Higher Education in Britain – particularly in England – is now clearly in perpetual financial crisis. This may seem an odd claim, since universities appear to have higher incomes than ever, and are sitting on vast cash reserves. But this superficially calm macro-level picture obscures the broiling chaos at the micro level. Universities, and particularly their individual departments, have been deliberately exposed to enormous year-on-year fluctuations in their incomes – potential and actual – that vitiates any attempt at rational planning and leaves financially strapped units particularly vulnerable to savage, short-term cuts designed to rebalance the books.

The latest move in this direction comes in a remarkable missive from the Higher Education Funding Council for England (HEFCE) which, on instruction from the government, is cutting £150m in funding to English universities — not just in future financial years, but the present academic year (2014-15) and the next (2015-16). That means universities will not receive the funding they anticipated, and planned for, even for the year to September, let alone for the following year.

Due to the ring-fencing of the Science budget, most of the £150m comes largely out of teaching grants, though about £65m is saved by scrapping funding for “national facilities and initiatives” and “two one-off transitional research allocations”, which aren’t part of the Science ring-fence. The cuts to teaching are as follows:

• In 2014/15, “a pro rata reduction of 2.4% to all elements of [the] recurrent teaching grant”, which had already been cut by 5.8% from 2013/14 anyway. This means that, within the current academic year, institutions’ income will drop beyond what was promised. This saves £38m. There will also be penalties levied on universities that “over-recruited”.
• In 2015/16, £37m is saved by reversing teaching grant allocations to support planned increases in student numbers. That is, universities were told (in line with formal government aspirations for more people to attend university) that they should recruit more students, and would get funding to support that; they have now recruited those students (who are now awaiting their exam results); but they will not now get the funding. Therefore potentially universities will take on many more students, yet not have the money required to actually teach them.

These fluctuations in residual state funding compound fluctuations created by the larger shift from public to private funding of HE. With the institution of £9k fees, universities’ incomes are now exposed to annual fluctuations in demand and supply for individual courses, making it impossible to plan rationally year on year, let alone to defend provision that is not necessarily supported by the purchasing decisions of 18-year-olds. These fluctuations combine when government policy converts grants into loans, which may suppress student demand. It is precisely to hedge against such incredibly short-term fluctuations in income that universities are being forced to hoard cash – resulting in the aforementioned large surpluses – and suppress staff wages (apart from management fat-cats of course).

What are the implications of this latest fluctuation? Since the teaching grant has already been cut by 100% in non-STEM (Science, Technology, Engineering and Medicine) subjects, the burden will fall initially solely on STEM departments – again ironic in light of the government’s stated desire to seem more students doing STEM subjects, including their active discouragement of the pursuit of Arts degrees.

Departments may be able to offset the potential losses during Clearing (the process whereby departments with spare places offer them on the “open market” after students’ exam results are released), by deciding not to recruit as many students as initially targeted. But some will be full up, or even oversubscribed, based on offers made and exam results attained. This could push many departments into financial difficulty, especially ones already struggling. They will require either greater cross-subsidy from non-STEM departments – essentially, Arts students paying for Science students’ more costly education – and/or they will have to make their own “savings”, through cutting staff, for example. As we have seen, the vast majority of the redundancies imposed at UK universities have been in the STEM subjects, partly because these are costly subjects to teach and research, so their sustainability is very sensitive to changes in income.

The deep irrationality of this situation hardly needs spelling out. When universities cannot be certain of their income from one year to the next, they cannot engage in long-term planning; they are instead exposed to potentially wild variations in income, resulting in drastic short-term measures to balance the books. We have already seen how this works in Australia. In 2012, a sudden drop in student recruitment led Sydney University to cut 340 jobs, including 164 academics. Subsequent budget cuts and rising market competition have imposed even starker austerity measures elsewhere.

It is obvious that this vitiates any of the public policy goals that austerity-fetishist governments (claim to) wish to achieve via universities. Student numbers will go down, not up, in precisely the subject areas targeted for increases. Teaching quality can only decline, because income fluctuations invite universities to employ more staff on “flexible” – short-term and precarious – contracts to enable them to quickly match supply to demand. The cuts to research grants, despite the Science ringfence, will undoubtedly undermine UK science and the so-called “knowledge economy” that the government claims to support. So, too, will slashing support for science teaching.

Moreover, it undermines the very project of a “university”, which is to provide a stable environment for intellectual enquiry and exchange across the full “universe” of academic subjects. Universities’ exposure to short-term financial fluctuations creates – at the level of individual departments and subject areas – effects akin to recessions in a market. Some departments might expand, but others face financial crisis and cuts. Even at stronger institutions, how long can cross-subsidies smooth this out, when even flourishing departments – including ones promised government funding (later rescinded) – cannot accurately predict their incomes from one year to the next? The rational thing for flourishing department to do is jealously guard their surpluses. And at struggling institutions, we have already seen the implications: vast cuts to whole programmes and even departments closed down. This is not to mention the personal anguish caused for students and staff.

The pecularity of the UK Higher Education system is that it combines the worst aspects of the market with the worst aspects of the state. With increasing marketisation, we see fluctuations based on demand and supply, compelling irrational short-termism. With government policy, wild fluctuations in funding regimes compel the same thing, coupled with atrocious bureaucracy and regulation, which apparent rises in inverse proportion to public funding. Today’s HEFCE cuts will appear mild in comparison with a projected 40% cut in departmental spending to 2020, which will inevitably fall on universities in some, yet again, as-yet-unspecified manner. And simultaneously, the government seeks to impose a “Teaching Excellence Framework” that cannot, under any imaginable scenario, actually improve teaching, but will actually undermine education while increasing compliance costs. We have all the mindless bureaucracy of the Soviet university system, without any of the predictability and stability.