The HEPI Call for a Renewed Approach to University Funding

The Higher Education Policy Institute has issued a timely call for a fundamental rethink of how universities in the United Kingdom are funded. In a detailed analysis published on its platform, the organisation highlights how three decades of policy shifts have placed an unsustainable burden on students and graduates while eroding the public investment that once underpinned the sector's success. This proposal for a new social contract seeks to realign responsibilities among the state, universities, businesses and society at large, ensuring that higher education continues to deliver broad benefits in research, innovation and civic contribution.

At its core, the argument rests on the recognition that universities generate value far beyond individual graduates. Research conducted within these institutions fuels long-term economic growth, addresses societal challenges and supports regional development across England, Scotland, Wales and Northern Ireland. Yet current arrangements, shaped heavily by tuition fees introduced in the late 1990s, have shifted much of the cost onto those least able to bear it while leaving many providers facing structural deficits.

Historical Foundations of UK University Funding

The post-war era established a clear principle for higher education in Britain. The Robbins Report of 1963 articulated that access should depend on ability rather than financial means, with the state bearing primary responsibility because the benefits of an educated population and a strong research base extend across generations and communities. This compact positioned universities as public goods, supported through direct government grants that enabled expansion without compromising quality or mission.

Over the following decades, this model supported the growth of institutions that became global leaders in teaching and discovery. Public funding covered the majority of costs, allowing universities to focus on curiosity-driven research and widening participation. The approach reflected a broader societal consensus that investment in knowledge creation would yield returns in productivity, health outcomes and cultural enrichment for the entire nation.

By the mid-1990s, however, pressures on public finances prompted a re-evaluation. The Dearing Report recommended the introduction of tuition fees, framing higher education as a private benefit that graduates should help finance through future earnings. This marked the beginning of a gradual withdrawal of direct state support, a trend that accelerated in subsequent years.

The Shift to Student-Led Funding and Its Consequences

The introduction of fees transformed the financial landscape. What began as a modest contribution evolved into a system where graduates carry significant debt, often repaid over decades through income-contingent loans. Public sources now account for only around 23 percent of tertiary education spending in the United Kingdom, well below the OECD average of 68 percent. This inversion has forced universities to rely increasingly on international and domestic student fees to cross-subsidise research and other core activities.

The results have been stark. Nearly half of universities are projected to operate in deficit during the 2025-26 academic year, according to monitoring by the Office for Students. Institutions with strong social mobility missions, serving higher proportions of first-generation and lower-income students, face particular strain because the fees their students can realistically sustain fall short of the costs of delivering high-quality education and research.

Research activity suffers most directly. As a fundamental institutional function rather than an optional extra, inquiry requires sustained investment. When teaching income must cover shortfalls, the scope for groundbreaking work narrows, particularly at universities outside the most research-intensive clusters. This dynamic threatens the United Kingdom's position in global knowledge production and its ability to address pressing challenges in areas such as climate, health and technology.

International Comparisons and Lessons

Other nations offer instructive contrasts. Germany and Denmark maintain near-zero tuition fees for domestic students, recognising that the returns from higher education and associated research accrue too widely to be shouldered primarily by enrollees. These systems sustain strong public investment while still attracting talent and producing competitive research outputs.

The United Kingdom's approach stands out for its reliance on graduate contributions. While this model has enabled expansion, it has also created inequities. Students from disadvantaged backgrounds often carry debt without proportional earnings gains in certain fields, while the broader societal benefits of university research and civic engagement remain underfunded. Restoring balance would require acknowledging that research horizons are long and diffuse, making state support essential.

Data from international benchmarks underscore the divergence. Countries that retain higher levels of public funding demonstrate greater resilience in maintaining research capacity and supporting institutions with diverse student bodies. The United Kingdom could draw on these examples to craft a hybrid model that preserves some graduate contribution while reintroducing meaningful public backing for priority areas.

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Emerging Challenges from Technology and Labour Markets

Compounding financial pressures is a shifting demand environment. Advances in artificial intelligence are reshaping entry-level roles in law, finance, media and professional services. Graduate recruitment fell by around 8 percent in 2024-25, with positions explicitly requiring degrees declining sharply since the widespread adoption of generative tools. Prospective students increasingly question whether traditional degrees represent the most reliable route to secure employment.

Universities must therefore adapt their offerings. The new compact envisions institutions that not only transmit knowledge but also equip staff and students to solve practical problems, launch ventures and build enduring partnerships. This requires investment in infrastructure for entrepreneurship and collaboration that current funding constraints make difficult.

Without reform, the sector risks a downward spiral: deficits limit transformation, weaker outcomes reduce applicant numbers, and further cuts follow. A renewed social contract would provide the stability needed to navigate these transitions while preserving the United Kingdom's reputation for excellence.

Elements of the Proposed New Social Contract

The HEPI analysis outlines reciprocal commitments. The state would provide ring-fenced funding for research and civic mission activities, distributed more evenly across institutions to support regional strengths and social outcomes. This would recognise the intergenerational returns that justify public investment rather than treating universities as purely market-driven entities.

Universities, in turn, would strengthen their focus on impact. This includes structured partnerships with businesses and civic organisations, mentorship programmes and frameworks that translate discovery into commercial and social value. Successful models from the United States, such as equity arrangements in spin-outs, demonstrate how institutions can capture returns that replenish research funds for future generations.

Businesses and entrepreneurs would play a fuller role as beneficiaries of university talent and innovation. Co-investment in spin-outs, provision of market access and mentorship, and contributions to endowment-style funds would form part of the compact. State matching of private philanthropic gifts could accelerate the development of a stronger culture of giving to higher education in Britain.

These elements together aim to correct the moral and fiscal inversion where the least advantaged students effectively subsidise public goods. By realigning incentives, the sector could sustain world-class research while expanding opportunity.

Implications for Institutions, Staff and Prospective Academics

For university administrators, the call underscores the need for strategic clarity. Diversifying revenue through partnerships and demonstrating measurable impact on communities and the economy will become increasingly important in securing future public support. Leaders at institutions such as Kingston University, where the analysis originated, are already exploring these directions.

Academics and researchers stand to benefit from more stable funding streams that reduce reliance on short-term grants or teaching overload. Ring-fenced resources could enable longer-horizon projects and better support for early-career scholars, addressing concerns about career sustainability in the current climate.

PhD-track job seekers and early-career academics should monitor developments closely. A successful new compact could expand opportunities in research-intensive roles and collaborative projects with industry. Conversely, continued underfunding may accelerate consolidation or specialisation among providers, altering the landscape of available positions.

Stakeholder Perspectives and Potential Pathways Forward

Responses to the proposal vary. Some commentators emphasise the political challenges of increasing public expenditure amid competing priorities. Others highlight the long-term costs of inaction, including diminished innovation capacity and reduced social mobility. Universities UK and sector bodies have long advocated for sustainable funding models that recognise both private and public returns.

Implementation would likely involve phased steps. Initial measures could include targeted research allocations, pilot schemes for business-university co-investment and reviews of current fee and loan arrangements. Cross-party dialogue would help embed any changes beyond electoral cycles.

Regional dimensions matter too. Devolved administrations in Scotland, Wales and Northern Ireland have pursued distinct approaches, offering opportunities for comparative learning within the United Kingdom. A national compact could incorporate flexibility to reflect these differences while advancing shared goals.

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Looking Ahead: Building Resilience in UK Higher Education

The HEPI intervention arrives at a pivotal moment. With financial pressures mounting and technological disruption accelerating, the status quo is untenable for many providers. A new social contract offers a constructive framework for restoring balance, protecting research excellence and ensuring that higher education remains accessible and impactful.

Success will depend on sustained engagement from government, institutions, employers and civil society. By reaffirming the principle that universities serve the public good, the United Kingdom can position its higher education sector for the challenges and opportunities of the coming decades.

Those interested in careers within this evolving landscape can explore current opportunities across the sector through dedicated academic job platforms. The coming months will reveal how policymakers and leaders respond to this important contribution to the debate.