2 July 2020

Universities can guide the UK economy out of the Covid dark

By Giles Carden

While much ink has been spilled on the unprecedented challenges facing many areas of the economy, the deep and worrisome threat coronavirus poses to the university sector has perhaps gone under the radar.

Millions of pounds of summer term accommodation fees have rightly already been refunded to students impacted by Covid-19. But that’s just the start. The possibility of a second wave, tighter travel restrictions and the prospect of international students deferring their places (a trend seen in Australia) are major threats to the sector’s financial sustainability.

The sector has been criticised for its dependence on Chinese students, but years of economic growth in China has produced a new middle class that can afford to pay university fees; no other overseas market compares and universities will struggle to achieve the Government’s education export target of £35bn by 2030 if Sino-British relations deteriorate. How will we make up the shortfall?

But the problems don’t stop there.

The UK has also historically been one of the largest recipients of EU research funding. Billions of euros will be lost if the UK and the EU fail to reach an agreement – not to mention the equally important lost benefits of European academic collaboration.

A further challenge to institutions’ finances comes from pensions. Employer contributions recently rose to 21.1%; a heavy burden on university finances. At the same time, pension benefits have been diminishing, thus reducing the attractiveness of UK academic vacancies to overseas nationals as the sector tries to compete globally for talent.

But it’s not all been bad news. The higher education (HE) sector has experienced a capital investment arms race since the introduction of the £9,000 fee in 2012. In 2018/19 alone, capital expenditure by HE institutions was £5.3bn. This has clearly benefited the construction industry as money has been ploughed into developing new facilities, but while the multiplier effect of this has been important for the economy, it cannot be relied upon for the next few years. In the face of a sharp drop in student intake this year, particularly from high fee-paying overseas students, there has been mass retrenchment as universities have slashed capital investment programmes. They realise that, even if student numbers fall for only one year, it will have profound repercussions, since undergraduate courses are three years and the loss in income will be felt across each year of the cohort.

These threats matter. In 2017 Oxford Economics showed that the HE sector contributed £94bn to the UK, and in 2019 the Department for International Trade reported that HE contributed £13.4bn to overseas exports. It’s clear that universities already make an important contribution to the economy, and they should be protected and defended as a result – but what more value can they add as the country faces the coronavirus devastation?

With a sharp uptick in unemployment on the way, and chronically weak UK productivity, universities have a key role to play in upskilling the workforce. To get productivity moving again, the UK needs to grow the number of jobs in high value-added sectors and reorientating the curriculum at universities could help with this. Higher education is often criticised for the expansion in “mickey mouse” degrees and for traditional courses which critics claim lack a vocational focus. Universities will always want to offer students choice by providing a liberal and comprehensive range of options, but it’s certainly true that many institutions could increase the number of vocational degrees they offer. They could also introduce mandatory skills modules in, say, computing and coding to non-vocational courses.

An expansion in ‘sandwich’ degrees with industrial placement years could also play an important role in the recovery strategy. Whilst securing placement opportunities for students will prove challenging, universities should look to increase this provision over the medium to long-term. Indeed, the 2012 Wilson Review of Business-University Collaborations recommended that the now defunct Higher Education Funding Council (HEFC) incentivise universities to expand these degrees. The HEFC’s successor organisation – the Office for Students – should now pick up the baton.

In the meantime, this summer several hundred thousand graduates will be competing for jobs as they enter a very challenging labour market and universities have a moral duty to support them. It is therefore vital that careers and skills services are protected in any drives for efficiency over the coming months. Furthermore, why not introduce strategies to encourage new graduates who are struggling to find jobs to develop new businesses? Many universities have scholars in areas such as law, business and accounting that could help hone the skills of the next generation of entrepreneurs.

But government has a role to play too. Entrepreneurial ecosystems involving academia, business and the public sector are a proven way of fostering research translation, innovation and the formation of new companies which can attract foreign investment. Some universities such as Oxford, Cambridge, Warwick and Southampton already have science parks, and the Government could incentivise the development of further ecosystems, based on these successful models, in other parts of the country.

This would sit well with the Prime Minister’s desire to level up the country. The locations of universities and their regional economic circumstances vary enormously. My own university, in the north-west of England, lies close to an area of significant deprivation in Morecambe, Lancashire. Lancaster University is working in partnership with Eden Project International, the Lancashire Enterprise Partnership, Lancaster and Morecambe College, Lancashire County Council and Lancaster City Council to create an attraction in Morecambe Bay which will focuses on the marine environment. ‘Eden North’ aims to be a longitudinal regeneration project which will bring major economic benefits to the local community, in part by educating the local population to meet current and future workforce requirements.

Despite the negative press they often get, the pandemic has demonstrated how dependent we are on universities to help find a way through the crisis. Now is the moment that the sector can confound the critics and once again demonstrate how valuable it is to the UK’s economic recovery by supporting new graduates entering the workforce, upskilling the population and driving forward innovation.

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Giles Carden is Chief of Staff and Director of Strategic Projects at Lancaster University.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.