This is the first in our new blog series. We are launching a new report, the third in our ‘Viewforth Special Report Series’ on Thursday 23 June 2022. Our ‘special reports’ are produced from within our own resources and are not commissioned reports. We produce these reports on an occasional basis and are motivated by a desire to highlight aspects of higher education impact and value that would benefit from wider public attention. This latest special report: Estimating the true economic value of the UK higher education sector introduces an entirely new approach to capturing the economic value of the entirety of the higher education sector.
This new analysis, for the first time, has been able to estimate the true economic value of UK higher education and shows that in 2016/17, the economic value of UK higher education was considerably greater than its financial value. In terms of ‘value for money’, overall, the report shows that, based on the physical volume of inputs and outputs in 2016/17, UK higher education has been subsidising UK society, not the other way round. A summary of the report is presented here.
Estimating the true economic value of the UK higher education sector: Summary
Millions of pounds have been spent on a myriad of evaluation, accountability and ‘benchmarking’ exercises for higher education in the UK over the past two decades, including the Research, Teaching and Knowledge Exchange Frameworks. There have been swathes of data collection exercises, and seemingly endless debate on whether or not higher education offers ‘value for money.’ Despite all of this, no holistic view has ever been taken of what value the sector is generating for the economy and society as a whole. None of the higher education agencies or government departments appear to have even attempted to address the core, pressing, question for society: What is the true economic value of higher education?
New approach applying fundamental methodology
This report introduces a new approach, based on fundamental economic theory regarding economic valuation, that of true economic efficiency pricing in efficiency terms. We apply this to the UK HE Sector for 2016/17 as the most recent year for which we had access to relevant data. This was in order to make a preliminary test of the robustness of the methodology and the potential importance of the results and insights that it may afford into higher education policy.
Results of preliminary analysis
This new analysis, for the first time, has been able to estimate the true economic value of UK higher education. Given the physical volume of inputs and outputs in UK higher education in 2016/17, the analysis shows the following:
The total economic value of the UK higher education sector in 2016/17 would have been £44.96 billion, as opposed to its actual revenue in that year of £35.67 billion – its economic value running some 26% greater than its financial value.
This shortfall between economic and financial value was attributable to
- £4.92 billion (27%) less paid for UK Domestic and EU undergraduate teaching than its estimated true economic value
- £4.37 billion ( 33%) less paid for public and charity research and related activities than their estimated true economic value
The shortfall was met by the HE sector itself in two ways:
- University staff, especially senior academics, being paid £5.35 billion (22%) less than their economic value
- Universities failing to achieve the necessary economic sustainability margin needed to maintain and develop the sector. The shortfall here came to £3.94 billion – around 49% less than estimated as required.
The implications of this analysis for the UK HE sector are grim. They include the inevitability of:
- A brain drain, with the most talented staff leaving the sector for higher paid careers elsewhere, in other industries or in universities abroad;
- Continued financial instability, with universities unable to maintain their current portfolios or invest to innovate and increasing numbers of institutions teetering on the brink of insolvency.
There are further implications, including the unavoidable conclusions that:
- There will be too many domestic students being taught at too low levels of quality. Where prices paid for a university education are too low, there will inevitably be very high demand and university suppliers will only be able to meet that demand by reducing quality.
- Too much research will be demanded by the public sector for too little resource and quality will inexorably be sacrificed for quantity.
All of this will lead to the decline of the UK higher education sector’s international reputation and its ability to meet the real needs and wants of UK society.
Overall, this analysis shows that – very far from the popular notion that UK universities are ‘marketised’ – the UK University system is operating in a state of extreme market failure, trapped in a vicious circle of mediocrity by a government-imposed straitjacket of administered prices and micromanagement. There has been a complete failure of policy and imagination and a collective (sectoral and government) preoccupation with accounting issues rather than economic reality.
In terms of ‘value for money’, overall, it is clear that, based on the physical volume of inputs and outputs in 2016/17, UK higher education has been subsidising UK society, not the other way round. It also must be said that the people doing the subsidising and taking the brunt of the shortfall between financial and economic value have been higher education staff.
Ultimately what this paper begins to show is that the application of proper economic methodology to the functioning of the higher education sector can reveal considerably more in relation to what is happening within the sector and the value it delivers than the £ millions being spent on evaluating and policing the sector. This is not number crunching but confronting the economic reality of a sector that is now completely out of kilter. We need a new discussion about the content of the social contract between universities and society, what is really, and realistically, expected on both sides. It is perfectly possible for government to let the market evolve in an economically efficient way with agreed, transparent and socially approved adjustments for equity and all of society would be better off as a result.
This paper has been undertaken as unfunded personal research, it is entirely independent of any UK HE institution, agency or government body. The findings derived and the views expressed are those of the authors alone.
Ursula Kelly and Iain McNicoll, Viewforth Consulting, June 2022