- Matthew Howling, Principal Associate at Mills & Reeve LLP, and Poppy Short, Partner at Mills & Reeve, reflect on a February round table discussion amongst university leaders chaired by Nick Hillman of HEPI.
On 26 February 2025, a group of 18 university leaders, advisors and stakeholders met to reflect on how universities can best position themselves in the current financial climate. The meeting was a follow-up to our joint dinner with HEPI on 10 October 2024 at the Royal Society in London. As we remarked at the time, there was a clear desire to continue the conversation, and the fast-paced and content-rich discussion here was a testament to that desire.
Our theme was the limits of self-help. Given the current financial headwinds, institutions have been restructuring their activities on an unprecedented scale. However, once the severance schemes, asset sales and course closures have come to pass, will these remedies be sufficient to put institutions back on a sound enough financial footing to continue to serve their students and communities for the longer term? The unspoken and yet resounding understanding across the group was that further and more radical changes are needed across the sector to stabilise the situation.
What is the role of the private providers in helping to improve the financial health of the sector? Several voices suggested that foreign investment could help to save certain British universities and that the sector needs to be less reticent about such investment. Other participants thought that, while foreign investment might work in the context of smaller providers, it was less likely to be successful when dealing with larger, more complex institutions, particularly those that have a legacy of contracts with trade unions and other stakeholders. It is well known that a number of private providers and foreign investors are waiting in the wings to acquire UK degree-awarding powers from distressed higher education providers if the opportunity presents itself. The sector should be prepared to consider its response to this.
In a recent HEPI poll, when students were presented with a list of 10 options for what could happen if their own higher education institution were to fall over financially, a takeover by a foreign company was the joint least popular option. Foreign investors would have to work hard to tackle these negative perceptions.
In some ways, the antithesis of self-help is a forced merger. It was noted that, in other jurisdictions, forced mergers are not as uncommon as might be thought. Estonia, France, Germany and Denmark had all experienced forced university mergers. Is this the direction of travel for the United Kingdom? There was a feeling that, in Wales and Scotland, there was a willingness to consider higher education provision on a more holistic basis than in England.
In terms of state support, it was felt that the sector had to acknowledge government spending pressures. The evidence of cuts to budgets elsewhere (such as foreign aid) strongly suggests that there will be no chance of further increases to the home undergraduate tuition fee in the foreseeable future and despite the need, other forms of financial help are not expected.
If government funding will not be forthcoming, the other obvious source of funds is existing lenders. Participants observed that, while sector borrowing was high, much of the recent debt taken on by providers was in the form of revolving credit facilities (which provide short-term funds up to a specified limit for a stipulated period of time, all or part of which can be repaid and re-borrowed as required), rather than the term loans that universities have traditionally found more attractive (which provide long-term funds for a specified period of time). There was concern that, in some cases, banks might be considering withdrawing those lines of credit when they come up for renewal. There was also a concern about how many institutions might be relying on revolving credit facilities to satisfy the OfS’s minimum liquidity requirements. There was anecdotal evidence that certain banks were focussing their new lending on higher tariff institutions, partly because of credit risk but also because of the ancillary opportunities to make money from larger institutions. This risks a self-fulfilling cycle of winners and losers.
It was generally felt that a new Special Administration Regime would make life easier as opposed to harder in terms of access to funds. It is not necessarily about encouraging enforcement by banks. It is highly unlikely that a UK clearing bank would want the adverse publicity associated with enforcing against a UK university (although foreign lenders may be less PR squeamish). However, giving lenders a clear line of sight as to a recovery process, even if not used in practice, may further encourage commercial lending to the sector.
Beyond the question of more money, there was a feeling that certain sector skills were lacking to navigate these troubled waters. As one participant put it, transformation expertise was what was needed, not just transformation funds. And how does all this transformation happen at pace?
Above all, there was a sense that the sector needed to move as one on certain key issues. One example was the increased costs for post-92 institutions associated with the Teachers’ Pension Scheme. Another key area where the sector needs to work together is soliciting the opinion of the Competition and Markets Authority (CMA) on how universities can collaborate without breaching competition law. There were grounds for optimism: the CMA guidance on applying the competition rules to sustainability agreements and collaborations is an example of the CMA taking a proactive approach to assuage concerns that competition law should not hinder legitimate collaboration where this was in the public good. In other areas, such as procurement and shared services, it was felt that there was much that the sector could be doing together to be more efficient and reduce the cost of delivery.
As an hour of rapid and informed discussion drew to a close, perhaps the overall conclusion was that it is only by acting collectively that the sector can arrive at solutions to allow institutions to truly put their houses in order at an individual level. Universities need to start planning how they will support themselves through this next phase. To survive they will need to mobilise themselves to work at pace to foster local and regional connections to drive forward the priorities for their regions.