Consultation 01/62

Respond by 25 January 2002

Supply and demand in higher education

Outcomes of consultation (December 2002)

Contents and executive summary (read on-line)

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Annexes, bibiography and list of acronyms
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Contents

Acknowledgements

Executive summary

Trends in HE numbers over the 10 year period from 1983-84 to 1993-94

Trends in HE numbers from 1996-97 to 2000-01

Government targets during the late 1980s and the 1990s

Drivers of student demand during the 1990s

Projecting demand

The effect on institutions

Annex A Groups within higher education

Annex B Effects of changes to student finance arrangements

Annex C Possible actions by HEIs

Annex D MaSN and recruitment against the MaSN

Bibliography

List of acronyms

Executive summary

Purpose

1. This document discusses trends in the supply and demand for higher education (HE) in order to raise fundamental questions about future student numbers and to encourage discussion of future policies.

2. It examines the rapid expansion of higher education places in the late 1980s and early 1990s, and the levelling off of growth in demand which followed. It looks in detail at the underlying causes of these changes, as well as the consequences for institutions and for the shape of the higher education sector. This analysis is used to inform a discussion of the position and role of the HEFCE and the policy options that arise.

3. The issues discussed are only partly for us as a funding council - they are also for the Government and for institutions providing HE programmes in both the HE and further education (FE) sectors. The purpose of this document is to stimulate discussion of these fundamental questions and consult with the HE sector and other interested parties to inform future policy decisions.

Key points

4. The six years from 1988-89 to 1993-94 saw very rapid growth in student numbers. The most significant element was the increase in the full-time participation of 18-21 year-olds, which grew from 15 per cent in 1988-89 to 30 per cent in 1993-94 as measured by the Government's Age Participation Index (API). There was 67 per cent growth of full-time undergraduates in HEIs in Great Britain over these six years.

5. Since then the growth trend has been much reduced, with just 6 per cent growth in the total number of HE students in England [note 1] from 1996-97 to 2000-01, compared with 54 per cent growth just in HEIs in Great Britain from 1988-89 to 1993-94.

6. Full-time undergraduate students remain by far the largest group in HE, representing around 70 per cent of the full-time equivalent (FTE) population - a percentage that has not changed greatly over the years - and the great majority of these are young (around 75 per cent). The main driver of demand for HE by young people has been the number of school pupils obtaining GCSEs and staying on at 16 plus to study for level 3 qualifications.

7. The GCSE reforms in 1988 fuelled the rapid increase in numbers of pupils staying on at school and college, and subsequently the increased student numbers of the late 1980s and early 1990s. This represented a long overdue catching up by this country with the staying-on rates of other comparable nations. This increase more than compensated for a decline in the young population during that time.

8. International comparisons demonstrate similar patterns of growth in higher education attributable to an increase in participation and achievement at school and in further education.

9. The other significant driver of growth was the rapid change in the occupational structure of employment in the 1980s. The demand for highly skilled labour and level 4 qualifications increased beyond the existing supply. The higher wages attached to jobs requiring level 4 qualifications in the late 1980s contributed significantly to the increased demand for HE in the early 1990s.

10. Since 1994, the proportion of pupils staying on at school and college at 16 plus has not changed significantly, nor has their subsequent educational attainment - on both academic and vocational courses. This largely explains the slowdown in the rate of increase in HE participation. Moreover, since the early 1990s, continuing structural changes in employment have not been sufficiently rapid to overtake the supply of graduates. Therefore this has not driven rapid growth in demand for HE as it did in the late 1980s and early 1990s.

11. Although there will be a steady increase in 18-21 year-olds over the next 10 years, the social composition of this group may change in favour of those who have traditionally participated least in HE. Because of this, it is unlikely that demography alone will lead to significant growth.

12. Nevertheless, a number of conditions exist which may lead to a resumption of growth in the near future. In particular, significant numbers of pupils stay on at 16 but do not attempt level 3 qualifications. If recent curriculum reforms in schools and colleges lead to an increase in level 3 qualifications among this group, this could lead to increased demand for higher education.

13. The very uneven participation in higher education by different social groups also provides a substantial basis for increased demand, if those hitherto least likely to stay on at school and participate in higher education do so to a greater extent in future. If those least likely to participate at present do so eventually at the average rate for young people as a whole, then this alone will generate demand for 100,000 additional HE places.

14. Continuing structural changes in the labour market will lead to an increasing proportion of highly skilled jobs. However, the slowing pace of these changes means that a widespread shortage in high level skills is unlikely to be the cause of rapid growth in HE demand in the near future.

15. It is too soon to know whether changes to student finance arrangements have affected participation rates. It is possible that they may do so in the future.

16. Looking at the experience of individual higher education institutions (HEIs), there have been very different experiences over the past 15 years. Some, in particular the new universities and colleges, grew very rapidly in the earlier part of this period, and have suffered declines over the past few years. Others, mainly pre-1992 universities, have experienced a much slower but steady growth throughout the period, which has not been interrupted by the recent falling off of overall demand.

17. With increasing signs of a modest mismatch between supply and demand, more popular institutions may flourish at the expense of the less popular, and there are signs that this is happening already.

18. It would be a novel departure if we were to seek explicitly to manage growth in individual institutions, and to do so by countering student demand and market forces. In general, we have sought through our funding method and in particular through the annual allocation of Additional Student Numbers (ASNs), to allow students to attend the institutions of their choice which are prepared to accept them. Where we have become involved, it has been to help institutions to manage the effects of market forces, and in particular the consequential reductions in funding.

19. We are, however, fully committed to working with institutions and other partners in order to achieve increased participation in HE. We are already acting to encourage wider participation and expansion. We are committed to taking, and supporting institutions in taking, whatever further steps are needed, particularly to encourage much closer partnerships between HEIs, further education colleges (FECs), schools and others to raise significantly the proportion of young people with the qualification and motivation to enter HE.

20. As part of this commitment, there may be a case for intervention to maintain diversity in the pattern of institutions across the sector. In general, the current mismatch is impacting most on those institutions that are most active in providing for students from disadvantaged backgrounds, part-time students and mature students. And it is these more diverse groups who make up the most significant pool of potential demand. A question for us to address is what level and form of intervention, if any, is appropriate to maintain the current diversity of provision.

21. The control on maximum student numbers (the MaSN) is no longer needed for the purpose for which it was introduced - constraining student numbers to within the Government's targets - and would not be particularly effective for a wider purpose. The allocation of additional student numbers provides us with a measure of control, but as currently operated it results in additional places going to the most popular institutions. However, it would be possible to reduce the number of additional places allocated so that it only reflected expected net growth in the sector, so reducing the likelihood of redeployment of existing numbers between institutions.

22. It may be that the most productive role for us - and perhaps the right one - is to continue to manage the effects of market mechanisms to ensure that institutions do not suffer unmanageable changes, are supported in making the best contribution they can, and are able to reposition themselves following changes in their fortunes. Many institutions have responded to change by taking management actions to reorientate themselves, including in some cases rationalising their provision to focus on their strengths and so develop a more sustainable core. We could do more to help institutions in this respect, in particular making use of the Restructuring and Collaboration Fund, which may need to be much larger if such activity is to increase.

23. At the same time, we will need to examine whether the additional costs incurred by institutions whose main focus of activity is to widen participation are sufficiently recognised in the funding model. While this will not directly address the question of recruitment difficulties, it will ensure these are not compounded by our funding method, and could help those institutions develop the support they offer to non-traditional students and thereby assist retention.

24. More generally, it is clear that future growth in student numbers will depend upon increases in pupils staying on at school, and attaining level 3 qualifications. Achieving these increases will depend substantially on developments in schools and FECs, but there will also be a key role for HEIs to play in co-operation with them. It will be important for them to identify how they can best play this role in the future, and for us to consider how we can support them in this.

25. Universities and colleges are diverse; their distinctiveness is defined by the broad variety of student groups which they serve. While it is clear that increases in school staying-on rates is the major factor driving growth in student numbers, this should not deflect the endeavours of those with missions to attract mature students. There is much valuable and innovative work being undertaken in improving access for older students, including lifelong and work-based learning, often through part-time and shorter courses. We will continue to encourage these activities so that all groups can benefit from higher education throughout their lives.

Action required

26. Respondents are asked to send their comments by e-mail to sdconsultation@hefce.ac.uk by 25 January 2002.

27. In the interests of openness and transparency, we will make all responses publicly available unless respondents specifically ask us to keep them confidential.

28. In particular we welcome comments on the following areas:

1. The accuracy of the analysis.
2. The conclusions drawn from the analysis, in particular concerning the likely future patterns of demand.
3. The possible actions that we might take in collaboration with HEIs, FECs, and other partners to help increase demand.
4. The possible actions that we might take to support HEIs in managing the short and medium term impacts of the changes in supply and demand. These are discussed in paragraphs 152 onwards of the main report and in Annex C. They include:
   1. Changes to the funding model.
   2. . Help with restructuring.
   3. Better information and guidance.
   4. . Promoting better management.

1. Home and EC students, including fundable and non-fundable in HEFCE-funded HEIs and FECs in England (including franchised students, Open University, but excluding University of Buckingham).