Devolution and Universities: December 2015

Posted by Kevin Richardson, Visiting Fellow CURDS, Newcastle University, 10th December 2015

The current focus of strategic leaders within many universities is on traditional fields of interest e.g. the future of Research Excellence Framework, the proposal for a new Teaching Excellence Framework, a new body to be called Research UK, and a new Office for Students. This is understandable in the context of the Green Paper  as moves to both ‘marketise’ and regulate the sector gather pace, and also in terms of what is, at least initially and in headline terms, widely perceived to be a ‘better than expected’ outturn to the Spending Review in November 2015.

Meanwhile, the ‘devolution revolution’ is also gathering pace with the strong support of the Chancellor. The Cities and Devolution Bill has sailed through its committee stages. Royal Assent is expected early in 2016. This may well lead to lead to a slew of new devolution deals spreading South from their current homeland in the North.  Some universities may consider that devolution will only have marginal impact on their strategic direction, activities and funding regimes. That may well be the case for some institutions. But, for many devolution will inevitably have important direct and indirect implications.

Some funding streams, currently managed nationally and targeted directly at the higher education sector may well be effectively substituted with newly devolved programmes within which universities are only one type of potential contributor and beneficiary. In particular, the new Combined Authority Investment Funds with loan repayments of £30-£50 million pa guaranteed by government for 30 years, when aligned with other funds that can be levered against that security, provide both a major re-alignment of provision and a significant new possible source of investment finance. Moreover, current national programmes nominally targeted at ‘excellence’ wherever it is exists, are increasingly challenged by the growing call from devolutionists for place based implications to be much better understood.  The content of the Expression of Interest for the new Science and Innovation audits provides evidence of this growing tension.

The recent update by HEFCE  on the financial state of the sector confirms that universities are continuing to invest heavily in their infrastructure. Many of these proposals have transport requirements. The need for a new roundabout, traffic management system, green travel plans, bus and cycle lanes etc are often very evident. Devolution solidifies the localisation of this type of transport funding.  Strategic planning – including the choice of strategic investment sites, including where to base Enterprise Zones – is again more heavily localised within devolution deals. In terms of the skills agenda, reductions in capacity and need for infrastructure are set to scale down substantially. Many colleges provide an important input cohort for local universities and, of course, increasingly, more HE is now delivered by FE.  Many local universities will need to better understand and inform the (devolved) Area Based Reviews, especially as they consider the potential implications of the new emphasis on Higher/Degree Level Apprenticeships funded, at least in part, by the new Apprenticeship Levy.

At the same time, and closely linked, the greater emergence of a new range of innovative forms of financing, particularly of ‘risk-based’ and ‘value-capture’ programmes, seeking to invest in large scale infrastructures are likely to radically change in the medium term the scope and structure of external finance for universities. The work emerging from the EPSRC funded iBuild project provides insightful and authoritative depth of analysis.

The growth of university bonds, and the emergence of municipal bonds at difference scales, especially those focused on the green economy and climate change, are buoyed increasingly by investment fund managers seeking stronger rates of return than available on the long term basic money markets. The European Investment Bank is seeking new opportunities, supported by political impetus provided via the new EFSI  programme, which itself is designed to lower further the cost of capital.  Nationally, BIS is moving rapidly from grants to loans in terms of its innovation and business support programmes.  Universities will want to help signpost and help to make available support from these funds to the firms with whom they work on contracted and collaborative research programmes. The move to a ‘pan-LEP’ ‘super’ EU backed venture capital fund across much of the Northern Powerhouse area can only be seen as the first of several such integrated programmes of scale. In terms of the possible scale of funding involved, the (probably difficult) move to localise 100% of business rates may yet emerge as the most significant of all these new sources. As a minimum, such devolution of business rates will immediately give rise to greater transparency of the valuation process. Will the ongoing need for redistribution across localities mean that policies for discounts will also need to be devolved? Regardless, localisation of business rates will certainly, as intended by the primary purpose of policy, shape what will be seen as more advantageous proposals for new developments. New office blocks will surely be more attractive to cash-poor local authorities than more new blocks of student housing.  Conversely, and more positively, the localisation of these taxes may well provide opportunities for more partnership based, integrated programmes of development, where the value of large scale investments planned by universities can be realised and mixed with the aspirations and activities of other actors in the local state.

The marketisation of the sector and devolution, taken together, requires universities to manage both vertical and horizontal relationships simultaneously, dealing strategically with different cultures and motivations in an increasingly borderless form of multilevel governance – a form of decision making which some within the sector work hard to understand and manage.  New skills, managerial and organisational responses are needed, especially the need for actors and agencies who can span boundaries between the different sectors, policy domains and forms of investment finance.