Economic impact of cuts to the Higher Education sector

Education and training are key factors in economic progress, acting as a means of raising productivity. Whilst other factors can result in short-run economic improvements, education and training are critical to embedding long-term growth. As such, the current reductions in funding for Higher Education Institutions (HEIs) could potentially have a negative impact on future economic development in Northern Ireland (NI).

Higher Education budget cuts

Higher Education public funding fell from £230m in 2010/11 to £174.3m in 2014/15. This is a reduction of £55.7m (or 24%).

The effect of inflation has further reduced the value of the funding. As such, public sector funding of HEIs has fallen over the last number of years, with inflationary increases further impacting on the universities. However, HEI incomes have, in the most part, continued to increase since 2008/09.

It appears this is a result of HEIs relying more on alternative income sources including:

• Tuition fees;
• Research grants and contracts;
• Other operating income.

For example, the income derived from tuition fees has steadily increased since 2008. Queens University Belfast’s tuition fee income has grown from £53.6m in 2008, to £86.5m in 2015 (a 61% increase). Ulster University has had similar growth with tuition fee income rising from £36.6m in 2008, to £73.9m (a 102% increase).

Both universities have had relatively stable levels of surplus over the last number of years, despite the reductions in public sector financing. This is in part due to savings made via expenditure reductions, including staff costs. For example, Ulster University decreased staff costs between 2009-10 and 2014-15 by approximately £9m.

As such, it appears that the additional income derived from tuition fees, research grants and other income, as well as expenditure reductions, have offset the losses created as a result of the decreasing public sector finance. However, the sustainability of this approach remains to be seen.

Impact of the budget reductions

HEI public expenditure reductions can have a number of impacts, including on those entering university and on their future prospects.

Demand for places can be considered through the number of full-time, first-degree students. Enrolments by this group fell in 2009/10 and by 2013/14 had yet to recover[1]. This suggests there will be fewer graduates entering the Northern Ireland (NI) labour market. When students do graduate, the majority enter employment. For example, in 2013/14, 70% entered work only, and a further 7% began work and further study.

It is important, however, to consider whether these graduates are meeting the skills needs of the economy. The NI Skills Barometer, compiled by Ulster University’s Economic Policy Centre, found that there will be 25,394 estimated jobs vacancies from 2015-2025.

Of these, the Barometer expects that at existing and projected graduate levels, NI will have 13,979 posts filled and a further 11,415 in need of appropriately qualified graduates. The majority of these (8,379) are at Degree level.

The Barometer also identified over-supplies and under-supplies of skilled graduates. The under-supply in graduates was found mainly in STEAM (Science, Technology, Engineering, Arts and Maths) subjects, such as Maths, Computer Science and Creative Arts and Design. The over-supply lies in more traditional topics, such as Law, Medicine and Education.

An over-supply of graduates can force wages down, whilst an under-supply can have a major, adverse impact on an economy. The Skills Barometer states that:

The most significant implication would be that economic growth would be constrained, the skills mismatch would result in a continued loss of talent to employment opportunities overseas and higher levels of unemployment.

Way forward?

The Department for Employment and Learning previously took steps to tackle the underfunding of HEIs with the Big Conversation options paper published on 16^th March 2016. It included suggestions such as increasing tuition fees for students or increasing the level of public investment. It remains to be seen as to how the successor Department of the Economy will address this issue.

It is also worth noting that the EU Referendum vote on 23rd June 2016 may have implications for the HEI sector in NI, including Research and Development funding (in the long term), the Erasmus+ programme, and the potential implications surrounding the Free Movement of Labour and the recruitment of academic staff. What the full impact may be on the NI HEI sector may not be clear until Brexit negotiations are underway.

[1] Please note, this data is derived from Table 8 of the Enrolments at UK Higher Education Institutions: Northern Ireland Analysis 2013-2014 statistics publication; while a more recent set of statistics is available, these make comparisons more complex as they include Open University data also.