Higher Education Funding

Scott Arthur Excerpts

Wednesday 28th October 2026 Westminster Hall

[Dr Scott Arthur (Edinburgh South West) (Lab)]

It is a pleasure to serve under you today, Ms Vaz. I thank my hon. Friend the Member for Sheffield Central (Abtisam Mohamed) for the way in which she introduced the debate. Sheffield University was the first place I visited outside Scotland; I think the Red Deer pub, which is right next to the university, was the first English pub I ever went into.

Before I was elected to this place, I worked in the university sector for 20 years in Scotland. Our universities are among Scotland’s biggest assets. Across the sector, there is incredible innovation. Each year, our universities attract the very best staff and students from across the world. I always say that any country serious about its economy should be serious about its universities. It is great to see our Prime Minister putting universities at the heart of the triple helix model that he talks about so often. In a debate in Westminster Hall 18 months ago, I quoted the then president of NUS Scotland, who warned that Scotland’s education system was “crumbling”. At that time, I hoped our words would prompt the Scottish Government into action. Sadly, they did not, and Scotland’s sector has lurched from crisis to crisis.

Undergraduate university education in Scotland is free, but the sector is grossly underfunded. Broadly speaking, funding per undergraduate student in Scotland is well over £2,000 less per student compared with universities in England. That means less money for facilities and staff wages. I draw hon. Members’ attention to my entry in the Register of Members’ Financial Interests: I am a member of UCU and have an ongoing connection with Heriot-Watt University. Because of the huge stresses on the sector, there is industrial action at, I think, six universities in Scotland right now. Industrial action at one university might suggest a local issue, but when it is happening across the country it suggests that the Government need to step up and do something about it.

In my constituency, both Edinburgh Napier University and Heriot-Watt are internationally recognised institutions. They are home to dedicated staff, ambitious students and world-leading research, but both face serious challenges. In the past year, there has been talk of compulsory redundancies and course reductions. There are similar issues at Edinburgh University, which is outside my constituency, but quite a lot of staff and students are based in Edinburgh South West. This situation cannot continue. We need the Scottish Government to bring together universities, staff, students and trade unions to agree a way forward.

I want to talk briefly about immigration. During my time at Heriot-Watt, I worked alongside fantastic academics from around the world. Next door to my office, on one side I had Professor Adebayo Adeloye from Nigeria, and on the other I had Benny Suryanto, who came from Indonesia. Our students are lucky that these people choose to come to the UK. I felt lucky that students came from around the world to spend time in Edinburgh and enjoy its education and the opportunities that provides.

I am concerned that the Government are making it harder for both staff and students to come here. If we are serious about growing our economy, we have to recognise the benefits that universities provide, both nationally and locally in our towns and cities. It would be great to hear what is happening inside the Government to support universities and ensure that they can thrive. In Scotland, their funding is largely a matter for the Scottish Government, but I think the UK Government could do more to support the immigration status of students and staff.

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[Darren Paffey (Southampton Itchen) (Lab)]

It is a pleasure to serve under your chairship, Ms Vaz. I congratulate my hon. Friend the Member for Sheffield Central (Abtisam Mohamed) on securing this important debate.

Southampton is home to two excellent universities and yet in my constituency, only 7% of kids on free school meals will hold a degree by the time they are 22. Of those who do not receive free school meals in Itchen, just 19% will get there. If we go a few miles up the road to Winchester, however, that become 39%. We must make sure that higher education is not shut down as an option for young people. In my speech, I will focus on three points that are becoming worryingly clear about the funding system as it stands: it is not working for students, it is not working for universities, and—I fear—it is working only for the Treasury. I do not believe that is what this Labour Government are about.

First, on students, I was the first in my family lucky enough to go to university. I started in 2000 when fees were—wait for it—£1,025. My annual loan was about £3,500. We looked enviously on the generation before us, who did not pay fees and who received a grant to go to university. This generation is looking enviously on my generation, which is worrying. I went on to spend 20 years as university lecturer, so I saw every subsequent wave of student finance agreements. The Treasury Committee has concluded that we were essentially mis-selling some of the previous loan agreements on terms that no commercial lender would ever be allowed to offer.

[Dr Arthur]

I know I do not look it, but when I went to university, Margaret Thatcher was still our Prime Minister. Does my hon. Friend agree that it is incredible that funding for students’ day-to-day living costs was better then than it is today.?

[Darren Paffey]

My hon. Friend makes an absolutely salient point. Many of us never imagined that we would get to an even worse place, but here we are.

Only the top three earnings deciles of recent intakes will ever pay off their student loans in full. The nurse, the teacher or the engineer on £35,000 will pay 9% for decades and still never clear the balance. Dare I say it, but if it walks like a tax and quacks like a tax, let us call it a tax and treat it as one. If we properly sort it, it could well be a better deal than the current loan system.

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[Ian Sollom (St Neots and Mid Cambridgeshire) (LD)]

It is a pleasure to serve under your chairship, Ms Vaz. I congratulate the hon. Member for Sheffield Central (Abtisam Mohamed) on securing this debate. Sheffield is an excellent place to ground this debate because it has two great examples of the origin stories of many of our universities. The University of Sheffield is a civic university in the truest sense. When it sought its charter in 1904, steelworkers, factory workers and other local people raised over £50,000 in penny donations to support it. Sheffield Hallam traces its roots to the School of Design, which was founded in 1843 to train designers for the city’s industry, and became a university in 1992. One red brick, one post ’92: both serve the city and both embody the idea of universities as anchors of their community. That idea is now at risk.

Later today the Chancellor delivers his first Budget; every signal is that universities should expect very little from it. We cannot continue to ignore the stark choice before us when it comes to university policy. Either we carry on with a managed decline—courses cut, talent lost, places left behind—or we can choose transformation with universities as engines of learning throughout life, as innovation hubs driving economic growth and as civic institutions embedded in the places they serve. The Liberal Democrats would choose transformation, and I hope the Government will do the same.

At the moment, too many universities are fighting for survival. More than a third of English providers were in deficit last year. The Department’s own costing study found that universities lose about £3,000 on every home undergraduate they teach. Research is worse: universities now recover only two thirds of research costs. According to the Russell Group, universities put in £6.3 billion of their own money into research last year.

For many years now, the funding gap has been filled by international students, but that income is now also falling away. Visa applications in August—the peak month—were down by 17% on a year ago. Of course, education as a great British export is about much more than money, but the business model that has saved the Government from spending more on home students and research is being undermined. The Government have said that they intend, in the Finance Bill that will follow today’s Budget, to legislate for a £925 levy on every international student. Only a tiny sliver of that money will go to the maintenance grants put forward as a justification for it.

This crisis does not simply affect an ivory tower elite who sit apart from our communities: in many towns and cities, the university is one of the largest employers and the source of the next generation of teachers, nurses, engineers and members of many other professions. Such universities produce graduates who are likely to stay and work locally and serve the students who are often least able to move away to study. When a nursing course or engineering department closes in such a place, it does not relocate; it disappears from the region. With it goes a route into a profession for everyone who cannot simply up sticks and leave.

Post-’92 universities carry a burden that their older neighbours do not. For no other reason than institutional history, they are tied into the teachers’ pension scheme, for which employer contributions reached 28.7% last year—roughly double what many older universities pay, and about £8,000 extra a year for a typical member of staff. In July the Government ruled out any help, but part of solving this crisis in the sector must include working towards a single, fairer pensions framework.

There is also the question of what happens when one of these institutions does not survive. The Office for Students told the Education Committee that 24 institutions could exit the market within a year. The Committee recommended a special administration regime so that a failing university could keep teaching while its future was resolved, but the Government have said that they are “not currently persuaded” because legislating would be too complex. I would say that that is an argument for starting now, not for doing nothing.

Further education colleges have had a special regime since 2019, and having no regime has its own risks. With no orderly way to fail, many simply assume that the Government will step in. Sir Philip Augar has said that a handful of universities are already getting secret bail-outs. When I asked Ministers about that, I was told that emergency support is not provided, but also that officials meet universities and their banks regularly in confidence. Discussing potential rescues behind closed doors gives us all the moral hazard and none of the transparency.

Liberal Democrats see universities as essential national infrastructure, not cost centres to be squeezed. That means a new settlement: in the short term, reform the levy before it reaches the statute book; reprofile student loan fee payments to ease the cash flow; offer low-interest loans for restructuring; and remove the VAT penalty that stops universities from sharing back-office services, so that they merge finance and HR rather than cut teaching. We need to fund the breadth of subjects in every region and make sure that public research grants actually cover the 80% of costs that they are supposed to. But this needs to come alongside obligations on universities. The money alone will not fix the problem.

After 2030, the number of 18-year-olds will fall by 17%, yet 82% of the growth in priority occupations in the industrial strategy sectors will require a higher education qualification. Put those two facts together, and a model built around school leavers simply will not work in the long term. Many of those who will fill the jobs in that growth are already in work and will need to retrain as technology reshapes what they do. Universities need to open up to adults through modular lifelong learning, which we suggest needs to be through lifelong skills grants, not simply loans. Universities also need to work hand in hand with further education colleges, with credits that transfer between them, and they need to turn British research into businesses that stay in Britain.

[Dr Arthur]

The hon. Member is diagnosing the problem excellently and detailing all the issues. I do not want to go back too far, but we have to think about the role the Lib Dems played in the coalition Government and the decision to go back on their pledge not to raise fees but instead raise them to £9,000. The Budget this afternoon is not just about spending money; it is also about raising money to pay for policies. A range of policies—

[Valerie Vaz (in the Chair)]

Order. May I remind the hon. Gentleman that the hon. Member for St Neots and Mid Cambridgeshire (Ian Sollom) only has a minute left?

[Dr Arthur]

It would be good to hear how the money would be raised to meet all those obligations.

[Ian Sollom]

A lot of the interventions that I have suggested on the university side are cost-neutral and would involve restructuring.

I have three questions for the Minister. First, will the Government update their impact analysis to reflect this year’s fall in international recruitment and publish the effect by region and type of institution of the international student levy before the Finance Bill is debated? Secondly, will they think again about special administration before rather than after a university fails? Thirdly, will the Government commit to working with the sector to end the pensions penalty on post-’92 universities? Universities did not get to this position overnight and they will not recover overnight, but today’s Budget is a chance to stop the managed decline and start the transformation. I hope the Chancellor takes it.