In the 2024-25 accounts, one British university posted an operating deficit of nearly sixty million pounds. Coventry - not a household name in the way Oxford is, but a large, striving, internationally-minded institution of the sort that does much of the actual work of British higher education.
What makes the number worth pausing on is not its size but its cause. The accounts are unusually candid: the deficit was driven in large part by a sharp rise in recruitment-agency fees, paid to the intermediaries who deliver international students to British campuses. Coventry did not lose money because too few students came. It lost money, in part, on the commissions it paid to bring them.
That is a market eating itself. And it is a good place to start, because it tells you immediately that the crisis engulfing British universities is not the crisis everyone assumes. The familiar story is one of decline: falling demand, hostile politics, a sector past its best. The real story is stranger and more instructive. British universities are not failing because nobody wants them. They are failing because they have been made to behave like businesses while being forbidden the one thing that makes a business disciplined - the possibility of failure. They are a market that has been prevented from working like one.
Once you see that, the university becomes the clearest available specimen of a much larger British disease. So bear with the education detail, because by the end I want to persuade you of something broader: that what has happened to the universities has also happened to the railways, to water, to energy, to the internal market of the NHS - and that the reason none of them get fixed is the same reason, and it lives not in any sector but in the character of the state itself.
The problem, in numbers that don’t add up
The headline figures are grim enough. Around 45% of English higher education providers were on course for a deficit in 2025-26 before mitigating action - a figure that has been climbing, not falling, through successive forecasts. More than twelve thousand jobs were announced as at risk in a single year. Over a hundred institutions are restructuring.
But the shape of the distress is more revealing than its scale, because it refuses to follow the pattern you would expect. If this were simply a story of weak universities being culled by strong ones, the pain would track the league tables: the low-ranked would suffer, the elite would be fine. It doesn’t. Cardiff - a Russell Group university -has run underlying deficits above thirty million pounds and floated closing entire departments, including nursing and music. Edinburgh has shed hundreds of posts. Durham has closed buildings because its estate is, in its own words, too big. Meanwhile London Metropolitan proposed cutting something like a fifth of its academic staff. The crisis reaches from the bottom of the table to very near the top.
That should tell you something is wrong with the “some universities are just bad” theory. When institutions at every level of prestige are cutting at once, the problem is not the institutions. It is the model they all share.
And then there is Scotland, which delivers the sharpest clue of all - a paradox that ought to stop any confident diagnosis in its tracks. Scotland gives its own students free tuition. It is the most generous settlement in the United Kingdom. It is also home to the most financially fragile universities in the United Kingdom, with Dundee’s near-collapse the most acute case in the country. The place that charges its students least has the universities in the greatest danger. A theory of the crisis that cannot explain that is not a theory of the crisis. Hold onto it; we will return to it, because it is the whole argument in miniature.
How it happened
To understand the mess, you have to watch it assemble, because it was not designed. No one sat down and built the system Britain now has. It accreted, one decision at a time, and every decision had the same shape: a cheap constraint substituted for an expensive choice.
Begin with the thing everyone half-remembers: university used to be free. It did. But the reason it could be free is the reason it stopped being free, and getting this right matters, because it is easily mistaken for nostalgia. Free tuition was not a lost golden age of generosity. It was a property of a small system. In the early 1960s something like one school-leaver in twenty went to university. Funding a free, grant-supported education for a narrow elite is entirely affordable; the absolute cost is modest, because the numbers are. The problem was never that Britain educated people for free. The problem is what happened when it decided - rightly - to educate far more of them.
Because then came the expansion, and the first flinch. Participation was pushed toward fifty per cent, enshrined as an explicit political target at the turn of the century. This was a social good; a more educated population is worth having, and the widening of access was real. But notice what the target was: a number, not a purpose. Fifty per cent of young people going to university - to do what, funded how, in institutions of what kind? Those questions were not answered, because answering them is hard and setting a number is easy. The first flinch was to expand by quantity while declining to decide what the expansion was for.
The second flinch followed immediately. Free tuition for an elite does not scale to free tuition for half the cohort; the arithmetic simply breaks. That left two honest options: raise general taxation to fund mass higher education as a public good, or tell students to contribute to something that would, on average, raise their lifetime earnings. Raising tax is unpopular. So Britain imported a market - tuition fees - but it imported the market as a funding expedient, not as a designed system. It wanted the money a market brings without willing the market that brings it.
The third flinch made that contradiction concrete. Having introduced fees, the state would not own the market it had created. A real market sets prices; this one had its price fixed by Whitehall and then frozen - held at £9,250 since 2017, eroding by roughly a quarter in real terms as inflation ran on. So universities were made to compete for customers while being denied the ability to price. And compete they did, on the only axis left to them: prestige. This is where homogeneity enters, and it is a cost, not a quirk. When everyone competes on the same measure - research reputation, league-table position - everyone converges on the same shape. Every institution strains to become a research university, because that is what the rankings reward and the rankings are what the customers read. The system spent itself into uniformity: a hundred and forty institutions all trying to be a slightly worse version of the same thing, none permitted the safety to be excellent at something else.
The fourth flinch was the deepest, and it is the one Coventry’s agent fees expose. With the domestic fee frozen below the cost of teaching, universities went looking for the customer they were allowed to charge properly: the international student, paying three or four times the domestic rate. Within a decade this became the load-bearing wall of the entire sector - at some institutions, international fees subsidise up to half of everything. An enormous, essential revenue stream, reached largely through a global network of commission-paid agents. And here the flinch: having made itself utterly dependent on international students, the state then throttled the supply, tightening visas and banning most dependants, because immigration numbers are politically toxic. It pulled the rug out from under the funding model it had just spent fifteen years forcing universities to build - and it did so without putting anything in its place.
Then the final flinch, the one that seals the trap. Having engineered a market and starved it, the state will not let its institutions fail - because a university closing is a regional catastrophe and an electoral disaster. So it stands behind them, implicitly, universally. It keeps the market’s costs and removes the market’s ultimate discipline.
Read that sequence back and you notice something. Each step is individually rational and politically cheap. Each substitutes a lever for a decision. And together they build a cage that no one wanted and no one now controls.
The diagnosis
So what is the thing that was built? Not a market, and not a state. People reach for “the worst of both worlds,” but that phrase is too kind, because it implies a balanced blend, a bit of each done badly. What Britain has is sharper and more asymmetric than that: a market constrained by a state too weak to be either.
The market half was never allowed to be a market. It cannot set prices; it cannot let losers fail; it cannot clear. The state half was never willing to be a state. It will not fund the sector as public infrastructure, will not decide what the sector is for, will not choose which institutions do which jobs. What remains is a market the state permitted only far enough to charge, and never far enough to clear - running on top of a state that intervenes ceaselessly but never designs.
This is the crucial point, and it is why “the state should stop interfering” and “the state should take control” are both wrong. The British state is not absent from higher education. It is everywhere in it - capping numbers, freezing fees, rewriting visa rules, standing up regulators. The failure is not too little intervention. It is intervention without architecture. A strong state that constrains a market is doing something coherent; France constrains its universities heavily and gets a functioning system, because the constraint is a design. A weak state that constrains a market produces only a cage, because each constraint is a flinch rather than a plan. The distinguishing feature of the British state here is not that it does too much or too little. It is that it can constrain but it cannot construct.
It’s not just universities
Now step back, because the pattern should be starting to feel familiar, and that familiarity is the real argument.
A privatised utility that cannot set its own prices, that is forbidden to fail, that is propped up by an implicit public backstop while being told to behave like a business: that is not a description of universities. It is a description of the railways. It is water. It is energy retail. It is, in a different key, the internal market of the NHS - competition and pricing bolted onto something no one will ever allow to collapse. Britain has a signature way of getting these things wrong, and it is always the same way: half-marketise a piece of public infrastructure, then refuse the market’s logic of failure, and end up with the transaction costs of a market and the discipline of neither.
This is what I mean by the platform state, and why the university is only its most legible instance. A platform - infrastructure that others build on, that produces value which does not accrue to the paying customer, that anchors a region and a labour market - is precisely the kind of thing that the firm model does not fit. Research is a public good; a graduate workforce is a public good; a university is the biggest employer in its town. Make that behave like a competitive business and the mismatch is not incidental, it is structural. You were always going to get neither.
The Platform State
China has built roughly 45,000 kilometres of high-speed rail in about the time it has taken Britain to build 250 kilometres of HS2, at a cost approaching £50 billion.
Why it cannot fix itself
Here is the part that turns this from a complaint into a theory, because it explains the thing that should otherwise baffle you: why nothing works.
The flinching did not merely fail to solve the problem. It built a cage that now defeats even a state that wanted to act. Because universities were allowed to become the largest employers in their regions, their failure is now genuinely catastrophic rather than merely embarrassing - so the backstop cannot easily be removed. Because fifty per cent participation was made a target, it grew a constituency that will fight its reversal. Because the whole edifice is financed through a student loan book, the fee model is now welded into the public finances in ways that cannot be casually undone. Each flinch, chosen because it was cheaper than a decision, laid down another bar of the cage. The original incapacity constructed the trap that now makes capacity harder every single year.
That is why the reforms fail - and Britain has tried many. Institutes of Technology to build the applied tier it dissolved in 1992. Higher Technical Qualifications to fill the missing middle. Endless reorganisations of the regulator. Each is a sector-level patch for a state-level incapacity, and that is precisely why none of them stick. You cannot repair a failure of constructive capacity one sector at a time, because the capacity that is missing is the capacity to hold a coherent design across the whole - against the electoral weather, over years, while creating visible losers. The graveyard of acronyms is not a run of individually bad policies. It is the footprint of a state trying to solve its own missing capability inside whichever sector it happens to be surfacing in this year.
Return, now, to Scotland - the paradox we parked. Free tuition sounds like the opposite of marketisation, a state boldly funding a public good. But look at what it actually is. Because Scotland gives its students free tuition, it must fund their places directly, and it funds them at a capped, below-cost level - around £7,610 per Scottish student, roughly a fifth lower in real terms than a decade ago, and well below what an English university receives. To survive that shortfall, Scottish universities must lean even harder on the international students who cross-subsidise the home ones. So when the international market wobbled, Scotland - with no domestic fee to raise at all - was hit hardest of anywhere. Free tuition did not escape the trap. It walked straight into the centre of it. That is the tell: even the most apparently state-like choice in the system turns out to be another flinch, another constraint that a weak state imposed without building the funding to make it hold.
What a way out actually looks like
At which point the obvious retort is: fine, so pick a lane - run it as infrastructure or run it as a market, or run it as a well managed hybrid - with the best of both, but stop doing this dysfunctional worst of both. The architecture that works is not a mystery. California has run it for sixty years: a research tier, a teaching tier, and community colleges, each with a distinct mission, a distinct funding logic, and a defended boundary between them. Germany runs a version, with its applied-science universities held as a respected category in their own right. A genuinely marketised tier that is allowed to fail, sitting beside a genuinely state-funded infrastructure tier that is properly funded and freed from having to compete - two disciplines applied cleanly to two different jobs, rather than both smeared across every institution until neither works. That is the destination.
But here is the trap inside the solution, and it is the honest heart of this essay: building that system requires more constructive capacity than the failure did, not less. You have to draw a boundary and then defend it forever, against every institution’s constant attempt to arbitrage across it. And that defending capacity is the exact thing whose absence is the disease. You cannot cure a weak-state failure with a remedy that presupposes a strong state.
Which means the real task is not to choose an architecture. It is to build, out of the constrain-only capacity the British state actually has, the machinery that would let a constructive choice survive contact with the electoral cycle. The good news is that this is a form of capacity Britain has demonstrably possessed before. The route runs in sequence.
First, the one act only politics can perform, and must perform exactly once: settle the mission. Decide what the system is for - a purpose, not a participation number. Concretely, that means deciding to have a real applied and technical tier, the vocational route Britain abolished when it converted the polytechnics in 1992 and has been trying to reconstruct with acronyms ever since - rather than a system in which every institution is pressured to become the same research university. This is the genuinely democratic, genuinely value-laden choice, and it is not one an essayist should make for the reader; how you weigh access against research against skills is politics. But it has to be made, explicitly and once, because everything after it is delivery, and you cannot deliver an undecided purpose.
Second - and this is the move that plays to the state’s real strength - delegate the structure and the funding settlement to an insulated, statutory, long-horizon body, and take it out of the annual political cycle. This is the Bank of England manoeuvre: when politicians cannot credibly commit to a painful path, they hand the commitment to an institution with a mandate and teeth, so that the flinch becomes institutionally unavailable. Britain has done exactly this, and done it well - central bank independence, the Office for Budget Responsibility, the Climate Change Committee’s binding carbon budgets. Building an institution that ties its own future hands is the one form of constructive capacity the British state reliably has. Use it. Let politics set the purpose; let the insulated body hold the structure against the weather.
Third, and this is the keystone, build a resolution regime - a special-administration process for universities, modelled on the one that exists for banks. Today, an institution failing means disorderly collapse, which means regional catastrophe, which means political disaster, which means the implicit bailout, which means no discipline anywhere in the system. That chain is the soft budget constraint, the master pathology beneath everything in this essay. A resolution regime severs it: an institution can be allowed to fail in a managed way - its students taught out, its essential functions preserved, its assets redeployed - so that failure stops being a catastrophe and becomes survivable. And the instant failure is survivable, the state can finally permit the market discipline it has spent fifteen years too frightened to allow. It is the perfect capacity-appropriate move: a legal-institutional act the British state is entirely capable of, which unlocks the one thing it cannot currently stomach.
Fourth, and this is what makes the third politically possible: unbundle the regional-anchor and access functions from the research-university function. The reason a closure is catastrophic is that the institution is fused - the town’s biggest employer and its research hub and its route into the professions, all in one body, so you cannot let the research pretension shrink without taking the town down with it. Protect the anchor and the access explicitly - that is precisely what a civic and applied tier is for - and then the comprehensive-research ambition layered on top can be allowed to shrink, merge or refocus without regional collapse. You make failure survivable for the place, which is what lets you make it survivable for the institution.
Do those four in that order, and only then does the clean two-tier system become buildable - because now it is held by a commitment device, backstopped by a resolution regime, and cushioned by a protected anchor tier. The destination is the same one California reached. The point is that you cannot start there. You have to build the machine that builds first.
The knot
Which returns us, at the end, to the thing that makes this hard, and honest to admit: the reform and the obstacle are the same thing. Escaping a weak-state trap requires a solution that presupposes a strong state - unless you first construct, deliberately, the commitment machinery that manufactures strength where nerve alone would fail. The answer is not “grow a spine.” Spines do not survive elections. The answer is to bind your own hands with institutions, to make failure safe so that discipline becomes permissible, and to protect the places so that the sorting-out does not take the country’s regions down with it.
And even this is not guaranteed. Insulated bodies ossify and get captured. California’s master plan itself eroded, slowly, as the boundaries stopped being defended and the tiers drifted back toward sameness- which is the 1992 story again, in a warmer climate. A design is not self-maintaining; it decays the moment the state stops holding it. So what I am describing is a direction with real risk, not a solved problem. But it is the only direction I can see that does not simply demand the state suddenly possess the exact capability whose absence is the entire disease.
The universities are just where you can see it most clearly, because the thing being marketised is so transparently infrastructure. But the argument was never really about universities. It is about a state that can constrain but cannot construct, that reaches for a lever every time it should make a choice, and that has done this so many times, across so many sectors, that the accumulated flinches have hardened into a country-shaped cage. The tragedy is not that Britain chose the wrong model. It is that it never chose one at all - and built, out of a long sequence of not-choosing, a machine that now makes choosing almost impossible. Fixing the universities means building the capacity to choose. Which is the same thing as fixing the state.