Specialist providers buck downturn due to ‘limits on expansion’

Small and specialist institutions in England may be faring better financially than traditional universities as they have not experienced the boom and bust of recent years, according to experts, but risks remain as larger providers look to scoop up leaner ones. 

A recent report from the Office for Students analysing the higher education sector’s financial sustainability found that, as a whole, surpluses had increased by 14.7 per cent compared with last year, but that the improvement was driven “primarily by providers in the medium, smaller, specialist creative and specialist typology groups”.

“The aggregate gains for these cohorts more than offset a deterioration in performance among larger research-intensive, larger teaching-intensive and Level 4 and 5 providers,” the report said. 

This appeared to buck predictions that it would be the smaller institutions that would fare worse in the financial crisis, with many forecasting they might be swallowed up by larger universities.

As a group, smaller providers recorded a surplus of £139 million in 2024-45, up from £62 million the previous year. This figure is forecast to increase to £390 million by 2028-29, although the OfS has warned against “persistent over-optimism” in sector projections. 

Specialist creative providers reported a communal surplus of £77 million in 2024-25 and specialist providers a £92 million surplus in the same year.

In comparison, large teaching-intensive providers recorded a communal deficit of £88 million in 2024-25. Larger research-intensive providers reported a surplus of £542 million, but this was down from £560 million the previous year. 

However, the OfS noted that there were wide variations among individual providers within these groups.

Brooke Storer-Church, chief executive of GuildHE, which represents non-traditional institutions, said the analysis reflected the experience of her members. 

She said this was the “silver lining” of a funding and regulatory system that has been designed around large-scale, multi-faculty universities. 

“Our members’ experiences of the sector are marked by high levels of inflexible regulation, low levels of funding, and constraints on expanding or developing new income streams due to their size or specialisation,” she said, meaning they have historically had a limited ability to introduce new programmes or grow international student numbers. 

“Because they haven’t been able to avail themselves of those more recent market-driven manoeuvres, they have not been as impacted by changes in immigration policy or other policy changes that result in immediate destabilisation of their finances.”

Edward Venning, managing partner at Six Ravens Consulting, agreed that specialist providers “never had the fat years, so the lean years present fewer terrors”. 

He added that specialist providers tend to be more financially conservative and less risk-averse owing to the high delivery costs they commonly face, while their scale allows them to respond more quickly if they do need to cut costs. 

But both Storer-Church and Venning warned that this does not mean smaller and specialist providers are immune to the wider financial challenges facing the sector.

The OfS report noted that, among the provider categories reporting overall increases in surplus in 2024-25, “a significant proportion of providers experienced a decline in performance”. 

Specifically, between 40 and 50 per cent of providers in the medium, smaller and specialist groups reported a decline in surplus, the OfS said. 

Smaller providers have higher unit costs and these providers may struggle to raise capital when they are in need of extra cash, Venning said. 

“In such cases, joint ventures and mergers may become unavoidable to sustain [a] competitive position,” he continued, pointing to the recent announcement that specialist postgraduate institution Cranfield University will become part of King’s College London.

Storer-Church said there needed to be “wholesale funding and regulatory reform to ensure the survival and sustainability of our world-leading specialist institutions and those smaller-scale institutions”.

helen.packer@timeshighereducation.com