High Stakes

Much of the recent debate around higher education has centred on problems with the student loan system. But there is another, potentially more serious problem looming. English universities are heading into a period of structural strain caused by the collision of two forces. Taken separately, perhaps some institutions might have weathered the storm. Taken together, however, they risk producing closures, regional damage and a higher education landscape significantly narrower than the one we have today.

The first force is demographic. The number of 18-year-olds in England – on whom universities depend for 80 per cent of their intake – is determined by births that have already taken place. After a period of healthy growth, the population of 18-year-olds will peak around 2030 and then fall sharply. By 2042, there will be around 18 per cent fewer potential students than at the peak. This is not a forecast but an arithmetic certainty, barring a large and implausible surge in the proportion of the population who demand higher education.

The second force is behavioural, and it is already well underway. In response to years of frozen tuition fees – now worth roughly 25 to 30 per cent less in real terms than when introduced in 2012 – universities have sought to maintain income by recruiting more students. The institutions with the greatest capacity to do so are those at the top of the prestige hierarchy: the higher-tariff universities that applicants most aspire to attend.

Between 2016 and 2025, admissions to higher-tariff providers increased by around 27 per cent, while the overall sector grew by only 7 per cent and the number of 18-year-olds grew by only 8 per cent.

This represents redistribution from less prestigious to more prestigious universities. Of the 30,000 additional students recruited by higher-tariff institutions over that period, approximately 70 per cent – some 21,000 students – would, under the recruitment patterns of a decade earlier, likely have attended medium- or lower-tariff institutions. They have been, in the language of market competition, ‘poached’ by institutions that would not have previously considered them.

The cascade

As higher-tariff universities reach further down the attainment distribution – the share of their intake with BBB grades or lower has risen from 15 per cent in 2016 to 29 per cent in 2025 – the pool of students available to medium-tariff institutions contracts. Those institutions respond by reaching further down the distribution in turn. At the bottom of the cascade, lower-tariff institutions have nowhere else to go. They simply lose students.

The cumulative effect is stark: lower-tariff providers have between 50,000 and 75,000 fewer students enrolled than they would have had under the recruitment patterns of a decade ago, even during a period of favourable demographic growth. For smaller institutions, particularly those serving specific regions or communities, this represents an existential threat.

It would be easy to be unsympathetic. Universities compete for students, and if some lose market share to more attractive competitors – well, that’s how markets work, right?

But higher education should not be viewed solely as a marketplace. Universities educate future generations, undertake research, train professionals, support local employers and act as major civic institutions. Those losing out are not failing because they are poor quality; financial vulnerability is not the same as educational failure.

It is a financial and recruitment arms race, and the collateral damage falls on institutions which are largely doing an excellent job.

More importantly, the regional and civic functions of lower- and medium-tariff universities are not replicated elsewhere. When a university in a coastal town or a former industrial city closes or contracts severely, the economic and social consequences for that area are not offset by the expansion at a large city university 100 miles away. Universities are part of the infrastructure of a region and of the nation as a whole. The assumption that market exit is merely a reallocation of resources does not hold for institutions that are, in many places, significant local employers, anchors of regional identity and the primary mechanism through which first-in-family students access higher education.

The demographic crunch

The redistribution described above is already causing serious strain. What makes the coming decade qualitatively different is that demographic decline will now accelerate the process.

Consider three scenarios for how the sector might develop between now and 2042. In the most benign – in which all institutions shrink proportionately as the student population falls – each university faces a decline of around 13 per cent from the 2030 peak. If they plan for this, it will be manageable, albeit painful.

But there is no reason to expect that scenario to materialise without intervention. Higher-tariff institutions will face exactly the same financial incentives in 2031 than they face today. In the second scenario, higher-tariff providers will continue to grow until 2030, and then simply hold their numbers through the demographic decline, with medium- and lower-tariff institutions facing average reductions of around 26 per cent. In the most expansionary scenario, where higher-tariff institutions continue to grow modestly even as the overall population of potential students falls, that reduction increases to around 29 per cent for the rest of the sector – and that is an average. Many will face larger declines.

The new ‘lifelong learning entitlement’ offers one potential source of additional demand. Extending student finance to part-time and modular study could bring more mature learners into higher education. But it is unlikely to offset the broader demographic decline.

Twenty-nine per cent is not a manageable adjustment. For many institutions, it would mean closure; for the regions those institutions serve, it would mean the loss of infrastructure that took generations to build.

What is to be done?

The policy response has hitherto been inadequate.

The Office for Students has tended to interpret its remit narrowly, focusing so exclusively on the interests of individual students in the here and now that it has paid essentially no attention to the systemic risks discussed above. There are signs that this may be changing, but the change must be substantial.

The most direct lever available to government is a recruitment cap: a limit on the intake of individual institutions designed to curb the competitive dynamic concentrating students at the top of the sector. Such controls are not unprecedented – they operated for much of the 1990s and early 2000s, and served to prevent the kind of winner-takes-all competition that has developed since their removal.

Telling a student with modest A-level grades that they might not attend the university of their choice to protect a less prestigious institution is politically uncomfortable. But the alternative – allowing the market to run its course – is likely to mean that in a decade the next generation will have significantly fewer institutions to choose from, in fewer locations, with fewer options to study close to home or part-time.

Alongside recruitment controls, the government should give the Office for Students an explicit mandate to maintain the diversity and health of the sector as a whole, not merely to police individual institutions’ treatment of their current students. Universities themselves need to engage with this analysis. The evidence from the Higher Education Policy Institute (Hepi)’s engagement with governing bodies suggests that many continue to plan for growth without engaging with the scale of what is coming.

The political choice

English higher education has been run on market principles for the best part of two decades based on the untested assumption that competition between institutions drives quality up. Until recently, the demographic environment has sustained most institutions even as the system became more competitive. However, the real test is yet to come.

The new prime minister has spoken of the need for parity of prestige between university and technical education. And it is possible that his government will look with some equanimity on the contraction of the university sector, seeing it as a natural and even welcome rebalancing. Some universities, recognising the direction of travel, may respond by diversifying their offering, moving toward more vocationally-oriented provision that complements rather than competes with technical pathways. This represents a genuine opportunity for institutional reinvention.

However, parity of prestige is not determined by governments. It is determined by parents, employers and wider society, and prestige changes slowly. There is also a risk that such an approach reinforces class differences, with vocational routes reserved for “other people’s children. In any case, the prime minister’s vision will need to be planned rather than allowed to emerge haphazardly from market exits or hastily arranged mergers. A sector reshaped by the uncoordinated closure of institutions is quite different from a sector thoughtfully reoriented toward broader conceptions of skill and knowledge. Universities that close in the coming decade will do so because they lack the resources to win the arms race rather than because they are failing their students.

Allowing that to happen is a political choice, and it should be recognised as one. The question is whether the government will act before the cascade gains pace.

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