Analysis: Stretched system set to snap?

Vice-chancellors are meeting next week to decide the future of a sector pulled in different directions by a new Labour government that wants universities to do it all.

UK higher education is not "fit for purpose" and needs radical change. This is the issue on the table for university chiefs at their annual residential meeting in Southampton next week.

It comes in a discussion paper by Sir David Watson, director of the University of Brighton and chair of Universities UK's longer-term strategy group. He will report that despite success against the odds, the costs of maintaining the higher education system as it is outweigh those of changing it.

The paper says that tensions in its structure and function have been created by new Labour's agenda, which demands that universities be globally competitive while making themselves accessible and equitable to promote social inclusion.

The pressure to "do it all" has raised "questions about alliances, potential mergers and whether, with a large number of relatively small higher education institutions, we have a system that is fit for purpose".

Sir David has drawn on one of the most comprehensive quantitative statements on the shape, size and financial position of the sector, bequeathed by Brian Ramsden, retiring chief executive of the Higher Education Statistics Agency.

Professor Ramsden's research, Patterns of Higher Education Institutions in the UK , uses all data collected by Hesa since the 1994-95 academic year, when it began operating, to 1999. The paper charts five years of change since the merging of the polytechnic and university funding agencies and looks to a future of challenges: financial, structural and those that arise from global and technological environments.

Financial stability

The sector shrank from 183 institutions in 1995 to 169 in 1999. Student numbers rocketed by almost 20 per cent to 1.85 million by 1999.

Against this growth, fuelled by increased overseas recruitment and part-time undergraduate recruitment, income rose by only 7 per cent in real terms, largely from sources other than planned public funding.

While the sector has reported an overall surplus in each of the past five years, it has never achieved the 3 per cent retained surplus recommended by funding chiefs for stability. Some 40 per cent of institutions met the 3 per cent target in 1998-99, but only 36 per cent have achieved an average above 3 per cent over the past four years.

And even this modest overall surplus conceals major variations between institutions.

While each year a small minority of institutions may achieve a surplus of up to 10 per cent, some 25 institutions returned a deficit in 1998-99, more than in any year since 1995-96. Of the 25, 15 reported deficits in two or more of the four years.

Professor Ramsden looked at a number of indicators of financial security: profit and loss, liquidity, retention of reserves, servicing of borrowing and dependence on international student fees.

He found that the number of days an institution could continue to function if its income stream were cut has slipped from a median of 61 days in 1995-96 to 49 days in 1998-99, "despite the fact that a significant proportion of the consolidation within the sector during the period has been related to financial weakness on the part of a small number of institutions".

Dependence on overseas student fees has increased, adding to vulnerability "because the market is essentially volatile".

Non-European Union fees make up almost 10 per cent of teaching income - more than £600 million annually and up from 7.8 per cent in 1994-95. But there are big variations between institutions. Three London institutions account for more than 10 per cent of the sector's overseas fees income, earning more from non-EU students than the overseas fee income of the bottom 85.

Institutions vary according to their dependence on funding council cash. Money from the Higher Education Funding Council for England as a proportion of an institution's total income ranges from 8 per cent to 73 per cent, with a clear split between old universities least reliant on the income, and specialist teaching institutions most dependent.

But with a nod to the merger debate, a special security index formulated by Professor Ramsden finds "no linear relationship between the size of an institution and its financial security".

Mission diversity

Professor Ramsden also paints a clear picture of the sector's diversity, which is particularly apparent in terms of research activity. He measures this according to the public funding received for research activity from Hefce and the research councils. He finds that at one extreme, the ten most research-intensive institutions, all old universities, received 43 per cent of the total research funding available. The ten least active, all specialist colleges, received none.

Great variety is also apparent in the proportion of postgraduate students institutions take on. There are 20 institutions in which postgraduate provision constitutes less than 10 per cent of all teaching provision, predominately specialist or general colleges. At the other extreme, there are four institutions composed entirely of postgraduates and one institution with more than 80 per cent postgraduates.

Access and participation

The sector's diversity becomes particularly apparent when it comes to widening access to non-traditional students - perhaps the biggest challenge it faces, according to Sir David.

Professor Ramsden says the best available measure of non-traditional entrants is the proportion of those accepted by institutions onto full-time undergraduate programmes who have entry qualifications other than two A or AS levels or Scottish Highers. He finds that a median of 33 per cent of accepted applicants have non-standard entry qualifications, but this varies from less than 1 per cent at one institution to more than 70 per cent at another.

The extent to which institutions serve local needs is also taken into account in the access debate. There is a "considerable variation in the extent to which full-time undergraduates are recruited from the immediate locality of the institution", Professor Ramsden says. While a majority of institutions take more than half of full-time undergraduates from an area within 50 miles of the location of teaching, some, notably in London, Glasgow and Belfast, recruit more than four-fifths from the local community. Some institutions, largely in less densely populated areas, take fewer than 20 per cent of their students from the local area.

"It would be disingenuous to suggest that this disparity was not related to the extent to which some institutions are able to, or seek to, attract students from greater distances than others," he says.

He finds a clear correlation between students' average A-level scores on entry and the distance travelled by full-time first-year undergraduates. Students travel an average of 84 miles to the ten institutions with the highest A-level entry scores, compared with 54 miles to those in the lower decile.

There are also wide variations in the proportions of mature students following full-time undergraduate programmes, another access indicator. There are no old universities among the ten institutions with the highest proportion of full-time mature students (an average of 45 per cent). In the lowest decile, where mature students make up just 15 per cent of the full-time population, all are old universities or specialist music colleges.

Professor Ramsden identifies dramatic differences in the proportion of ethnic minority students at institutions. Most universities have fewer than 10 per cent from ethnic minorities, but the ten least ethnic minority-intensive institutions have an average of just 3 per cent. This contrasts with the top decile, where ethnic minorities make up an average of 33 per cent.

"A very small number of institutions are responsible for the teaching of a very high proportion of the students from ethnic minorities," Professor Ramsden says.

Sir David says universities must tackle access at a fundamental level:

"Evidence demonstrated that the focus needs to be the 14 to 19 age group in order to achieve equity of access to higher education. The higher education sector needs to link more organically with schools and further education to encourage staying-on and provide progression routes for students so that they can be recruited and retained in higher education."

Subject demand

The period of Professor Ramsden's study has also seen shifts in the popularity of subject areas, with media studies courses fuelling growth of more than 30 per cent in the category of librarianship and information science courses since 1995, and the explosion of information technology helping secure growth of more than 30 per cent in computer science. This is accompanied by a reduction in courses such as engineering, architecture, building and planning.

But such shifts have not been accompanied by significant convergence or divergence of academic mission, Professor Ramsden says.

While some institutions have rationalised their provision by removing unpopular subjects, other institutions have extended offerings, as student numbers in their traditional area of expertise have fallen. But pre-1992 and post-1992 institutions, and specialist and generalist colleges have all been involved in both types of repositioning activities.

Mergers since 1994-95 have seen a fall from 45 to 31 in the number of specialist institutions, which teach a total of 36,000 students or 2 per cent of the sector's students. Most institutions teach across at least two-thirds of the 19 conventional subject areas.

Despite this, with a nod to the merger-collaboration debate, Professor Ramsden notes: "There would appear to be some scope for rationalisation of subject provision, especially in subjects which are widely taught, with comparatively small student enrolments: such rationalisation is an obvious focus for strategic alliances between neighbouring institutions."

The case for merger

"At the time of writing this report, there appears to be a general expectation within the sector that the comparatively modest rate of consolidation which has occurred during the last few years will accelerate in the context of growing international competition, the need for investment in new technologies and continuing pressure on resources," Professor Ramsden says.

With a view to this, he examines the case for merger. "Does the UK need as many as 170 institutions?" he asks.

While Britain has 170 institutions supporting a population of 59 million, France has just 100 supporting a similar populace. In Canada, some 92 institutions support 30 million. Although Professor Ramsden makes no conclusion on this, the theme will be picked up by Sir David. "The Ramsden report finds that UK higher education institutions are generally smaller than those in other OECD (Organisation for Economic Cooperation and Development) countries, and many other countries operate on the basis of a smaller number of institutions per head of the population," he says.

With regard to the economies of scale, Professor Ramsden finds a strong correlation between the administrative cost of a full-time equivalent student and the size of an institution: the bigger the university, the cheaper the administrative costs.

The administrative costs per FTE student range from £648 in the lowest decile of universities to £1,887 in the top decile. The mean is £945. The average number of students taught in universities at the expensive end of the scale is 2,480 students, compared with 15,430 in the lower decile.

Professor Ramsden analyses three mergers in the sector, where the factors before and after can be clearly quantified. "In all these instances, the merged institutions showed a reduced administrative cost per FTE, and in two instances the same was true of premises expenditure per FTE."

While studiously avoiding any firm policy directions, Professor Ramsden says his findings "suggest" that "in cases in which an institution is the subject of financial pressures, evidence suggests that absorption into another stronger institution will lead to a merged institution which is stronger than the sum of the parts. This is precisely the issue which institutions contemplating merger need to address and satisfy."

With regard to collaboration, the financial benefits are less clear: "More generally there would appear to be some scope to reduce overheads costs of the higher education sector through consolidation or collaboration," he says. But Sir David warns that the scope for cutting overheads through collaboration is "limited".

Against this, he says, there is a general sense that the funding councils, while not seeking to impose a planned system of higher education, are encouraging closer collaboration to enhance the student experience and reduce overheads.

But as Sir David says: "The earmarked funding for consolidation and collaboration, recently doubled in England, has yet to be fully committed in response to institutional proposals."

Professor Ramsden's report, Sir David will argue, provides a definite direction for the sector's future: "It is clear that there are benefits to be had in changes to sector organisation, many of which can be gained through collaboration and strategic alliances between institutions. Such alliances can help institutions to deliver progression, increase participation and maintain diversity."

But "collaboration should not lead inexorably to merger and effective regional or networked collaboration that meets the needs of all involved could help avoid it," he says.

Professor Ramsden's report shows there is no direct association between aspects of performance - such as curriculum spread, research selectivity and financial security - and institutional type. "This is why a simple blueprint for sector organisation is not the best way forward," says Sir David. "One size does not fit all and there will be different solutions in different localities and regions."

Because there is a convincing argument that the sector organisation is not "fit for purpose", he says, it "seems an appropriate moment for Universities UK to take the initiative in raising awareness and lobbying for positive investment for institutions to restructure themselves and plan systems on a municipal or regional basis in order to deliver progression and increased diversity and maintain diversity".