Private revolution on the way

UK universities face growing competition from for-profit institutions, as they do already elsewhere in the world

By Chris Brady

Until very recently, the private sector’s involvement in the higher education sector has been peripheral in the UK.  By contrast, the USA and China have well-established private sectors that co-exist comfortably with public higher education institutions.  Perhaps significantly, research indicates that many of these private providers are also extremely profitable.

In the UK a publicly-funded higher education sector dominates.  However, while the institutions are publicly funded, they effectively operate as non-profit but autonomous (and highly competitive) organisations, and the raising or elimination of the undergraduate fee cap will only increase this inter-institutional competition.  To a certain extent, the growing number of foreign universities currently plying their trade in the UK is already heating up this market - and that number is expected to grow.

For example, there are around 75 US universities trading in the UK in one form or another. Some, such as the Chicago Booth Business School, have a physical campus here. Interestingly, if any foreign higher education institution offers a non-UK degree in the UK there are few, if any, regulatory constraints - in contrast to UK universities trying to set up in other jurisdictions.

Private companies are increasing their global reach by either establishing campuses in other countries, by partnership or by acquisition.  Examples include Apollo’s recent purchase of BPP, Kaplan’s of Holborn College and Laureate’s association with Liverpool University.  Previously, the private sector has interacted with the public sector mostly as an outsourcing facility.  It has collaborated on Private Finance Initiative and Public/Private Partnership arrangements, provided services such as catering, finance, facility management and professional services, or carried out overseas recruitment. It has also sold foundation and language courses as preparatory routes into traditional British academia.

However, things are about to change and change dramatically. The British higher education system is under enormous strain both from internal tensions and from external competition.  At the top end, institutions such as Oxbridge and the other Russell Group universities fear that their relative lack of financial muscle, especially when compared wealthy US competitors, will dangerously disadvantage them in future plans often precariously based on an anticipated growth in revenue as a consequence of the raising or, in some cases, the elimination of fee caps.  While either one or the other does seem inevitable, it will not ease the overcapacity problem. In fact, it may exacerbate it.

Universities expanded to meet Government targets for HE engagement that were always unrealistic.  Now that the initial surge has abated, we are left with a surfeit of places and business plans unsustainably based on achieving those targets. We are left in the position where massive investment has got us no nearer to a genuine widening of participation.  Perversely, especially for those of us brought up in a welfare state, it seems that the route to widening participation may lie with the private sector.  In the US for example, the vast majority of the 450,000-plus students enrolled by the for-profit University of Phoenix (UOP) would not normally have been expected to attend higher education at all.  Admittedly, retention and completion rates are not what the university itself would want to brag about, but however many actually complete, that number that would not have done so without the existence of a university such as the UoP.  Incidentally, the university’s authorities have significantly higher retention rates as a major strategic imperative.  Why?  Well, among many other laudable reasons, it is good business. 

Similarly, it is good business for the UK’s only private university (the University of Buckingham) to achieve high student satisfaction scores and to shorten the amount of time it takes to complete an undergraduate degree.  The Vice-Chancellor of Buckingham makes a very valid point when he explains that the difference between the state and the private sector is that the former has the Government as their major customer, whereas the latter has the student.  So, maybe it is not a coincidence that Buckingham performs so well in the National Satisfaction Survey.

So will the increasing strain in the state system inevitably lead to the fall of the last bastion against privatisation?  What might the future look like? In the spirit of the New Year here are some predictions -

• First, private institutions will begin to access HEFCE funding.  There is currently no legislative impediment to this.  Therefore, only a change of attitude is needed.


• Secondly private companies will buy out some failing universities, while others will go to the wall.  The manner in which these buy-outs will be achieved might be tortuous at first, not least because of the potential new legislation to deal with issues which may be triggered under Section 75 of the Pensions Act.  Nevertheless, it will happen and once it does the institutional landscape will be changed forever.


• Third, more collaboration between private institutions and universities as a quick route to degree awarding power. Of course, these already exist but on a fairly ad hoc basis.


• Fourth, greater outsourcing. Liverpool University’s distance learning partnership with Laureate is, effectively, an outsourcing arrangement.


• Fifth, the process by which private providers such as BPP can move from approved Degree Awarding Powers (DAP) institutions to formal University status will be simplified.  Unless this happens the changes necessary for the sector will be considerably hampered.


• Sixth, legislation will be enacted which will establish parity between the private and public sector in relation to Degree Awarding Powers.  At present private HEIs have powers valid for six years only, whereas public HEIs have no statutory time limit.  There is no regulatory impediment to this change.


• Seventh, the cap will be either raised or removed. Let battle commence.

I believe that all of these things will happen and probably many others that I cannot imagine. What cannot be predicted, however, are the precise systemic changes that these operational changes will trigger.  What we can predict is that when we sit down at the end of the next decade we will be looking back on a period of seismic change in the British higher educational sector, almost certainly for the better.

To find out more about this article, visit: http://www.bpp.com

19 January 2010

Chris Brady. Dean of BPP Business School,

The opinions expressed in this article are those of the author alone and do not represent the views or policies of any other person or organisation.