In its 40th Birthday Edition last week, Times Higher Education (and I also remember it as The Times Higher Education Supplement) carried a story in which Glynne Stanfield, a partner in the legal firm Eversheds, predicted that a private education provider would buy a UK University in whole or in part within the next six months.

He continued that “a university selling a stake to a private buyer ‘gets better staff, better, infrastructure. Its dependence on the taxpayer is lessened……..There are a number of private equity buyers and trade buyers who are in talks with British universities about doing various things. There is no one model”

Also last week, on Friday 14 October, the US Huffington Post carried a story which headlined Goldman Sachs’ increasing stake in the US Education Management Corporation as “predatory pursuit of students and revenues”. The story compared Goldman Sachs’ and the Education Management Corporation’s recruitment of students with their loans with the piling up and securitisation of subprime mortgages:

“But unlike in the mortgage markets, where some unwise or unlucky investor got saddled with the bad loans after the festivities ended and home prices fell, this new market in higher education boasted seemingly unlimited growth potential at virtually zero risk. The burden of college loan repayment falls entirely on students’ backs, shielding corporations from the consequences of default. The colleges essentially receive all their revenues upfront, primarily through federal government loans and grants for tuition, regardless of whether students are able to gain employment and pay back their loans”

This is not to suggest that David Willetts’ opening the HE door wider to the private sector will result in a huge expansion of Student Loan Company subprime debt. Provided that Student Number, QAA and OFFA Controls are retained and linked with the Student Loan Company, and provided that strong enough regulatory powers are developed for private sector involvement in Higher Education, these should be enough to prevent the “predatory pursuit of students and revenues”.

But, whatever happens, in England at least there will be increasing private sector involvement in Higher Education. Irrespective of whether Germany and France may this weekend expand the European Financial Stability Facility – with support from the IMF – sufficiently to keep the Euro afloat, there are very few predictions of any future return to previous levels of economic growth and higher levels of public spending. Even if the UK Coalition Government suddenly discovered a generous and effective Plan B or if there is a change of Government on Thursday 15 May 2015 (the date is already fixed ), there will be much more private sector involvement in Higher Education.

Public Expenditure Savings in Higher Education

In September 2011, Universities UK’s “Effectiveness and Efficiency in Higher Education” said that Higher Education:

  • generates over £59 billion of output for the UK economy
  • creates over 660,000 jobs
  • delivers more than £5.3 billion in exports

 

There is no doubt over the contribution of Higher Education to the UK economy, which is second only to computing. On involvement of the private sector, in its Executive Summary, the UUK Report says:

“There is significant potential for outsourcing and the development of strategic relationships with the private sector to deliver services”.

Recommendation 9 of the UUK Report says that to speed delivery of more shared services:

“The Government should implement the EU VAT exemption on cost sharing, and work with the sector to develop mechanisms that can incentivise the development of shared services. The recent HM Treasury consultation on the EU VAT exemption was a positive step”.

But realistically, in view of most of the future economic and public spending predictions currently being made, HE  savings will need to be greater than the examples quoted where Liverpool John Moore saved £100,000 on photocopying and Cumbria shaved £45,000 from its staff costs.

The University UK Report’s Executive Summary is not encouraging when it says:

“Information on the costs of operational activities within higher education is poor. This means it is difficult for institutions to effectively calculate the benefits of efficiency initiatives and demonstrate widely how they are ensuring value for money.”

The UUK Report also refers to the National Audit Office evaluation in 2007 of the implementation of Gershon Report savings and found a lack of clarity over where savings had been achieved. The NAO noted that “nearly three-quarters (74%) of reported efficiency savings were open to question as the data and benchmarking frameworks from which they were evidenced were inadequate. This was not to say that savings had not been made, but rather that they were difficult to verify.”

Ways Forward for the Private Sector

In August 2011 the accountants Grant Thornton published a Report on “The Financial Health of the Higher Education Sector”, which was both more brutal and perhaps more realistic.

Grant Thornton agreed with UUK saying that “The HE sector makes a varied and diverse contribution to the UK economy. The total turnover of the HE sector in 2010 amounted to £26.4 billion and directly employed some 130,000 people.”

Grant Thornton looked at all UK Higher Education Institution published accounts for 2009/2010. In its chapter ‘A New Operating Model for the Sector’ the Report says:

“What makes Higher Education a target for cuts is that the cost of providing such a world class system is significant. In 2009/10, the aggregate direct operating cost of operating the combined universities of the UK was more than £25 billion.

Grant Thornton makes more worrying projections. In its scenarios of ‘The Future of the HE Sector’, the Report says:

“We believe that reductions in research funding, both from the Funding agencies and from the Research Councils and other bodies such as charities, will fall almost completely on the non-research based universities. Future research funding is likely to be concentrated almost exclusively in those institutions comprising the Russell Group and the 1994 Group. As a result we forecast that research income elsewhere in the sector, although relatively unimportant, will reduce to almost nothing”.

Based on this, in its ‘New Operating Model for the Sector’, Grant Thornton continues:

“Of that amount, over £14 billion was the cost of the people who work in universities. However, less than 45% of those staff constituted what the business gurus might call the ‘unique selling proposition’ of UK universities, namely the lecturers and the researchers who are responsible for the delivery of that world-class system. The rest was spent upon the infrastructure and the support functions that allow those lecturers and researchers to carry out their tasks. That is not to say that those supporting functions and the infrastructure are unimportant, but they are not unique (with possibly some exceptions), nor are they the reason for the world class ranking of UK universities”.

“Taking these trends further, we suggest that rather than ‘pick off’ the functions that can be shared or outsourced, a new approach would be to identify only those areas of the university function that are involved in those parts of the Higher Education delivery of provision that are unique to the individual institution, and seek to have all of the other functions delivered externally”

“The academic operation, managed by academics (with some commercial support), would be the university – recruiting and teaching students, interacting with the community, and undertaking research. That university would buy-in all of its infrastructure and administrative requirements – from finance and registry functions to the use of lecture theatres, laboratories and offices – from a third party provider specialising in the management and delivery of such services. It would provide those services under service level agreements overseen by a joint academic/business support team”.

A Conclusion?

Grant Thornton above is quoted at length, and much of this is difficult to swallow.

But surely this route for private sector involvement is preferable to the reported route taken by Goldman Sachs and the Education Management Corporation in the US?