Scotland’s independent think tank
Scotland’s independent think tank

If our universities area bailed out, the price is reform – Daniel Johnson MSP


The responses by governments to the Covid-19 crisis in recent and coming weeks will fill history books and be analysed and interpreted for years to come. There are no real parallels or precedents. The credit crunch and great depression provide lessons but only incompletely. This is primarily a health crisis but one that looks likely to precipitate an economic one across all sectors. We have never instituted a global lockdown, there is no way of knowing whether the economy will bounce back – whether opening factory doors will neatly coincide with people and companies ready to spend at the levels they were before the crisis.

We cannot predict all the impacts nor plan our responses. But some impacts are foreseeable and where they are, we must prepare now. One such is the university sector in Scotland. Institutions that are avowedly international in perspective and that seek to bring researchers and students from across the globe are bound to be impacted with the world in shutdown.

Universities in Scotland have an annual income of £3.8bn. Just less than half of that income comes from the governments in Edinburgh and London (38.7% and 10.9% respectively). Universities generate almost £1bn in fees from non-EU students and students from other parts of the UK. Another £500m is generated through private consultancy, venue hire and other commercial activities.

All of this looks to be in severe jeopardy. International students may not be allowed to come if travel restrictions are still in place. Even if they are lifted, many anxious would-be students may put off plans for international study for another year (exacerbated by many domestic students considering doing likewise). Conferences, concerts and festivals that have become a vital source of revenue for universities look likely to be impossible until a vaccine is found.

Last week, Universities Scotland and Universities UK circulated figures of the cash shortfalls they may face – £500m and £2bn respectively. The reality is that these numbers were designed to soften the blow and not scare ministers in Holyrood and Whitehall. The worst-case scenario would see no or very few international students arrive in September, and commercial income could easily halve. On those rough calculations, Scottish institutions could need a bail out of £1bn.

Looking at balance sheets shows how existential the situation is. Loss of international fees would wipe out the cash reserves of at least six Scottish universities. If commercial income halves, that number increases to 10.  In other words, there is a very real risk that without government intervention, many Scottish universities could go bust.

It is important to set these numbers out, both to understand the seriousness of the problem but also to understand that reflex suggestions offered up on social media are simply inadequate in scale to deal with it. Slash principles’ pay, charge tuition fees, charge EU students – all have been dropped into discussion when the universities came forward to highlight the problem. Halving principles’ pay might save £1-2m? Extending that to other well-paid, academics £50-100m? Charging EU students might bring in £64m (assuming they are allowed to travel here in September). Finally, the problem with tuition fees is that unless you charged them upfront, the money does not come through until the students have graduated and are earning. In short, none of these ideas is a solution either in terms of scale or timing. The crisis universities face is an order of magnitude larger and it will be with us in September, not in four years’ time.

The reality is that someone is going to have to write a very large cheque and not expect to get their money back, and write it in the next few months. It is for this reason that many in the sector are drawing direct parallels with the credit crunch and the bail-out of the banks that followed. This is the decision that Scottish ministers will likely be grappling with over the summer. And if they are going to underwrite universities without immediate prospect of a return, they will undoubtedly seek a return in terms of reform.

The proposal of mergers is almost inevitable. With 19 universities in Scotland (including the Open University), some would say we have too many institutions doing too much of the same thing. But there is reason to be cautious about the prospect of such moves. Firstly, mergers in and of themselves would do little to soften the financial blow Covid-19 is likely to do to the sector. The credit crunch offers some salutary lessons: HBOS was forced into a hastily arranged and unwilling merger with Lloyds, which did little to prevent the inevitable government bailout. Moreover, it created a huge bank with 60% of all UK mortgages, arguably exacerbating the lack of diversity in the sector that created the need for government intervention in the first place. In short, combining two weakened balance sheets does not create a strong one and could make some matters worse.

Looking closer to home, the college sector provides ominous lessons for any push for consolidation. The merger of 25 colleges into 10 did little to improve financial stability. In fact, it reduced financial flexibility as the colleges lost their autonomous status and with it their ability to retain reserves or borrow. Most importantly, in terms of educational provision, diversity was lost and the number of students attending college fell.

But a billion-pound bail-out will require a quid pro quo. So if the universities are going to go cap in hand to the government, they should expect a demand from ministers. The institutions themselves need to prepare for this and offer suggestions both in terms of the form and purposes of any reform offered in return for a bail-out. This might mean confronting some home truths and bringing forward change much more rapidly than they have been willing to do previously.

In terms of purpose, questions of articulation from college to university and equality of access will need to be front and centre of any proposals. Much progress has been made but there have been lingering difficulties in getting universities to facilitate access. Universities will need to make radical proposals to prepare and ready people from disadvantaged backgrounds to get to and succeed at university. Similarly, they will need to look at integrated approaches with colleges and other education providers. In Wales, there is a far more consolidated tertiary sector enabling students to transition from college to university.

What is taught at university and how will have to see radical reform. Universities have surprised themselves at how quickly and effectively they have embraced providing teaching through electronic means within days and weeks. A bail-out package would need to drive a radical embrace of technology to deliver teaching, tailor content to individual students and facilitate participation. The need for students to have access to vocational learning at all institutions has been whispered by some at even ancient and august universities who might previously have considered that law and medicine were quite enough vocational provision. The reality of rapidly-changing skills needs following the health crisis, along with economic hardship preventing full-time study, should drive innovation in this regard.

Some institutions may well already have strengths in these areas and formal links could help drive cooperation with those that have a more traditional and academic focus.

Moving on from purpose, any structural change must only be introduced if it helps facilitate any such identified aims. Simply creating larger institutions will not necessarily deliver this and in the case of our largest institutions it may not be desirable at all.

Federated universities exist in many other countries. Wales and Ireland for example have the national universities that are overarching federal structures for the individual institutions. Some of the world’s most prestigious institutions exist within such structures. Berkeley is part of the university of California. Creation of over-arching federated structures could bring together academic, research-focused universities with those more focussed on vocational qualifications, providing more options for students and widening the benefits of leading research. Such properly-integrated structures could remove any residual barriers between further and higher education.

Is this the right solution, or even feasible? Possibly, but there will be others. My point is this: unless the sector proposes a realistic change plan and does so accepting weaknesses and issues the sector has previously been reluctant to acknowledge, change will be imposed upon them and it may not be to their liking. There are undoubtedly ways in which our universities could become more effective at preparing people for work, being more open and generating benefits for wider society. Crude mergers would not deliver this, but well-conceived structural change might and is more likely to if the sector itself comes up with a plan.

I started this article pointing out that this situation is without precedent or parallel. What universities are facing has much in common with the banking crisis. What is wholly different is that this level of disruption is likely to be happening in many other sectors, if not simultaneously then certainly in quick succession. In contrast, the universities know that if students do not start in September they have a problem. Charities, small businesses and arms-length agencies don’t necessarily have such well-defined points in their financial year. By the time September comes, universities may not be the only ones asking for a cheque.

It is far from clear if a billion-pound bail out could be afforded by the Scottish government in isolation. Coupled with requests from other sectors and organisations it becomes even more questionable. All the more reason for principles and vice-chancellors to hatch a compelling plan sooner rather than later.

Daniel Johnson is Labour MSP for Edinburgh Southern and deputy convener of Holyrood’s education committee