What is Needed for Higher Education Financial Resilience?
By Malcolm Ace, Vice-President (Finance) and Chief Financial Officer, King’s College London
It is the age old question – which would you rather fight, a Boris Johnson sized duck or 100 duck sized Boris Johnsons?
For virtually every institution, the single question that dominates financial discussion is student recruitment, and particularly the recruitment of international students. At King’s, we pride ourselves on almost 200 years of serving society, our world changing research successes in life sciences, the insights given to the world by our social scientists, the vibrancy and wealth creation of our business school. We are a top 40 university in the QS rankings, have a turnover of £1.3 billion, and employ 10,000 people.
And our financial wellbeing every year depends on hitting those ever tougher student recruitment targets.
Over the past ten years, income from international students’ tuition fees has increased by 380%, and now represents 27% of King’s income. For the future, we see at least half of our annual income growth coming from the increase in international students’ fees.
Many universities have been able to mitigate the tough financial regime endured by public services in the past 15 years largely because of the increase in income from international students. There has been a growing cross subsidy from international student income to cover the costs of home students, as the value of the undergraduate home student fee has been eroded in real terms. Simultaneously, public research funding has been limited and European partnerships threatened. The growth in the volume of international students and the income from tuition fees has allowed us to continue to support research and home undergraduate teaching at a scale which otherwise would have been economically impossible.
At King’s, our latest TRAC analysis indicates that the income we receive for regulated fees (predominately home undergraduates) covered just 76% of the costs of teaching. This is similar to the gap identified in the UUK Blueprint (September 2024).
In general, universities have chosen a growth path. We have not swapped out home students for international, or research space for teaching space. We have added the students and created the physical and staffing capacity (academic, professional services and support staff) to accommodate the student growth. At King’s, our student population has grown from 22,000 to 34,000 in the decade since the introduction of the £9,000 tuition fee, with 80% of this increase being international students.
The HESA data for English institutions shows student FTEs increasing from 1.52m to 1.87m over the 2013/14 – 2022/23 period, with 216,000 (61%) of the increase attributable to increases in international students.
A cautious set of mitigations against the risk of lower student recruitment might involve cost constraints, more provisions being built into budgets, surpluses being banked and reserves of cash are built up. However, we have all continued to seek growth of income and consequent growth in costs to support the needed increased capacity. Our response to the greatest risk has been to increase this risk.
This is the greatest challenge to financial resilience and sustainability – how would we reduce costs and capacity substantially in the face of a large scale reduction in international student demand. This risk is partly outside our control, but we should all be focussing on other aspects of financial performance, particularly in relation to our costs.
I am a sceptic when shared services are discussed as a solution. These will often require investment to create common platforms, and will take years to deliver service savings. There will be future examples of the sharing services, but we have far more significant opportunities completely within our control.
I am certainly not a sceptic of the value of active procurement and the close collaboration of procurement professionals within universities and academic or professional expert users.
Benchmarking of costs in universities is patchy and often ignored. In the NHS, there is a much more healthy and organised approach to benchmarking, using the work led by Lord Carter, the clinically led Getting it Right First Time reviews and leading into the NHS Model Hospital presentation of data. While my timing on lauding the co-ordinating importance of NHS England isn’t exactly perfect, we could develop some more useful comparisons of costs and act upon these.
We must seek reductions in administrative costs. Transformation and change programmes or new system implementation will often not decrease costs, but create more special arrangements and workarounds. Unlike the NHS, we don’t have an overall expectation of the cost of administration. We could simply stop doing things, or significantly reduce the resources involved in a process. We have a standard of living for university administration that we can no longer afford.
As noted in the UUK Blueprint, the UK has a relatively generous staff:student ratio (SSR) for teaching compared with other high quality international systems. A gradual upward drift in the SSR should not mean lower quality – we should be making greater use of communication tools in a blended way to enrich the student experience, and protect the most value adding aspects of student interaction with academic staff.
TRAC analysis suggested a cross subsidy of £4.6bn to research in 2022/23. This level of subsidy in staff and facilities requires the continuation of the very strong international student recruitment of the past decade. While I am a sceptic over shared services, I would definitely recommend more formal sharing of capital intensive research facilities if possible, to spread overheads and improve utilisation rates. It is access to research facilities not the ownership of them, that should most concern us.
The fight with the Boris Johnson sized duck of student recruitment will be a constant problem and the battle must be won or at least not lost every year. The battle with the myriad of issues around efficiency, productivity and cost control is much more within our control. There are no excuses if we lose the battle with the 100 duck sized Boris Johnsons.
