Back in November 2025, Vikki Howells – minister for further and higher education in the Welsh government – delivered an oral statement on “The Future of Tertiary Education in Wales: Sustainability and Participation.”
What followed was the usual pre-election chamber choreography – the Conservative spokesperson, Natasha Asghar, complained about “warm words about the Welsh government’s achievements, but a little less about immediate action” and demanded to know which institutions were at financial risk, while Plaid’s education spokesman wanted to know what the Welsh government was doing about participation gaps.
The minister responded with appropriate defensiveness about Diamond-era achievements and appropriate concern about sector challenges. Nobody learned anything they didn’t already know.
Now Howells’s department has published the actual substance – 60 pages of analysis, data, and, unusually for these things, genuine honesty about the constraints the system is operating under.
A call for submissions is now open until March, neatly timed to close before the Senedd elections in May – allowing officials to prepare an evidence base for whichever government emerges, while the current administration claims credit for having started the conversation.
The document – The future of tertiary education in Wales: five challenges and call for submission – is, in many ways, a model of what policy analysis should look like. It is educational in the best sense – reading it carefully teaches you how the Welsh tertiary system works, how its funding flows, where its constraints bind, and why choices that might seem straightforward are anything but.
This is not a “Now!” album of policy announcements – the kind of thing Westminster tends to produce, heavy on vibes and light on fiscal reality – but a sustained attempt to look at interconnected problems in the round, with appropriate caveats about what is known and what remains uncertain.
Howells herself wrote a companion piece for Wonkhe late last year setting out her framing of the five challenges. But the real substance is in the document itself – and in particular, in section 2.4 on financial sustainability, which contains some of the most candid analysis of student finance constraints that any UK government has published in recent years.
The financial trap
The core problem runs like this. Welsh ministers have formal, devolved powers over student support – maintenance grant levels, total maintenance entitlements, and repayment terms for Welsh-domiciled borrowers.
But the money to fund student loans comes from HM Treasury as Annually Managed Expenditure, and it only flows if Wales offers what the Statement of Funding Policy calls “broadly similar terms” to England. Grants, meanwhile, come from the Welsh government’s own resource budget, where ministers have discretion but limited headroom.
Since the Diamond reforms took effect in 2018, Wales has operated a more progressive system than England – higher maintenance support, more generous grants for the poorest students, and – until recently – more favourable repayment thresholds. The comparative position is striking.
According to London Economics analysis cited in the document, Welsh government direct support for the costs of higher education per student is just over double the contribution from the exchequer for students from England – but only half the contribution for students in Scotland.
The average split of costs for new students entering higher education from Wales is approximately 56 per cent for government and 44 per cent for graduates. In England, costs are overwhelmingly borne by graduates. In Scotland and Northern Ireland, predominantly by the state.
The fiscal mechanics have been steadily eroding that position. Grant thresholds have been frozen since 2018, meaning fewer students qualify for the most generous support as household incomes rise with inflation.
The grant-to-loan ratio has shifted from 32:68 in 2020-21 to 23:77 in 2024-25. Grant expenditure has fallen 25 per cent in cash terms. Meanwhile, total maintenance support has increased – first in line with the National Living Wage, then with CPI – pushing up loan outlay substantially.
The average annual maintenance loan for a full-time undergraduate student from Wales increased by 59 per cent from £5,110 to £8,150 between 2020-21 and 2024-25, exceeding the England average for the first time.”
The document explains that Welsh government models a counterfactual – what would loan outlay be if UK government policy applied? – to ensure it stays within HMT limits. That modelling has now reached its endpoint.
The Welsh Government can no longer afford to increase overall student loan outlay at a greater rate than The UK Government.
This is the end of Diamond-era divergence on loan outlay. Wales can still choose to be more generous on grants from its own budget, but it cannot continue to offer higher total maintenance than England funds for English students. The financial room for manoeuvre has been exhausted.
One reading of all this is that we are being teed up for a fundamental rethink of how the money gets spent – that Diamond was too generous, hasn’t delivered the participation gains hoped for, and the resource should be redirected toward fixing the Level 3 pipeline instead. The Diamond evaluation, due in Spring 2026, will presumably speak to this. But the picture is messier than a simple “it didn’t work” narrative would suggest.
The part-time participation numbers show that student finance can drive participation when it’s designed well. The danger is that cutting higher education finance to fix the schools and further education pipeline simply moves the money around without increasing total participation – especially if the graduates Wales does produce continue to leave for London.
The Plan 2 problem
Then there is the question of repayment terms – where the document reveals a rather pointed intergovernmental dispute, albeit expressed in the most diplomatic language imaginable.
In the autumn budget 2025, the Chancellor announced that Plan 2 repayment thresholds would be frozen from 2027 to 2030 “for borrowers in England.” The document notes this carefully – “for borrowers in England” – before immediately asserting that “repayment terms for Welsh borrowers remain within the powers of The Welsh ministers.”
But Plan 2 is a shared system. Welsh and English borrowers on Plan 2 have, until now, operated under the same terms, administered by the Student Loans Company. The Chancellor’s announcement was made as if it applied only to England, yet the mechanics of the loan book mean Wales will face pressure to follow.
The Welsh Government is in discussions with HMT and the Department of Education regarding the implications of the Plan 2 threshold freeze decision for Wales.”
You don’t have “discussions about implications” of a decision you were part of making. You have discussions about implications when someone else made a decision and you’re now trying to work out what it means for you. This feels like the Chancellor changed the terms of a shared system without consulting Cardiff, and Wales is now trying to figure out whether it has any choice but to follow.
The document notes that the UK government’s decision “demonstrates the increased pressure to ensure that the long-term costs of the student loan book remain sustainable” – which is true, but doesn’t quite capture the constitutional oddity of one government announcing changes to a devolved policy area that the other government is then expected to absorb.
Combined, these pressures will likely require The Welsh Government to review and amend its ongoing policy on student support outlay, and student loan repayments, to maintain appropriate controls on expenditure and continue a policy that aligns with Welsh Government’s policy aims.
Translation – Diamond is under review, and not by choice.
The institutional squeeze
The student finance constraints exist alongside – and compound – a financial crisis in Welsh universities themselves, with six of eight universities reporting underlying deficits in 2023/24 and total sector income falling 6 per cent in real terms between 2021/22 and 2023/24.
International recruitment – which had been the growth strategy for many institutions – has been hit by visa restrictions imposed by the Home Office, a reserved matter over which Wales has no say, and six Welsh institutions have over 30 per cent of their fee income from international students, with the highest at 44 per cent.
Cost pressures are mounting from multiple directions. Universities did not receive any additional public funding to compensate for the increased costs of employers’ National Insurance Contributions in 2025-26 – estimated to cost the Welsh sector £20m.
Parts of the sector also saw increases in Teachers Pension Contributions totalling an estimated £6m in 2024/25, also unfunded – unlike in colleges and schools, where government has provided support. A decade of real-terms decline in the value of tuition fees has eroded per-student income, and Welsh government direct funding has been squeezed in real terms since 2022/23.
If we cannot indefinitely expand funding to support all forms of provision and support, choices must be made about where investment will have the greatest impact.
An uncontrollable market
The financial squeeze on student support and institutions sits alongside a market competition problem that Welsh universities are losing. Section 2.3 of the document sets out, with admirable clarity, what has happened to UK higher education since student number caps were lifted in 2013-14.
Elite universities with strong brands and secure finances have aggressively expanded their student recruitment (typically in lower cost subjects) to reinvest in research and facilities, and so further increase their appeal, brand and league table positions.
The numbers tell the story. Between 2016 and 2025, acceptances to higher-tariff universities increased by 25 per cent, while acceptances to lower-tariff universities declined by 22 per cent. Despite total UK acceptances being only 2 per cent lower in 2025 than in 2016, the lower two-thirds of the sector by entry tariff lost 46,015 students – a 13 per cent decline.
Wales is disproportionately exposed to this dynamic because it has relatively fewer higher-tariff institutions. Only three Welsh universities grew their domestic undergraduate numbers between 2015/16 and 2023/24. More than half saw contractions ranging from 3 to 34 per cent. The 2025 entry cycle saw acceptances at Welsh providers decline by 4.2 per cent overall – and today’s UCAS data on application patterns suggests the competitive pressure is not easing.
Despite total acceptances in 2025 being only 2 per cent (8,885 students) lower than in 2016, the ‘lower’ two-thirds of the UK sector by entry tariff have seen a reduction of 13 per cent (46,015 students).
The document quotes Universities UK’s Transformation and Efficiency Taskforce on the perverse effects of this competition.
The intensity of competition has resulted in universities pursuing very similar and expensive business and operating models, and less, rather than more, differentiation across the higher education sector… In some cases, this can come at the cost of enhancing an institution’s own unique strengths while inhibiting creative approaches to teaching, research and operations.”
The Welsh government’s answer – to the extent there is one – is collaboration. The document points to existing models such as the USW Group, the UWTSD Group with Coleg Sir Gâr and Coleg Ceredigion, and the North Wales Tertiary Alliance, and notes that Medr has been asked to map subject provision across Wales to support coordinated planning.
But the fundamental problem is that Welsh institutions are competing in a UK-wide market they cannot control, against competitors with deeper pockets and stronger brands, while their own funding per student remains squeezed.
The demographic cliff
Layered on top of the market and finance problems is a demographic challenge that will hit from 2030 – the number of 16-year-olds in Wales is projected to fall by 12 per cent between 2030 and 2040, with 18-year-olds falling by 13 per cent. HEPI research cited in the document estimates that if UK application rates remain level, demand for higher education could fall by nearly 20 per cent over the same period.
For Welsh universities, this is especially acute because 39 per cent of their students come from the rest of the UK – and three institutions have half their students from outside Wales. UK-wide demographic decline will affect the pool from which Welsh universities recruit, not just the Welsh population itself.
The document’s response to this challenge is one of the more interesting sections. Wales has, for some years, been doing something distinctive on part-time and mature student participation – and it shows.
In 2023/24, 37 per cent of Welsh students studied part-time, compared to 23 per cent in England, and 43 per cent were aged 25 or over, compared to 36 per cent in England. Entrant enrolments at the Open University in Wales more than doubled between 2017/18 and 2023/24, coinciding with the introduction of part-subsidised fees and pro-rata maintenance support for part-time students.
Welsh students are more likely to be older and studying part-time than elsewhere in the UK.
A real policy success that deserves recognition – and one that complicates the “Diamond didn’t work” narrative. Student finance clearly can drive participation when it’s well-designed and targeted, and the part-time numbers are the proof.
The question is whether the same approach can work for the populations who aren’t currently participating – particularly the Welsh boys who have the lowest higher education participation rates in the UK, and the students from deprived backgrounds who are systematically channelled away from academic pathways.
On the Lifelong Learning Entitlement, the document is pointedly sceptical. The LLE legislation does not apply to Welsh providers or Welsh student support, and Welsh government has decided not to follow England.
The Welsh Government has considered that introducing the LLE in Wales would come with significant opportunity cost, with significantly increased complexity required in legislation, regulation, and provision of funding via SLC.
There’s a pointed dig at England here too:
It remains unclear whether there will be significant demand for loan-funded modular higher education provision, and pilot modular courses ‘significantly lacked demand’ according to a former DfE minister.
Wales will “monitor the delivery of the LLE in England through 2026 and 2027” – civil service for “we’ll watch you try this and see if it works before committing ourselves.”
Wales – with its stronger part-time infrastructure and more mature student population – would be well placed to pilot something innovative on credit recognition and transfer, building on its existing strengths rather than importing English complexity. The document doesn’t go there, but the foundations are present.
The pipeline problem
The critical constraint, as in England, is the transition between Level 3 and Level 4 – and here the document reveals how interconnected the challenges really are.
Welsh 18-year-old UCAS application rates are 32.5 per cent, compared to 41.2 per cent UK-wide – and the gap is growing. The 18-year-old entry rate for Wales in 2025 was 29.2 per cent, the lowest in the UK. The document traces this back to Level 3 attainment – only 68.6 per cent of working-age adults in Wales are qualified to Level 3 or higher, against a target of 75 per cent by 2050, and Wales has a higher proportion of post-16 learners undertaking vocational pathways at Level 2 and below than elsewhere in the UK.
But the headline figures mask a messier picture. Welsh participation looks lower at 18 partly because more Welsh students enter later – by age 30, the Higher Education Initial Participation measure reaches 55 per cent, which was actually higher than England’s last comparable measure, 54.2 per cent versus 51.9 per cent in 2018/19. The part-time and mature student participation that Wales has successfully expanded doesn’t show up in the 18-year-old statistics that dominate sector discourse.
What’s feeding this pattern is a structural shift in post-16 education that the document traces in detail. The proportion of learners progressing to FE colleges at age 16 has increased from 48 per cent in 2017/18 to 56 per cent in 2024/25, while the proportion in school sixth forms has declined from 42 per cent to 37 per cent. Overall pupil numbers at school sixth forms have declined by a quarter since 2013/14, and the number of schools with sixth forms has fallen by a fifth over that time.
This matters because of what happens next. A growing proportion of learners are entering lower-level vocational courses at Level 2 and below, and a declining proportion are undertaking Level 3 courses – especially AS and A levels. Students on lower-level courses are more likely to drop out and less likely to progress to sustained continued education or employment. The Education Policy Institute has highlighted that young people in Wales are less likely to be undertaking AS/A Levels and other Level 3 courses than elsewhere in the UK – and that this is particularly true of Welsh learners from more deprived backgrounds.
39 per cent of pupils eligible for free school meals in Year 11 enrolled onto Level 3 qualifications, which compared with 72 per cent of Year 11 pupils not eligible for FSM.
So the pipeline into higher education is constrained before students ever reach the point of applying, and the inequality data is bleak.
Welsh boys have the lowest levels of higher education participation across all UK nations, and Wales has the widest higher education participation gap between men and women.”
Tertiary education cannot alone counteract long-established social inequalities, which require a range of responses across education, social and economic policy.
This is honest – and a useful corrective to the tendency in English policy discourse to load ever more social mobility expectations onto universities while cutting the funding they need to deliver. But it also illustrates the trap.
If you redirect higher education finance toward fixing the Level 3 pipeline, you may improve progression rates in the long term, but you risk undermining the institutions that are supposed to receive those progressing students – and the part-time, mature student participation that has been Wales’s actual success story.
The graduate premium
Section 2.5, on delivering for communities and the economy, contains perhaps the most interesting data in the document – and certainly the finding that most challenges conventional UK policy wisdom.
The standard narrative, particularly from OfS and the “low value degrees” discourse, is that the UK has produced too many graduates, the premium is eroding, and too many people are going to university for courses that don’t pay off. This framing has driven English policy toward crackdowns on recruitment, minimum outcome thresholds, and defunding of provision deemed “low value.”
Wales tells a different story:
In Wales, the supply of graduates has not outpaced demand, as seen in other UK countries and English regions except London. This points to a lack of graduates, not only in STEM degrees but others such as Law, Finance and Management. Overall, this may constitute a binding constraint on economic growth in Wales unlike elsewhere in the UK.
The graduate wage premium has declined over time in most UK regions as supply increased – but not in London, and not in Wales. In Wales, there aren’t enough graduates. The constraint on economic growth isn’t “too many media studies degrees” but insufficient graduate supply across the board, including in supposedly high-value subjects.
And then the sting:
However, the mobility of more highly educated people means that some benefits of increasing education attainment levels might accrue to other regions, particularly London. In 2022/23, 27 per cent of Welsh graduates… worked outside of their original country of permanent address.
Wales bears the cost of educating graduates. London, primarily, captures the productivity benefit. This creates a difficult policy problem – produce more graduates and hope enough stick around, focus on retention rather than production, accept that a small nation in an integrated UK labour market will always be partly educating for export, or align provision more tightly to specifically Welsh economic needs in the hope of creating stickier employment?
The document doesn’t resolve this tension, but naming it is more honest than the English debate has been.
Research and innovation
On research funding, the picture is one of managed decline and desperate pivoting. EU structural funding has ended – a major loss for Wales – and universities must now compete more effectively for UKRI grants. There has been some success, with research council grants to Welsh universities increasing by £27m, or 42 per cent, between 2019/20 and 2023/24.
But Wales remains structurally disadvantaged.
It still receives a disproportionately low amount of UKRI competitive grants, at 3 per cent compared to 4 per cent of research active staff and 5 per cent of the population.
The proportions are even lower for the largest UKRI councils – EPSRC and BBSRC – where scale matters for competitive bidding. And the underlying economics of research remain broken across the UK:
UKRI grants are expected to cover only 80 per cent of the full economic cost of activity. However, cost recovery has fallen over the last number of years across the UK to 67 per cent, and research has become increasingly reliant on cross-subsidy from universities’ other income sources – primarily international student fees.
With international fee income under pressure from visa restrictions, the cross-subsidy model that has propped up UK research is crumbling – and Wales, with fewer research-intensive institutions and less capacity to absorb losses, is especially exposed.
The limits of devolution
Reading this carefully, what emerges is a case study in the limits of devolution when you share a labour market, a student market, a research funding system, and a loan book with a much larger neighbour who makes decisions without necessarily consulting you.
Wales has formal powers over higher education policy, but the constraints are formidable – the money for loans comes with HMT strings, and the biggest funding stream is controlled by Treasury parameters; the uncapped UK student market means Welsh institutions sink or swim based on UK-wide dynamics; immigration policy, which determines international recruitment capacity, is reserved to Westminster; competition law is reserved, shaping what collaboration is possible; research funding is split between devolved QR and UK-wide competitive grants Wales struggles to win; and graduate mobility means Wales educates workers that other regions employ.
Many of the problems are not Welsh specifically – they are UK-wide or English problems that Wales experiences acutely because of its scale and fiscal position. The demographic cliff, the market redistribution toward higher-tariff providers, the research cross-subsidy crisis, the exhaustion of the student loan credit card – all of these are hitting RUK too. Wales has just chosen to say it out loud.
So what is this, really? It is partly a cry for help – an honest statement that the current settlement is not sustainable and that Wales cannot solve these problems alone. It is partly a beg for more joined-up policymaking with DfE – the repeated references to English policy changes that Wales must “respond to” carry an implicit plea for consultation before decisions are made.
It is partly a cast around for ideas – the call for submissions is genuine, and officials will presumably welcome evidence they haven’t considered. And it is partly an attempt to inform the Senedd election, giving candidates and voters a more sophisticated picture of the choices ahead than the usual campaign slogans allow.
The document does make some effort to consider what would make Wales more attractive as a place to study and a place for graduates to remain. The analysis of graduate retention, the attention to Welsh-medium provision, the recognition that local availability of courses matters more as students increasingly live at home – all of this points toward a more place-conscious policy agenda.
But the analysis is not consistently place-based – there’s relatively little on how these challenges play out differently in Cardiff versus Bangor versus the Valleys, despite the economic contribution arguments that run through the document.
While student hardship and cost of living pressures are documented in bleak detail, students as agents in the system are largely absent. And while it references Medr’s system-level steering role repeatedly, it’s hard to see how meaningful system shaping happens without either student number controls – which would require agreement with Westminster given the UK-wide market – or substantial new funding to direct toward strategic priorities. Wales has neither.
The call for submissions closes in March 2026, the Diamond evaluation is due in Spring 2026, Medr’s subject provision mapping will be published in February, and a prospectus for vocational education and training is promised for Spring 2026. The Senedd election follows in May.
Welsh government has done something valuable here – it has produced an honest, sophisticated, technically detailed analysis of problems that much of UK higher education faces but few governments have been willing to articulate clearly.
Whether that honesty leads to better policy – in Wales, and perhaps by example in England – remains to be seen. But as a baseline for informed debate about the future of tertiary education, this document sets a standard that other administrations would do well to notice.