2012: a ‘Big Bang’ in higher education?

This year will be a watershed in the transformation of universities from communities of scholars to cheap degree shops competing for ‘customers’ - unless concerted and localised resistance can prevent it.
Andrew McGettigan
13 October 2011

This year will be a watershed in the transformation of universities from communities of scholars to cheap degree shops competing for ‘customers’ - unless concerted and localised resistance can prevent it.

Two recent news stories have confirmed the forces gathered behind the senior partners in the Coalition government.  The Bureau of Investigative Journalism have set out the financial backing received by the Conservative Party from the City, while a BBC report has shown the extent to which David Willetts, Minister for Universities and Science, has been courting US-based educational conglomerates with a view to facilitating their entry into the UK market.


Universities Minister David Willetts

Contributions from the financial sector accounted for half of the £12.2million donated to Conservative Central Office, with hedge funds and financiers providing £2.69million.  Willetts, who met with under-fire Education Management Corporation, Laureate, Apollo and Pearson twelve times prior to the publication of the recent Higher Education White Paper, has previously benefited from sponsorship by John Hall, the investment banker who founded what became New College of the Humanities with Anthony Grayling.  Hall, who champions an aggressive dismantling of anything resembling a public sector, paid for a researcher in Willetts’s office while the latter was shadow universities minister.

'Alternative' higher education providers

The entry of the for-profit, ‘alternative providers’ into the English higher education sector is now a well-documented theme.  There is an Early Day Motion in Parliament opposing this development which has the support of 131 MPs.  

The White Paper set out explicitly to create a ‘level-playing field’ for them to compete against the established, until now publicly funded, universities. Accordingly, only in so far as Labour’s new policy on tuition fees intends a restoration of the block grant is it on the right lines: for-profit companies are not eligible for grants.  Yet opening up higher education to private investment can be achieved not only by allowing massive commercial operators to access publicly funded student loans.  

Willetts and his counterpart, the Education Secretary, Michael Gove, are ideologically in favour of a new wave of public sector privatisation.  They intend to create new outlets for capital, which in the current economic turmoil struggles even to preserve its value.  Universities, with their long and stable histories, would offer better security than many states. 

Government as private finance broker

The broader vision, as seen for example in the recently piloted Social Impact Bonds, is to move the role of government to that of a broker putting private finance together with independent “Big Society” initiatives.  Intending to complete the social vision of Milton Friedman, the government will remove itself from as many public services as is possible, whether through reduced funding or, where it has administrative responsibility, sale.  (Though, ironically, Friedman rejected subsidies for would-be doctors and dentists given their future earnings and saw it as important for public funds to support liberal arts higher education, which on his view promoted citizenship and leadership).

In this regard, the government’s white paper and its accompanying technical consultation document set out the intention to make it easier for universities to change their corporate form so as to better access private finance (paragraphs 4.35 & 4.36).  This may see many ex-Polytechnics choosing to become companies limited by guarantee, a legal status enjoyed by LSE and several other newer universities, since it would enable them to issue corporate bonds.

Alternatively, faced with competition from new potentially profit-making vehicles with access to private equity, established universities may prefer to ditch their charitable status and ape the legal form of the new competitors, whether as a private companies limited by share or publicly limited companies (potentially quoted on the stock exchange).

Universities as cheap degree shops

Glynne Stanfield of Eversheds legal firm says, in a recent report in the publication, Education Investor, that some universities need new levels of investment simply to remain competitive.  I have elsewhere written why Middlesex University, whose current corporate plan and overseas strategy has unravelled in the last few months, may have difficulties reorienting without private investment given its large debts.  

Moreover, beyond equity investment, private finance takeover of established universities, including bailout, may be one effective way for large multinational venture capital firms to enter the sector.  The white paper declared the intention not to act as backer of last resort stating that ‘it is not Government’s role to protect an unviable institution’ (paragraph 6.9b).  Pre-emptive rationalisation for such events is already evident at some institutions, which are turning themselves into cheap degree shops; pension reform is a further precondition.  

We could see private take-overs, management buy-outs or convoluted group structures that include charities formed as subsidiaries of for-profit enterprises.  Many of these options were set out in a report that Eversheds produced for Universities UK back in 2009. Stanfield suggests that five private equity companies are looking to purchase 'all or part of a UK university'.  Besides total acquisitions (the ‘cleanest solution’ according to Eversheds), partnerships could involve 'research commercialisation projects, revenues from overseas campuses and from selling access to the institution’s degree awarding powers in the private sector'. 


A. C. Grayling

Mobilising activism locally

From an activist perspective, the changes required to facilitate what is described above will be introduced as primary legislation in 2012 in the form of a Bill or Act sometime in late spring.  This will be an important stage around which to mobilise. 

Locally, all need to familiarise themselves with the financial health of their institution and learn how to assess the current corporate strategy against changes to national policy – especially in the recruitment of undergraduates. 

The negotiating committee formed by university employers and unions has published “An Insider's Guide to Finance and Accounting in Higher Education”, which is an extremely useful resource for learning to read annual financial statements.  All established universities are obliged to publish statements from the last five years on their public website – the next set are due to appear later this month or early in November.  

There will be no need for university management to consult with staff or students if they wish to change corporate form, so getting on top of the issue in advance is important.  Watch out for consultancy fees and try to ascertain on what terms consultants are engaged!  Although the assets of universities and higher education institutions may have been acquired through direct public funding or received in trust, as the majority are exempt charities there are limited controls on the disposal of property. 

The interpretation of public interest

However, in many cases, the wholesale transfer of assets and undertakings to a private, profit-oriented company (as opposed to their piecemeal sale) is prevented by legal measures – the government will legislate to remove these impediments.  Chapter 5 of the technical consultation pledges to “balance the potential benefits against the concern that … there is a wider social interest which may need to be protected” (my emphasis). 

That public interest may translate in practice into a sum paid to the Treasury.  Alternatively, as is more common in the case of mergers to safeguard failing institutions, the public interest may be interpreted to mean the following: it is better for a private investor to take over than for the provision to be lost.  Most mergers under HEFCE, and its equivalents in the rest of the UK, have involved financial payments going to the new owners to help with the administrative costs of reorganisation. 

Besides such dramatic transformations, the apparently simple shift in the balance of public and private money is not without consequences for institutions.  Willetts has recently confirmed that many universities will now no longer be subject to EU public procurement rules, since with state funding providing less than 50% of overall annual income, universities will be considered to be private institutions on this matter.  This has been achieved without legislation as a budgetary decision.

Attracting students: competition for market share

The key challenge now facing universities in the proposed terrain will be governance: decisions about financial and institutional strategy.  There is a new, tougher zero sum game in recruitment owing to the artificial supply-side restrictions introduced in the white paper and passed to HEFCE as instructions.  Though primarily intended to drive down price, competition may escalate in potentially destructive fashion, since each such student recruited deprives other universities proportionately, which at the very least means resources are likely to be diverted into rocketing marketing costs. 

Further, many suspect that higher tuition fees will require universities to invest in better facilities so as to continue to attract applicants.  There is a window of opportunity created.  A new elite university grouping will form in the next few years.  Resources will flow in such a way that now is the time to borrow in order to break into or cement a place amongst them.  This prize could launch several ambitious strategies but investment will only secure a larger share of the market; the market itself cannot grow owing to government controls.  There are therefore likely to be some winners and some high-profile losers. A sector that is increasingly indebted, at the level of individual graduates and institutions, will begin to behave differently.

The ascendance of managers

Similarly, increasing commercial and financial pressures will exacerbate a managerialism obsessed with performance metrics.  The ‘self-critical community of scholars’, which safeguards degree standards according to the QAA, has been eroded to a large extent by an invasive executive and managerial class full of non-academics or resentful ex-academics.  They will gain new devices as the government endeavours to create incentives for universities to set lower fees.  WIlletts has suggested that publishing loan non-repayment rates against individual institutions will become a key area of public policy.  Effectively, this generates a pricing mechanism that would not have been possible with a graduate tax, the Browne review’s proposals, or higher education funded through general taxation.

All this will impinge on university autonomy as traditionally conceived.  Previously defended as a freedom from direct political interference, new habits of thinking will have to develop to map and resist the way in which financing will achieve what direct government control could not. 

Holding your university to account

Locally, activists need to learn what is going on at their own institution and how to hold it to account; though general in their scope, the proposals will have different impacts at different places.  A campaign against the privatisation of higher education needs to be based in local activity, which is currently not adequate to the changes already in play: the forced shift to private sources of revenue and changed recruitment practices necessitated by the government’s plans.  Universities will need to develop new strategies.  How are they accountable to staff and students?  How does what’s happening locally relate to national developments? 

There is a need for a rapidly mobilised multi-level campaign.  The formal responses to the white paper from universities and sectoral bodies are now being published (there is a uniform dissatisfaction with what is proposed), while campaigning groups are winning the intellectual arguments about the government’s reforms.  To build on this, we need to see new kinds of higher education journalism as universities are transformed.  We have been striving to initiate this with the series, The Third Revolution, launched by Research Fortnight in September, but much of this can also be more effectively achieved through student newspapers, union bulletins and blogging. 

Concerted resistance and the Coalition’s fault-line

Nationally, privatisation is the clearest target, but it is happening in different forms and through different measures.  This makes organising more difficult as the government’s piecemeal approach is designed to confuse and disperse concerted resistance.  For example, the white paper announced or described about 15 consultations and reviews with different timetables and statuses.  Working out what has and has not happened becomes a task in itself.  For instance, there is still no parliamentary approval for the interest rates and repayment thresholds on the new higher loans. 

That said, the primary legislation of 2012 is needed to complete the ‘big bang’ of deregulation and changing corporate forms.  The government’s hope is that it can be presented as a ‘tidying up exercise’ dealing as it does with legal issues that lack the headline value of higher tuition fees.  Unlike the tuition fee cap vote, as we have seen with other forms of privatisation, these measures will be extremely difficult to reverse.  They are the culmination of trends seen in higher education since the 1980s, but as such they represent a step beyond.  One necessary condition for a successful campaign is to elaborate the extended nature of Willett’s plan and those corporate interests which will benefit.

The Coalition is a strange hybrid with free marketers found in both partners, but the collaboration is still fragile around this fault-line of higher education.  There is strong public support for state funded higher education.  That this support covers a broad constituency is apparent from viewing the Daily Mail’s concerted opposition to the new loan scheme.  Highlighting the plans to allow universities to abandon charitable status so as to capitalise on private investment and those new higher fees offers a clear campaigning platform from which to oppose the most destructive and irreversible elements of the government’s plans.  But these are also the measures on which efforts must be concentrated.  Potential buyers, Education Corporate Management and the Apollo group, are being investigated over recruitment practices in the USA.  They offer subprime degrees there that few complete leaving ex-students only with debt to show for their study

The University of Cambridge’s official response to the White Paper offers this pithy assessment:

“There is a serious long-term risk that new providers will be prepared to operate initially at a loss to take market share from some universities that will then become unviable. In many cases, this would be to the detriment of local and regional communities who would then lose the wider benefits that a local university with its diverse range of activities can provide (and which new operators without the same roots in local communities are unlikely or unwilling to provide).

This effect would be gravely exacerbated if the new operators were to close because they had misjudged their financial models or withdrew their services locally as market conditions changed or their attention was drawn elsewhere. We could then be left with a depleted university sector and damaged communities.”

Allowing unfit and improper for-profit companies or their subsidiaries access to loans supported by the taxpayer is reckless, unreasonable and blatant in its intentions.  It is not a controlled experiment; it has the potential to destabilise and tarnish the entire sector. 



The Assault on Universities ed. Des Freedman & Michael Bailey (Pluto Press, October 2011)


BIS White Paper and Technical Consultation

Campaign for the Public University “In Defence of Public Higher Education”

Eversheds report for Universities UK “Developing future university structures: new funding and legal models”

The Policy Exchange “Higher Education in an Age of Austerity”

JNCHES “An Insider's Guide to Finance and Accounting in Higher Education”


Campaign for the Public University

Critical Education

Education Activists Network

Research Fortnight

UCU white paper


Campaign for the Public University @public_uni

Education Investor @EduInvestor 

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