English higher education is heading towards an “unstable hybrid” future as financial pressures intensify faster than expected, according to a new report from the Higher Education Policy Institute (HEPI).
The report, New Choices: Revisiting Futures for Higher Education in England, written by Chris Husbands, warns that the sector is now moving towards a combination of decline, concentrated research activity and stalled regional reform, without a clear strategy to manage the changes.
The paper follows Husbands’ 2024 report, Four Futures, which outlined four possible scenarios for how universities could respond to growing financial pressures. Two years later, he argues that the challenges identified have arrived sooner than anticipated and have been compounded by wider disruption.
“Simply increasing income is no longer a viable strategy for institutions and simply hoping the market sorts itself out is no longer a viable strategy for government,” said Husbands.
“What the sector needs now is a combination of government activism and institutional courage,” he added.
The report highlights mounting financial pressures across English higher education, including forecasts from the Office for Students that 45% of providers will be in deficit in 2025/26, with 45 institutions holding fewer than 30 days of liquidity.
It also points to rising restructuring costs, with sector-wide severance spending increasing by 71% year-on-year to £303 million, while the academic workforce contracted for the first time in more than a decade.
The increase in the undergraduate tuition fee cap to £9,790 in 2025 has delivered only limited financial relief, the report argues, with a sector-wide net gain of around £18m after increased employer National Insurance costs are taken into account.
Alongside financial pressures, Husbands identifies other forces impacting universities, including declining public confidence in the value and purpose of higher education.
The report notes that the proportion of people in Britain who believe a degree is not worth the time and money has increased from 14% in 2005 to 34% today.
“In the long run, the sector’s legitimacy depends on demonstrating public value, either through the strength of its core teaching and research or through universities’ wider contributions,” said Husbands in the report.
“Questions of public value have become more pressing because the sector’s claims to success appear weaker in both areas: in teaching, because perceived graduate economic returns have declined; and in wider impact, because rising university participation has coincided with stalled productivity and economic growth.”
Husbands argues that the current direction of travel is “less stable than any of the original scenarios” set out in Four Futures.
Looking ahead, Husbands outlines a possible future structure for English higher education, with a smaller number of globally competitive research universities, a larger group of regionally focused institutions, more connected local universities working with private providers, and specialist institutions built around distinctive disciplines or teaching models.
He calls on universities to reconsider their operating models, partnerships and roles within their communities.
The report also urges government to provide greater policy clarity on areas including teaching funding, the Lifelong Learning Entitlement, the relationship between international student recruitment and immigration policy, research funding, regulation and a framework for managed mergers and institutional exits.
Speaking to The PIE News, a spokesperson for Universities UK responded to the concerns laid out in the report.
A university education doesn’t just benefit the individual: if we want our country to grow, we need more graduates entering the labour market. Sustaining that depends on universities being properly funded
Universities UK
“A university education doesn’t just benefit the individual: if we want our country to grow, we need more graduates entering the labour market. Sustaining that depends on universities being properly funded,” they said.
“Universities are one of this country’s greatest assets, driving economic growth in every part of the UK and helping local communities thrive. Yet they are under real financial pressure.
“Tuition fees are now worth only two thirds of what they were in 2012, because for years universities were not allowed to increase them in line with inflation. The sector is tackling this head on, finding back office savings and increasingly working together to become more efficient.”
However, the advocacy organisation warned that universities “cannot close the gap alone”.
“We need a government willing to work with universities, the public, employers and students to develop a long-term plan for the future of higher education; one that supports opportunity, strengthens research and innovation, and helps the country navigate rapid change,” they continued.
