least pre-Dearing levels of financial precariousness," says The Internal Economy of UK Higher Education Institutions 1994-2000 , which was presented to vice-chancellors at UUK's annual residential meeting in Aberystwyth this week.

"The latest set of declared accounts [2000-01] shows, for the first time, the sector as a whole returning a deficit on in-year operational balances," it adds.

The second report, Patterns of Higher Education Institutions in the UK - an update on last year's patterns report - shows that old and new universities alike are in financial difficulty.

Sir David Watson is vice-chancellor of Brighton University and chair of UUK's longer-term strategy group, which produced the two reports. He said:

"For the first time, we have the figures to show that as student fees have increased, public funding has been cut. Neither universities nor students have benefited from the fees."

Both reports compare old and new universities. "The binary line is now very weak," Sir David said. "There is an increasingly clear division between old universities with medical schools and those without. New universities have increased their share of research and consultancy monies at the expense of many old universities without medical schools."

However, one element of the binary line remains - it is far harder to get a first at a new university than it is at an old. "New universities have held the line on quality," Sir David said.

The Internal Economy of UK Higher Education Institutions 1994-2000

This report looks at the financial position of six different types of institution: specialist visual and creative arts colleges; general colleges; post-1992 universities; pre-1992 universities without medical schools; pre-1992 universities with medical schools; and specialist university institutions.

Teaching income

"Total teaching income increased only modestly by 8.6 per cent between 1994-95 and 1999-2000," the report says. Funding council monies for teaching increased by just 7.5 per cent. Over the same period, home and European Union full-time equivalent student numbers grew by nearly 13 per cent.

"The shortfall in public support has been disguised by home and international student fees," Sir David said. "Both of these are unstable sources of funding. Whitehall has not yet made any decision on student support, and the international market is volatile."

Full-time undergraduates now contribute about £300 million to universities' teaching income - about 5 per cent of the total. But it is fees from international students and non-credit bearing courses that have rocketed. "Taken together, these two elements increased by nearly 25 per cent in real terms over the period and increased their share of total teaching income from 11.7 per cent to 13.5 per cent," the report says.

As new universities attract a higher proportion of students who do not pay fees, they are more reliant on public funds. But Sir David said: "It is generally assumed that new universities are far more reliant on funding council grant-for-teaching income than old - but actually the differences are not that marked." With the exception of specialist universities, all types of institution continued to rely on funding council grants for half or more of their teaching income (see chart).

The report also notes the reliance of many universities on fees paid by the National Health Service, principally for nursing courses. "The post-1992 universities had the biggest share of this business in 1999-2000 followed by the pre-1992 universities with medical schools," the report says. Total income from this source was just under £300 million in 1999-2000 - about 30 per cent of the total income from undergraduates paying standard regulated fee rates.

The report also analyses the changes in home and EU teaching income per full-time equivalent student. Old universities with medical schools spend the most per student (apart from specialist institutions). New universities and old universities without medical schools spend similar amounts.

But for all types of institution, this amount has fallen over the six-year period.

Research income

Sixty-three per cent of total research income goes to old universities with medical schools - a dominant position maintained over the six years.

New universities have increased their share of research income from 5.5 per cent to 6.5 per cent, while old universities without medical schools have seen their share fall from .2 per cent to 25.9 per cent.

The Northwest, Northern Ireland, Scotland and particularly Wales all lost out on research monies. Wales's share fell from 5.2 per cent to 3.9 per cent.

Income from research grants and contracts grew at a marginally faster rate (17.6 per cent) than funding council grants (14 per cent). The ratio between research grants and contracts compared with funding council grants (an indication of how efficient universities are at using funding council grants to provide the infrastructure needed to win other contracts) is particularly high for old universities with medical schools. In 1999-2000, this ratio was higher for new universities than for old universities without medical schools - although based on lower levels of income.

The report says: "There is a hint in these figures that the ratio may be levelling off for the pre-1992 universities with medical schools despite a 1.5 per cent increase in their share of funding council research grants. This may suggest that we have reached the limit of increased effectiveness from increased selectivity."

Although new universities have increased their income from research grants and contracts from 4.8 per cent to 6.1 per cent, this has come at a price. A comparison of surplus of income over direct expenditure on these grants and contracts shows surpluses falling by half from an already low base. "This may reflect either too keen pricing (to win business), or a relative lack of expertise in managing projects to a price compared to the pre-1992 universities with their much larger volume of research grants and contracts," the report says.

However, old universities without medical schools also suffer here because they receive a high proportion of their income from medical charities that do not cover overheads.

Income from other academic services

This income is mainly from consultancy-type activity. The new universities have increased their share of this income from 21 per cent to 30 per cent. The share of old universities with medical schools has fallen from 44 per cent to 37 per cent.

Other income

This category includes income from catering and residences as well as intellectual property rights.

"The big success story is the surplus now being made on catering and residences," Sir David said. In 1994-95, the overall deficit on the catering and residence account was £23 million. By 1999-2000, the overall surplus was £35 million.

Income from IPR grew by more than 50 per cent in this period to £14 million and was concentrated mainly in old universities. However, it makes up just 0.5 per cent of total research income.

Capital income

Capital income halved between 1994-95 and 1999-2000 - in part as a result of the phasing-out of formula-based capital funding and its inclusion in the general grant. In Scotland the fall was just 25 per cent. "The smaller reduction in the capital income from the Scottish institutions strongly suggests that the Scottish Higher Education Funding Council adopted a different approach to capital allocations than the Higher Education Funding Council for England or the Higher Education Funding Council for Wales," the report says.

Patterns of Higher Education Institutions in the UK

As the financial position of UK universities deteriorated between 1994-95 and 1999-2000, old universities found themselves as vulnerable as new ones, this report concludes.

A security index, which measures institutions against three financial indicators, found "financial security or insecurity is equally prevalent throughout the sector".

The report charts the surplus or deficit for each institution as a percentage of income. While those with the highest deficits appear to be in an increasingly parlous state, the report says: "It should be noted that both pre-1992 and post-1992 universities are spread equally across this chart."

However, the report does find key differences between old and new universities in other areas.

Some old universities award firsts to nearly a third of their students whereas fewer than one in ten students is given this honour in even the most generous of new universities (see chart).

New universities have also seen a substantial increase in further education teaching income, largely as a result of mergers. The report says: "The change, equivalent to almost a doubling of provision, is significant at a time when institutional mergers across the higher/further education boundary are being actively discussed."

Part-time students are also enrolling in greater numbers at undergraduate and postgraduate level. Since 1995-96 (after continuing education departments were absorbed into universities), part-time undergraduate numbers increased by 11 per cent compared with 3 per cent for full-time students.

Overall, the growth in overseas numbers over the six-year period has been at least double the growth in home students, with EU students growing fastest and flocking to new universities. In January 1995, Austria, Finland and Sweden joined the EU. Since then, the number of students from these countries studying in the UK has increased by 215 per cent.

The old access divide remains. Old universities have made little headway in recruiting working-class students. There is not one old university in the top 37 universities ranked in terms of their percentage of young undergraduates from lower social classes.

There have been some startling changes in enrolments by subject across the sector - which have not been reflected in changes in provision (see chart).

There are 18 significant subjects (42 per cent) within which the number of providers appears to have increased, while the number of students has either decreased or not increased in line with the average increase in overall student numbers. "To solve this problem, we need to look at strategic alliances across institutions," Sir David said.

The humanities have above average enrolment at 23 per cent (the average for all subjects is 18 per cent), with history increasing by 16 per cent, art history by 43 per cent, philosophy by 22 per cent, theology by per cent and archaeology by 95 per cent.

Spanish languages show an increase of 46 per cent. English has increased by 22 per cent - with 6,000 more students.

"These are significant increases at a time when the humanities are seen as beleaguered. But students are smart and know that a traditional humanities degree can give them a vocational edge in the expanding fields of culture and the creative arts," Sir David said.

Students studying subjects allied to medicine (including nursing) have increased by 92 per cent, while medics and dentists increased by just 16 per cent (despite the huge expansion of medical school places). Enrolments in the physical sciences have fallen, and for mathematical sciences increased by only 2 per cent.

Accountancy has lost students (down 10 per cent) while marketing and market research have increased by 52 per cent. Media studies have increased by 143 per cent.

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