DOI: https://doi.org/10.58248/HS106

Overview

Contributors to the horizon scan identified further and higher education funding as a key issue facing Parliament over the next five years. Themes included the need to ensure further and higher education providers are sustainably funded, and that student support systems are fair and adequate. This article focuses on education in England.

Funding for the further education sector

The further education funding system in England is complex with several reforms in recent years, including:

  • The Education and Skills Funding Agency (ESFA) allocates funding to colleges and sixth-forms for teaching 16-to-19-year-olds through a national funding formula.[1] [2]
  • As of November 2024, the ESFA primarily funds 19+ adult education through the Adult Skills Fund, which has replaced the Adult Education Budget.[3] The Adult Education Budget was also funded through EFSA, although since 2019, around 60% of this funding has been devolved to an increasing number of combined authorities.[4] Additional funding has been announced in recent years, including for Skills Bootcamps (launched 2020) and the numeracy programme Multiply (launched 2022).[5] [6] [7]
  • ESFA is set to close in March 2025, with plans for it to be integrated into the Department for Education.[8]

Analysis from the Institute for Fiscal Studies (IFS) indicated that, while the 2019 government increased funding for further education and skills, this did not reverse the real-terms cuts to per-pupil college funding since 2010.[9]

Funding for the higher education sector

Prior to 2012, most funding for university teaching in England came from a central government grant, with annual undergraduate fees (around £3,000) topping up university finances.[10] After 2012, the cap for undergraduate tuition fees was increased to £9,000 per annum. As of 2024, the cap is £9,250. Due to cuts in government grants, increased tuition fees, and increased international student numbers, the funding proportions for teaching have changed.[11] [12] [13]

In 2011/12, tuition fee income made up 64% of the UK sector’s total income linked specifically to teaching (defined as recurrent funding body grants for teaching, plus all tuition fee and education contracts income).[14] By 2022/23, this had increased to 93%.

According to England’s higher education regulator, the Office for Students, 40% (108) of all providers expected to be in deficit by the end of 2023/24.[15]

Tuition fees from international students help to cross-subsidise ‘loss-making’ activities of research and teaching of domestic students, but deficits remain.[16] [17] Academic researchers and parliamentarians have raised concerns about the sector’s reliance on this income,[18] particularly if international student numbers fall following new visa rules, which include restrictions on students relocating family members to the UK, or due to wider geopolitical changes.[19] [20] [21]

Funding for students

The 16 to 19 Bursary Fund provides financial support to eligible further education students.[22] It replaced Education Maintenance Allowance (EMA) in England in 2011 with reduced funding. Adult students (aged 19 and over) can access Advanced Learner Loans for support with tuition fees for qualifications at levels 3 to 6.[23]

Eligible undergraduate and postgraduate students can access loans to pay for their university tuition fees and help with living costs.[24] [25] [26] [27] Since 2016, England has differed from the rest of the UK by not providing maintenance grant support for new students.[28]

From 2026/27, the Lifelong Learning Entitlement is scheduled to replace Advanced Learner Loans and undergraduate student finance for post-18 learners.[29] It intends to provide learners with a tuition fee loan entitlement equivalent to four years of post-18 education to use flexibly throughout their lives. Maintenance loans will also be available.

Both further and higher education students have faced significant financial pressures in recent years, with calls from think-tanks including the Institute for Fiscal Studies to reverse real-term cuts to living cost support.[30] [31]

Challenges and opportunities

Further education

Following rising living costs, a greater number of students have required bursaries and hardship funds for family budgets, and colleges have reported increased safeguarding issues because of financial pressures.[32] Parliamentarians have noted that the demand for financial support from further education students has risen in recent years, but government spending is now lower than in the past.[33] Expenditure on the 16 to 19 bursary was £200 million 2022/23,[34] less than 25% of the more than £800 million (in 2022/23 prices) spent on EMA in 2009/10.[35] [36] [37]

Higher education

Financial sustainability of providers

Researchers have observed that, following reductions to government grants, and tuition fee caps not keeping pace with inflation, the financial sustainability of many higher education providers has come under increasing strain.[38] Inflationary pressures have placed additional demands on universities in relation to pay settlements, pensions, energy costs, and building projects.[39] [40] According to one University and College Union branch, more than 50 universities have consequently announced redundancies and course closures.[41]

In England, tuition fees have been capped at £9,250 since 2017, and they will remain at this level until at least 2025.[42] Up-front spending on teaching resources per higher education student in England is around 18% lower in real terms than in 2012.[43]

Impact on research

The Russell Group, which represents research-intensive universities, have forecast that if the funding system remains unchanged, the English higher education sector will require an additional £6.5 billion by 2030 to maintain student numbers and research activity at 2019 levels.[44] Universities UK estimated that, in 2022-23, UK universities incurred a £5.3 billion deficit on their research activities.[45]

Inequalities across institutions

Since 2015/16, there has been no cap on student numbers per institution. Contributors suggested that this policy change enabled well-resourced universities to expand and increase revenue through student numbers, whilst less well-resourced universities found it difficult to compete, which led to lower student numbers and reduced income, exacerbating financial difficulties.[46] Suggested reforms include re-introducing the cap and encouraging cross-institution collaboration to share resources.45

Student cost of living

The Centre for Research in Social Policy (CRSP) at Loughborough University has calculated that, for domestic students studying outside of London who are entitled to the maximum level of maintenance support, there is a shortfall of £8,405 per year between their loan and what the CRSP has determined is a socially acceptable standard of living.[47]

The IFS has highlighted that student maintenance loan calculations have not kept up with recent inflation for two reasons:

  • The freezing of the parental earnings threshold below which students can qualify for the maximum support.
  • The use of forecasts which have underestimated inflation.[48] [49]

This has meant large permanent cuts to student support levels, especially for the most socio-economically disadvantaged students.[50] [51]

Between 2021/22 and 2023/24, Unipol estimated that student rents increased by 14.6% on average.[52] There has been a rise in students working increasing hours in paid employment alongside full-time study,[53] with one survey of 2,019 undergraduate students finding nearly half missed classes to do paid work.[54] The Office for National Statistics reported that financial pressures have seen students incur more debt and use food banks,[55] while their mental health has suffered.[56]

Key uncertainties/unknowns

Further education

The further education sector is facing uncertainty on student numbers and costs. In recent years, slower than expected student growth has prompted higher than planned funding increases.[57] However, the number of further education learners is expected to rise over the next Parliament.[58] There is a widening pay gap where college teachers tend to earn less than school teachers, and around one in six college teachers leave the profession each year.[59]

Despite some sector opposition,[60] [61] the post-16 qualification system is currently being reformed, with some level 3 qualifications being defunded and T Level qualifications being introduced as a technical alternative to A Levels.[62] [63] These new qualifications have faced issues around quality and effectiveness, take-up, and student continuation rates.[64] [65]

Higher education

As well as reduced income, universities may experience rising costs in coming years.[66] Since April 2024, post-1992 institutions have been statutorily obliged to pay increased pension contributions that could cost the sector around £125 million a year.[67] Despite significant upgrading and expansion of many university campuses since 2010, more capital investment will be needed to maintain buildings and ensure the sector can meet its net-zero targets.[68]

The domestic tuition fee cap freeze is due to end in 2025, but it is possible it will revert to rising in line with Retail Price Index inflation (see House of Commons Library).[69] The IFS has said allowing the fee cap to rise with inflation would be the most straightforward way of improving university finances.[70] Possible alternative funding models include increased government teaching grants, differential fee levels, a new levy on graduate employers, and/or reforming student loan repayment terms.[71] The merits of a tax on graduates have also been debated, with some arguing it would be a more progressive funding model, and others suggesting it would be impractical and could politicise higher education funding.[72] [73] [74]

Key questions for Parliament

  • What should the contribution to funding higher education from different sections of society be (graduates, employers, taxpayers)?
  • What are the merits of alternative higher education funding models?
  • Should there be a review of the size and shape of higher education, and its relationship to further education provision?
  • How could students, staff, and the local community be supported if a university faced insolvency, and should emergency funding be provided to prevent this or mitigate its impact?
  • How can the student finance system be more responsive to inflationary pressures?
  • How can further education students be supported to remain on their courses?
  • How can the forthcoming Lifelong Learning Entitlement be best implemented to meet the needs of post-18 learners wanting to study flexibly or retrain later in life?

References

[1] Education and Skills Funding Agency (ESFA), Funding rates and formula, updated 27 March 2024

[2] ESFA, 16 to 19 funding: how it works, updated 13 February 2024

[3] ESFA, Adult skills fund: funding rules 2024 to 2025, updated 19 June 2024

[4] Department for Education, Adult education devolution, 13 September 2023

[5] Department for Education (DfE) Education Hub, Skills Bootcamps: £34 million boost for free career training for adults, 4 April 2023

[6] DfE press release, Multiplying maths skills for adults, 13 April 2022

[7] DfE, Multiply: funding available to improve adult numeracy skills, updated 12 December 2023

[8] DfE, ESFA functions to move to the Department for Education. September 2024.

[9] Institute for Fiscal Studies (IFS), Annual report on education spending in England: 2023, 11 December 2023 (updated 2 July 2024)

[10] Lewis, J., Bolton, P. & Wilson, S. (2024) Tuition fees in England: History, debates, and international comparisons. House of Commons Library.

[11] Office for Students (OfS), Annual funding letters

[12] UKRI, Annual funding letters

[13] Department for Education, Student loan forecasts, England: 2021 to 2022

[14] HESA, Table 1 – Consolidated statement of comprehensive income and expenditure 2015/16 to 2022/23

[15] OfS, Financial sustainability of higher education providers in England: 2024, 16 May 2024

[16] Public Accounts Committee, Financial sustainability of the higher education sector in England, 8 June 2022, HC 257 2022-23, pp11-12

[17] Higher Education Policy Institute (HEPI), From T to R revisited: Cross-subsidies from teaching to research after Augar and the 2.4% R&D target, 9 March 2020

[18] Public Accounts Committee, Financial sustainability of the higher education sector in England, 8 June 2022, HC 257 2022-23, p3

[19] Home Office, Tough government action on student visas comes into effect, 2 January 2024

[20] Enroly, CAS and deposits down by a third year-on-year for January intake, 27 March 2024

[21] OfS, Financial sustainability of higher education providers in England: 2024, 16 May 2024, pp43-44

[22] Gov.uk, 16 to 19 Bursary Fund

[23] Gov.uk, Advanced Learner Loan

[24] Gov.uk, Student finance for undergraduates

[25] House of Commons Library, Student support for undergraduates across the UK

[26] Gov.uk, Master’s loan

[27] Gov.uk, Doctoral loan

[28] House of Commons Library, Abolition of maintenance grants in England from 2016/17, 8 February 2017

[29] DfE, Lifelong Learning Entitlement overview, 30 October 2024

[30] House of Commons Library, Students and the rising cost of living, 1 December 2023

[31] Institute for Fiscal Studies (2023), Large real cuts to student financial support to become permanent.

[32] All-Party Parliamentary Groups for Students and Further Education and Lifelong Learning, The impact of the cost-of-living crisis on students in further education (PDF), July 2023

[33] All-Party Parliamentary Groups for Students and Further Education and Lifelong Learning, The impact of the cost-of-living crisis on students in further education (PDF), July 2023

[34] ESFA, Education and Skills Funding Agency (ESFA) annual report and accounts 2022 to 2023, 17 July 2023, p86

[35] House of Commons Library, Education Maintenance Allowance (EMA) Statistics, 13 January 2011, p2

[36] House of Commons Library, 16-19 education funding in England since 2010, 19 February 2020, p24

[37] Prices Adjusted using HM Treasury June 2024 GDP deflators

[38] National Institute of Economic and Social Research, Challenges Facing Higher Education in the UK, 24 July 2023

[39] PwC for Universities UK, UK Higher Education Financial Sustainability Report, January 2024

[40] Crisis-hit UEA plans redundancies as £23 million deficit looms”, Times Higher Education, 18 January 2023

[41] UCU Queen Mary University of London, UK HE shrinking

[42] Department for Education, Higher education policy statement and reform, February 2022, p4

[43] IFS, Annual report on education spending in England: 2023, 11 December 2023 (updated 2 July 2024)

[44] L. Bull, “Financial sustainability of higher education institutions”, in HEPI, How should undergraduate degrees be funded? A collection of essays, April 2024, p79

[45] Universities UK. Opportunity, growth and partnership: A blueprint for change from the UK’s universities. September 2024.

[46] Rowsell, J. Is it time to reintroduce student number controls in England? Times Higher Education. November 2024

[47] Higher Education Policy Institute, A Minimum Income Standard for Students, 9 May 2024

[48] IFS, Student loans in England explained and options for reform, 20 July 2023

[49] House of Commons Library, The value of student maintenance support

[50] IFS, Student living cost support cut to lowest level in seven years, 15 June 2022

[51] IFS, Large real cuts to student financial support to become permanent, 11 January 2023

[52] Unipol and HEPI, Rent now swallows up virtually all of the average maintenance loan as the student accommodation market reaches ‘crisis point’, 26 October 2023

[53] All Party Parliamentary Group for Students, Report of the Inquiry into the impact of the cost-of-living crisis on students (PDF), March 2023

[54] Sutton Trust, New polling on the impact of the cost of living crisis on students, 6 March 2023

[55] Office for National Statistics (ONS), Cost of living and higher education students, England: 30 January to 13 February 2023, 24 February 2023

[56] ONS, Student voices: experiences of the rising cost of living, 6 September 2023

[57] IFS, Annual report on education spending in England: 2023, 11 December 2023 (updated 2 July 2024)

[58] IFS, The uncertain course for school and college funding over the next parliament, 19 June 2024

[59] IFS, What has happened to college teacher pay in England?, 30 March 2023

[60] House of Commons Education Committee, The future of post-16 qualifications, 28 April 2023, HC 55 Third Report of Session 2022–23, para. 119

[61] E-petition 592642: Protect student choice: do not withdraw funding for BTEC qualifications, 22 July 2021

[62] House of Commons Library, The reform of level 3 qualifications in England

[63] DfE, Guide to post-16 qualifications at level 3 and below in England, updated 25 April 2024

[64] Ofsted, T-level thematic review: final report, 20 July 2023

[65] House of Commons Library, Technical education in England: T Levels

[66] PwC for Universities UK, UK Higher Education Financial Sustainability Report, January 2024, pp8-10

[67]TPS: universities seek respite from £125 million pensions bill”, Times Higher Education, 30 May 2023

[68] PwC for Universities UK, UK Higher Education Financial Sustainability Report, January 2024, p8

[69]How fees will rise by inflation” Wonkhe, 4 November 2024

[70] IFS, Higher education finances: how have they fared, and what options will an incoming government have?, 22 June 2024

[71] HEPI, How should undergraduate degrees be funded? A collection of essays, April 2024

[72]A graduate tax is still the fairest way for graduates to contribute to the cost of their study”, Wonkhe, 30 September 2021

[73] HEPI blogpost, The Case for a Graduate Tax, 29 August 2018

[74] Nick Hillman, “Owen Smith, know your facts, we don’t want a graduate tax”, The Guardian, 5 September 2016


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Horizon Scan 2024

Emerging policy issues for the next five years.