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However, didn't the public university system supported by the UK Government (I assume that's how it works) provide for some emergency 5-year plan for downturns in the economy?
You have forgotten that Gordon Brown as chancellor told us he had "abolished boom and bust". There was never going to be a downturn. The downturn has been the world's falt, not his, but he has been busy in his words to parliament "saving the world".
No, there is no contingency funding for universities. Back in 1997 most universities had assets, often land that they owned (and either used themselves or rented out). But 13 years of Labour reductions in their income have meant that these assets have been spent. I doubt any university now has any significant reserves and many are technically bankrupt.
The fees that can be charged to UK students are capped, so universities cannot up their prices. They actually make a loss on almost all UK undergraduates. The law requires them to accept EU students for the same cost, which in effect increases the loss. The primary source of income is overseas students who pay a commercial price. The joke is that admissions tutors don't see the student but instead see a £. There is research income (though much of this is through research boards which are government controlled). Yes there is commercial research, but at a commercial price which basically covers the job. The problem we have is that the present model just isn't working, and it is a slow process to make changes. Options include:
1) The government scraps the £1bn cuts. My own view is that this makes sense. The direct costs of redundancies, lost income tax and increased benefits dependency are ball park £100m pa for several years. Then there's the indirect cost of damage to the UK system.
2) We move towards a system where students pay the real costs. Quite possibly this will happen, but there are a lot of issues with it. We don't have a framework of scholarships (as in the US) or parents planning for 18 years to cover costs (as in US) nor do we have clearly higher salaries for professionals (as in US). Moving from a state to a market system is messy.
3) The third way! The Conservatives tried blue sky thinking in the 1970s. They came up with University of Buckingham, the only UK private university (there are foreign private unis in the UK but not giving UK degrees). Present chancellor is Margaret Thatcher. This is a tiny university (less than 1000 students) which has kept in business by slipping under Labour's radar. It has some amazingly good results, particularly in student satisfaction. Here we have a 100% privately funded organisation which is small enough to be financially smart. Curiously it is now little more expensive to do a BA there than through a state funded uni. Buckingham illustrates that there are formats in which education can be delivered much more cheaply than through the state system and at a quality which is much better than the average. The problem is we can't turn our existing unis into Buckinghams. Probably an incoming Conservative government would look at the Buckingham model.
The problem is that any changes take years. My view is that right now we just have to fund universities properly. But we also have to accept that the nationalised industry model does mean that we have an expensive system. When a university as Buckingham can do so well in the league tables while teaching each student for considerably less per head than the state universities we do have to think that we need a different model.