Universities demand certainty of proper funding

The Government must sort out the deepening financial crisis facing Britain's higher education if it wants to meet its ambitious targets

University vice-chancellors are fed up. At their annual conference in Aberystwyth this week, they made their displeasure clear in no uncertain terms to Margaret Hodge, the higher education minister.

British universities are broke. Just how broke is revealed in a new report from Universities UK, the umbrella body for higher education. For the first time, the sector as a whole is turning in a deficit on its operations, according to the latest accounts. For the second year running, about half of the UK's higher education institutions are in the red.

"The sector has returned to at least pre-Dearing levels of financial precariousness," says Professor Sir David Watson, the vice-chancellor of the University of Brighton, in his introduction to the report, The internal economy of UK higher education institutions 1994-2000.

There is, of course, nothing new about universities being in financial trouble. They have been starved of government funds since the Eighties. What is new is that the squeeze on teaching costs can no longer be absorbed, says Sir David. And the uncertainty surrounding university funding needs to be resolved. Lord Dearing's report in the Nineties was an attempt to put university funding on a sure footing; in the event it did no such thing, because the Labour government reneged on crucial parts of it.

Since then, funding mechanisms have been changed, the cap on the number of students has been lifted and higher education has become more of a marketplace. Universities' backs are to the wall; they are no longer protected if student demand for a subject falls suddenly or if they fail to do as well as they expected in the research assessment exercise. Some new universities – notably Luton and South Bank – have been forced to retrench dramatically, while two universities in London – London Guildhall and North London – are merging this month to form the new London Metropolitan University.

"If we allow the market to rip and we countenance market failure of institutions, then the reputation of the system as a whole and the deal that students get will be in doubt," says Sir David.

Higher education has yet to learn how it has fared in Gordon Brown's spending review (only the details on science research have been announced) and vice-chancellors are nervously awaiting a White Paper to be published in the autumn. They are also waiting for the interdepartmental review of student funding, which has taken an inordinately long time – almost a year so far – to have examined and rejected a host of different ideas, including a graduate tax and the return of grants.

There is deep scepticism about Tony Blair's target of getting half of young people into higher education by 2010. That has been exacerbated by the news that the Department for Education and Skills (DfES) has only just decided to commission research into the costs involved in meeting the target. Some observers wonder whether ministers are setting the stage for abandoning the target.

Sir David is not so cynical. It has become clear in the past year that reaching the target is much tougher than originally anticipated. Maybe the DfES should have realised that earlier, he says. But expansion is the only way to get people from poorer families to contemplate higher education.