UK academics undervalued by billions of pounds, says report

Analysis of ‘true economic value’ of sector says staff are essentially subsidising a broken system

June 23, 2022
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‘Taking the brunt’: undervalued staff in UK universities are propping up a system that is ‘in a state of extreme market failure’

Academics in UK universities are being undervalued to the tune of billions of pounds because the sector is “operating in a state of extreme market failure”, according to a damning analysis.

The report, which estimates the “true economic value” of higher education in the country, says staff are “taking the brunt” of a system that is “completely out of kilter”, mainly because domestic tuition fees and research income do not reflect the value of what universities produce.

It warns that without action to address these fundamental flaws, the sector will face a brain drain of top talent and a slide into mediocrity compared with other higher education systems around the world.

The analysis, by Ursula Kelly and Iain McNicoll of Viewforth Consulting, a specialist consultancy that looks at the economic, social and cultural impact of universities, uses economic theory to estimate the full value of universities’ teaching, research and other activities rather than relying on figures in published accounts.

It concludes that the total economic value of the sector was £44.96 billion in 2016-17 – the most recent year for which there was enough data for analysis – almost £10 billion more than the revenue actually generated by institutions.

This gap was caused primarily by two main factors: fee caps for domestic (and at the time European Union) undergraduate courses not reflecting the value of such teaching, and research income from public and charitable funders not matching the full value of research.

Most of the gap was bridged, the report says, by university staff, especially more senior academics of lecturer grade and above, who were being paid £5.35 billion less than their economic value.

The report says the implications of the analysis are “grim”, including a brain drain of “the most talented staff leaving the sector for higher paid careers elsewhere, in other industries or in universities abroad”.

It also warns of “continued financial instability” and “increasing numbers of institutions teetering on the brink of insolvency”, while the cap on domestic fees will mean too many students “being taught at too low levels of quality”.

The analysis adds that “far from the popular notion that UK universities are ‘marketised’”, the UK system is “operating in a state of extreme market failure, trapped in a vicious circle of mediocrity by a government-imposed straitjacket of administered prices and micromanagement”.

Ms Kelly, the director of Viewforth, said she and her co-author, Professor McNicoll, who is also emeritus professor of economics at the University of Strathclyde, were struck by how their analysis chimed with today’s reality.

“What people are saying from sheer observation of the sector at the moment is that the sector is in a mess…with industrial disputes, with students complaining, with government complaining. Nothing seems to be working at all. Reality is reflecting what we are predicting,” Ms Kelly said.

Earlier this week, a survey published by the University and College Union found that staff in UK universities were working on average more than two unpaid days each week, with some in early career roles clocking up almost double their contracted hours.

Similar conclusions around economic shortfalls on research and domestic teaching have also been reached by a sector analysis called the Transparent Approach to Costing (Trac).

However, Professor McNicoll said that while the principle of Trac “could be made to work”, it was flawed because it was using actual staff pay in accounts to make its calculations rather than academics’ true value.

Viewforth estimated the real economic value of staff by using a technique called “shadow pricing” to look at what staff with similar skills were paid in other industries and in more competitive higher education sectors, principally the US.

The Viewforth report accepts that a potentially controversial ramification of its analysis is that fees should be unregulated, but Professor McNicoll said that if this were to happen, access for disadvantaged groups could be addressed in a much more “transparent” way by society agreeing who to support and how.

Alexis Brown, director of policy and advocacy at the Higher Education Policy Institute, said the eroding value of domestic fees, which high inflation was now accelerating, meant that “at some point something has got to give” with the current system.

Although she did not think institutions would fold, a “real problem” that was already playing out was that universities would simply take “diminishing numbers of domestic students”.

“Domestic teaching is becoming a loss-making activity. There are only so many ways that universities can respond to that,” she said, with other unpalatable options being a greater reliance on international students, increased student-to-staff ratios or the use of casualised contracts for teaching staff.


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Reader's comments (7)

The authors imply that the economic value of HE either in part or full flow to academic staff, ignoring any investment risk absorbed by funders, primarily the taxpayer and students themselves. Although HE has reluctantly evolved somewhat during Covid, the real question is how can institutions increase productivity in a way that would make remuneration increases anything other than rent-seeking. Averting productivity increases by migrating cost-disease to students and taxpayers will not produce a sustainable solution, and will likely further decrease our sector's trust and credibility with the public.
Because the sector is “operating in a state of extreme market failure. Never a truer word was said. Many institutions in HE sector in the UK are riddled with agency problems, poor internal governance, rent seeking and other issues. What about the thousands of pounds of bonuses/retention payments to managerial staff in some places, thousands paid to select academics as market supplements or such arrangements sometime purely for the purposes of the REF? Much of this is due to poor governance and lack of any credible oversight. To build excellent institutions you also need excellence in leadership. Interesting to note that the report notes that the HE is "trapped in a vicious circle of mediocrity" - According to the latest REF "REF has recognised the wide distribution of excellent research – both across the UK, with over 80 per cent of research judged to be world-leading (4*) or internationally excellent (3*) in each UK nation and English region; and across a broad group of universities, of all sizes and types, with world-leading quality identified in 99 per cent of participating universities."
"Viewforth estimated the real economic value of staff by using a technique called “shadow pricing” to look at what staff with similar skills were paid in other industries and in more competitive higher education sectors, principally the US." This approach is "Fairy Land", completely pointless and "proves" nothing of importance. "Shadow pricing" as a concept achieves nothing practical and is doomed to failure. How on earth do they define "real economic value"? There is nothing real about this artificial figure. The results are worthless, as far as policy is concerned. What is real, is the actual money paid to the staff. It may not be what they would like to be paid and there may be many people outside the sector who believe they should be paid more. Ask all public sector workers if they think they are paid their "real economic value" and over 90% would say they were worth more. (Probably 70% in the private sector) If people want to move, to earn more, let them move. The dire consequences forecast above will never come about while there are other people willing to replace those doing the current work. No one is forced to be an "underpaid" professor / researcher etc and so far, the wider public are not convinced the world will end because of so called "under funding".
Looking at actual pay is useless to determine if that pay is fair or not. It is like looking at a company's current stock price to determine if it is fairly priced. Looking at actual pay is useful if one wants to check for example if the pay differential between a professor and a research asssisant are justified (even if both are underpaid/overpaid in the same way). Arguments such as no one is forced to be an "underpaid" professor type arguments is just very cynical and unhelpful. By this argument, no one should protest against anything that is unfair, unethical and so on. If I see something unfair or unethical that happens in my company, in my neighbourhood etc. I just move? What is needed to counter arguments such as those being made in the article is convincing arguments for why one thinks the current market rates are right.
The system in my area is only kept going because there is a string of overseas staff prepared to apply for posts. I cannot remember the last time that a shortlist included a home candidate. It is great to have a diverse range of nationalities in the department but home students have already figured out that being an academic is not a good deal anymore. Engaging in years of extra study to start (at age 26 or 27) on a salary that equates to a ticket collector on the trains if the BBC is to be believed is not appealing!
Price fixing (e..g, tuition fees) doesn't work - who would had guessed?!?
Indeed. That is totally nonsensical. Most staff will not see a penny of the increased revenues reflected in their pay. If they did, maybe they would be more willing to take on some of extra workload. In many places research budgets have been severly cut even when rankings supposedly have gone up.