Over 40 per cent of institutions face a deficit and first-class degrees have quadrupled since the mid-1990s, yet no party has a plan to match the problem, says Len Shackleton

UK governments value “soft power” over more traditional measures of economic and military strength. For a long time, the higher education system has been heralded as a key element in promoting British values.

Yet, as we argue in a , a new book from the Institute of Economic Affairs, our universities are in an economic, academic and cultural mess. Claims to be “world-leading” are out of date – and sometimes embarrassingly delusional.

Higher education is in chronic financial difficulties: Office for Students figures show that over 40 per cent of institutions are expected to have had an operating deficit in the last financial year.

Financial problems, a flawed funding system and excessive equality, diversity and inclusion (EDI) concern have led universities to maximise student recruitment with insufficient concern about applicants’ ability to cope with degree-level study and contribute to an academic community. This open-door policy includes an excessive dependence on almost 700,000 overseas students each year, sometimes inadequately screened and paying very high fees for often poor service.

Weaker students

Recruitment of weaker students – UCAS entry scores in seven major subjects fell nine points in the four years to 2023 – has led to slipping academic standards. This has driven grade inflation, the proportion of first-class degree awards rising from seven per cent in 1993–94 to 30 per cent in 2024–25, undermining the value of degrees as signals of ability and achievement to employers.

Higher education has expanded faster than demand for graduates, reducing the “graduate premium” and leaving 30 per cent of graduates in jobs that do not require a degree, or else unable to find jobs at all in a declining labour market. Many then resort to taking postgraduate qualifications in a bid to improve job prospects, despite evidence that many such qualifications add little to earning power.

Meanwhile, students are accumulating enormous paper debts which constrain aspirations and life choices, making it harder to secure decent housing and start families. Student “loans” are anyway misnamed: they are a bizarre form of redistributive tax which would fail to pass financial regulation of conventional loans. An increasing proportion of student “debt” will never be fully repaid. The way loans are treated in public accounts conceals the true cost to the taxpayer.

Student “loans” are anyway misnamed: they are a bizarre form of redistributive tax which would fail to pass financial regulation of conventional loans

Degree study has also moved away from the ideal of a liberal education; the rise of political correctness threatens free speech. Critical theory has come to dominate many areas of the social sciences. It underpins identity-based activism, or “wokeness”, which graduates spread beyond universities through EDI advocacy as they enter professions. Within the university sector there is a “greenhouse effect” – a self-reinforcing feedback process – which is making diversity of thought within institutions increasingly rare.

Research obsesses academics. It consumes too much of their time and energy, sometimes to the detriment of students. Unknown to most students, who think fees go to fund teaching, a substantial chunk goes to subsidise research which adds little to useful knowledge.

Most researchers will not find a cure for cancer or a new subatomic particle or even attempt such important work. In the last round of the Research Excellence Framework (the peer-reviewed assessment of university research), around half of all the research submitted was in the social sciences or the arts and humanities. Research funding should be reduced and probably concentrated in fewer universities and research institutes.

Universities are over-regulated, limiting competition and innovation. There should be room for new types of institution to develop, with the widespread adoption of artificial intelligence (AI) likely to help this process. AI is already undermining many traditional features of universities – such as classroom teaching and essay-based assessment – and this trend will only accelerate.

The higher education sector needs to be dragged out of its current malaise, but no political party has this on its agenda, or at least not in a way that matches the scale of the problem at all. It’s time they did.