Dangerous waters ahead

Two decades after Tony Blair’s famous soundbite that his top priorities were “education, education, education”, UK universities face a very different set of circumstances, with the pledge of support that survived even the years of austerity supplanted by a promise of diminishing resources in an era of inflation, inflation, inflation.

In England, tuition fees have been frozen for years, with estimates that by the end of 2024, the value of the fee will stand at just £6,000 based on 2012 prices (when higher fees were introduced).

Gavan Conlon, of the consultancy London Economics, told the Financial Times last month that, taken alongside cuts to teaching grants, inflation will have reduced the overall income per student to 2006 levels, when the fee was £3,000. “The unit of resource is just dying on its feet,” he said.

That these calculations and forecasts are a month old may even make them conservative, as economic shock waves from the war in Ukraine continue.

This is an issue that goes far beyond the erosion of fixed revenue streams. In a news analysis this week, we talk to experts in different roles and university systems to assess the impact of inflation on everything from energy to construction, research costs to staffing and salaries.

The combined effect, fuelled by strangled global supply chains, is formidable: surging energy prices, shortages specific to Ukraine’s role in supplying everything from food staples to building materials, increased price sensitivity among international students, and urgent appeals from university staff for salary hikes that will at least partially offset their own cost-of-living squeeze.

As Colette Fagan, vice-president (research) at the University of Manchester, puts it with admirable restraint: “We have a bit of a storm here.”

One of the variables at play is how long the inflationary environment will last – whether it is a shortish-term response to specific circumstances, or another unwelcome new normal at a time when globalisation and the economic benefits it brought are in retreat.

Taking a definitive view on the future of globalisation is not possible, and the unknowns are significant even if we consider just the specific circumstances facing the world in 2022.

Consider energy prices, for example: some UK universities have a degree of protection from the worst of surging prices this year thanks to collective advance purchasing.

But if the war in Ukraine turns into a long-term crisis, as looks increasingly likely, such protection will not last. And in any case, not all participated in the purchasing consortium, and energy consumption varies dramatically by institution, so the impact will not be consistent across the sector.

The uneven impact is common to much of the analysis: universities in continental Europe are more exposed to energy security issues than those in the UK, for example; while on pressure to increase staff salary costs, there will be variance between institutions that can afford to pay more (and want to), and those that cannot. Indeed, this is a tension that some in the UK sector believe could put strain on the whole national bargaining system.

So inflation leads to stratification, with few mitigation measures available to those who will find the storm hardest to weather.

A key question for those captaining the ship through these dangerous waters is how far inflation could go, and how quickly it could come down.

On this, economist Anton Muscatelli, vice-chancellor of the University of Glasgow, notes current predictions that inflation will top 10 per cent in the UK, and could average 7 per cent through 2022.

It will come down quickly, he says, only if there are no further supply shocks (and his view is that the impact of the Ukraine war is still being underestimated) and if central banks manage to get inflation expectations under control through interest rate increases and clear signalling that this will be a priority in monetary policy for the next two to three years.

It will also be crucial that other parts of the global supply chain are not disturbed, he says, because “if China were to be sanctioned by the West, you could multiply the Ukraine effect by many times”.

That this looks less likely as Russia’s offensive stalls hardly merits description as a silver lining, but amid the storm, it is perhaps wise to take rays of light where one finds them.

john.gill@timeshighereducation.com