UK universities facing bankruptcy will not be bailed out by taxpayers

UK universities facing bankruptcy will not be bailed out by taxpayers

The government will not rescue universities that are struggling financially, the higher education regulator warned on Tuesday.

Michael Barber, chair of the Office for Students, told delegates at the Wonkfest higher education conference that the regulator would assess financial sustainability and good governance, but its role was to “protect student interests”, not “bail out providers in financial difficulty”.

His comments come after reports that a number of universities are struggling to generate sufficient income as they face falling student numbers, the rising cost of new buildings and uncertainty over foreign student applications in the build-up to Brexit. Many higher education institutions have also launched aggressive expansion plans that critics fear could be financially unsustainable.

The government is carrying out a review of funding as debate grows over the value of some higher education programmes.

Sir Michael stressed that the OFS, which was founded in January, had so far seen little sign of financial unsustainability in the 182 registered universities it had scrutinised. He said that the regulator was paying close attention to bridging loans, debt leverage and consistent over-projections of student numbers.

He also said there could be “creative solutions” in the case of a university’s financial collapse, including mergers and takeovers.

But he warned: “In the early months of our existence, we have heard a number of times from university leaders that if they fail to adapt to a changing environment or misjudge decisions — for example, about student numbers, courses offered and facilities built — and get into financial trouble, ‘ultimately it will be OK because the OFS will bail them out.’ This is wrong.”

“This kind of thinking — not unlike the ‘too big to fail’ idea among the banks — will lead to poor decision-making and a lack of financial discipline, is inconsistent with the principle of university autonomy and is not in students’ longer-term interests,” he added.

Nick Hillman, head of the Higher Education Policy Institute, a think-tank, said the regulator was trying to bolster the higher education market and did not have sufficient funds to bail out a university.

But he added: “If a big institution that employs and educates tens of thousands of people were to topple over, there will be a major row. When Rover collapsed, the politicians had to get stuck in and it would be the same with a university.”

Sam Gyimah, universities minister, said the government’s priority was to ensure a robust “student protection plan” in the event of a collapse, with options for students to continue their education.

The University and College Union, which represents teachers and academic staff, also stressed the value of universities to local economies and said they should be supported if they were in difficulty.

Matt Waddup, head of policy and campaigns, said: “Universities do need to be properly run and the OFS should focus its efforts on ensuring better governance structures and scrutiny of the decisions taken at the top table. The regulator and government should be supporting universities to excel, not washing their hands when things don’t go to plan.”

In his comments, Sir Michael also defended student loans as a way to protect higher education funding from austerity and create wider access, especially to those from more diverse backgrounds. He added that a top priority for universities should be to increase social mobility and diversity.

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