Market forces will spell the end of invincibility

September 22, 2006

It is only a matter of time before a British university goes to the wall, predicts Terence Kealey

The introduction of significant top-up fees marks the emergence of a market in British higher education. And while markets have winners, they also have losers. It is being reported that some universities'

admissions figures are down this year, and that some of those already face significant problems. In short, we are anticipating the bankruptcy of one or more British universities.J In the US, the home of the higher education market, going bust is a fact of life. The University of Bridgeport, for example, went bankrupt in 1992 and was saved only after the Reverend Moon's Unification Church took it over for $50 million. We must anticipate that more than one British university will follow Bridgeport's example - although not perhaps being rescued by a religious group.J In fact, there have been at least two recent examples of British universities hitting the edge financially. During the 1980s, University College Cardiff decided that Margaret Thatcher was wrong to cut their grants. And so they decided to spend the money they thought she should have given them. Not surprisingly, bankruptcy loomed and the institution was saved only after the Government forced a merger with a neighbouring body.

Similarly, during the 1990s, Lancaster University got into trouble over property and buildings contracts and it too needed financial support to get through.

Both institutions were, rightly, saved by Government, because neither Cardiff nor Lancaster could easily have suffered the loss of such important contributors to their local economies. Moreover, the culture of the day would not have accepted a university closure.

But the culture is changing. We live in a world that increasingly accepts market disciplines and, moreover, understands that the closure of failing enterprises is an integral part of a successful economy. Should a university approach bankruptcy over the next few years, we must expect the Government to allow it to go bust. Nevertheless, that will not necessarily be an easy decision for ministers.

In his autobiography, John Major spoke of his determination to close one of the London teaching hospitals, to emphasise that as Prime Minister he was not going to be a softer touch than Margaret Thatcher. In the end, however, he was forced to bow to public opinion, and the institution he was going to target - St Bartholomew's, founded in 1123 - was instead merged with the London Hospital. That saved Barts as an entity, although with much reduced autonomy and, incidentally, at no little expense to the Exchequer.

We might all rationally accept that hospitals, say, should close if the National Health Service is over-provided. But local opinion will always fight for local interests. Just as in Kidderminster, where a local doctor won a seat from Labour as an Independent MP in protest at the proposed closure of the local hospital, the prospect of losing a university is likely to arouse such local hostility as to render it almost impossible politically.

One exception to this rule, however, would be London. In the capital there is a significant oversupply of university places, more than one institution that is financially friable, and the scale of the city is so huge that the economic consequences of closing an institution would not be noticed. My guess is, therefore, that the first university that will be allowed to close in the UK for reasons of bankruptcy will be a London one.

The market in higher education is still extremely distorted. Not only are top-up fees determined by law (that is, there is little real economic freedom), but the funding councils allocate student numbers according to some central plan. That allocation has, to date, protected marginal universities. But I sense an increasing acceptance that such an approach is not in the long-term interests of students. As the Government's support for the National Student Survey adumbrates, there is a growing consensus at all levels that good universities should be allowed to expand and poor ones shrink or even close in response to student demand.J I believe that in the next few years the Government will allow at least one London university to either close or to urgently merge with a neighbour.

Such a merger will not be inexpensive, but it will send a powerful signal of student autonomy and choice in an increasingly globalised British higher education market.

Everyone knows the best universities are in the US because there is a higher education market there. I would welcome the liberation of the higher education market in the UK and, sadly, the resultant bankruptcies.

Terence Kealey is vice-chancellor of Buckingham University.

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