By Sophie Lindqvist

More than 40 per cent of British universities are expected to have recorded an operating deficit in the last financial year, according to Office for Students figures cited in a new book that argues the UK's higher education sector is in economic, academic and cultural decline.

The Higher Education Delusion, published by the Institute of Economic Affairs (IEA, a free-market think tank), makes the case that universities' claims to be "world-leading" are out of date — and, in co-author Len Shackleton's words, "sometimes embarrassingly delusional." The book arrives at a moment when no major political party has put sector reform on its agenda, an omission the authors call a failure to match the scale of the problem.

That is a sweeping claim from an avowedly ideological publisher. But the numbers underneath it come from official regulators and statistics bodies, and they deserve scrutiny on their own terms.

What does the financial picture show?

The Office for Students, the regulator for English higher education, reports that over 40 per cent of institutions are expected to have run an operating deficit (spending more than they earned) in the last financial year. The book attributes this to chronic underfunding and what it calls a flawed funding system.

The sector has responded, the authors argue, by maximising student recruitment with insufficient concern for whether applicants can cope with degree-level study. That open-door policy includes a heavy dependence on nearly 700,000 overseas students each year, according to Higher Education Statistics Agency data. The authors claim these students are sometimes inadequately screened and pay very high fees for often poor service — a claim the book supports only in general terms, without naming institutions.

Have academic standards actually slipped?

The book's most quantified charge concerns grade inflation. UCAS entry scores in seven major subjects fell nine points in the four years to 2023, meaning universities admitted weaker students. The proportion of first-class degrees awarded then rose from 7 per cent in 1993–94 to 30 per cent in 2024–25 — more than a quadrupling over three decades.

That trajectory, the authors argue, undermines the value of a degree as a signal of ability to employers. They pair it with a labour-market claim: expansion has outpaced demand for graduates, leaving 30 per cent of graduates in jobs that do not require a degree, or without jobs at all in a declining market. Many graduates then take postgraduate qualifications despite evidence, the book says, that many such qualifications add little to earning power.

The causal chain here is asserted more firmly than it is demonstrated. Grade inflation and graduate underemployment are real and documented; whether weaker entrants caused the first, and expansion caused the second, the book argues but does not settle.

What about the debt students carry?

The authors reserve some of their sharpest language for student finance. "Student 'loans' are anyway misnamed: they are a bizarre form of redistributive tax which would fail to pass financial regulation of conventional loans," Shackleton writes.

An increasing proportion of student debt will never be fully repaid, the book notes, and the way loans are treated in public accounts conceals the true cost to the taxpayer. Students themselves accumulate enormous paper debts that constrain aspirations and life choices, making it harder to secure decent housing and start families.

The book does not specify what accounting treatment it would prefer — a gap between diagnosis and prescription that recurs throughout.

Is the intellectual culture of universities changing?

The cultural argument is the book's most contested terrain. Degree study has moved away from the ideal of a liberal education, the authors contend, and the rise of political correctness threatens free speech. Critical theory (a school of thought examining power structures in society) now dominates many areas of the social sciences, they claim, and underpins identity-based activism that graduates carry into professions through equality, diversity and inclusion (EDI) advocacy.

Within the sector, the book identifies a "greenhouse effect" — a self-reinforcing feedback process — that makes diversity of thought increasingly rare inside institutions. No survey evidence or measurement accompanies this metaphor; readers must weigh it as argument, not data.

Does research spending serve its purpose?

The book also takes aim at the research mission itself. Academics, it argues, obsess over research to the detriment of teaching, and most students do not know that a substantial chunk of their fees subsidises research which adds little to useful knowledge.

The evidence offered: in the last round of the Research Excellence Framework (the peer-reviewed assessment of university research), around half of all submitted research was in the social sciences, arts and humanities — not in the sciences pursuing, as the authors put it, a cure for cancer or a new subatomic particle. Their prescription is blunt: research funding should be reduced and probably concentrated in fewer universities and research institutes.

What that would do to the many institutions whose finances already show deficits goes unaddressed. Cutting a revenue stream and a subsidy simultaneously is a stress test the book does not run on its own numbers.

What does this change for the sector?

For university leaders and investors watching the sector, the immediate takeaway is political: none of this becomes policy soon, because no party has a plan the authors consider proportionate. The book predicts that artificial intelligence will do what regulators and politicians will not — AI is already undermining traditional classroom teaching and essay-based assessment, a trend the authors expect to accelerate, and they argue over-regulation currently blocks new types of institution from emerging to exploit it.

Shackleton, editorial and research fellow at the IEA and a professor, closes with a call to action: the sector "needs to be dragged out of its current malaise," and it is time political parties did so. Whether the diagnosis commands consensus, the underlying figures — 40 per cent deficits, 700,000 overseas students, a quadrupled share of first-class degrees — will keep the debate alive regardless.