Budget cuts could herald a price war for students

Sector leaders speculate that protection for unit of resource may be ending. Melanie Newman reports

May 7, 2009

Universities will be forced by Budget cuts to compete for student numbers on price, vice-chancellors fear.

There is speculation that the sector could face a 10 per cent cut in the number of fully funded student places and that institutions would have to compete for a tenth of total numbers on price.

Such a scenario, predicted after demands for cuts in the Budget, would mean the end of the historic protection of the unit of resource, one vice-chancellor said.

The Department for Innovation, Universities and Skills has been told to make savings of £400 million in 2010-11. It has emerged that the cuts are likely to hit the end of the 2009-10 academic year, upsetting universities' financial planning.

The Budget said savings would be secured by the use of benchmarking data; "greater contestability, particularly in commissioning new programmes and services" and "strategic reprioritisation and rephasing of programmes".

Les Ebdon, vice-chancellor of the University of Bedfordshire and chairman of the Million+ group of post-92 universities, said: "We think the larger share of the cuts will fall on higher education, if not the lot."

As science funding is protected, the teaching budget would probably suffer most, he speculated. "The big debate will be whether we respond to this by reducing the unit of resource, or whether we say that it is sacrosanct and that we have to reduce student numbers instead.

"Million+ universities are likely to say that reducing student numbers is not an option as it would be against our mission as leaders on access."

Professor Ebdon also speculated that the contestability requirement could result in the Higher Education Funding Council for England cutting student numbers by 10 per cent across the board and asking institutions to bid for the remaining numbers on the basis of price. "That was the method used by the Conservatives in Thatcher's day," he said.

If further education colleges with the power to award foundation degrees were included in any tender, he said, they would be likely to undercut universities.

Paul Marshall, executive director of the 1994 Group of smaller research-led universities, said such a radical move should not be introduced for 2009-10 after a "snap decision". He said: "It would be preferable to allocate cuts proportionally across all universities (in 2009-10)."

Wendy Piatt, director-general of the Russell Group of large research-intensive universities, said it was "unthinkable" that levels of funding per student could fall without harming quality. "Maintaining the unit of resource is sacrosanct," she said.

Although DIUS' provisional grant letter to Hefce earlier this year said that grants for the last four months of the 2009-10 year would be subject to Budget confirmation, the sector fears that Hefce may be making changes to its budget for the entire academic year.

"All budgets for the 2009-10 academic year are currently based on potentially huge shifting sands," a senior sector source said. "Hefce needs to make it very clear very quickly what is going on."

Hefce could not clarify the situation because it was waiting for information from DIUS. The final grant announcement for 2009-10 is not due until the end of July this year.

Philip Harding, chairman of the British Universities Finance Directors' Group, said DIUS' provisional funding letter normally provided a firm basis for planning. This year, however, finance directors were setting budgets as late as possible, and those who had already set them were "rapidly revising their one-year plans", he said.


Update: 7 May 2009

Higher education will have to find £180 million of the £400 million savings demanded from the Department for Innovation, Universities and Skills in last month’s Budget.

In a letter to the Higher Education Funding Council for England on 6 May, John Denham, the Universities Secretary, says the savings should be “spread across your current resources for teaching and your current resources for research”.

He adds: “Our overall funding to the council for teaching and research would grow by 1.7 per cent between 2009-10 and 2010-11, in addition to the 3.5 per cent growth for 2008-09. I would understand if this means the council needs to seek some savings in the 2009-10 academic year.”

Mr Denham also points out that inflation assumptions for the next two years have been revised down.

“I believe that it is imperative that the sector deliver realistic and affordable pay settlements in the light of falling inflation, the broader spending climate and the experience of those working in other sectors of the economy,” he writes.

The letter can be found at: www.dius.gov.uk/budget2009

- Melanie Newman

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