Westminster Higher Education Forum keynote: Next steps for the financial sustainability and long-term funding of higher education in England

For those of you who don’t know, GuildHE is one of three formal representative bodies in higher education, representing around 70 diverse institutions. Our members, renowned for their practical, industry-relevant education, research, and innovation, range in size, location, and corporate form. They meet critical 21st-century skills needs and significantly contribute to regional growth, industry development, and the national economy. The diversity of our membership enables us to have a unique and valuable perspective on the challenges and opportunities within and for the sector at any given time, so I am delighted to speak to you today about our take on the future funding of the sector, some of which very much echo the discussions we have heard so far.

The higher education sector is currently navigating a policy landscape characterised by high volatility and frequent, minor changes, which present numerous challenges. Although the DfE's decision to allow the sector considerable autonomy in implementing the 'vision' of the post-16 white paper is appreciated, the pronounced absence of systems leadership is a significant concern. This vacuum leaves the sector vulnerable to short-term political agendas, rather than being guided by a long-term strategy designed to safeguard the qualities that make it globally renowned.

The OfS Financial Sustainability Report recently indicated a significant variation in performance across different types of institutions, despite the fact that the actual number reporting deficits in 2024-25 was lower than anticipated. If student recruitment stagnates or falls, the English higher education sector faces significant financial risk, with projections indicating that between 58 and 70 per cent of institutions could report a deficit by the 2028–29 academic year. The sector has made significant strides in cost reduction through internal change programmes. Evidence of this widespread activity is maintained by UCU, which estimates that approximately 110 Higher Education Institutions have carried out redundancy exercises within the last three years alone. Large multi-faculty providers remain most at risk, and confidence that the sector overall can improve its financial provision without structural funding reform is low.

Discussions of a new funding model for Higher Education are therefore vital. To preserve our globally renowned and impactful sector, we need to make the case for maintaining and really increasing public investment. The current funding model is unsustainable both for HE providers and students. We also cannot simply continue to increase income through increasing tuition fees alone. Long-term, we wish to see a rebalancing of the financial contribution between government, students, and other interested parties, including employers.

Employers are particularly interesting because successive governments have put more responsibilities on them to help define the skills landscape, but aside from the apprenticeship levy, which only affects large businesses, there has been very little financial investment by industry in education. The Learning and Work Institute estimates that UK businesses spend about half the EU average per employee on training, with overall investment falling by around 27% over the last decade. Where there is investment, it is usually not in formal qualifications that they are helping to design, but in-house activities such as health and safety.

However, given the current fiscal constraints and a perceived lack of strong public support for the sector, increased public funding is a challenging proposition, and we know businesses are also under immense financial pressures too. However, I believe much of the negative sentiment we hear misrepresents the profound value higher education offers in advancing the economic and cultural standing of our society.

Picking up on an earlier question about how this is a global policy problem - we think refocusing the discussions about the value of HE into broader terms would set us apart from our counterparts who have all developed a dominant economic case for investment in HE - broadening this out to the public benefit is core to designing a new resilient funding methodology for higher education.

Higher education's value is often narrowly assessed through individual return on investment, focusing primarily on graduate salaries and student debt. While these are important, they overlook the broader benefits that higher education generates. The contributions of higher education extend far beyond individual qualifications, encompassing vital roles in research and innovation and economic productivity, support for essential professions, regional economic development, and the wider strengthening of communities and civic life. Crucially, our teaching mission and our wider contributions are interdependent: without teaching, this other work is impossible, and without this other work, our teaching would not be world-leading.

Beyond the economic contribution, extensive research demonstrates the profound societal value of higher education. Populations with higher education levels exhibit stronger health outcomes, enjoy greater longevity, are more politically engaged, and report higher levels of happiness across several key measures. This non-economically derived value is substantial and serves to quantify the less tangible, yet very real, benefits delivered by our sector.

This broader perspective, however, is frequently absent from national conversations and in the ways policies are developed. I can’t think of any examples of where changes to teaching or research and innovation funding have been evaluated for their impact on each other or on society more broadly. In the context of intense scrutiny over the balance between public and private funding for higher education, the HE sector must develop a more compelling and confident articulation of its broader societal value. Simultaneously, policymakers must adopt a more holistic understanding of the entire higher education ecosystem when determining funding mechanisms.

The call to measure the wider public value of higher education dates back to the 1963 Robbins report. Despite this, we have seen no evidence that any subsequent government has made a concerted effort to do so. I firmly believe that the fundamental financial reform HE requires will not be achieved without this measurement. Therefore, over the next 12-18 months, GuildHE will be prioritising better communication of the broader impact HE providers have on our economy and society. Our case studies, such as the example of Falmouth, strongly demonstrate the significant role that a university can play as a major driver of regional development, both economically and culturally. This is further supported by substantial research, including work by the APPG for Creative Health, which clearly maps the considerable contribution of culture and arts education to the health and wellbeing of our society.

The Industrial Strategy requires HE to supply skilled graduates and drive research in priority areas. While funding for these strategic areas (e.g., i8) is rational, the overall reduction in HE funding means this prioritised support now dictates funding at the expense of other subjects, jeopardising those programmes. This includes exposing subject like agriculture which are vital to our national food security but are not actively captured in i8 priorities.

Historically, HE funding consisted of grants via a general formula, covering high-cost and specific student profiles (such as part-time, accelerated). This was supplemented by competitive funding streams for government priorities, such as the short course trial for the LLE, apprenticeship/Levels 4-5 development, and student mental health support projects.

However, the current situation is marked by a significant shift. There is now no competition funding within the Strategic Priorities Grant allocation. Instead, a series of cuts has been implemented and a freeze on competition funding. These cuts have effectively forced the SPG to be channelled exclusively toward funding the DfE’s strategic priority areas.

Similar trends are also evident in research funding. While we welcome the commitment to fund the full cost of research and supporting some level of specialisation, this is not supported by a commitment to equal research investment across disciplines; consequently, less research will ultimately be funded. We want the government to address the systemic bias in research funding, such as QR funding and expanding eligibility for infrastructure funding. Transforming the HE Innovation Fund to ensure equitable access to research funding for all institutions is also desperately needed.

The government may indeed intend for funding changes to reduce the volume of teaching and research in other subject areas, but I'm not convinced that a long-term view has been taken on what this will mean for the education infrastructure we may need for 20-50 years' time. There is a reason why we are seeing a shrinking in arts and humanities programmes - it is not because employers do not wish for these skills (in fact, the opposite is true) but in most cases they are more expensive to teach than the funding received through tuition fees, with very little additional grant funding available.

The rapid emergence of artificial intelligence also presents significant challenges, including the risks of misinformation, threats to academic integrity, and evolving skills requirements. A core focus for GuildHE members is on equipping students with essential critical thinking and media literacy skills, enabling them to navigate misinformation effectively and engage responsibly with AI technologies, something which we feel the whole sector should be thinking about.

GuildHE advocates for sector-wide collaboration between government, regulators, and HE institutions to secure investment in digital infrastructure, enhance staff capability, and develop robust ethical frameworks. But we also must protect arts and humanities disciplines as they are essential for training socially conscious citizens, vital for navigating the digital world and combating threats to free thinking. These crucial disciplines are currently undervalued and are being ignored through the i8 and economic return lens.

HEIs face significant pressure to cut costs through shared services, mergers, and collaborative partnerships. Recent high-profile examples include several mergers and successful partnerships over the last five years, notably in our membership the formation of the new Health Sciences University from two specialist healthcare institutions, which will be discussed later.

Mergers can be a compelling opportunity but only if there is a legitimate and long term benefit to do so. There is also no guarantee that they cut any cost to delivery, and at the point of their development are very expensive and time-consuming activities.

GuildHE has been collaborating with the UUK Transformation and Efficiency Taskforce, and we’ve run development programmes for our members on governance, AI, and leadership. However, shared services, often cited as a solution, face significant barriers - notably VAT issues. The government must review VAT legislation, as it currently inhibits collaboration.

We also feel it is important to highlight that the rigid and overly demanding regulations imposed by the Office for Students (OfS) are having a detrimental financial impact on HE providers now. GuildHE contends that the OfS has exceeded the scope outlined in the Higher Education and Research Act (HERA) 2017 and proposes replacing the current market-led, technocratic approach with a collaborative model focused on efficiency, flexibility, and transparency.

The regulator's current overly-prescriptive methods risk unintended standardisation, which stifles both innovation and the sector's ability to genuinely meet the diverse needs of students and the labour market. The OfS must simplify processes, relax its rigid framework, and provide clarity to enable the sector to innovate, achieve greater efficiency, and deliver the modern, flexible programmes essential for today's world.

One of the current suggestions made about the future of HE funding is to link access to grant funding with TEF awards. We fundamentally oppose linking HE grant funding to TEF awards. The global reputation of UK HE stems from world-class quality across the sector, with nearly all providers surpassing international benchmarks for retention and student success. Our HEIs should not be penalised by the controversial and ineffective TEF, which aims to divide the sector rather than promote enhancement.

Our reliance on graduate outcomes data as the primary gauge of quality and impact must also be diminished. This data is, at best, a short-term indicator of labour market activity. We need to develop new metrics of value that accurately reflect the multifaceted contributions of graduates across all disciplines to society, extending beyond, but certainly including, economic impact.

We think now is the time to rethink and re-evaluate how HE policies have impacted students, society, and the economy. Policy design needs a long-term vision for how HE institutions can meet 21st-century societal needs. While the sector is committed to reviewing costs and exploring collaborations and efficiencies, this is unlikely to achieve substantial cost reduction. Mergers are time-consuming and don't guarantee savings. Similarly, shared services are not a simple solution, requiring significant resources to establish and maintain long-term.

Our financial reform priorities are clear. We must rebalance student finance by opposing funding increases achieved solely through index-linked tuition fee rises, as this unjustly increases student debt and ignores the wider public benefits of HE. Changes to loan repayment terms must avoid regressive taxation, be assessed for generational impact, and the currently profitable system must be made cost-neutral. We urge the reintroduction and extension of means-tested maintenance grants for all students, including those on flexible courses such as at weekend to ensure equality of opportunity and success. All courses should be LLE eligible, which is especially vital for creative industries where 40% of the workforce are self-employed and requires self-funded flexible CPD.

Without a better student finance package, meeting government ambitions to tackle societal inequalities will be impossible, as many young and mature learners who could benefit from HE are currently excluded by cost.

To ensure that the sector receives the appropriate level of funding to support our globally renowned student experience, we also need strategic and long-term grant funding allocation. As I said earlier, the Strategic Priorities Grant should be used to support high-cost funding for all courses, not just those in the current STEM/I8 disciplines. The government must also maintain investment in shared infrastructure, such as Jisc, which provides essential digital infrastructure like the Janet network, which is a vital service for the UK research and education community, and incorporates strong, built-in cyber-defences.

There are also a number of low/no-cost changes we would like to see, which would support sector finances, including transitioning to a more evenly distributed SLC payment approach such as 33:33:33 or 40:40:20. This would require a one-time adjustment to the payment schedule across financial years but would be cost-neutral for the government while significantly improving cash flow for providers.

The unresolved tension between HEIs' public status and their autonomy, particularly regarding pensions, is a major issue. A cost-side solution requires granting HEIs genuine autonomy to choose pension arrangements, free from the costly legacy defined benefit schemes (TPS, LGPS). The current system is highly inequitable; newer providers avoid these schemes, while post-92 institutions face significantly higher employer contribution rates than pre-92 institutions. This asymmetric system imposes vastly different employment costs, dictated solely by when an institution gained HEI status, making the largest cost component historical. We don't believe this is sustainable in the long term, especially when other types of education providers in TPS have received additional financial relief.

We also maintain our strong opposition to the International Student Levy. We believe this is a poorly designed policy that is highly likely to damage the quality of the student experience rather than improve it.

Perhaps a radical idea, but a significant argument can be made for the Department for Education to leverage funding from other departmental budgets to support higher education delivery. We have seen limited examples, specifically in healthcare, where some Department of Health funding has provided additional SPG support for clinical high-cost areas on a one off basis, but more could certainly be done.

As the convenor of skills funding for the whole of government, the DfE should be empowered by the Treasury to engage in conversations with other departments that directly benefit from HE skills, innovation, and research. As a partial outsider, it seems to me that this joined-up thinking is not always occurring, and other government departments are not always equipped to provide direct additional support to the sector.

A new funding approach must prioritise the preservation of the sector's rich diversity and specialist provision. Our diverse higher education institutions—conservatoires, smaller universities, and specialist institutions—are a national asset. This diversity offers greater student choice, provides graduate employers with wider access to talent, is more agile, provides a more personal student experience, and encourages new approaches to research and engagement with business, industries, and charities. Ultimately, diversity enriches the social, economic, and cultural prosperity of the UK's communities and regions. GuildHE members provide a unique learning experience.

It is therefore essential that the funding system is structured to safeguard and support the varied nature of higher education providers. At the moment smaller or specialist providers are frequently excluded from teaching and research funding opportunities because of the perception of limited scale or scope. However, our experience demonstrates that when we do receive additional support, we generate significant returns that substantially exceed those of our larger HEI counterparts. In 2021, a targeted grant of £200,000 per institution was distributed to those that typically do not reach the standard threshold for flexible HEIF funding. This funding represented a critical validation of the role knowledge exchange partnerships play in driving national economic growth, specifically for practice-led, specialist and vocational institutions. In 2022, this commitment was maintained, with a repeat grant issued. In our research, when size was considered, many GuildHE institutions punched above their weight. For example, RADA rose from 20th in the country to 1st for consultancy services to large businesses and Harper Adams University moved from 35th to 6th for contract research when student numbers were considered.

Dedicated funding for diverse HEIs is also vital to protect nationally important, highly specialised institutions. One of the reasons why our system is globally renowned and we have a strong creative industry is due to the variety of HE we offer and the importance of specialist creative institutions. While vital for specialists, the competitive nature of World Leading Funding creates winners and losers, even when educational quality is comparable. Past criteria lacked transparency, hindering unsuccessful applicants' ability to improve. "World Leading" status also often incorporates research and Knowledge Exchange (KE) output as part of a global brand, leaving many smaller HEIs unable to compete with institutions with long-established research departments.

Whilst we do not wish to see the end of the World Leading funding, it only supports institutions with strong international reputations and overlooks those who are regionally significant, providing specialist training in underserved areas, or offering community facilities that benefit the public, economic growth, and innovation at home.

We therefore propose expanding the world-leading and performing arts specialist funding pots and developing a new high-impact grant for specialist institutions that are regionally or nationally important to growth in all disciplinary areas to maintain domestic specialist institutional options. If we don't actively support specialist institutions, it jeopardises the agility and responsiveness of our institutions to students and industry.

Specialist funding is vital, as political and policy shifts disproportionately affect small providers. Factors like changes to international student recruitment, SPG, and National Insurance increases have made some providers financially exposed, as shown in the rationale for the Cranfield University/King's College London merger. Some specialists are merging for scale, but the risk remains that more will be compelled to merge with larger HEIs to survive. The long-term danger is that highly specialised activities will diminish under multi-faculty influence. Cranfield's full absorption by King's, rescinding its name, brands, and campuses, exemplifies this risk.

As Professor Randall Whittaker, Principal and CEO at Rose Bruford College, has argued...
“When a small, practice-led arts institution is absorbed, it rarely blends; it dissolves. Studios become seminar rooms. Ensemble training becomes optional. Niche disciplines disappear in the name of efficiency. Scale rewards the generic; creativity thrives in the specific.”

This is true in all disciplines and is why we must ensure that the policies that are imposed on the sector take a systems view of what that may or may not do to the specialisms we have.

In conclusion, the time for small adjustments is over. We require bold, structural reform to secure the future of UK higher education. The government's approach to the sector is notably short-termist. This is evident in the way funding is channelled towards Industrial Strategy priorities without fully considering the broader societal benefits that HE delivers—such as improved health, wellbeing, and community and democratic engagement.

By increasingly viewing HE solely as an economic driver, and reflecting this limited perspective in funding decisions, the government fundamentally reduces and fails to acknowledge the wider, essential value provided by a robustly engaged higher education ecosystem. Unless this shortfall is addressed, we will continue to delay meaningful progress and fail to see any significant change in the public funding settlement for the HE sector. Given that we derive the majority of our income from public funding, there is a limit to the internal and structural reforms we can absorb on our own. Whole systems leadership for a longer-term view on the essential quality of HE to our modern democracy is what's needed. We now must all work together to set out a wider public benefit in measurable and tangible terms to build support for a different funding settlement in future.