Sector trends

Vision 2020: higher education

Increasing student numbers and demand for degrees will offset some of the near-term uncertainty in the UK’s higher education sector.

The bank estimates that the UK sector as a whole will experience 2.19% growth between Q3 2019 and Q3 2022, which is below the wider UK economy. So what are higher education providers looking out for in 2020?

Changing student demographics increase demand for degrees

The higher education sector has become somewhat polarised in recent years, mainly because the number of 18-year-old entrants declined several years ago due in part to the introduction of tuition fees. This trend is expected to reverse in 2020, and recent data from the Office for National Statistics indicates an acceleration of student entry numbers over the next five years. For UK higher education, the increasing size of the 18-year-old cohort, the dominant age group served by that sector is fundamental. Universities’ competition for students, however, is not likely to ease up, with students of the incoming generation demanding better campus experiences and high-tech facilities on top of high-quality education. Delivering on those demands and marketing to prospective students remains critical to those institutions trying to increase or retain admissions numbers.

Funding and regulation changes

Reduced central government funding over the next five years will be accompanied by more stringent regulation. This presents several issues for the UK sector. With the Department for Education (DfE) slashing research funding there is a risk that more UK educational staff will seek to fulfil their research projects outside of the UK. Institutions will, therefore, need to consider how they might incentivise their staff to retain their talent.

The Office for Students (OfS), which replaced the Higher Education Funding Council for England in 2017, has created a new regulatory framework for higher education, increasing competition and student choice. Its aim is first to ensure students receive value for money, and secondly strengthen the research sector and widen participation. The Higher Education and Research Act 2017 gives the OfS the powers to penalise institutions and remove management. Since these changes, several private universities, focusing on STEM (science, technology, engineering and mathematics) and digital offerings have been established. However, while on the face of it this will increase competition, the OfS has already refused to register at least one of these institutions.

Maintaining the reputation of UK universities

The UK has always held a strong position within the higher education sector, offering some of the top institutes in the world, and it continues to attract large volumes of international students. While Brexit uncertainty is posing some questions about the sector's long-term prospects, it should remain an attractive destination in the short term.

One area in which UK universities are breaking ground is through better support for the welfare and mental health of students. Establishing a well thought-out setup to support students that are suffering from mental health and serious illnesses is a cost that more universities will budget for in 2020, particularly with the challenge of funding cuts from the DfE.

Demand for degrees will remain high

While historically low unemployment and the ability to find work has perhaps changed attitudes towards the value of degrees, the view remains that degrees are still a prerequisite to attaining higher-paid employment. Meanwhile, the shift in law compelling young people to stay in some form of education until the age of 18 has given prospective students longer to consider a university degree. The law change has also raised the number of students achieving the qualifications needed to attend university. These factors are likely to underpin admission volumes for the next few years.

Proposed changes to tuition fees under scrutiny

The Augur Review, published in May 2019, was the first attempt in more than 50 years to consider all post-school education funding, a key proposal was a reduction in tuition fees from £9,250 per year to £7,500 per year. While attractive to students, it is thought this would apply pressure on university finances and put more reliance on diversifying their income. Some universities in the past have struggled with this, particularly those with lower research income. However, the opportunities are there for enterprising institutions, such as growing transnational online programmes or providing work-based learning services.

If the panel’s recommendations are implemented in full, the higher education sector should receive the same total amount of funding overall, but it will be distributed differently. The government will top up the £2bn difference in direct teaching grants. However, the government would have the discretion to allocate funds towards those institutions and courses it believes are strategically more important for economic prosperity – good news for STEM-focused institutions but this will present uncertainty for some universities and individual departments.

Internal cost-cutting within universities

With the changes in public sector funding, universities are becoming more cost-focused; this has led in turn to changes in pension schemes. A symptom of this has been staff walkouts, which disrupted studies in 2018 and 2019 and saw hundreds of external examiners resign and many universities brought to a standstill. Some institutions were forced to pay compensation to students over lost teaching hours, thereby compounding financial pressure. The University and College Union general secretary Jo Grady warned in November that there could be a second wave of strikes in the spring term of 2020 if they don’t get a better offer from employers.

Brexit will be challenging, but with opportunities

Brexit will have several effects on the sector beyond those experienced so far, but universities will focus on maintaining business as usual. For students outside the EU, the weakening of the pound potentially means it should now be cheaper to study in the UK than it was previously. However, the extent to which international students make decisions about where they study based on the currency market is questionable.

Areas including student fees, the EU Settlement Scheme, ongoing programmes and mutually recognised qualifications should all be unchanged during the transition period. However, the future of the UK-EU relationship beyond this point will be debated by government throughout this year, with immigration and research collaboration being two important considerations.

The government has said it wants the UK to be a world-facing innovative economy, which attracts the brightest and the best people that will thrive in a global operating environment, and universities are well-placed to support that agenda. Universities have opportunities to support the country post-Brexit, and many are looking more closely at developing deeper international partnerships to support research, and promote staff and student exchange schemes.

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of NatWest Group, as of this date and are subject to change without notice. Copyright © NatWest Group. All rights reserved.

scroll to top