Pay universities for results
Britain's universities are in trouble, and not the genteel, sherry-in-the-senior-common-room kind. More than a third of institutions reported a deficit for 2024-25, and that is forecast to rise to four in ten for 2025-26. Some are running short of cash. Courses are being cut, departments closed and staff laid off. The sector that lectures the nation on sustainability cannot sustain itself.
For years the gap was plugged by foreign students. They paid full fees, and those fees quietly subsidized British undergraduates and university research. It was never a sound foundation, and now it is crumbling. Study visa applications fell by nearly a third in the first three months of 2026 compared with the year before, with declines in key markets such as India and China.
The government's response is to tax what is left. From August 2028, universities will pay a flat £925 levy on every international student, and the Department for Education's own estimate is that 14,000 fewer students would come to the UK that year. Most countries would be delighted to have an export that earns billions and makes friends abroad. Only Britain would look at it and reach for a surcharge.
The deeper problem is that nobody in the system is paid for doing a good job. Universities get the same fee whether their graduates flourish or flounder. Students take out a ‘loan’ that most will never repay, which is really a graduate tax wearing a disguise. The Treasury writes off the losses and then squeezes the fee to compensate. Everyone is unhappy, and nobody is responsible.
So why not drop the disguise and do it properly? A graduate contribution of around 3.3 percent of earnings would be simple, fair and proportionate to success. But it must not flow into the bottomless bucket of the Treasury. It should go to the university the graduate attended, for a fixed period, with a sensible cap so that the successful are not taxed for life.
This changes everything. A university would be paid from the achievements of its alumni. Courses that transform careers would fund themselves handsomely. Courses that add little would become an obvious drain on the institution, and they would be reformed or retired without any regulator having to pronounce on which degrees are ‘low value.’ Universities would suddenly discover a passion for careers advice, completion rates and employer links. Incentives work. Even on academics.
Business would come in naturally. Once a university's income depends on what its graduates earn, employers stop being occasional donors and become essential partners. Sponsored degrees, where a firm pays the fees in return for a commitment to work, would multiply. Degree apprenticeships would grow. Industrial chairs and joint research centres would make more sense. The richest prize is in spinouts. Universities that take fair equity stakes in the companies their researchers create, without terms so greedy they scare founders away, can build income that lasts for decades.
Endowments deserve a push too. Outside Oxford and Cambridge, British universities have endowments that would embarrass a middling American college. More generous tax relief on gifts, and a revived scheme to match private donations, would give institutions a measure of independence from ministers and their spending reviews.
Costs matter as much as income. Many universities built for a future of endless expansion and now carry estates, pensions and administrative layers they cannot afford. The pressure to trim them is weak because everyone assumes a bailout will arrive. It should not. Britain needs a proper insolvency regime for universities, one that protects enrolled students while allowing weak institutions to merge, be taken over or close. Failure is how markets fix mistakes.
Pretending it cannot happen merely makes it more expensive when it does.
Institutions also need freedom to innovate. Two-year accelerated degrees, part-time study and modular courses make far better use of buildings and staff. A fixed national fee cap makes these hard to price. Let universities set their own terms, and let the graduate contribution protect access for those who could not pay up front.
Research should stand on its own feet. It is currently propped up by overseas fees in a way that is both fragile and opaque. Funding that pays the full cost of research would let research universities do it honestly, and spare teaching-focused institutions from pretending otherwise.
None of this requires more public money. It requires public money to stop being the only money, and to stop arriving regardless of results. Pay universities for the success of their graduates. Let business buy in where it sees value. Let the weak merge or fail. And please, stop taxing the foreigners who keep the lights on.
Universities have spent generations teaching students that incentives shape behaviour. It is time they sat the exam themselves.
Madsen Pirie