Last week I was sent a fascinating research note by fund managers ToscaFund on the rise of the UK higher education sector, and the potential for an exponential increase in Chinese and Indian students. It’s from January and well worth a read – the paper itself is called “growth of Britain’s University Cities”, drop me an email if you want a copy. As reports go, this is no anodyne statement of obvious banalities – it contains a number of very punchy conclusions. It predicts that we’ll see the acceleration of a move towards two year degrees (an excellent idea), and that an increasing number of foreign students will find their way, not into London but the rest of the South East (my home city of Southampton should do well!) and the East Midlands (my old stomping ground and a great property market). The report also predicts that the employment across the UK’s universities will rise 30% to over half a million by 2034 –the report also argues that employment across the overall education sector will increase by 830,000 reaching 3.9 million by 2034.
The most incendiary conclusion though is this – that as the UK universities become in effect international campuses, the main driver of demand will be the growing middle and upper class in China, and to a lesser degree India. Here’s the key passage – “Using a combination of demographic and macroeconomic data from within China since 2002, we predict that in 2025 there will be in the region of 117,000 applications from China into the UK’s higher education sector, increasing to 239,000 by 2034. For context, the most recent figure for 2016/17 was 66,415. By 2034 there will be over half a million Chinese studying in UK-based universities, representing over half of all international students. For context, the present share is just over one in five. Whilst
other nations around the world will compete with the UK in meeting China’s educational needs, nowhere across Europe will come close to matching the UK’s role.” Brexit could, in fact, play out very nicely indeed for the UK HE sector – EU students will vanish, to be replaced by the BRICs.
There are of course a number of unwritten assumptions embedded within this argument. The first and arguably most important is that ‘universities’ are seen in a functional economic sense rather than as a public good/service. This is highly controversial amongst academics – and many on the Hard Left (of which there is much crossover between the two). One could reverse this functional marketisation of higher education if a) we were willing to accept that we’d return to a more elitist system funded b) by a huge increase in government spending. I think many would be happy with this revised state of affairs but my own sense is that this ship has sailed and that those seeking a return to traditional HE values probably need to find a new way of rebuilding the old liberal arts model.
The next big assumption is that the Chinese, Singaporeans, Australians and Americans don’t realise how big an opportunity there is for Chinese students and nab the market. In this, we can usually trust the British skill of snatching defeat from the jaws of victory. I have no doubt that if politicians (especially those on the Left, but also some on the right obsessed with immigration) bugger up the current policy review and stick slavishly to a policy of limiting foreign student numbers, other countries will step into the breach. But it will be our opportunity to lose – and if that happens we’ll have yet again let our comparative national advantage be destroyed by cynicism and parochialism.
The next big assumption is that British parents will be happy with the idea that their cherished university sector isn’t as accessible as it used to be because of all these foreign students. Again, I’d expect a nativist backlash as parents start demanding “British students for British universities”.
The last threat is the oldest one in the book – execution. In sum, universities act like private businesses and then bugger it up with poor leadership and bad administration. In this respect, the recent furore over university boss’s salaries is not helpful. Though there are some egregious cases of bosses being clearly overpaid, nevertheless we need to be honest about what we’re building – a world-class HE sector run like a business, with proper business leaders at the top. And to attract these leaders you need beefy salaries. This is an uncomfortable set of truths for many on both the Left and Right but in my view is entirely inevitable – we need to rethink the way these universities are run.
We are at a critical juncture – as globalisation intensifies millions of wealthy Chinese and Indians will want to educate their kids abroad. Someone has to provide that high margin business proposition and we are in pole position – as long as we can fend off Corbyn, incompetent administrators and Mays obsession with limiting student visas. It’s the perfect industry for a new value-added UK economy – these are highly skilled jobs with huge local multiplier effects. The side effects won’t always be pretty – restricted access for some local kids, increased property prices, student ghettos – but we’ll have a leading position in an industry we are good at. My only policy observation would be two-fold. First, let’s reinvest the profits from this internationalisation in better bursaries for poorer (domestic) students and radically improving the quality of technical education. Secondly, government needs to find a way of making access to HE more affordable for everyone, with a real focus on using the internet to deliver education and cutting back the cost of HE for poorer students by reducing interest rates (and reinstating the maintenance grant).
From an investment perspective, if ToscaFund is right, a number of conclusions emerge. The first is that we ain’t seen nothing yet when it comes to student accommodation, especially in provincial locations and focused on post graduate education. That suggests a judicious investment in outfits such as Unite and Empiric will probably pay off. It also suggests that we’ll see a structurally bullish property market in key provincial property markets providing good quality one or two-bedroom flats. That’s good for local businesses and good for some local landlords.