Ex-ministers warn UK universities will go bust without higher fees or funding

The current cap of £9,250 a year in tuition fees has been eroded by years of high inflation. Photograph: Sam Oaksey/Alamy

Vice-chancellors and former ministers are warning that the cash crisis facing universities is so serious that the next government will have to urgently raise tuition fees or increase funding to avoid bankruptcies within two years.

They said the state of university finances was more dire than revealed in last week’s report by the Office for Students, which forecast 40% of England’s universities would end this year in the red.

Vice-chancellors said that increases of between £2,000 to £3,500 a year for each student would be needed to stabilise the sector.

Two former universities ministers, the Conservative peer David Willetts and Labour’s Alan Johnson, plus the Labour peer Peter Mandelson, a former business secretary, all said there needed to be increased funding for universities as a matter of urgency.

Another former higher education minister, the Labour MP Margaret Hodge, said raising fees was “politically impossible” but that the funding system needed to be made more progressive.

The value of domestic tuition fees has fallen with inflation and universities are becoming increasingly reliant on overseas students who can be charged significantly more. Many in the sector fear Rishi Sunak will announce further measures to reduce international student numbers this week, to coincide with the publication of the latest UK immigration statistics on Wednesday.

Neither the Conservatives nor Labour is likely to want to focus on the issue before an election, with the idea of raising student fees particularly difficult for the latter party as its leader, Keir Starmer, had promised in his leadership campaign to scrap tuition fees, before a U-turn on that pledge last year.

Lord Mandelson, who is the chancellor of Manchester Metropolitan University, said he believed there would need to be “reform of the loans system”, as it was “so onerous at present”, but said he suspected that fees would have to rise in the short term.

The peer, an architect of New Labour, which introduced the tuition fee system in 1998, said: “Universities are under huge financial pressure both because their income is falling a long way short of their costs and because some in the government actually want fewer universities and access to them.

“This cannot be turned round overnight by a new incoming government but there will need to be some emergency uptick in resources to save both university teaching and vital research.”

Lord Willetts, who was the universities minister when the cap on fees were hiked to £9,000 in 2012, said: “I’m sure all the political parties will be tempted to try to avoid it but the costs of doing nothing are rising all the time. They are borne by students who have worse quality higher education experiences, and there will be an increasing risk of some universities going bust.”

Willetts, who is now president of the Resolution Foundation thinktank, added: “Universities may stagger on until the election but ignoring the problem won’t work for five more years.”

Johnson, a former education secretary who is now the chancellor of the University of Hull, said fees should “at least be restored to their pre-freeze value and then index-linked”.

“The threshold for repayment should also rise with the cost of living. The argument on deferred fees has been won, students understand that they’re a world away from credit card debt,” he added.

But Hodge, who helped devise New Labour’s policy as universities minister between 2001 and 2003, said increasing fees would be politically impossible.

“You’re probably lumped with the current system, in my view, just in terms of practical politics. We ought to move to a situation where fees go up with inflation. I think we should move to a rational debate around that. And if you left it to me, I would focus all the public subsidy on children from poorer backgrounds,” she said.

One vice-chancellor, Prof George Holmes, of the University of Bolton, said raising fees would be too unpopular with voters and unaffordable for students. Instead, he said he wanted central government to grant an uplift of roughly £2,000 for every domestic student, coupled with a cap on the number of UK students each university can recruit, to avoid a “feeding frenzy” of over-recruitment.

“My advice for any party: don’t do it, because students and their families won’t like it, and there’s a lot of students and they’ve all got families. You’ll be losing millions of votes, it’s not a smart move whoever you are. But you still have to address the university resourcing issue,” Holmes said.

Last year, Labour said it would bring down graduate repayments, with insiders saying it had been looking at a graduated repayment scheme. This would involve different repayment rates according to salary level.

Insiders said there was debate over the issue within Labour and that the party would need to see what it inherited from the Conservatives before making a decision on tuition fees and increasing maintenance for poorer students.

“The key thing is about making sure universities are still attractive to students. We have to make sure we focus on maintenance,” one Labour source said.

Prof Nick Braisby, the vice-chancellor of Buckinghamshire New University, said there was an urgent need for more support but that tuition fee rises alone would hit students, who also needed more support.

“If something doesn’t change in the next two to three years, the position is going to be very difficult. Something has to be done quickly, before the 2025-26 academic year. If it’s delayed much longer than that, some institutions will probably go under,” he said.

Braisby said the quickest option would be to raise domestic undergraduate fees from £9,250 but by less than the “psychologically important” level of £10,000.

“I think there is scope for a modest increase, up to £9,750. It would be an injection of funds, quickly, and would probably mean that the universities on the brink could survive until a longer review could be done,” he said.

Vivienne Stern, the chief executive of Universities UK, the sector’s main lobby group, said there were two big things the next government could do: reinstate raising tuition fees in line with inflation each year, and for ministers to stop using international students as a political football in the immigration debate.

Recent visa changes have led to a slump in international student applications, depriving universities of a lucrative source of revenue.

Last week, the Migration Advisory Committee reported that the graduate visa, which allows international students to stay in the UK for up to three years after completing a course, should be left alone. But the prime minister is said to be still considering further restrictions to bring international student numbers down.

“For God’s sake, stabilise international demand. It cannot be like this, we’re dealing with a boom followed by a bust,” Stern said.

“That boom to bust is an absolute disaster, and if the government closes the graduate route it could tip a number of institutions, who were otherwise managing, into a different position.”