King's College London

Insolvency – the inability to meet debts as they fall due – is a real and present risk in the higher education sector. According to the Office for Students, 40% of English universities are running unsustainable deficits.

It’s a huge unknown how it would play out if major institutions did go bust, but there’s an urgent need to start planning for such a scenario if we’re to protect students’ educations, staff jobs, and minimise costs to the taxpayer.

That’s why the Policy Institute, in collaboration with PwC UK, hosted an expert panel on Monday to discuss how university insolvencies could be managed in practice.

Damien Ashford, PwC UK’s Education Lead, explained that, based on their analysis, he is hopeful – though far from certain – that even the most at-risk universities have many months or more before reaching crisis point.

What the whole panel agreed on is that insolvency is an issue that affects the entire sector, and that at present there simply is not political or legal clarity about what an insolvency process would look like or how students would be protected.

Neil Smyth, Partner at law firm Mills and Reeve, explained universities are not companies, so do not fall under existing insolvency legislation. Processes like administration, restructuring and company voluntary arrangements are therefore not currently available as a matter of law. There is an option of compulsory liquidation, but this is unsuitable to trade a university.

Given the lack of insolvency options, he believes there is currently “no formal protection for students”. For example, at present, students may be seen as creditors in an insolvency context, but any duties owed to them on this basis do not clarify duties to support the completion of their studies, whether at the insolvent university or a different provider.

The politics of insolvency and the HE sector

The discussion reinforced the argument made by panellist Jess Lister and her Public First colleague Jonathan Simons in their recent report on market exit, emphasising the need for government to grasp the scale and complexity of the challenge and to come to a political position on its approach to failing providers and to supporting their students. The current market-based system creates winners and losers, but the government must take into account that the higher education sector is not like other market sectors.

A small number of insolvencies, or even just institutional restructuring leading to course closures, would have a knock-on effect on the sector as a whole: financially stronger universities may be expected to support failing universities, whether through mergers or accepting students from closed courses. And reductions in student numbers may have a significant impact on the ability of universities to do research, due to what Professor Shitij Kapur, Vice-Chancellor & President of King’s College London, referred to as “the intricate interdependence” between the two activities.

The “contagion” or “domino” effect is also a real risk, since one or a small number of insolvencies could impact lenders across the sector, as well as significantly affect demand from international students, which will hurt all universities but especially those that can least afford it.

Winding down a university is far more complex and financially challenging than most other companies or entities because of the need to continue supporting students for several years, and because the range of courses offered means it would not necessarily be easy to find appropriate alternative providers. This is especially true in regions where there are few or only single universities serving the area.

Moreover, in such places, the role that universities play in contributing to the local economy, providing the skills base, as well as directly providing employment, can be significant. For these reasons, Professor Dame Alison Wolf DBE does not believe university failure is something “any government can or will ignore”.

Moving forward

There was consensus that the Office for Students is not currently set up to deal with the challenges ahead, lacking the resources and capacity to engage with universities in a way that will support universities and protect students.

A more interventionist approach may be required, not just around dealing with universities at current financial risk, but potentially at more structural levels. For example, Professor Sir Steve West, Vice Chancellor, President and CEO of UWE Bristol, suggested number controls may be an appropriate intervention to rebalance the sector and stem the tide of universities “in higher positions dipping down into tariff levels that they would not normally be dipping down into”.

Special legislation around higher education administration may also be essential, and not just to introduce genuine protection for students. Neil Smyth made the point that legislation would improve lenders’ confidence and therefore may play a preventative role, reducing the risk of insolvency processes being initiated.

In the meantime, Damien Ashford calls for a transformation fund to incentivise collaboration, as well as to buy time for at-risk institutions while a bespoke legal regime is put into place.

Dr Eliel Cohen is a Research Associate at the Policy Institute. His longest running interest is in how higher education policy and practice can make universities more accessible and inclusive. 

Watch the event recording: