Charlie Jeffery: opinion piece January 2023
The Financial Times published a summary of this opinion piece on 15 January 2023
Which sector has the worst industrial relations record in the UK? Well, the railways just about pip us, but higher education runs them a close second. Universities have seen widespread industrial action on pay and pensions in 2018, 2019, 2020, 2021 and 2022, now with the prospect of more in 2023.
That is a miserable record. It piles pressure and anxiety on students who, to be frank, have faced enough challenges through Covid and now as a result of a cost of living crisis which affects them disproportionately. And it is debilitating for staff, whether or not they take part in industrial action. Ours is a sector with huge strengths. It is unambiguously one of the top handful in the world. Its research and its graduates drive innovation in economy and society in the UK and beyond.
Yet we – and by ‘we’ I mean employers and trade unions – hobble our sector with this miserable record. Our national-level negotiation processes have repeatedly failed to reach sustainable, agreed outcomes on pay and pensions. They have repeatedly failed to bring stability to the sector. They have become processes in which people largely talk past each other, not with each other.
It is easy for each – employers and trade unions – simply to blame the other side for this. It’s perhaps even in some way comforting to say it’s all the fault of the other lot for being so unreasonable, extreme, stubborn, dishonest, duplicitous. But that doesn’t get us very far.
More importantly it doesn’t tackle the root cause of the problems we face, on both pay and pensions: we keep fighting to defend or grow shares of pay and pensions ‘cakes’ which are getting smaller for reasons to do with neither employers nor trade unions. We – employers and trade unions – need to stand back and focus on what is causing the cake to get smaller, and try to do something about it.
On pay the problem is easy to identify: the system for funding home undergraduate study is broken. The funding universities get from undergraduate student fees, plus government teaching grant for some subjects, has remained largely flat for a decade.
Inflation gradually nibbled away at the real value of that income over the years, but is now eating great chunks of it very quickly. The cake is shrinking fast. Our data at the University of York shows that we moved into deficit on home undergraduate teaching in 2019-20 and this year face a deficit heading towards 20 pence of every pound of income that comes in.
These figures will vary by university depending on the mix of subjects offered – engineering is, for example, more expensive to teach than philosophy. But the direction is the same everywhere: a perverse situation in which teaching home undergraduates is increasingly penalised by deficit funding.
The impact of this penalty varies depending on how much of a university’s income comes from home undergraduate teaching. For the many universities where over half of all income is from home undergraduate teaching, the impact of inflation is now an acute challenge, and for those which are 70, 80 or even 90 per cent dependent on home undergraduate income the financial constraints are critical.
That has an impact on pay bargaining. Many universities cannot afford more than nominal pay rises. In a system of national bargaining that holds down what can be offered nationally to what the most financially challenged can afford. And, looked at nationally, calibrated to inflation, that can produce outcomes which simply don’t feel reasonable.
So what could change this? One answer would be to abandon national bargaining to allow individual universities that can afford it to offer more, but I’ve come across hardly anyone among vice chancellors and trade union colleagues who want this.
A better answer would be to work together – employers and trade unions – to build a case to government for a viable and sustainable system for funding home undergraduate study. Not easy in the current fiscal circumstances – but given we have one of the best higher education sectors in the world, and given the benefits it brings to the UK at home and as one of our most successful export sectors, there is a powerful case to be made.
But we are not going to be convincing in making that case if we are tearing lumps out of each other in a repeated cycle of industrial conflict. So let’s find the best outcome possible at the moment on pay and conditions: doing what we can on pay, perhaps in a multi-stage deal, perhaps with flexibilities for those facing the toughest financial constraints, and agreeing clear, sector-wide expectations on other key issues like casual employment and tackling gender, race and disability pay gaps.
And at the same time we need to pursue the huge shared interest we – as employers and trade unions – have in working together, and with government, with business and public sector employers of our graduates, with students, to devise a system which rewards, rather than penalises, universities for doing what most of us were set up for: to teach home undergraduates.
Realistically we won’t see any new system until some time after the next general election. But the sooner we start the sooner there might be a more adequate cake to share which enables universities both to award pay rises which properly reflect the work of their staff, and to teach home undergraduates without putting their financial stability at risk.
At one level the pensions ‘cake’ looks, for the moment, an easier one to share out. The interest rate rises we have seen in the last few months, however difficult in other ways like mortgage repayments, are good for defined benefit pension schemes like USS. They reduce the cost of future liabilities.
Combined with the impact of the benefit reductions implemented as the outcome of the 2020 scheme valuation, they set in prospect a scheme surplus at the next valuation of the scheme as at March 2023. That much has been clearly signalled in recent periodic updates by the USS Trustee and could well bring a valuation outcome which enables a rebalancing of benefits and/or contributions in favour of members without causing financial harm to institutions.
But this is a happy, and perhaps short-lived, quirk of recent economic turbulence. It does not resolve the problem that has caused the USS cake to shrink repeatedly over the last decade: a regulatory regime, led by the Pensions Regulator (tPR), which is deeply sceptical about defined benefit schemes.
That scepticism – rooted in high-profile collapses of companies with defined benefits schemes like British Home Stores and Carillion – has not gone away. On the contrary it was further underlined by a recent government consultation on draft new regulations for the funding of defined benefit schemes. These draft regulations pointed to yet greater ‘prudence’ (that is investment caution) for defined benefit schemes, which in practice means increased costs to institutions and members to produce the same outcomes.
Those draft regulations led to a remarkable consultation response co-signed by USS, UCU and UUK. It’s not often those three end up on the same page!
Their response highlighted ‘pressing concerns’ and ‘deep misgivings’ about the appropriateness of those draft regulations to a multi-employer scheme like USS in a sector like higher education. They were clear on the likely impact: ‘diverting university resources away from teaching and research activities because they are required to support lower risk pension scheme strategies’.
So because BHS was mismanaged, teaching and research in universities get penalised? That, frankly, is bonkers.
The point here is less about the 2023 valuation, as the new regulations would come into force after that had commenced. It is more about the following valuation three years later in 2026. The danger is that even if the 2023 valuation brings an improved outcome for members, tighter regulation will push back in the other direction by 2026, shrinking the cake again, wiping out member gains – and reigniting the cycle of industrial conflict.
Surely, the urgent need is for all parties - employers, UCU and USS – to build on the recent consultation response and now to make the case collectively and robustly that it is not appropriate to treat the university sector as a would-be BHS or Carillion.
By any reasonable standards, the sector does not share the characteristics of a failed high street retailer, nor the ‘story of recklessness, hubris and greed’ a parliamentary select committee identified in Carillion.
Its distinctive features – resilience over centuries, a national role in innovation and skills, local roles as anchor institutions, and high international reputation – surely justify a distinctive regulatory approach to its main pension scheme.
There is a common denominator here. While the higher education sector’s repeated pay and pensions disputes reflect pressing and understandable immediate concerns – cost of living pressures and loss of pension benefits – they have deeper, longer-term drivers: a system for funding undergraduate education which is no longer viable; and a regulatory antipathy to defined benefit pension schemes which inappropriately ensnares USS.
These disputes will not be resolved until those longer-term drivers are tackled. We all – employers and trade unions – need to recognise this. If we don’t then the cycle will continue, to no-one’s long-term benefit.