If I had to put the Labour government White Paper, Post-16 education and skills, on a button, it would say “Do growth, same money.” Labour defines the university as an economic engine, and then suspends the laws of capitalism to expect more output without new investment.

The paper notes British universities’ fiscal crisis but doesn’t address it. Let’s refresh ourselves on the sources and scale of this crisis. The figure below comes from the same Transparent Approach to Costing (TRAC) data that the paper cites.

_{Figure 1: TRAC full economic costs surplus/(deficit) by activity, 2023-24 (UK higher education institutions)}

The university’s core activities are teaching and research. UK universities lose two billion GBP a year on teaching UK students and over six billion GBP by conducting research (on about £18.5 billion in gross revenue, Table 5).  This is because home fees have been frozen for years and thus deflated, and research funders cover in the aggregate only two thirds of the full costs of research.  As a result, nearly half of UK universities projected deficits for 2024-25. 

Rather than persuading government to fix these losses at their sources, universities sought to cover them with large margins on the high fees paid by overseas students, those migrants the British public loves to hate. This made up for half of the shortfalls. That, combined with “other (non-commercial) activities”, still left a deficit across all universities of over £2.3 billion in 2023-24, which has since likely gotten worse. 

The research deficits are a longstanding problem. The deficits on home teaching were created by the Cameron-Willetts cuts to the government teaching grant in 2012, coupled with inflation. But Labour joins the Conservatives in refusing the stability of new public funding across all subjects of instruction.

What are Labour’s fiscal propositions? One is to tax overseas student tuition with a new International Student Levy. Since this will cut profits on an already-declining revenue stream, Labour here makes the fiscal problem worse.

 The second idea is to index student fees to inflation. But this is not a revenue increase, just an end to cuts in the real value of net fee revenue. Even these increases won’t keep up with actual inflation, as Jim Dickinson pointed out on the WonkHe podcast episode on the White Paper (“Post-16”).

 The third revenue idea is better: to “improve research grant cost recovery.” I’m impressed that the government even recognises the problem (which is the reverse of the U.S. situation). But the stretch goal is to lose only 20 pence on the pound on equipment purchases. This is just one source of research losses and the others go unmentioned. Meanwhile, even this achievement would allow the losses to continue. Labour’s model is that other people will pay more, particularly charities and foundations like Wellcome Trust, Leverhulme Trust, and ISRF, still without ending research deficits.

 In short, the government’s ideas for “putting the sector on a sustainable footing” will not achieve that. This gets us to Labour’s real goal, as I read it, which is to shrink the sector through “specialisation” and mergers. 

 “Driving efficiencies” has been the big British idea for universities for many years. It’s not a very bright policy for the knowledge sector, and is woefully out of touch with how new ideas are created, tested, transmitted, critiqued, and improved. Even during the growth years of the mid-2010s, education was “driven” by finance, damaging knowledge creation in ways that remain invisible to the public. There’s little left to cut in the existing structures, which means, as “Post-16” asserts, that Labour’s further austerity will terminate whole parts of existing universities or close universities in their entirety. Closures and mergers are Labour policy, not a problem Labour policy wants to solve.

 Specialisation isn’t intrinsically bad—quite the opposite. If your area has three business schools, it makes sense for one to get really good on international trade, another on organisational behaviour, and the third on regional economic renewal. This kind of niching can identify gaps in research, support original work, and help a department stand out.

 Specialisation theory assumes that all three units continue to exist. At a business school with graduate and undergraduate students, that means teaching the knowledge base of the discipline to the undergraduates as they make progress over many years towards the advanced specialisations that government rightly values.

This isn’t the White Paper’s idea. Its plan for fiscal solvency is merger and closure. The authors seem to assume that university departments have all been replicating and imitating each other. They offer no evidence of avoidable duplication of intellectual effort, or explanation of why teaching different students the same core topics (microeconomics, French level 2, Geographical Information Systems over a six module sequence) is wasteful.

It should have been obvious in an “education and skills” paper that teaching economics to 100,000 students will involve teaching very similar elements of the knowledge base to all students before specialisation can occur at advanced stages. Government might try to force Manchester Metropolitan University to “coordinate” its business program with the University of Manchester by sending its students there to take microeconomics, but they would just be shifting costs, not cutting them.

The real white paper plan is just less curriculum, meaning some combination of higher student: instructor ratios, fewer overall students, and fewer lower-enrolment courses and classes. This is “efficient” in the rather dim unit-cost sense, but undermines advanced, novel, and (ironically) specialised instruction for the high-end workforce Labour says it wants. Contradicting their stated aims, Labour wants narrowing as part of downsizing. They praise “providers” who are “changing their business models by cutting courses or restructuring.” This is Labour’s sustainability plan for British universities: fewer and/or smaller universities, fewer students (also less likely to be diverse students defined by both race and class), and a cuts-driven shift from advanced special topics to ordinary coursework.

Hovering over all this is governance. Labour here issues a banal call for competence while encouraging university managers to “consider how their institutional strategies align with the delivery of government priorities.” Academic and professional staff are left out of the picture.  The model is pernicious, as it will further encourage managers to shrink, close, and redefine programs unilaterally with the blanket excuse that government requires it.

I have two thoughts at this point. One is that universities are for learning not for earning, yet Labour joins the Conservatives in erasing the cognitive, intellectual, personal, and social benefits of university degrees in its desperate search for economic growth. I’m in the United States as I write this in order to speak about these core non-pecuniary activities and effects (for example, this UCLA talk), so will leave them aside here, except to note that UK governments mis-sell and weaken higher education when they judge it by economic metrics and rhetoric.

The second thought is that Labour uses universities, like the Tories before them, to distract themselves from the root cause of the UK’s youth employment problem (worse than the EU median) and the UK’s economic stagnation. That root cause isn’t skills deficiency but low capital investment.

One report on the topic describes the situation as the UK’s “investment phobia”: “The UK has suffered decades of under investment. We consistently rank the lowest in the G7 and among the worst performers in the OECD club of 37 developed economies, and we are worse off than our competitors as a result.” 

 _{Figure 2: The UK has always underinvested but today is falling further behind}

The situation is similar with weak UK public investment, which includes universities. Note the blue portion of the bars in Figure 3.

_{Figure 3: Tertiary Education Spending as Share of GDP, Public and Private, OECD Countries}

Although total expenditure on tertiary education puts the UK in third place, just behind the United States, its public spending is near the bottom across this large group of nations. Labour could easily make the case for more public investment in its universities, and take much of the private cost burden off its students.

Labour must do that—there is no other solution to UK universities’ fiscal crisis. But Labour will also need to stop flattering and deferring to British capital and get it to open its wallet. Here’s another picture of the problem.

_{Figure 4: UK workers have access to significantly less capital than those in peer nations}

Britain ranks at the bottom of this metric with two former Soviet-bloc countries, not in terms of worker skills but in terms of shortfalls in capital stock. 

Britain has long been much better at spending other people’s capital than its own. It is historically in the top three European countries in attracting foreign direct investment (FDI).  Overall FDI has been slipping, and technology-focused FDI, where Britain has always led in Europe, fell by over a third from 2023 to 2024. Post-Brexit Britain is going to have to ask not what its capitalists can do for themselves but what they can do for the country. Labour must shift its arm-twisting energies from universities to business and finance.

It’s of course profoundly disappointing that Labour plans to leave the university sector in some combination of decline, stress, shrinkage, demoralisation, and stagnation for want of reasonable financial repair. But at least academic staff know where they stand. They are on their own.

The silver lining is that they can now focus on demanding the bottom-up, education-led research and teaching changes that are the only reliable source of university health and of socially-useful creativity.

The ISRF is hosting a workshop this month on the topic of “Reconstructing the British University.” It’s part of our ongoing research on “knowledge futures,” and we’ll be reporting on the results as they unfold.