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Universities.inc: the turn to business of higher education in Britain

Credit: Steve Cadman
University College London

British universities are big business: with a contribution every year of 73 billion pounds to the national economy, the sector has an annual expenditure of around 27.9 billion pounds (in perspective, the sector would file in fourth on the FTSE 350), and are responsible for over 10 billion in export earnings. A big business, and one that is growing. In 2015, UCAS reported record figures for enrolment in higher education in the UK. During that year, 532,300 people entered the university system, 16,100 more than in 2014. In total, universities made 1.9 million offers to students.

Universities celebrated a record year for undergraduate numbers, with predictions that it would continue that way. In 2015, after the cap on students was lifted, The Guardian reported that more than half UK universities hoped to expand their student intake. A battle for business that could potentially see a change in the way universities operate. As the newspaper reported, when a similar cap was removed in Australia, marketing budgets exploded: the fight for undergraduates was no longer limited, and competition, in times of funding cuts, is fierce.

An expansion that means good news for the universities, but not necessarily for their students: a recent study by the Bank of England showed recently that the value of degrees issued by UK universities has been in a steady decline for the last 20 years.

With more graduates than ever, students can expect less earning power than ever before. And a similar scenario holds for those actually working at universities. According to Universities UK, wage in the sector has not grown—despite the growth in student numbers—at the same pace as the public and private sectors: at a growth of 5.5%, in has maintained below inflation, whereas the public (6.8%) or private (6.6%) sectors have seen better increases.

A moderation in wages that does not mean universities are not investing. Capital expenditure on the higher education estate was £2 billion in 2012–13,  9% more than the previous year, and the buying of property has been led by universities such as King’s College London, that recently acquired the iconic Bush House in Central London. With the expansion of its Strand Campus, the institution hopes to attract 3,000 students more, increasing its numbers from 27,000 to 30,000.

A plan for expansion that other London universities are keen to follow. UCL has plans for UCL East, an extension for their campus worth 350 million pounds. Imperial, on the other hand, is expanding west: it will see construction worth 3 billion pounds in White City. A growth pushed in London mainly by one factor: international students.

But expansion has been deemed risky. A vote for in favour of Brexit in the upcoming EU referendum could spell bad news for British universities. A change in government could see fees cut back, and austerity could see more cuts in funding and investment in research. Changes in visa and immigration regulations could damage the intake of international students. Something which universities are aware of: in 2011–12, less than half of all revenue to universities was from public sources. Though most of their income still comes from fees, universities are expanding their sources of income, and are doing so in very different directions.

An example of this is the issuing of public bonds. A form of financing more commonly seen across the Atlantic, bonds are on the increase at UK universities. A few months ago, the University of Leeds issued a bond worth 250 million pounds. With a maturity date of 2050, it has a fixed rate of 3.125%, and it follows in the footsteps of other universities, such as Liverpool, Cardiff, Manchester, Cambridge or De Montford. A source of income contemplated by evermore universities, who have tried to diversify investments to generate income. But not without controversy: in 2015, a group of leading academics asked UK universities to end investments in fossil fuels, following universities in the US. At King’s College London, the student union became the first educational institution to move investments into ethical banks. The move towards a business-like approach has had other critiques as well, and rent strikes from students at UCL show part of the discontent with high costs at the educational institutions. A student of the university was recently threatened with dismissal after publishing reports that the University would increase rent despite surpluses in university housing.

But despite critiques, the business seems to fare well for most UK universities. According to data from Times Higher Education, universities are sitting on increasingly bigger surpluses: in data from 2013, out of the 160 institutions analysed, 143 where in surplus before exceptional items. Within these, some fared exceptionally well, with 80 universities cashing in surpluses worth more than 4% of their income.

Raffaella Breeze - News editor

MA Political Economy student at King’s College London after a brief stint as a journalist in Spain. Interested in anything EU, anything to do with central banks and currently missing the southern sun. Twitter: @rmbreeze

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