Toscafund Discussion Paper - Growth of Britains University Cities

Toscafund Discussion Paper TOSCAFUND
Growth of Britain’s University Cities January 2018
One million more students to attend British Universities by 2034
Nils Burkhard, Lucas Glemser, Millie Pattemore, Amy Bramworth, Karisma Sathi, Callum Wilkinson,
Nicolas Bossers, Ehsan Ali, Hugo Clews, Louis Dunmore, Stephen Ierotheou, Chris Magowan, Theo Beech, Tom Van den Eynde and Jordan Chong
Toscafund Asset Management LLP
90 Long Acre t: +44 (0) 20 7845 6100 e: ir@toscafund.com
London WC2E 9RA f: +44 (0) 20 7845 6101 w: www.toscafund.com
Actual & projected UK university student numbers Chinese UK university enrolment & % of all overseas
See section 1 to 1.7 fresher’s See section 1 to 1.7
1.5 3.4 250 70
Million
Million
Thousand
%
3.2 60
1.4 200
3.0
50
1.3
2.8 150
40
1.2 2.6
30
100
2.4
1.1
20
2.2
50
1.0 10
2.0
0.9 1.8 0 0
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2008 2011 2014 2017 2020 2023 2026 2029 2032
Fresher's Total students (rhs) Fresher's from China Share of all International fresher's (rhs)
Source: HESA, OICA, NBS of China, Toscafund
Note: 1st grey vertical denotes 18 years after China’s accession to WTO, 2nd 18 years after the 2008 GFC, 3rd 18 years after end of One Child Policy
Chinese share of overseas students by nation of study Employment in Higher Education (see section 1.16)
See section 1.4 See section 1.16 and appendix 4
60 550
30% increase
%
Tuition fees
Thousand
50 £1000 £3000 £9000

500
40
450
30
20 400
10 Conservative-led
350
coalition
0
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 300
Australia New Zealand Canada UK USA Ireland Germany France 2004 2007 2010 2013 2016 2019 2022 2025 2028 2031 2034
Source: HESA, Eurostat, Statistical agencies of the respective countries, Toscafund
Wealth Evolution of those born in China post-2002 UK student entry visas granted to Chinese nationals
See section 1.3 See section 4.15
120 40
4.0
2034
Number of affluent at each birth, in millions
% of Total Student Visas

Thousand
3.5 100
30
3.0
80
2.5
2027
60 20
2.0
1.5 2021 40
2016
10
1.0
20
2009
0.5
2003
2002 0 0
0.0
2005 2007 2009 2011 2013 2015 2017
0 1 2 3 4 5 6 7 8 Age
9 10 11 12 13 14 15 16 17 18
Student visas granted % of Total Student Visas granted (rhs)
Source: NBS of China, OICA, UK Home Office, Toscafund
1
 We predict that within a handful of years UK university enrolment will begin to move sharply higher.
Further, we anticipate it being only a matter of time before two-year undergraduate degree become
commonplace, doing so in response to practical and commercial considerations for students, universities
and tax-payers alike, Section 3. Moving from three to two-year courses eases the overall cost burden on
students whilst allowing universities to more intensely work their assets. For even with overall enrolment
constant, universities could use “accelerated” degrees to shift the student mix towards those paying more
lucrative fees. They could for instance increase the share of postgraduates and/or undergraduates paying
'premium' fees, notably those from outside the EU, and in particular those applying from China.
 Using a combination of demographic and macro-economic data from within China since 2002, we predict
that in 2025 there will be in the region of 117,000 applications from China into the UK’s higher education
sector, increasing to 239,000 by 2034. For context the most recent figure for 2016/17 was 66,415, Section
1.7. By 2034 there will be over half a million Chinese studying in UK-based universities, representing over
half of all international students. For context the present share is just over one in five, section 1.10. Whilst
other nations around the world will compete with the UK in meeting China’s educational needs, nowhere
across Europe will come close to matching the UK’s role.
 As a result of the rise in births post-2002 as well as other socio-economic factors the number of Britons
enrolling at its universities is likely to reach 2.4 million by 2034, up 29% from the 1.9 million studying in
2016/17, section 1.14.
 The region which will experience the largest rise in student numbers is expected to be Southeast, whilst the
East midlands will enjoy the strongest percentage growth. Scotland and London are expected to lag most in
capitalising on international student demand, albeit for quite different reasons, section 4.3
 When raising their capacity few industries have as voracious an appetite to consume real estate as
education. It is for this reason that universities which have little space to expand around their existing
campuses will have no other option than to find room elsewhere across the United Kingdom. They will take-
up and regenerate existing real estate as well as creating new space on hitherto undeveloped ground, quite
possibly traditional agricultural land, section 4.6.
 We anticipate that employment across the UK’s universities will rise 30% to over half a million by 2034, the
sharpest increases being recorded in the South East (beyond London), North West (around what is fast
becoming Man-Pool) and Midlands (containing as it does a great many city-centre and campus universities),
with the weakest increases in Northern Ireland, Wales and Scotland (because of its “outlier” approach to
student funding). Growth in staffing and increased need for real estate will of course correlate strongly with
where the increase in student numbers is comparatively strongest. This will in turn be closely connected to
the rise in fresher’s coming from China. We estimate employment across the overall education sector will
increase by 830,000 reaching 3.9 million by 2034, section 1.16.
 As overseas demand for their courses increases the names of British Universities will become metonyms for
international campuses; a process in fact already underway. Some will also add a virtual presence to offer
distance learning, again something which has already been seen, section 4.16. This accepted, and to repeat,
the names of UK universities will ever more perceptively adorn campuses, teaching in the traditional way
and away from their traditional centres, but still somewhere in the UK. Having seen this phenomenon come
to London, “satellite” London brands will soon be seen beyond it. We are in short about to see the writing
of an entirely new chapter to Britain’s regional real estate growth story, and a very educated one it will be
at that.
2
Executive Summary
It is no exaggeration to claim that never have we seen the likes of it before. For China’s recent years of growth and the precise
nature of its expansion are unique. It is no exaggeration to claim that never have we seen the likes of it before. China’s recent
years of growth and the precise nature of its expansion are unique. In the years since 2002 China’s economy has been
energised in a way which it had never been before and on a scale never before seen anywhere. With this unprecedented level
of wealth creation has come an ever more expansive “affluent class”, one demanding that its children are educated to an
ever higher degree. And part of this demand will be directed to the United Kingdom. After all, our universities have the appeal
of being a globally reputable status symbol.
Our focus then is the outlook for the UK’s HEI. We do not use this acronym in the traditional context of Higher Education
Institutions but one where the “I” represents “Industry”. For the reality is that Higher Education is the UK’s fastest growing
Industry. Moreover, it is one hungry for real estate and labour as it expands. The contribution of the HEI to the UK economy
extends along a comprehensive supply-chain, drawing in all forms of academic, clerical, catering staff and many other
workers, all instrumental and essential in education. Those arriving here to be educated are delivering a boost to both the
UK’s internal and external economic accounts as well as acting to help narrow regional wealth disparities, thanks to their
disproportionate benefits beyond London.
To reach our conclusions we draw upon demographic and macroeconomic developments across the world’s largest emerging
markets to reflect on the diffusion of wealth over the past decade and a half across ever more households. Using this
information along with reasonable growth forecasts up until 2034, we predict the number of households breaching the
threshold that affords them the ability to fund a period of higher education for their offspring. Using this as a basis, projections
are made for the number of those turning eighteen each year in families with the capital to finance them through a number
of years of higher education. Our specific focus is forecasting how many of those born in Indian and China post-2002 apply to
British universities from 2020. The projections for China alone are staggering.
Using the growth in new car sales as a reliable indicator for the growth in affluent households, one can reasonably claim that
China’s upper-middle class has increased by a staggering tenfold since 2006 (chart 1). Assuming that this growth has centred
on prime-age adults, the children born of this new wealth class will begin to rapidly come of university age from 2020; and to
repeat if new car sales since 2006 are anything to go by, this growth will be exponential.
Chart 1: Chinese enrolments to UK universities vs. the Chart 2: Indian enrolments to UK universities vs. the
proportion of ‘affluent’ families (%) proportion of ‘affluent’ families (%)
250 30 50 3.5
Thousands
Thousands
%
%
45
25 3
200 40
35 2.5
20
150 30
2
15 25
1.5
100 20
10
15 1
50 10
5 0.5
5
0 0 0 0
2006 2010 2014 2018 2022 2026 2030 2034 2006 2010 2014 2018 2022 2026 2030 2034
First Years in UK HEI's Proportion of affluency (rhs) First Years in UK HEI's Proportion of affluency (rhs)
Source: Toscafund, HESA, OICA, NBSC

Note: 1st grey vertical denotes 18 years after China’s accession to WTO, 2nd 18 years after the 2008 GFC, 3rd 18 years after end of One Child Policy
Figures for 2016/17 show that India had 9,720 and China 66,415 first-year students enrolled in UK higher education. Whilst the
number of first-year students from China has been steadily growing, we are convinced the UK find itself on the cusp of a hockey-
stick increase in applications from it. Specifically by 2025, enrolment of first-years from China will reach 117,000, and by 2034
up still further to a staggering 239,000. For its part India will deliver more modest growth in the number of first-year students
enrolled in the UK, their numbers rising to 22,000 by 2025, up to 31,000 by 2034 (chart 2). If we are wrong in any way in our
projections for applications from India it will be because of understatement. In broader terms we predict there will be an
additional one million full-time students enrolled across the UK’s HEI by 2034, a more than 50% rise from present numbers.
3
Contents
Executive Summary ....................................................................................................................................................3
1. Forecasting international demand for higher education ....................................................................................5
1.1 China’s roll-call of economic revolutions ...........................................................................................................................6
1.2 China’s “2002 babies” turn into 2020’s “fresher’s’”...........................................................................................................7
1.3 Let us take a moment outlining our methodology for China’s improving educational appetite .......................................8
1.4 Why the UK’s universities score more A’s with the Chinese than anywhere across Europe ...........................................13
1.5 Why we should give China proper credit for its growth...................................................................................................16
1.6 Confidently chartering into uncharted territory ..............................................................................................................17
1.7 The story for India – Almost that of China, but nothing like as educated ........................................................................18
1.8 If it’s all the same to you let’s stick to ceteris paribus ......................................................................................................23
1.9 Exit so others can Enter ....................................................................................................................................................24
1.10 An emerging story everywhere yes, but nowhere like China .........................................................................................27
1.11 China has already become The Wizard of Oz .................................................................................................................28
1.12 America will not teach as much as the UK .....................................................................................................................30
1.13 We have been slower to learn the value of Chinese students than other English speakers .........................................31
1.14 Don’t forget the British in all this talk of an educated future ........................................................................................32
1.15 Confidence when forecasting .........................................................................................................................................34
1.16 Discrepancy in growth ....................................................................................................................................................37
2. Students from China: much more Gift Horse than Trojan ................................................................................38
2.1 The first mover offers a critical advantage .......................................................................................................................38
2.2 Making education a family business ................................................................................................................................38
2.3 Occupying the higher ground is not consistent with a race to the bottom .....................................................................39
2.4 Let’s avoid finals being the final chapter ..........................................................................................................................40
2.5 An educated way to avoid going Dutch ............................................................................................................................40
3. Why three becoming two means more not less ...............................................................................................41
3.1 Accounting for the benefits of a two-year degree ...........................................................................................................42
3.2 Student demand ...............................................................................................................................................................44
3.3 Career progress ................................................................................................................................................................45
3.4 Progress & resistance .......................................................................................................................................................46
4. Investing in infrastructure .................................................................................................................................47
4.1 The educated signs to look for when investing in student accommodation across the UK .............................................48
4.2 A view from the Top .........................................................................................................................................................50
4.3 Distribution of students across the UK .............................................................................................................................51
4.4 The educated direction of travel is out of London ...........................................................................................................54
4.5 Education is a more even playing field for regional growth .............................................................................................56
4.6 An academic solution to our ‘regional problem’ ..............................................................................................................57
4.7 The importance of transport links ....................................................................................................................................60
4.8 Foreign bodies in London .................................................................................................................................................62
4.9 Exploiting naming rights nationwide ................................................................................................................................63
4.10 The very best franchise value for university brands, in Britain ......................................................................................64
4.11 A scripted University Challenge ......................................................................................................................................66
4.12 Cap in hand to consolidate .............................................................................................................................................67
4.13 More than a Two Horse Race .........................................................................................................................................68
4.14 Driving forward with a wide range of educated options ................................................................................................70
4.15 The importance of visas and transport links between the UK and China ......................................................................71
4.16 Remote learning .............................................................................................................................................................72
5. Conclusion .........................................................................................................................................................73
5.1 A picture of success ..........................................................................................................................................................75
6. Appendices ........................................................................................................................................................78
4
1. Forecasting international demand for higher education

The nature of Higher Education is such that to anticipate applications in any year, one is helped by having a knowledge of the
birth level 18 or so years before. The number of births is of course figuratively and literally merely a starting point. Alongside
how many births there were eighteen years earlier, we need to know what has happened through the period to the economic
affluence and social attitudes of the families these babies were born into. It is not sufficient, however, to claim that prospects
for the UK’s higher education industry depend solely upon demographic and socio-economic events within our borders. The
reality is that prospects for the UK higher education sector have become dependent upon demographic and socio-economic
factors widely around the world. And none can deny that the likes of China and the other populous developing nations have
undergone transformational economic change since the millennium, a change which is ongoing, albeit in a way specific to
each.
If one imagines that those born across the developing world post-2000 have been on a conveyor-belt, then this will deliver
them to young adulthood and “university age” from 2018. Sticking with this analogy, one has to also think of what has
happened to their families as they too have been economically and socially conveyed over this time. To chart this journey,
one need only look at measures of the number of families becoming “newly affluent”. And few measures capture this better
than the sales growth of new cars. Just consider these facts for China. Since 2005, its new car sales have grown more than
five-fold. Now in China the average price of new cars are three times higher than average disposal incomes. Moreover, the
credit market is less developed than we are used to in the UK. Consequently those buying new cars in China must be
considered part of the rapidly growing upper-middle class. This class is precisely the one which will be keen to buy a higher
education for its offspring. Indeed for those in the upper-middle class, the focus will be on buying whatever is perceived as
the very best from around the world, with the UK’s universities featuring extremely favourably. This was precisely the
behaviour across the now developed world as it emerged with an ever larger middle class and UK university enrolment
increased in tandem. And there is no reason why it will be different with the likes of China as proceeds on its journey of
emergence. There is of course one difference – China’s considerable, indeed unprecedented scale.
Obviously challenges will be faced in taking advantage of this overseas demand. Exchange rate movements – how the Indian
rupee and Chinese renminbi move against the likes of sterling and the dollars of Canada, Australia and the United States –
will influence respective affordability for international students looking to locate to these nations. Furthermore, Visa
requirements and capacity constraints could limit the ability to capitalise on this demand. In regard to access, the UK’s post
EU immigration strategy will be crucial. In the long term, significant investment will be required into infrastructure but in the
short term, a two-year degree structure could be a viable solution, expanded upon later in this paper.
The immeasurable nature of the economic benefit from all this

Studies abound which claim to account for the financial benefits to the UK economy of our universities hosting hundreds of thousands
of fee-paying foreign students. Whilst the figures presented vary from report to report, in all cases the conclusion reached is that the
net rewards are both considerable and spread widely across the UK. This research was never intended to add to this body of work. Its
aim is not to focus on the present benefits to the UK economy of admitting overseas to our universities, but to look into what the future
holds for their numbers. More specifically it predicts student enrolment out to 2034, when those born last year, most notably in China,
reach university age. Readers keen to see what this ‘future’ benefit will mean in monetary terms will be disappointed, because it is
quite frankly unquantifiable given its exceptional nature. Where we do quantify matters is in predicting a 570,000 increase in
international students attending UK universities between now and 2034 (Chinese students accounting for 460,000 of this rise; for the
record there are currently c91,000).
Those keen to get an idea of what the incremental monetary benefit is likely might be tempted to take the c130% rise in numbers we
are predicting and using this to gross up figures being cited by existing studies for the current net financial benefit of international
students, in turn allocating this increase pari passu across the UK. Let us be clear such an exercise will as much understate the benefits
as distort them. It would do so because for one the figures being offered for what international students bring to the UK economy are
we believe understating their value added. Another reason why simple extrapolation will understate matters is because the
international students taking up places at UK universities in the future will have very different socio, economic and ethnic characteristics
than the ones who have done so hitherto. These “freshers” will also be distributed quite differently around the UK than the current
crop of students from overseas. To meet this transformation in quantity and quality in student demand we will have to build teaching
and living space in entirely new locations, and of an entirely new class.
5
1.1 China’s roll-call of economic revolutions

China has not been unused to revolutions in the years since 1948. Whilst that year was the abrupt start of Communist Party
control, other revolutions would follow. There was Mao’s “Cultural Revolution” of 1966, and then Deng Xiaoping’s “Counter
Revolution” to this in 1978. A “Near Revolution” would follow in 1989, with the protests in Tiananmen Square, and The
Communist Party’s reaction to them; a realisation that economic enrichment would be a popular distraction from calls for
democracy. Whilst each of these events had its own particular impact on China’s economy, it was joining the World Trade
Organisation (WTO) in December 2001 that, in our opinion, was the trigger to a critical “Global Revolution” for China. Its
accession to the WTO ensured that 2002 opened up the world to China.
It was after all from that year that China took on a key role in global mercantilism, a role which it had not had in its modern
history, and one on a scale of which the global economy had never before experienced.
Yet another significant revolution would follow for China post-2009. The trigger for this was Beijing’s decisive reaction to the
financial chaos which swept across the developed world in 2008. A casual inspection of data of interest rates and new car
sales shows how different matters have been on the periods either side of 2009 (chart 3 and 4).
Chart 3: China’s car sales vs. interest rate: driving forward Chart 4: Rising births in China & end of One Child Policy
30 7.5 18.0
Million
Million
7.0
25 17.5
6.5
20 6.0 17.0
5.5
15
%
16.5
5.0
10 4.5 16.0
4.0
5
3.5 15.5
0 3.0
15.0
2000 2002 2004 2006 2008 2010 2012 2014 2016
2000 2002 2004 2006 2008 2010 2012 2014 2016
Car Sales Interest Rate (rhs)
Source: OICA, World Bank, Toscafund Chart 3 vertical: Chinese reaction to 2008 global financial crisis Chart 4 vertical: 1st grey vertical denotes
China accession to the WTO, 2nd 2008 global financial crisis, 3rd end of One Child Policy
As it saw the markets which had been its most sizeable export markets go into economic seizure in 2008, China’s leaders
reacted. Their reaction was to begin the process of reorienting economic growth from export to more domestically driven
sectors; in essence shifting from a reliance on foreign businesses and households to drive growth, to demand from Chinese
firms and families. A much more recent “Baby Boom Revolution” has come about with the formal end of China’s One Child
Policy and a sharp rise in births (up 8% in 2016 compared to 2015, chart 4). As much then as we can look forward to
“generation 2002” becoming 18 from 2020, there will be “generation 2009” from 2027 and “generation 2016” from 2034.
And the coming of age of each of these generations will have a favourable impact on the UK’s economy. Indeed, each of these
“revolutionary” generations will have an impact when they turn 18 and enter higher education and another when they enter
the world of work from 21. There will be yet another when they become parents. The UK’s commercial property market will
literally favourably build-on each revolutionary stage.
6
1.2 China’s “2002 babies” turn into 2020’s “fresher’s”

Some consider China’s economic ‘surge’ as having begun much earlier. However in our opinion it was from December 2001
when China acceded to the World Trade Organisation that the nature of its economic growth changed dramatically.
Now if we accept 2002 as the year the wealth of households within China took on a new growth phase, then 2020 will be
when those first born into this ‘new economic era’ turn eighteen. Consequently it is no surprise that 2020 is the year which
sees a marked acceleration in our projections for the number of Chinese with the resources to continue their education into
university. And included within this group will be those keen and able – financially and educationally – to become freshmen
in the United Kingdom. 2020 is quite simply the beginning of an entirely new growth phase for our universities.
For obvious reasons, those who will turn 18 in each of the years out to 2034 have already been born and are making their
way through life. And as they journey to their eighteenth birthdays, the households they are in are for the most part seeing
their financial fortunes lifted. Even now a small percentage are already in the bracket of being able to finance a period of
higher education when their offspring come of university age and some are even be able to send them overseas. Crucially,
each passing year will see this proportion rise and project the number of Chinese applying to British universities accordingly.
The positive story for the UK is far from being confined to the boost to university applications coming from China’s post 2002
generation. Just as they will come of university age from 2020, so in the years from 2023 China’s higher educated “generation
2002” will enter the world of work. Once they do, and for some even before then, they will become consumers, for whom
made in the UK will be as desirable as being educated here. Just as our universities should do from 2020, our car makers need
to prepare for a very dramatic and very favourable demand shock in the years from 2023. Indeed, the same prediction applies
very widely to all UK sectors which serve Chinese customers, from our insurers to our hotels.
Re: An educated letter to The Editor

It was a rare example of cross-party collaboration. It was also a prototype of England's elected metro-mayors taking to the national
stage to promote their respective regional interests. The instance in question was a letter published in the Financial Times on January
19th 2018. Its signatories were three Labour and four Conservative “super-city” mayors. The missive collectivised their demands into
a single message; that the Government project a 'more open and welcoming message for international students'. The mayoral septet
argued those from overseas arriving into their various areas - centred on Sheffield, “Man-Pool”, Cambridge, Middlesboro, Birmingham,
Bristol and London - 'help support local businesses and provide a boost for tourism'.
Alongside their open letter to the FT the magnificent seven wrote to the chair of the Migration Advisory Committee. In that they
entreated that simply to achieve Central Government commitments on migration, student applicants from overseas not be seen as an
easy target for visa restrictions. [A demand made repeatedly in this paper]. Let us here add two points to these Mayoral Messages.
Point one is that a definitional change in migration has been delayed because we have stuck stubbornly to what or rather who the
United Nations demands is considered “a migrant”. Since the United Nations shows no sign of altering its methodology to exclude full-
time students, the United Kingdom breaking away from this definitional naivety would be an educated move.
Point two is that 2016/17 figures from Higher Education Student Authority (HESA) indeed did show decreased enrolment from the likes
of India, Nigeria and other nations beyond the EU. However, some of this related to issues beyond visa issuance, rather the result of
economic factors within particular nations. As we make clear throughout his paper we have to consider the push factors relating to
applications to study in the UK, alongside our pull. In fact the HESA data revealed an increase in enrolment from China of 7% between
2015/16 and 2016/17. This was entirely consistent with the strength in the internal Chinese economy, something we have argued will
continue unrelentingly for many years. The result of all the factors at play was a rather modest 1% rise in overall overseas student
intake to UK universities. This too is consistent with the findings in this paper. For it will not be until the 2020/21 intake that we truly
see the power of China’s macro-economics and demographics combining. We will however have to wait until early 2022 for HESA to
have his hands on the “hockey-stick” increase in Chinese applications to study in the UK. By then we are sure to have become far more
enlightened towards the economic value of being welcoming and not placing visa restrictions in their way.
7
1.3 Let us take a moment outlining our methodology for China’s improving educational
appetite
Let us summarise how we have tried to anticipate university demand from within China and India over the years out to 2034,
and more specifically the potential growth in applications to the UK.
To be clear we are not attempting to project the actual number of students from China and India allowed in to attend UK
universities. Rather we are offering up numbers of applications from those with the ability and affluence to come and buy
higher education from us. Applications and acceptances will only be aligned if we have the campus and dormitory capacity to
meet what is certain to be sharply higher demand. And as well as capacity we need a welcoming attitude to those who wish
to come to the UK to study, and pay generously for the privilege.
We begin with the number of births within China each year since 2000. It is after all from each of these annual cohorts that
from next year those applying to university at the age of 18 will come. We next consider the proportion of Chinese households
which were able to afford to purchase a new car in 2010, which is modelled on historical average car sales data. We assume
that this broadly aligns with the share who had the affluence then to fund a period of higher education for their offspring and
will still have it next year. We next expand year by year the share of those born into Chinese families which are sufficiently
affluent that when the child becomes of age, they can fund a number of years of higher education (chart 6). From 2000
through to 2016 we do this by adopting the rate of growth in new car sales (chart 5). Our reasoning is that whilst not a perfect
correlate, it is nonetheless a reliable guide to the speed of growth of that particular class with the affluence and ambition to
educate its young to a higher degree. As such, we also use this growth rate to scale-up the number born each year into
households outside this wealth group, whose families move up year by year into it.
Having used the actual growth in new car sales within China as our escalator in the share of households wealthy enough to
fund a number of years of higher education for their eighteen year olds, we are of course in need of a reliable guide for the
future. With this in mind, the rate we assume is a constant 7% for future car sales growth. We consider this imputed wealth
escalator not simply reasonable but modest; being as it is half the average actual annual increase in new car sales recorded
in China over recent years.
Why we drive household wealth along with new car sales

This research is founded on what we believe are credible estimates for how household wealth in China ‘escalated’ each year between
2002 and 2016; in particular how many families found themselves lifted into the category best described as affluent. And for the
purposes of this paper affluent relates to enjoying the finances to fund a period of overseas higher education for offspring reaching 18.
Now garnering economic data for China is challenging for a host of reasons. One of the most obvious of these is its sheer scale. After
all had Beijing not insisted on one it would span five time zones and its population could well be several hundred million different from
what is claimed! With this in mind we feel that the number of new cars sold provides as good a proxy as any measure of the pace at
which China’s household wealth has escalated. After all in every economy a household’s ability to buy a new car is a reliable signal of
its level of affluence. This is all the more so in emerging economies whose credit markets have still to develop to the extent we have
become accustomed. Just as with funding higher education, acquiring a new car demands a family makes a significant upfront payment
as well as requiring ongoing and not inconsequential financial commitments. And just as with buying a new car, those being acquired
from overseas are likely to carry both the highest cost and cache. Moreover, just as a Chinese family acquiring a new car is likely to be
a generational first crossing this Rubicon, so too a Chinese family able to send a young adult off to university, with doing so overseas
an even great watershed (sic).
To recap since China acceded to the world trade organisation in 2002 we have escalated the wealth of its households in tandem with
the pace at which it has seen new car sales increase. This takes us then to 2016. Looking ahead our forecasts are based on a 7% escalator
in household wealth. We would point out that this is actually considerably lower than the average growth in Chinas new car sales over
the period 2002/16 (chart 5).
8
Chart 5: Chinese new passenger car sales rise yr. on yr. Chart 6: Proportion of Chinese households affluent enough
to fund HE (7% vs. 5% growth rate)
60 25
%
%
50
20
40
15
30
10
20
10 5
0 0
2003 2005 2007 2009 2011 2013 2015 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
7% core projection 7% (core projection) 5% (lower case)
Source: OICA, NBS China, UN Chart 5 vertical: Chinese reaction to 2008 global financial crisis Chart 6 vertical: 1st grey vertical denotes 18 years after
China accession to the WTO, 2 18 years after 2008 global financial crisis, 3rd 18 years after end of One Child Policy
nd
Let us be clear that we assume that the share of those affluent enough to enter higher education who are coming to the UK
remains constant at 6.5%; a not unreasonable figure since this has become something of a steady-state over recent years.
Now whilst we are making assumptions, we believe these are simplifying our arithmetic rather than biasing it. Our projections
are moreover intended to show the size of the potential number of eighteen year olds in China that could afford to be sold a
UK higher education, and would be keen to make such a purchase. There will be a number of reasons why the actual would
differ from the potential. The former could come in lower than the latter because say visa restrictions put some cap on
numbers or for that matter lack of campus capacity did so. It could be instead that there is a general decline in sentiment
within China towards the quality and value of a degree from a UK higher education institution. There is also the potential that
shifts in exchange rates introduce substitution effects alongside wealth effects. It could, for instance, be the case say that
Australian HEI’s became more affordable than those in the UK. What we will say is that every instance the potential is missed
to capitalise on the appetite from China to buy a UK higher education course is a dead-weight economic loss that is gone
forever, or rather gone elsewhere.
9
Source: Toscafund
10
Growth of University Cities January 2018
The methodology underlying how we project applications to UK universities coming from China is sufficiently straightforward
it can be conveniently captured in a simple schematic (diagram 1). The pie charts along the top capture annual births in China,
with their scaling illustrating how this number has changed. Within each of these pie charts we highlight the proportion of
those born into for want of a better description can be considered an “affluent” family. This is one which, at the time of birth,
could fund a university education for when their new born became 18. Along the diagonals we take each birth cohort and
expand the share within it to allow for the rise in “affluence” year by year; the precise size of the pie remaining constant along
each diagonal. There are of course other demographic factors which could be considered such as migration or mortality for
each cohort. This accepted we are convinced that excluding these from our analysis is a simplifying rather than characterising
issue. Let us connect the schematic with some of the numbers quoted regularly in this research. In 2002 there were 15.4m
births in China of which 42,000, or 0.3% were born into “affluence”. Fast forward to 2020 and the number coming of age –
18 – into affluence has increased to 1.23m, or 8%.
Chart 7: 1st year Chinese in UK HEI’s (7% vs 5% growth) Chart 8: Total Chinese in UK HEI’s (7% vs 5% growth)
250 600
Thousand
Thousand
200 500
400
150
300
100
200
50
100
0 0
7% (core projection) 5% (lower case) 7% (core projection) 5% (lower case)
Source: Toscafund, HESA, OICA Note: 1st grey vertical denotes 18 years after China accession to the WTO, 2nd 18 years after 2008 global financial crisis, 3rd
18 years after end of One Child Policy
Now as much as 7% is our central growth scenario, we also present projections using an “annual affluence escalator” fixed at
5% (chart 7 and 8). But to be clear, 7% is our preferred rate. As can be seen in the graphics there is an inflection point in our
projections from 2020, being as it is eighteen years since China’s economy began to power forward and take household wealth
with it. We can see a second change in gradient from 2027, the year that those born in China after it began to adapt to the
“Western” crisis of 2009 turn 18. A third inflection point is then evident in 2033. This coincides with the end of China’s “One
Child” Policy. The relaxation of this has seen the annual number of births in China move from a relatively steady c16.5m to
what is annualising at c17.8m, an increase of close to 8%. What we are in effect currently seeing is the sowing of seeds for an
unprecedented jump in applications to UK universities in eighteen years, preparation for which should not be left to the last
moment less other nations capitalise on the economic windfalls which this is sure to create. Of course as our projections move
out to the 2030s they become more dependent on assumptions concerning the escalation of household wealth. This said, with
each passing year and the revelation of actual growth in the sale of new cars – or better still the discovery of an even more
reliable measure of how real household wealth in China
A question of age
is “escalating” – we can adjust our projections
accordingly. We will in effect employ a dynamic We refer regularly to the number of 18 year olds who enrol into the
UK’s Higher Education Industry. As we know however, “freshers” are
adjustment process known as a Kalman Filter.
not always 18; they are very occasionally younger, but often they are
older. For instance, National Statistics figures for 2013/14 reveal that
So much for the growth in the overall demand for higher
the intake of first-years accounted for one-quarter of that year’s 18
education emerging from China, let us focus on what we year old cohort and 10% of the previous years, i.e. those who were
project the potential growth implications are for the UK’s 19 years old by the autumn of 2013. If we inspect the data, we see
Higher Education Institutions. Here, we again hard-wire this ratio being quite consistent over time. It is consistent too with
with the assumption that 6.5% of each cohort of 18 year the idea that the UK has reached a point where rather than one-half,
olds in China whose families are sufficiently affluent to between one-third and two-fifths of its young move into university.
11
fund a number of years of higher education, are attracted to and can afford doing so in the United Kingdom. We could of
course vary this fixed rate by using say forecasts for how we expect the Chinese yuan to move against the pound over coming
years. We chose however not to do so as such forecasts will only prove contentious.
Having said that a fixed 6.5% is not an unreasonable rate to assume or that we would not forecast the yuan’s value against
the pound, we can, with each passing year, use actual changes in the exchange rate and other socio-economic and policy
variables relating to China and the UK to dynamically adjust our projections for Chinese applications to the UK’s Higher
Education Industry. After all, this is precisely what we noted earlier we would do in dynamically adjusting year by year the
overall number of 18 year olds in China out to 2034 for whom higher education was an affordable option. In short, expect our
work to be revised and revised regularly in the years ahead.
We have claimed that post-2002 China’s economy began to grow in a fashion which has systematically and significantly
broadened the size of its middle class. The category of households we refer to here are those which enjoy incomes which
allow them to spend generously through their discretion rather than thriftily on essentials. And in the context of what this
discretionary spending has allowed them to buy around the world one must bear in mind that the currency in which China’s
burgeoning middle class account in, has since 2002 doubled in value relative to the pound. Against this backdrop it should be
considered hardly surprising why a growing share of what we have on sale falls into Chinese hands. On this point we wish to
make two observations. First, the evidence is clear that education has been one particular British product which the Chinese
have been buying all the more of. Second, since the process of household enrichment within China is set to continue for many
years so one must expect a continuation of the trends we have already seen, and this will be regardless of what happens to
the pound’s value relative to the yuan.
To close this section, there are two observations we would like to make concerning the projections presented in this research.
The first is that we are convinced these are as reliable as any which can be established at the time, as it were, of going to
print. Our second point concerns the possibility that China’s economy were, for whatever reason, to badly hard-land at some
point in the years over which we have projected forecasts for the appetite from within it for a British education. In this case,
our having built-out capacity for an anticipated steep rise in student arrivals from China would prove only one of a raft of
unpleasant shocks. And all these would cost dearly not only those invested in the UK higher education industry but far and
wide within it and extensively around the world. As already said, the projections presented here will be prone to revisions
over coming years. In our opinion at least, we expect revisions to be mostly upwards.
Big data is the future of higher education

It is undeniable that since 2002 average household wealth across China has risen impressively. Of course this average remains well below
what we have come to enjoy in the UK. True too, the dispersion and skew of wealth is quite different, with far too large a share of Chinese
families surviving at subsistence levels. This report is not however concerned with averages, standard deviations or kurtosis, but a single
absolute. Its specific focus is the absolute number of households within China with the resources to finance at least three years of overseas
education when their offspring reach university age (familial funding being the only reasonable likelihood). Let us for convenience call this
China's affluent class. True, this number remains a far smaller fraction of all households than it happens to be in the UK (whose nationals
attending university can of course be ‘debt funded’). But to repeat, the proportion of affluent families across China has grown markedly
since 2002, and it is a proportion of a very, very large number indeed. And large as a result is China’s pool of teenagers approaching university
age.
There have been at least twenty times more births in China than the UK since 2002. In fact there are now over a quarter of a billion more
under 18 year-olds in China than in the UK. And with each passing year since 2002 more and more of those newly born in China and moving
through childhood, have done so in families enjoying escalating wealth. These are the FACTS which should be considered when looking
onwards from 2020 (or according to China’s Anno Huangdi calendar, 4717).
Clocks will strike across china through 2020 to herald the 18th birthdays of the fifteen and a half million born there in 2002. As they chime
1.2 million will be reaching this milestone with a familial financial backing to make university an option. Whilst a comparatively small fraction
of 18 year olds – c8% - by ‘western standards’, in absolute terms this will be a greatest cohort of those turning 18 ever recorded in one
nation. Whilst only a fraction of this group will be able to afford a period of higher education outside China, this number too will be a historic
high. In this regard we estimate c80,000 will be able to fund a UK university education (an increase of one-third on the 66,415 Chinese who
became UK “freshers” in 2016). And with each passing year from 2020 these numbers will rise and rise. Only those not conscious that we
are entering unprecedented times will be shocked by the quantum of our forecasts, and consequently be ill prepared. Those who are
conscious of the demographic tidal wave of wealth coming to the United Kingdom from China, can confidently build big for it.
12
1.4 Why the UK’s universities score more A’s with the Chinese than anywhere across Europe
This paper makes the case that the UK’s Higher Education Institutions are about to enjoy a significantly ratchet upwards in
admissions from students originating in China. Underlying this is the assertion are the following A’s. There is the improving
Affluence of Chinese households, the Astounding scale in their numbers and their voracious Appetite to invest in educating
their offspring. Alongside these three A’s there is the UK’s Abundance of universities, their long-held global Attraction and
the improvement in their Affordability which has come about through a weakened pound (table 2). Overarching these there
is the more open Access to the UK’s universities for those seeking Admission from China, access which has been improved
by the UK being more Accommodating in visa issuance, and in its direct Air-traffic. These A’s are set to combine to make
2020 become a pivotal year. It is then that those born in 2002 turn 18. As to what makes 2002 so important, the answer is
that is when China Acceded to the World Trade Organisation, an event which meant its economy really began to Ascend in
wealth terms.
As it has journeyed on its post 2002 path China has

The UK: A-sitting target for China’s education ambitions?
seen hundreds of millions of its households move up
the wealth scale. Consider these estimates: of China’s This paper predicts enrolment into the UK’s Higher Education Institutions
in the years out to 2034. In doing so it makes much of how applications
15.4 million new-borns in 2002 a mere 40,000 were
from China will greatly influence matters. In the process of establishing the
born into households that we in the west would
veracity of this assertion there is no suggestion that China’s own HEI’s will
consider comfortably wealthy or of sufficient fail to take in ever more students, both Chinese nationals and those from
Affluence to fund higher education for their children overseas.
when coming of age (see Diagram 1). This accepted
Since 2002 enrolment across China’s HEI’s has more than doubled from 12
with each passing year since 2002 many hundreds of million. China’s universities are presently producing something in the
thousands of China’s households’ have progress up region of eight million graduates, and are targeting being the host of half
the wealth ladder. So much so that when the 2002- a million students from overseas by 2020. In relation to this ambition it is
cohort turns 18 the 40,000 could easily have become worth noting that Beijing has its sights on being the World’s second largest
1.23 million. By a similar process of “iterative host of foreign students. As this paper makes clear the UK, which currently
evolution” 80,000 of the 15.5 million Chinese births in holds second place, will not prove a sitting target for China to pass it.
2003 arrived into Affluence. By 2021 however 1.32 Indeed, and somewhat ironically, a surge in students arriving from China
will mean that the UK proves frustratingly fast for China to overtake in the
million of this cohort will turn 18 in that socio-
race to host the most number of overseas students.
economic class. Looking further ahead of the 17.8
million children born in China last year – the first since An important point worth noting is the ‘duration nature’ of foreign student
in the UK compared to those in China. The cohort of Chinese nationals
the end of the One Child Policy – a staggering 1.09
studying in the UK will be noticeable in how numbers rise in relation to
million are likely to have been born into sufficient
short-term courses – say Summer Schools and such like involving little
Affluence that they will be able to attend university more than weeks of study – as well as full-time degrees lasting a number
in 2034, with many more of their birth cohort joining of years. By contrast within China there has been a greater gearing to
them in the intervening years. China is basically on students entering from overseas in pursuit of comparatively short-term
the cusp of becoming a Monopsonist in terms of courses; seeking as it were a brief exposure to it rather than full immersion.
being the marginal buyer of the World’s higher
education services. And whilst others around the world will compete with the UK in meeting China’s educational needs,
nowhere across Europe will come close to matching the UK’s in its A-grades. In fact, if one compares how the pound and euro
have respectively performed against the Chinese yuan it can be seen just how much more Affordable the UK generally, and
its universes in particular, have become over recent years. Added to all this the UK has the Attraction that the Language of
study is English. There is of course the claim that the Bologna Process (see also Appendix 2) which the UK is party to and is
intended to come into effect from 2020, should help standardise higher education across Europe. This accepted, as the UK’s
experimentation with two-year bachelor programmes is extended this will only add to the Attraction of its universities;
making them even more Affordable and Accessible. More Affordable because the fewer years needed for a degree the lower
the tuition and living costs. And more Accessible because if the UK’s universities followed the lead taken by the University of
Buckingham and moved from three to two year degrees, their annual intake could notionally leap by up to fifty percent,
without any need for major campus expansion.
13
Table 1: Annual tuition fees for undergraduates charged by selected HEI’S, 2016/17, £
University EU International
Queen University Belfast 4,030 15,550
Ulster University 4,030 13,240
Newcastle 9,000 13,315
Exeter 9,000 16,400
Leeds 9,000 15,500
St Andrews 1,820 17,890
Leicester 9,000 14,630
LSE London 9,000 17,712
Coventry 9,000 11,500
UCL London 9,000 17,890
Cambridge 9,000 15,755
Source: Universities’ websites, HESA
Let us continue on the theme of the Affordability of UK universities in respect to those considering them for a place of study
from beyond the EU, and how this compares with costs elsewhere across the EU (Table 2).
Table 2: Annual tuition fees for undergraduate charged by countries public HEI’S, 2016/17, £
Country EU International
The Netherlands 1,772 7,145
Belgium 795 3,729
France 229 229
Italy 1,863 1,863
Spain 1,863 1,863
Germany free free
UK (Average of Table 1) 7,209 15,082
USA 22,320
Canada 14,450
Australia 13,656
New Zealand 11,678
Source: Exchange rate euro 0.893, Australia dollar 0.569, Canadian dollar 0.578, New Zealand dollar 0.519 and US dollar 0.744, Toscafund
A few words on competitive studies

In a recent report the UK’s public spending watchdog the National Audit Office (NAO) pulled no punches. It claimed that were the UK’s
Universities, but more specifically those of England, viewed in the way of other commercial sectors, they would be considered market
abusers; mis-selling their products and price fixing. According to the report “we are deliberately thinking of higher education as a
market, and as a market, it has a number of points of failure”.
The NAO didn’t need to look into much detail to support its claims. After all the near uniform annual “pricing” of a degree, at the max
of £9,250, would be evidence enough of a cartel, hiding as it were in plain sight. Let us be perfectly clear the conclusions of this report
would only be strengthened were England’s universities to engage in price completion. After all the demand curve for most goods and
services is downward sloping which ensures that cutting prices increases sales. As much as this research has made a forthright case
that demand for places at British universities is set to rise as applications from overseas, and in particular from China soar, any move
lower in pricing can only act to lift demand for places at the UK’s universities beyond the strong degree (sic) we anticipate in this
report. Indeed, were English university pricing to become more competitive, the “market” would need to become more cost efficient,
one aspect of which would be a move to shorter degree lengths, something we have argued is inevitable.
14
Chart 9: Chinese share of international students, by Chart 10: Indian share of international students, by
country of study country of study
60 60
% %
50 50
40 40
30 30
20 20
10 10
0 0
2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033
UK France Ireland The Netherlands Germany UK France Ireland The Netherlands
Source: HESA, OICA, Eurostat
It is perfectly true that non-EU students attending UK public universities pay higher fees than EU nationals, whilst in England
more specifically EU and non-EU students are charged more than almost everywhere else across the EU. Indeed across
Germany’s sixteen states all but one waive tuition charges in their public universities to students, EU and non-EU alike. It is
no less true however that whilst this change came into effect from 2014 we have recently seen Baden-Wurttemberg
reintroduce fees for non-EU students, a move others could very well follow. It is also true that wherever else across the EU
universities are generous in the tuition fees they charge, or indeed choose not to levy, this acts to exaggerate applications
from EU nationals, who then crowds-out applicants from beyond the EU (Scotland’s behaviour is just such an instance of this).
There is one additional point on how applicants from outside the EU are likely to react to the higher fees being charged in UK
to elsewhere across the EU. It we consider education as an investment then students are likely to reflect on the likely return
on the financial and indeed human capital they expend. In doing so they will recognise the favourable returns enjoyed when
holding an Accredited degree from British university. One could also easily say that the Appeal of attending a UK university
is that is it something of a Veblen Good, whose demand actually rises with price.
The plain truth is that as its Industry’s go the EU’s higher education institutions could provide a lucrative commercial
engagement with emerging nations, and in particular the growth behemoth that is China. As things stand it has been England’s
universities which have most capitalised on this educated growth option. Indeed, as long as England holds onto its A-grades
it will enjoy Accelerated enrolment from generous fee-paying students from around the world, with China way ahead of
others.
15
1.5 Why we should give China proper credit for its growth
A central tenant of this research is that the pace of growth in its new car sales since 2000 provides a reliable benchmark for
the rate at which China’s upper middle class – for want of a better description – has grown. On this basis, this is used as the
“escalator” lifting the number of those born each year into the category of living in households with the wealth to finance a
period of paid for higher education, within which group a proportion being sufficiently affluent to afford three years in the
UK. Let us address here the criticism that increasing new car sales are not a measure of growing affluence but increased
indebtedness and so a cause for concern rather than a positive predictor. The issue which those critical of this approach are
missing is just how difficult it has been and indeed remains to gain access to unsecured credit in emergent nations such as
China.
We have become so used to stories warning us that developed economies face a car finance crash that we assume this is the
case far more widely. This is not the place for us to make our views known on where the UK stands in relation to a car credit
cliff (for the record we are not concerned that it is anywhere near one). What we wish to focus on here is what it takes to buy
a car in China – a great deal of cash. For whilst it is true that credit has become more readily available, access to it, certainly
for a high ticket purchase such as a new car, remains much less than we are accustomed to. In fact, in 2013, 80% of new cars
sold in China were acquired without credit. And whilst this share has, according to the most recently available data, fallen to
70% it highlights the extent to which those buying new cars have had to accumulate considerable cash to do so. In fact, for
the purposes of this analysis, the cohort of those in China coming of university age in 2020 will have been born in 2002, when
China’s car finance market was even less developed. It is because access to credit was extremely limited that we are convinced
the growth in new car sales from 2002 to 2003 and then 2003 to 2004 etc. socio-economic impact provides a reliable measure
of the steepness of the wealth “escalator” on which China’s middle class households have been travelling on.
The reality is that rather than fear that the credit growth within China exposes it and those relying upon it to “bust”, we
should instead see greater access to credit as providing greater potential for economic growth within it, and greater growth
by association, wherever households wish to spend their wealth. And we are convinced the UK university system is one such
place.
Do we need mention the D word?
This research makes repeated mention of a variety of ‘A’ words. These have been employed to make the case why no
nation is better placed across Europe than the UK and indeed few better around the world to capitalise on the Appetite
of China’s ever more Affluent households to consume education. Now even those convinced by the UK’s ‘A’ scores are
likely to be asking why D is missing? Indeed, not only asking why the D word has not been mentioned, but where
consideration of it might alter the conclusions? The D word in question is Democracy, and its absence in China.
For some talk of the UK enjoying a lucrative economic engagement with China is made all the more objectionable by the
idea that our universities will play a large part in this. The objections will range from China’s occupation of Tibet, its
treatment of groups such as the Falun Gong, as well as the censorship Beijing imposes on free expression. Alongside the
ethical and moral challenges of engaging with China some will claim the arguments presented in this paper are non
sequitur.
If China’s affluent class grows at the rapid speed being claimed and is educated in ever greater numbers in liberal
democracies such as the UK, then surely this new enlightened bourgeoisie will demand ever more Democracy. And if the
Communist Party’s grip on power is loosened, surely China will be hit by the shocks which inevitably come with dramatic
and long delayed ‘regime change’. And shocked too will be those nations around the world benefitting most from the old
regime, the UK notable amongst these. Now this is not the place to enter into a comparative analysis of the traditions of
political pluralism which have been seen around the world and over time. All that we will say is that whilst some will
claim China cannot avoid a dramatic democratic revolution others will expect it to evolve in a more measured way: one
in fact employing the C word, a uniquely Confucian way.
16
1.6 Confidently chartering into uncharted territory
There will be those who dismiss our eighteen year projections for applications from China to study in the UK. These will no
doubt be dismissed by those who refuse to see China’s economic growth as delivering the uplift to household wealth
anywhere near as strong in nature, extensive across its population, or consistent over time, as is assumed in this paper. And
they will be dismissed by those who will claim that even were China’s economy to perform as impressively as forecasted in
this paper, the UK will fail to attract students from it in the considerably increased numbers we have claimed. There will
indeed be those who question whether the UK would have the societal inclination to accept Chinese students in such numbers
were they to indeed apply. After all who can be sure that “Brexit Britain” will be appealing to and/or accepting of students
from China in the dramatically increased numbers we have argued will be financially and educationally equipped to advance
to university study.
In short many will claim that the projections presented in this paper require such a confluence of unlikely economic, social
and political outcomes as to make them ‘very best case scenarios’. Our reply is that we accept that seldom is anything certain
in the future other than death and taxes, and there can never be certainty given the nature of economics, politics and
international relations (China is after all dangerously connected to North Korea). But as uncertain as the future undeniably is,
it still has to be forecast, not guessed at. This said, even those who accept we need projections for university applications so
to avoid being ill prepared, will claim that out to 2034 is ill advised.
As to why our forecasts extend to 2034 the answer has nothing to do with us claiming some mysterious precious long into
the future but the fact we can all in reality see perfectly into the past. We know the number of babies delivered in China since
2000. And we have a selection of reliable measures for the pace and extent to which households have been enriched within
China over the years since 2000. Of course this still leaves us having to make a number of assumptions out to 2034. What we
would stress is that these have not involved best case scenarios but very much conservative ones. Our forecast actually dial-
down by half China’s pace of future growth from what it has enjoyed over recent years. We also assume the UK becomes no
more favoured as a place to study by China’s upper middle class than it has been up until now. The projections are in short
far from upper end forecasts but rather reasonable ones. As for the UK becoming in some way unwelcoming of those across
China applying to pay generously to study here, one is reasoning that before long students will be excluded from official
migration measures and their economic good recognised across the political spectrum.
Let us close with this point. We have chosen to project out to 2034 not only because we see it as reasonable to do so given
the nature of things, but also because we consider it essential that we prepare ourselves for the promised surge in
applications. We say this because to accommodate a more than five-fold increase in students from China will demand we
begin our planning now. We need to decide where all the new real estate capacity is built, something which is certain to take
us into unchartered territory. And we need to consider what features within the real estate we are building will need to be
different from what we have been used to delivering in the past.
17
1.7 The story for India – Almost that of China, but nothing like as educated
So far this research has focused on the considerable potential from within China’s burgeoning economy to overwhelm – for
the better – the UK’s Higher Education Industry. It must be made clear however that this does not mean that an increasing
appetite for our education will not be seen more widely by other emerging countries. The point is that it will simply not be as
voracious. Of the world’s other emergent nations, India stands out for its sheer demographic scale. This said and despite
delivering births since 2002 in numbers far greater than China, demand from it for UK higher education, whilst rising, will be
a fraction of what we expect from China.
Chart 11: Indian new passenger car sales yr. on yr. change Chart 12: Proportion of Indian households who are
affluent (Assuming 4% and 3% growth rate)
35 3.0
%
%
30 2.5
25
2.0
20
15 1.5
10 1.0
5
0.5
0
2006 2008 2010 2012 2014 2016 0.0
-5
-10
4% core projection 4% (core projection) 3%
Source: OICA, Toscafund
Chart 13: 1st year Indian students in UK HEI’s (Assuming 4% Chart 14: Total Indian students in UK HEI’s (Assuming 4%
and 3% growth rate). and 3% growth rate)
35 80
Thousands
Thousands
30 70
60
25
50
20
40
15
30
10 20
5 10
0 0
4% (core projection) 3% 4% (core projection) 3%
Source: HESA, OICA, Toscafund
18
Let us put the projections made in this paper into some context. The most recent figures for 2016 reveal that first-year
enrolment to UK universities by Chinese-born students was 66,415. Contrast this with our projections. By 2025 we expect an
enrolment of first-year Chinese students to be
Modi’s demonization over demonetisation
117,000. More impressively still we project a
figure of 239,000 by 2034 for annual new entries This study has forthrightly distinguished how China is set to engage with the UK
economy, from how India is likely to do so; the former more impressively than
to UK universities from China. Now whilst the
the latter. The reasoning has nothing to do with any favouritism shown by the
forecasts for enrolment from India are also for a
UK but the practicalities of how China’s economy is being managed compared
growth, the increase is more modest than for to India’s. Although the case for this is made in a number of sections elsewhere
China (charts 11 through to 14). From an it is worth touching on one instance of where the recent management of India’s
enrolment in 2016 of 9,720 we forecast 22,000 economy has left a great deal to be desired.
by 2025, rising to 31,000 by 2034. To those With little warning India’s Prime Minister Narendra Modi made an unscheduled
claiming our projections for Chinese student television appearance on the evening of November 8th 2016. In this he
enrolment in the UK are exaggerated, we say in announce the immediate demonetisation of all 500 and 1000 notes. Now on
response that if anything, our forecasts for India assuming office in May 2014, expectations were high that Modi would positively
could easily prove too conservative. Indeed, if transform India’s economy. This move however left most observers perplexed.
we projected for India as we have for China, Even those who saw its merits, criticised its execution. In practical terms, the
action materially disrupted India’s economy. It also weakened Modi’s
applications in 2034 from it would be three times
reputation just as that of China’s President Xi Jinping was being strengthened in
higher at 90,000, resulting in a total student
tandem with his One Road One Belt Initiative. In respect of this it is noteworthy
body from India in British universities of a
that India ranks 19th in the list of recipients of China’s considerable investment
quarter of a million. Such a steeper “Hockey since 2005, a position flattered however by a bout of investment back in 2007.
Stick” uplift in UK university student numbers With this in mind let us reprise words from a Toscafund Discussion Paper of
would of course result in a far more positive March 2017, “The Wealth of Nations, in China’s Hands”:
economic impact than even the strong one we “On the face of it India has received a continuous inflow of Chinese investment.
project in this paper. The reality however is that aside from the ‘exceptional’ experience of 2007 the
proportion of Chinese wealth committed to India has been small when
One way of reflecting on the projections
considered alongside its sheer size. Indeed, it is India’s neighbour Pakistan which
presented in this study is to consider these has proven a real regional winner of Chinese capital. Rather than question why
figures. In the last year, for which data is China is not committing itself to investing in India proportionate to how it is
available, there were 1.9 million undergraduates doing widely around the developing world, we should be asking this question:
in the UK of which 95,090 were from China, or why isn’t India imitating China by acquiring from around the world the essential
5% of the total. Now if by 2034 there were to be ingredients for economic development it does not possess in sufficient quantity
no increase in the overall number of at home? The answer is that India is not governed with the same sense of growth
undergraduates, then by that year, Chinese purpose as China”.
students would, according to our reasoning, account for 28%. This is of course an upper range. As the number of Chinese-
born students increase, so too will those arriving from India and elsewhere across the emerging world. And whilst we have
no doubt that EU27 numbers will fall if their fees align with arrivals from outside the EU, the net effect on overall
undergraduate numbers in the years ahead will be markedly positive. As for how the number of students moves in relation
to 18 year olds actually born in the UK we say this. The UK’s immigration-led “surge” in prime age adults of recent years has
resulted in something of a “baby boom” which cannot fail to result in an increase in the number of young Britons looking to
attend university in coming years.
Let us return to China and how its appetite for UK higher education will differ from that coming from India. We are aware
that there will be the persistent questions over why a nation with broadly the same population as China’s and in fact with a
historically higher level of births (charts 15 and 16) should lag it in the way we have predicted India will? Our comparative
analysis may seem all the more confusing given how India has had a closer historic attachment to the UK than China, with the
English language more commonly spoken.
19
A few words on China’s One Child Policy 1979-2015
China's One Child Policy has been as misunderstood as it has been endlessly discussed ever since it began in 1979. Rather
than see it as a threat to China's ongoing economic strength this policy of Government enforced “procreative restraint”
has in many ways ensured it can look forward to such a future. Compare, for instance, China’s birth rate with India's
markedly higher one. This has resulted in larger average household sizes in one compared to the other. And the
consequence of this has been to create a child dependency burden in India, which has held back growth in household
disposable incomes. For China there has been far less of such a demographic headwind. In fact China's One Child Policy
has been just one element of a top-down, closely managed economic strategy, which India has lacked. For example
China’s intensive investment along its food supply chain has ensured that food costs to its households have become ever
less of a commitment within budgets, whereas in India such costs have remained stubbornly high.
Having been introduced 37 years earlier 2016 was the first year “birth restraint” within China was eased. The effect of
this has been seen very clearly in the data; the number of births increasing by c8% between 2015 and 2016, from 16.6
million up to 17.9 million (another estimate suggests 18.5 million, a rise of 11.5%, chart 21). The reality is that China's
economy can now accommodate multiple births per household, or viewed at a micro level, a considerable number of
households within it can now comfortably afford to support more than one child. In short, just as 2020 and 2027 promise
to be watershed years for China’s “crop” of 18 year olds – those born in 2002 and 2009 – so 2034 will itself herald a
period when the UK's universities and indeed its wider economy, will be able to harvest in ever greater numbers from
those born in China last year, delivered it has be emphasised, into increasing household affluence.
Readers will notice that even after the introduction of its One Child Policy the number of births across China continued
to increase from 1979, only beginning to move lower from 1987. This can easily be explained by the high birth levels in
the 1960’s, which resulted in a surge in the number of households in the years immediately after families’ sizes were
restricted. Using the same simple “procreative” reasoning, as the first of its post One Child generation begins comes of
age in around twenty years or so, China cannot fail to experience an upsurge in new household formation and another
upswing in births.
Now throughout this research a great deal of attention has been given to China’s demographics, past, present and future.
With this in mind it is worth noting that the figures used are as reliable as is possible given China’s sheer scale and issues
surrounding the provenance of data relating to it; economic and demographic. Indeed one is minded of the words spoken
by someone familiar with China and its geographic expanse and development, “its population is 1.3 billion, give or take
300 million!”. Given such wisdom we have chosen where there is any sense of data ambiguity to low-ball numbers. The
conclusions we reach of a significant boost to the UK coming from China should be considered in this context of erring
on the side of caution.
Chart 15: Number of births: China versus India Chart 16: Total population: China versus India
35 1,600
Million
Million
30 1,400
25 1,200
1,000
20
800
15
600
10
400
5 200
0 0
1954
2010
1950
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2014
1970
2014
1950
1954
1958
1962
1966
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
China India China India
Source: UN Population Division, Country Meters Note: 1st grey vertical denotes start of Chinas One Child Policy, 2nd Chinas accession to the WTO,
rd th
3 2008 global financial crisis, 4 One Child Policy eased
20
The answer to why China promises the UK’s universities and its economy generally more than India lies in the contrasting
natures of the growths being enjoyed by the Chinese and Indian economies. Let us repeat that at the root of our projections
for student arrivals in the UK from overseas has been a confluence of the Affluence, Appetite and Access to do so. And in
terms of these three-As, we are convinced China comfortably outscores India. For one, we would argue that the breadth of
the uplift in wealth across China is broader than that being recorded within India. We are not suggesting that China’s
economic emergence has been perfectly equitable. We are simply saying that China’s growth has been far less skewed than
that recorded by India. This is of course a contentious claim. It is one we will maintain all the same. By its very nature,
India’s caste-based class structure and lack of strategic control on economic growth has held it back, certainly more so than
China when it comes to speeding and spreading wealth accumulation. On the issue of Access we have seen a clear
distinction between how the UK Government has become ever more accommodating in releasing visas to Chinese
applicants compared to those from India. There is also the fact that the Chinese yuan has appreciated consistently against
the pound, whereas the Indian rupee has suffered episodic reversals (chart 17). And since a British education has to be paid
for in pounds, how its rate of exchange with the yuan and rupee moves over time introduces a fourth ‘A’ to the ability to
capitalise on a UK education, Affordability. And in this regard China comfortably outscores India, and will, we believe,
continue to do so.
Chart 17: Relative strength against the £ of the yuan, Chart 18: Consumer price inflation, India versus China
rupee & Hong Kong dollar
14
200
180 12
160 10
140
8
120
6
%
100
80 4
60 2
40
0
20
-2
0
2005 2007 2009 2011 2013 2015 2017
2005 2007 2009 2011 2013 2015 2017 YTD
China India YTD
Chinese Yuan Indian Rupee Hong Kong Dollar
Source: Bloomberg, Worldbank, Toscafund – Note: Chart 18 dotted lines represent averages
In relation to GDP growth over recent years, India can of course claim to have seemingly been a “close match” to China. Our
contention however is that GDP is not a particularly good measure if one is keen, as we are here, on capturing the growth in
average urban household affluence. India’s higher birth rate and larger average family size has meant that its GDP growth has
been spread more thinly across households than China’s. We would also contest that in terms of real household wealth, China
has on average enjoyed consumer price inflation and interest rates both lower than India’s, thus ensuring real disposable
household incomes have grown more impressively (charts 17 and 18). The speed and quality of urbanisation also markedly
differs between these two national behemoths. Whereas China has pushed through major efforts at industrialising its
agricultural capacity, India has failed to follow as swiftly keeping its rural areas more labour intensive. Not only has this slowed
India’s pace of urbanisation, over what China has seen – chart 20 – but authorities in the latter have orchestrated this process
better in not allowing and/or better managing matters such that those leaving China’s rural communities are less likely to
move from one form of working poverty to another. Let us be clear this is in not some eulogy over Beijing economic
management but a statement of fact.
21
Chart 19: Interest rates: China versus India Chart 20: Urban population: China versus India
14 60
%
12 55
10 50
8 45
%
6 40
4 35
2 30
0 25
2005 2007 2009 2011 2013 2015 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
China India India China
Source: Worldbank, Toscafund – Note: Chart 19 dotted lines represent averages
In our efforts to measure the pace at which households across the emerging world “move up the affluence ladder” we have
used the rate of growth in new car sales. Much like comparing their GDP growth rates here to, there will be more than mere
nuances in this approach, one which unduly flatters India. For one, India’s car making capacity includes more “local” marquees
than China’s within which long-established US, European and Japanese car makers have capacity, which they have not had
the chance – or same interest – to establish in India. There is additionally the issue of how quickly prestige or luxury cars are
imported into China and India (chart 21 and 22). Here too the numbers come out in favour of China growing its cohort of
affluent households faster than India. Quite frankly then, the “brand value” of new cars sold in India has been consistently
lower than that in China. With luxury car sales across the developing world and their relationship to the future purchase of a
UK university education the metric to focus on is not the annual growth in new sales. It is instead the level and consistency of
the importation of what is arguably the most highly valued ‘foreign’ purchase by a household which finds itself sufficiently
enriched to do so. With this in mind China’s households have comfortably outperformed those of India in their buying of
luxury cars, this despite broadly comparable populations. This helps affirm our view that Chinese households will try to
purchase a great deal more UK university places than those of India.
Chart 21: Luxury UK car exports: China versus India Chart 22: Year on year new car sales: China versus India
60
80
Thousands
70 50
60 40
50
30
40
20
30
20 10
10 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
0
-10
2015 2016 2017* India China
India China
Source: Toscafund, SMMT, OICA Note: * Full year projected using Jan – Aug data
22
1.8 If it’s all the same to you let’s stick to ceteris paribus
This paper forecasts demand for places within the UK’s educational sector coming specifically from those in China and India
with the affluence to fund the experience. The projections are based on a model combining demographic and macro-
economic data. Now despite presenting a forward looking “long-view”, the nature of things means that the data we need to
utilise is for the most part backward looking, and so very much fact based. For one, we look back at birth levels eighteen years
before the year which we wish to forecast student demand. For another, we use data for growth in new car sales to provide
an idea for how quickly the number of those affluent enough to fund an overseas education has escalated for each birth-year
cohort. To be clear the projections are based on a ceteris paribus assumption for all other factors which will clearly play a part
in the affordability and access to UK education from overseas. The exchange rate between sterling and the yuan will have an
impact. So too will the UK’s policy on study-based immigration. And whilst these are assumed to remain constant, this is not
in expectation that they will, but a wish not to introduce what cannot fail to be viewed as subjectivity. If we assume that yuan
appreciates against the pound and visa policy is relaxed, then our projections will be beaten. Of course the same in reverse
applies. Moreover, no consideration is given to what effect leaving the EU will have on applications into the UK higher
education system from across the EU27. This means we do not allow for how much capacity across the UK Higher Education
system is “released” to be filled by higher-fee-paying applicants from beyond the EU (who have hitherto been crowded-out).
To answer this would require a complete understanding of whether UK universities choose to inflate fees for EU27 students,
or instead keep them aligned with those for British nationals.
Chart 23: Total students in UK from EU Chart 24: Students in UK from top 5 EU27 countries
135 5.8 18 52
Thousand
Thousand
16 51
5.6
%
130 14 50
5.4
12 49
125
5.2 10 48
5 8 47
120
6 46
4.8
115 4 45
4.6
2 44
110 4.4 0 43
2008 2009 2010 2011 2012 2013 2014 2015 2008 2009 2010 2011 2012 2013 2014 2015
Germany France Italy
EU students Share of international students (rhs) Ireland Greece Share of EU total (rhs)
Source: Toscafund, HESA
Hong Kong foreshadowing demand from China-PROPER

With a population of barely 7.4 million, Hong Kong registers as little more than a modestly sized Chinese or Indian city – for purposes of
comparison Shanghai and Mumbai are home to 24 million and 18 million people respectively. The comparatively modest size of what has
for twenty years been a Special Administrative Region of China, should not however belie its importance as a reference point of what
awaits the UK’s educational sector from China-PROPER.
As well as a source of students entering our universities – around 16,000 attending at the last count, compared to 91,000 from mainland
China – Hong Kong has also long been the origin of a disproportional number of those entering the UK’s fee-paying school system as
boarders. It is true that Hong Kong possesses its own currency and historical links to the UK which distinguish it from ‘mainland’ China. This
accepted, we do not see Hong Kong as an exception but an exemplar of the interest in the UK’s education sector we can expect more
widely coming from China-PROPER.
23
1.9 Exit so others can Enter

There has been as much contentious – indeed venomous and febrile – debate in the wake of the UK electorate’s vote to exit
the EU, as there was ahead of the referendum. This paper is not the place to add in general terms to the Brexit debate.
Nonetheless, research concerning such an ‘open borders industry’ as higher education could not possibly be considered
complete without mention of Brexit in all its various and still unclear future incarnations. Before speculating on what might
happen, here are some facts.
As of the most recent data for 2016/17 there were 134,835 students from across the EU27 studying in British universities,
representing a share of 5.6%, or one in twenty. For context whilst the number of Chinese was 95,090, this has been growing
fast, whereas student numbers from EU have “matured” (charts 29 and 30). The simple truth is that in terms of the overall
economic value-added to the UK economy of students from the EU relative to those from China, the answer is academic; the
latter come top.
We have touched elsewhere in this research how EU27 students happen to be skewed across the UK, “overrepresented” as
we believe they are in Scotland and London. Our argument has been that this skew can be accounted for by the (more)
favourable fee-terms extended to students from across the EU27, over those whose origins fall beyond it. Another fact is that
following its accession to the EU in May 2004 Poland saw an initial surge in its nationals studying in UK universities before
numbers moderated, albeit to levels still higher than pre-accession. The same surge has been seen since their accession from
January 2007 with Bulgaria and Romania (chart 25). Although smaller in terms of population than Poland, Bulgaria and
Romania (the three largest nations to join the EU since 2004) there are a number of countries on the EU waiting list; Albania,
Serbia, Macedonia and Montenegro. If any of these acceded to the EU and the UK continued to extend favourable terms to
students applying to university from the EU with no “transitional” arrangement then we would expect an increase in
applications. Far larger Turkey is notionally also on the EU waiting list. In the event Turkey were to somehow make it into the
EU then one would expect to see a surge in applications from it to study in the UK, as “young Turks” capitalised on cheaper,
read subsidised, tuition fees. Indeed, given Turkey’s sheer scale – its population of 80 million larger than Poland (37m),
Romania (20m) and Bulgaria (7m) combined – and with a higher birth rate than any of these (chart 26), the surge of
applications from it to UK universities’, were it ever to join the EU, would be unprecedented and so too the “crowding-out”
effect on applicants from beyond the EU. For to repeat, each EU student in the UK will, at any point in time, crowd-out a
potentially far higher fee-paying student from the likes of China and India. As this crowding-out persists it denies universities
the extra revenues they would otherwise enjoy and in so doing limits their ability to invest in their institutions; investment in
the build capacity and academic quality which would boost future student numbers and future revenues. What should be a
virtuous cycle has been and continues to be at best limited and at worse removed by allowing EU nationals to be educated in
the UK with the same fees as Britons.
The issue looking ahead is what happens to the fees charged to EU27 nationals once the UK has formally left that Union. Since
we have no answer to this question or the one pertaining to which nations might join the EU in the future – or indeed even
possibly leave it – we make no attempt to model in detail the number of EU27 nationals attending UK universities out to 2034.
What we can say is that if EU27 nationals continue to enjoy lower fees and visa-free access than students who come here
from beyond the EU then both London and Scotland will fail to capitalise on what they might otherwise enjoy in terms of the
attendance of comparatively high fee-paying students from the likes of China. One caveat here is London’s universities could
mitigate for any such “losses” from their “campuses in the capital” by creating entirely new capacity elsewhere across
England.
24
Chart 25: Students in UK HE from EU27 accession states & Chart 26: Birth Rate (per 1,000 people)
Turkey
10 23
Thousands
21
8 19
17
6
15
13
4
11
2 9
7
0 5
Romania Bulgaria Poland Turkey Romania Bulgaria Poland Turkey
Source: HESA, Worldbank, OECD, Toscafund – Note: 1st and 2nd grey vertical denote Poland’s and Bulgaria’s/Romania’s accession to the EU respectively
University Football
Those familiar with tabloid sporting pages will be more than aware of the enormous salaries being offered to the world’s most
celebrated football stars, players and managers, to take themselves out of established western leagues into China’s nascent ones. They
may indeed point to this development and argue that celebrated “western” academics will be next to be enticed to take their esteemed
talents to China, and so subvert the entire thesis of this paper. Whilst in no way denying the direction of travel to China being seen in
football, it is worth pointing out that it is far from one way. Indeed, in many ways its voracious appetite for all things football is doing
more to enrich those involved in the sport beyond it than in China itself. Consider the half a billion pound three-year deal signed in
November 2016 between the English Premier League and the Chinese video streaming service PPTV. This was a staggering ten times
the value of the agreement it replaced and has become the Premier League’s largest ever overseas broadcast deal. As much then as
China has been able to entice well known players and managers, what it is paying for English football is contributing to the Premier
League’s ability to compete for talent. In fact whilst well-known names have moved to China most would accept those who have done
so are at the twilight of their careers, whereas those who have been attracted to England are still seeing their own blossom.
As well as the money travelling from China to pay for broadcast rights for the English Premier League (EPL) there is the considerable
capital which has been invested directly into English clubs; West Bromwich Albion, Birmingham, Wolverhampton Wanderers, Aston
Villa and Manchester City all receiving Chinese investment over recent years. As we wrote in “The Wealth of Nations in China’s Hands”
(March 2017):
“That Chinese buyers have acquired English football clubs should in no way be viewed as a sign China is spending its capital on frivolous
assets. For all are trophy assets in very much the financial sense. Wolves, Birmingham and Aston Villa were recently and West Brom
still is a Premiership football club, and so in receipt of considerable income from the deal to sell television rights internationally. And a
large part of the reason that these rights have been sold for so much, is the audience for English football across Asia, and in particular
China. So in many ways Yunyi Guokai’s investment in WBA, Fosun International in Wolves and the deals for Birmingham and Villa – all
four clubs long established in the West Midlands of England – are very much investments in the Chinese market.”
There are three points worth stressing. For one China is ensuring that at least part of the money it is spending on the broadcast rights
for the EPL is returning to it through its ownership of some of the recipients of this capital. The second point is that whereas London
has benefitted from the sizeable fees from China for TV rights to its Premiership Clubs, the focus – thus far – of its direct investment
has been the English Midlands. The third point is that for all their out of season exhibition games in China the real prize for a Chinese
football fan is watching a game contested on English soil, and most desirable of all being present to watch a game in English Football
Stadium. As with English football so with an English education, the pinnacle is being in situ.
25
BREXIT to Leave the UK educationally more open-minded to China

This research makes the case that demographic, macroeconomic and social developments over the past sixteen years or so within China
will ensure that applications from it to UK universities will surge from 2020. Looking out further the paper argues applications will inflect
upwards still more from 2027, and do so again in the years after 2034. The paper makes perfectly clear that whilst applications originating
in China to study in the UK are set to surge, they will not, indeed cannot be fully capitalised upon, if we continue to offer subsidised study
and visa-free access to those across the EU who choose to apply. In the near-term EU27 nationals cannot fail to take up university places
that would otherwise be open to those Chinese with the educational and financial capital to be considered for a place. By crowding-out
Chinese applicants EU27 nationals will compromise how much new university capacity can be added. After all each pound of revenue
denied to our universities by favouring EU27 nationals over an otherwise more generous fee-paying student from beyond the EU27, is
lost investment capital. Capital that could be invested in building-out campus capacity or invested in staff retention and recruitment; all
of which would raise revenues still further and lead to a virtuous revenue and investment cycle. Indeed, revenues from a levelling of the
playing-field for applicants from beyond the EU27 with that for EU7 nationals could be used to fund studentships or bursaries to UK
nationals or indeed worthy applicants from around the world without the financial means to study in the UK.
Chart 27: Total Population: China versus EU Chart 28: Real GDP growths: China versus EU
1600 20
Millions
1400
15
1200
1000
%
10
800
600 5
400
200 0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
0
2005 2007 2009 2011 2013 2015 -5
China EU China EU
Source: World Bank, Eurostat
Some will no doubt claim that the lower fees charged to students from the EU27 compared to those from beyond it allows more free
spending on accommodation and other lifestyle expenses. This is an argument we refuse to accept in anything like general terms. In fact
given the nature, or rather nurture of those privileged enough within China to entertain the idea of studying in the UK, quality of living is
likely to be as important as the quality of what they are taught. Now whether this privileged class take in all they are taught will have to
be seen. Far more certain is that they will consume generously on their lifestyles. For whilst the wealth gap between those living across
the EU27 and China is not in-substantive, neither is the pace at which it is narrowing. As the EU27’s per capita GDP stagnates that of China
drives ever higher. And with each uplift to its GDP ever more tens and tens of thousands of its households will be lifted or escalated
upwards into that wealth class, which affords the ability to fund their young adults into a period of prestigious higher education. The UK
economy has the opportunity to be first and foremost across Europe in capitalising on this. To do so is really the only educated option.
PS Looking up at China’s economy

It has become something of a tradition around this time of year for there to be wave of calling the top to China’s growth. Each time the
precise explanation for why we should expect a hard-landing has varied; from it being in the throes of a credit-driven “unsustainable”
construction boom, to its growth figures actually being fabricated, some even claiming that calls for democracy will lead to social unrest.
This research has been written with the confidence such concerns are unfounded.
The reality is that China really only became a crucial part of the global economy in 2002, having joined the World Trade Organisation at
the end of the previous year. Since then affluence within it has surged. True, too many Chinese remain poor. No less true however is that
enough have moved up the wealth scale to ensure China now hosts a middle class larger in number than seen anytime or anywhere in
history. It is moreover expanding fast. Far then from China being unable to sustain its rate of economic growth, we confidently predict its
best is yet to come.
26
1.10 An emerging story everywhere yes, but nowhere like China

This study has focused on the potential for the UK’s ever more commercial education sector to capitalise on the “appetite to
pursue learning overseas” emerging from within the national behemoths that are China and India. This is not to claim that
this appetite will not also emerge from beyond these two nations. It is merely to say that their sheer sizes will make China
and India by far the most important overseas sources of demand for British-based educational services.
If we combine the populations of the likes of Indonesia (population c260m), Pakistan, (c200m), Nigeria (c195m), Bangladesh
(c160m) and Russia (c145m), we do not reach the size of either China or India. Even if we add Brazil (c210m), the total
headcount is below that of either China or India (Table 3). It is of course true that the populations for the majority of these
nations are fast growing, with the UK’s education sector being able to “capitalise” on this growing pool of young in the years
ahead. It is no less true that the economies of these nations have failed to show the consistency of growth or a robustness of
currency which China has. The simple truth is that whilst selling education to the emerging world is a developing market
within the UK, nowhere promises what China does for rapid and lucrative development.
Table 3: Comparative analysis; China Stands Out for the Better

Country 2016 Population Births per 2002 Births Real GDP compound annual growth
(million) thousand (million) 2002-2016 (%)
China 1300 12.9 15.4 9.5
India 1300 25.6 26.9 7.7
Indonesia 260 21.8 4.7 5.6
Pakistan 200 30.8 4.4 4.6
Brazil 210 19.0 3.6 2.4
Nigeria 195 43.0 5.8 6.4
Bangladesh 160 26.3 3.6 6.2
Russia 145 8.9 1.4 3.2
Source: UN, Worldbank, Toscafund
International lessons in the economic value of the English language: Part I

Widely across the rapidly emerging world – and particularly in the growth behemoth that is China – there is a rising number of young
adults aspirational and affluent enough to pursue higher education. And for an increasing number within this group the option of
going overseas is an extremely enticing and ever more achievable one. And for the most part, the language in which they will feel
most comfortable studying, as well as the one they will consider the most “commercial”, will be English.
Now this linguistic preference provides an obvious advantage for what we term the UK’s Higher Education Industry. However, this is
not to say this leaves the UK unrivalled. The UK’s fee-charging schools and universities will meet competition from those in Australia,
New Zealand, Canada, the United States and Ireland. They will also face a further challenge as a growing number of educational
institutions across continental Europe opt for English as the language of study. Moreover, over time the cache of studying overseas
will be rivalled by remaining at ever more renowned educational institutions at home. The upshot is another warning that whilst it
holds considerable advantages in the market for the World’s peripatetic and generous fee-paying students (table 11), the UK does not
possess a monopoly. Only by building an environment where there is capacity to match demand will the UK capitalise on its
advantages. We write here not only of the capacity across campuses to house a burgeoning student body, but the opening up of mind-
sets to raise the available capacity in student-visas.
27
1.11 China has already become The Wizard of Oz

The projections we have made for the number of Chinese and Indian students attending the UK’s universities will seem to
some unrealistically high. Our reply to those who dismiss the numbers we have presented, we simply ask they look at what
Australia’s higher education sector has experienced (charts 29, 30 and 31). In 2015 there were 97,000 Chinese students
enrolled in Australia’s universities, representing 7% of the entire student body (one third of international students). For the
purposes of comparison, back in 2004 the figures were 35,000 and 5.3%. The speed and scale of this growth can be explained
by a number of factors. There is the comparative proximity and the teaching in English which has drawn Chinese students to
Australia. There has in addition been a monetary driver in the form of the comparative strength enjoyed by the yuan relative
to the Australian dollar – appreciating by a third since 2011 (chart 32). Compare the actual experience of Australia with what
we predict for the UK. We project that by 2025 there could be as many as 236,000 Chinese students enrolled across the UK’s
university system. This is however still just one-quarter more than are currently studying in Australia, which, by population,
the UK is close to three times larger than.
Chart 29: Chinese and Indian students enrolled in Chart 30: Chinese and Indian proportion of total students
Australian HE and international students in Australian HE
120 9 45
% share of International
% share of Total
Thousand
8 40
100 7 35
6 30
80
5 25
60 4 20
3 15
40 2 10
1 5
20 0 0
0
2004 2006 2008 2010 2012 2014 China/Total LHS India/Total LHS
China India China/International RHS India/International RHS
Source: Australian government department of education and training, Toscafund

Note: For proportion of Chinese and Indian students in UK higher education see Appendix 1
Chart 31: International students enrolled in Australian HE Chart 32: Relative strength against the Australian Dollar
350 30 200
Thousands
180
300 25
160
250
20 140
200 120
15 100
150
80
10
100 60
50 5 40
20
0 0
2005 2007 2009 2011 2013 2015 0
2005 2007 2009 2011 2013 2015 2017 YTD
International Share of total Indian Rupee Chinese Yuan
Source: Bloomberg, Australian government department of education and training, Toscafund
28
International lessons in the economic value of the English language: Part II
The central thesis of this paper is that the UK is on the cusp of a dramatic rise in the number of Chinese-born students it educates to
degree level, indeed at all levels. To support this we have drawn upon recent trends already witnessed in the UK as well as the experience
of Australia, whose most recent data revealed that one in three of international students are Chinese, a share which has been quickly
trending higher. Indeed, in shifting our focus eastwards from Australia to New Zealand we see that this ratio in now in fact almost one
half, and itself rising (chart 33, 35). A similar story of a growing educational-economic engagement with China can be seen in Canada
(chart 36), where again one in three overseas students are Chinese. Indeed, Canada only recently opened seven new visa application
centres to facilitate the growth in Chinese student numbers. The point here is that the UK is far from unique or early in attracting students
from the burgeoning group of Chinese families able to fund multiple years of foreign education for their young. Where the UK does stand
out is in its scale, its population equivalent to Australia, New Zealand and Canada combined. And whilst the United States is English
speaking, I would challenge the idea that it will benefit more on a scale-adjusted basis than the United Kingdom.
Chart 33: Chinese as % of International students, Chart 34: Chinese as % of International students, Australia
Australia vs New Zealand vs New Zealand
60 9
%
8
50
7
40 6
5
30
4
20 3
2
10
1
0 0
2008 2009 2010 2011 2012 2013 2014 2015 2008 2009 2010 2011 2012 2013 2014 2015
Australia/International New Zealand/International New Zealand/Total Australia/Total
Chart 35: Number and proportion of Chinese & Indian Chart 36: Number and proportion of Chinese & Indian
students in New Zealand students in Canada
12 60 80 35
Thousand
Thousand
10 50 30
60
25
8 40
20
6 30 40
15
4 20
10
20
2 10 5
0 0 0 0
2008 2009 2010 2011 2012 2013 2014 2015 2008 2009 2010 2011 2012 2013 2014 2015
Chinese Indian Chinese Indian
Indian/International RHS Chinese/International RHS Indian/International RHS Chinese/International RHS
Source: Australian government department of education and training, Ministry of education New Zealand, The Globe and Mail, CBIE, Toscafund
29
1.12 America will not teach as much as the UK
This research has considered how the UK as well as Australia, New Zealand and Canada have over recent years accommodated
students from China and India. For completeness we do the same for the United States. Interestingly whilst US universities
have recorded an increase in student from China and India, in per capita terms the number of those from China lags that seen
in the other nations we have considered (charts 37 and 38). Whilst matters could change in the years ahead, for a number of
reasons we consider it unlikely. The conclusion we reach is that with its scale and ability to add capacity the UK will become
the fastest growing destination for Chinese students.
Chart 37: Number of Chinese & Indian students in the US Chart 38: Proportion of Chinese & Indian students in the
US
350 35
Thousands
300 30
250 25
200 20
150 15
100 10
50 5
0 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
China India China/International India/International
Source: Institute of International Education and Commerce Department, Institute of International Education Open Doors Report, 2015, Toscafund
30
1.13 We have been slower to learn the value of Chinese students than other English speakers
This study has focused on the recent and future flow into the UK of students from overseas, majoring on the world’s two
largest sovereign nations, China and India. Moreover, it has contrasted the flow of Chinese and Indian students into the UK
with how events have unfolded in Australia, New Zealand, Canada and the United States. The conclusions are clear. Whilst
India has long been delivering more babies into the world than China, it is the latter which is delivering the greatest boost to
English language universities around the developed world (charts 39, 40). The paper additionally points out that, as impressive
as the rise in Chinese students in the UK has been, its experience thus far, has lagged that of Canada, New Zealand and
Australia (chart 39). Each of these can boast a larger proportion of Chinese amongst their cohorts of international students,
and a larger representation of these on a per capita basis [For the record, the Irish Republic has lagged the UK in the
representation of Chinese students in its universities]. What this paper emphasises very clearly is that having been slower
than the likes of Australia, New Zealand and Canada in capitalising on Chinese students the UK is on the cusp of a rapid
increase in applications from Chinese nationals keen to study here, an opportunity which it must not fail to grasp.
Chart 39: Chinese share of international students Chart 40: Indian share of international students
60 60
%
%
50 50
40 40
30 30
20 20
10 10
0 0
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
Australia New Zealand Canada UK USA Ireland Australia New Zealand Canada UK USA Ireland
Source: Australian government department of education and training, Ministry of education New Zealand, HESA, Institute of International Education
Open Doors Report, 2015, Education in Ireland, CBIE, Toscafund Note: After grey line indicates forecasts
Chart 41: Chinese studying in each country relative to its Chart 42: Indians studying in each country relative to its
population population
20
40
10,000 local population
30 15
10,000 local population
Indian students per

Chinese students per
20 10
10 5
0 0
2008 2009 2010 2011 2012 2013 2014 2015 2008 2009 2010 2011 2012 2013 2014 2015
Australia New Zealand Canada Australia New Zealand Canada
UK USA Ireland UK USA Ireland
Source: Australian government department of education and training, Ministry of education New Zealand, HESA, Institute of International Education
Open Doors Report, 2015, Education in Ireland, CBIE, Toscafund
31
1.14 Don’t forget the British in all this talk of an educated future
In addition to projecting what we reasonably believe will be the number of Chinese and Indians applying to study in the UK,
we of course need to deal with what demand there will be for higher education from our own shores. This is attempted by
first considering data for births since 2000, in which we notice a c20% increase between 2002 (those turning of university age
in 2020) and 2012 (those turning 18 in 2030, charts 43 and 44). We then assume that the proportion of 18 year olds continuing
into higher education over the next few years remains broadly at the rate we have seen most recently (chart 44). This share
is then escalated for a number of reasons. It is done so to allow for what we believe will be a growing appetite for higher
education coming from those aspirational households newly formed in the UK by recent migrants, a group who have been a
significant contributor to an increased birth rate (chart 43). This escalator is moreover accelerated to capture the surge in
inward migration to the UK over last decade or so from across the more established EU15 nations, as captured by the issuance
of National Insurance numbers (charts 44, 45 and 46). Another force which will play a part in lifting the number of students
across the UK’s higher education system born here is likely to be the introduction of accelerated two-year degrees as well as
more general competition in tuition fees (see section 3).
Chart 43: Births in the UK Chart 44: UK NI numbers issued to migrants from EU-15
850 250 2.5

Thousands
cohort of
Million
Thousand
Fresher's in
800 200 2.0
750 150 1.5
700 100 1.0

22% increase
650 50 0.5
600 0 0.0
2002 2004 2006 2008 2010 2012 2014 2016
EU 15 Cumulative (rhs)
Source: ONS, Toscafund Note: Vertical indicates children born who will be 18 years old in 2020
Chart 45: First-year students from the UK in its universities Chart 46: Total students from the UK in its universities
1.1 2.5
those born in
Million
Million
Year that
2002 turn 18 2.4 children born in
1 2.3 2002 turn 18
2.2
0.9 2.1
2
0.8 1.9
1.8
0.7 1.7
1.6
0.6 1.5
Source: HESA, Toscafund Note: Grey verticals indicates 18 year olds who were born in 2002
32
Sterling’s decline: making for a crowded trade?
In the vernacular of finance, ‘a crowded trade’ expresses the suspicion that the move in a financial instrument has become so congested it
is best to exit first. In what follows, it will be used in a literal rather than figurative context, specifically what effect movements in the pound
have on the comparative financial attractiveness of UK higher education and numbers attracted to it.
In trying to understand the comparative attractiveness of British universities there are two aspects to consider. We have the interest coming
from abroad in buying our education. Alongside this, there is the interest from within the UK to pursue studies abroad (charts 47, 48). Of
course, the figures concerned are very different; after all, at any point in time the number of Britons coming of ‘university age’ is but a small
fraction of the cohort globally. This accepted, the economics are such that the proportion of Britons reaching 18 with the option of university
is amongst the highest of any nation.
The reality is that as well as making a UK degree more affordable the pounds decline over the course of eighteen months has made studying
overseas less so for Britons. In short, to the growing number claiming our universities face the challenge of dealing with excess supply let
us say that we view things differently; we see our universities enjoying an ever more crowded trade in student numbers.
Chart 47: UK nationals studying abroad Chart 48: UK students enrolled at McGill University
40 300
Thousand
35 250
30 200
25 150
20 100
15 50
10 0
2002 2004 2006 2008 2010 2012 2014 2016 2002 2004 2006 2008 2010 2012 2014 2016
Source: UIS (UNESCO), McGill University, Toscafund
We have touched upon how a growing sense of ‘educational adventure’ coupled with comparatively lower tuition fees is lifting the number
of those leaving England to study abroad. Alongside these forces one has of course to consider the headwind being produced by the pounds
weakness -particularly against the euro, which is in fact producing a following wind for those considering studying in England. And this
accepted let us consider the prospects of young Britons turning their backs on the UK to study overseas.
There is talk of a rising tide of young adults across England opting to pursue higher education in EU nations which do not levy tuition fees
and where living costs are lower than in their ‘home’ nation. Whilst this perception does have some evidence to support it we must not
misinterpret what we have been seeing. For a variety of reasons we should come to expect a growing sense of adventure and
internationalism within each new cohort of young English adults, attitudes reflected in no small way by how they voted in the EU
referendum. Indeed just as there has been a secular rise in the number of visits we make for tourism and business, to travel for personal
and commercial gain respectively, we should expect the same for those motivated by an urge to study. With this in mind, this research deals
in net not gross flows. The reality is that even if a growing number of young adults born in England choose to pursue their higher education
beyond England, notably across Europe, the numbers involved must be put alongside those looking to enter from outside. And if we
compare its outflows with what England is set to see in the form of interest to apply to its universities from across the emerging world and
most importantly from within China, the net effect with be a tidal inflow of students of unprecedented proportions.
There will no doubt be those alarmed that an increase in the number of foreigners seeking to study in the UK alongside a moderation in the
number of Britons seeking to leave to pursue their own education, is inconsistent with the governments stated strategy of containing net
immigration. We would argue in reply that this will not remain an issue once students are removed from migration measures. And they will
be removed once the recently commissioned report on the effect students have on the UK is released, and concludes, as it most certainly
has to, that they make a welcome enough contribution that they should indeed be welcomed.
Distance Learning
PS We have hardly touched upon what to some readers is hardly an ancillary issue: the risk that the UK and England in particular finds itself
up again fierce rivalry by EU27 nations in the battle to attract generous-fee paying Chinese students. For a whole host of reasons we do not
see this as a concern. Not only is the UK home to Chinese students in numbers greater than all other EU27 combined, this difference will
only increase. It will do so significantly from 2020, when as we have repeatedly claimed, a rising number of those born in China since its
accession to the World Trade Organisation in 2002, turn their attentions to advancing their family fortunes through a period of ‘distance’
learning.
33
1.15 Confidence when forecasting

Numbers form the basis for practically all the analysis contained in this research. Any admission then that most figures are
tentative could well unsettle confidence in the conclusions; it shouldn’t. The reality is we are considering events in the real
world not in some hermetically sealed laboratory. As such we have to accept that measurements are not precise and the
environment far from controlled. This accepted sensible forecasting is still possible.
Consider by way of comparison how we try to measure and predict something so crucial to policy making and our own
livelihoods as inflation. In the first instance there is considerable debate as to whether we are correctly measuring it even in
real time. Concerns here relate to how we account for list prices differing from what is paid, the discrepancy down (sic) to
discounts and special offers. There is also the issue how we integrate in our measurement new buying formats, from the
arrival of discounters to the internet. Another challenge is what should be included in the consumer basket, most
controversially here how we deal with housing. Against such a backdrop a range of alternative measures of consumer price
inflation have been proposed. Indeed, some analysts choose to employ these in preference to the official measure which
itself is being regularly reworked. All this said, few can dent that the consumer price index we have is as good a measure as
any for what is required.
So much then for complications in measuring ‘actual’ consumer price inflation. Even in accepting the veracity of the official
rate, complications continue with forecasting it. In anticipating what the Bank of England expects for consumer price inflation
it presents a central forecast around which it provides a range of alternatives. These are intended to allow for the vicissitudes
involved in the real world. This range ‘fans out’ ever wider as forecasts move out into the future. In statistical terms these are
known as confidence intervals, within which the outturn for inflation is said to have a specific likelihood of falling, the norm
being 75%. Of course this is a tacit acceptance that there is a one on four chance that inflation comes in higher or lower than
the outer reaches of this range. Such then are the complications in recording and forecasting something we have been trying
to officially track for many years. It is in this context that we would encourage readers to consider the macroeconomic and
demographic measurements and projections expressed in this paper.
Just as with issues surrounding what should be contained in the consumer basket of goods and services this paper has its own
'coverage' issues. In focusing on the two hundred or so higher education institutions with a Royal Charter we take no account
of what awaits the UK’s many thousands of private colleges, as ever more Chinese and Indian families who have come into
wealth see their young come of educational age. We will repeat what has been acknowledged elsewhere, the sheer size of
china and India mean demographic data for them could be out by many millions. Moreover given the speed at which these
nations have been expanding over recent years we would cite the Heisenberg Uncertainty principle. The more we believe we
know the speed the Chinese and Indian economies are expanding the less certain we can be at any moment what their precise
size happens to be.
Having outlined the use of confidence intervals for inflation we too present ranges for our forecasts. In our case we confine
matters to a central and fall back outlook. The latter must not however be assumed to be worse case scenarios merely a set
of forecasts which assume more conservative growth rates in the various macro-economies focused on in this paper.
Let us end this section with an admission made elsewhere. As events unfold the forecasts contained within this paper are
certain to be adjusted. They will do so just as in the state-space modelling used to alter the trajectory of rockets exposed to
forces which cannot be perfectly predicted on their launch but where there is every confidence they will reach their intended
destination or orbit.
34
Educated Projections
Most long-term projections run the risk of eliciting criticism. If they fail to show much in the way of change one is accused of
complacency and a lack of imagination. If however forecasts suggest anything dramatic, the criticism levelled is that of being
over imaginative and dramatic. The result of this is to incline forecasters to “conservatism”, where projections show a certain
degree of change, but not enough to raise eyebrows. With this in mind charts 49 and 50 are certainly eyebrow raisers. These
suggest that from one in twenty, the proportion of Chinese students attending UK universities will rise to almost one in five
by 2034. From a different perspective the Chinese share of all international students in the UK is projected to increase from
one in five, to well over one half. The assumptions underlying these projections are all contained and explained through this
paper. These relate to as much demographic, social and economic developments within China, as those of the UK.
Chart 49: Share of total students in the UK Chart 50: Share of international students in the UK
18 60
%
16 %
50
14
12 40
10
30
8
6 20
4
10
2
0 0
China India EU (constant level) China India EU (constant level)
Source: HESA, Toscafund Note: After grey vertical denotes predicted forecast
As much as the forecasts of a marked rise in Chinese representation across our Higher Education Industry will raise eyebrows,
so no doubt will the suggestion that India’s representation fails to move anything like as much. Again the explanation for this
can be found elsewhere in this paper. Indeed, if there is any surprise it is almost certain to be on the upside. In terms of the
representation of the EU27 it has to be added that this is based on an assumption that the number of students in the UK from
across it will continue at around the average we have seen since 2008. This assumption is based on the fact that we cannot
be sure how EU27 students will be treated in fee-terms once the UK has left their Union. If there is indeed any surprise to
EU27 numbers it is likely to be on the downside.
35
China versus India: A tale of quite different growths
The numbers seem categorical enough, births in India have been and continue to be materially higher than comparable figures
in China, such that the population of the former is fast approaching that of the latter. At the same time as it breeds more
quickly India’s GDP has been growing at a rate not terribly dissimilar to China’s pace of economic expansion (chart 51). Surely
then it is India, the world’s largest democracy and the most sizeable member by far of the Commonwealth more so that China
which will game-change the UK economy, and in particular its higher education sector? Well if one compares the economic
evolutions of China and India one sees a great deal of differences once one looks under superficial surface.
The reality is that the degree to which China’s households have been economically enriched, empowered or simply enjoyed
greater wealth, describe it as you wish, has been far more extensive and impressive than what has been the case across
India’s many hundreds of millions of families. For India poverty pervades its population in a way which is becoming ever less
the case across China. Indeed, be it as it may that each year considerably more Indians will turn 18 than Chinese, the fact is
that a far greater share of the latter will come of age in households with the financial capital to fund a period of higher
education. And this goes for affording to send their children to the United Kingdom for their studies. In short, in terms of
what India has to offer the UK in the years ahead, is in our opinion less favourable to what China promises; with, in particular,
2020, 2027 and 2034 promising to herald positive inflexions for the UK economy (chart 52). All this said and to repeat what
has been written elsewhere in this study, if we are proven wrong “on India” it will be because we understated what it delivers
to applications to UK universities and the UK economy more generally.
Chart 51: Real GDP Growth: China versus India Chart 52: Applications to study in the UK: China versus India
15 250
Thousands
%
200
10
150
100
5
50
0 0
Source: Worldbank, OICA, NBSC, Toscafund Note: 1st grey vertical denotes 18 years after China’s accession to WTO, 2nd 18 years after the 2008 GFC,
3rd 18 years after end of One Child Policy
36
1.16 Discrepancy in growth
The Office for National Statistics offers us a monthly indicator for the value added by the UK’s education sector. Although this
is a welcome addition to its suite of data, we would suggest that despite all the best efforts to compile this measure it provides
in our estimation (sic) an incomplete picture and in fact understates the overall value and pace of growth being enjoyed by
the education industry (chart 53). Education is to be fair not easy to measure in activity terms. For unlike traditional
manufacturing, where one can measure volume and value added by counting what comes off the production line as it were,
the industry of education does not offer up such easy measurement. There are after all so many more multipliers and supply-
chains than even the lattice work of sub-sectors involved in for instance car making. Indeed, consider how the UK’s car making
industry has moved progressively up the value chain. This has meant cars assembled today provide greater overall value to
the UK economy than those we once produced. The mass production provided say by Rover Group is incomparable to that
now being seen by JLR (Jaguar Land Rover). The same journey up the value chain has been enjoyed by the UK’s higher
education industry but with an even more complicated measurement problem. And as we see ever more overseas students
arriving into the UK from beyond the EU, we should consider this as educators moving up the macro-economic value-added
chain. Returning to the economic value created by education we can look at how employment within it has moved since
university fees were introduced. We notice here that whilst overall employment rose by c20% across the UK since September
1998, worker numbers across education (not all of all of which is in universities of course) has risen by 45%. We can also see
how this growth has been spread across the UK, with the East Midlands the stand out and Northern Ireland the laggard (map
1 and chart 55).
Chart 53: UK service economy will become more educated Chart 54: Employment in Higher Education, UK
See Appendix 4
4
120 Tuition fees 30% increase
Index for real activity
introduced
100 3.5
Million
80 3
60
2.5
40
2
20
1.5
0
1982
1987
1992
1997
2002
2007
2012
2017
2022
2027
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2032
Education Total
Source: ONS, Toscafund
Map 1: Giving colour to where UK employment growth has Chart 55: An educated view of regional employment
been most educated since 1998 growth since 1998
70
East South
Midlands East
60 London
North South Wales
50 Yorkshire and West
Education, %
West
The Humber UK
40
North East
West
East
30 Midlands
20 Scotland
10 Northern
Ireland
0
0 5 10 15 20 25 30 35 40
Total Employment, %
Source: ONS (NomisWeb –regional data since Sept 1998 when tuition fees were introduced), Toscafund
37
2. Students from China: much more Gift Horse than Trojan
Let us spend a moment addressing those concerned that providing increased access to students from China, even though
they were to pay generous fees (table 11), would still come at the expense of Britons. There is the perceived expense that
their increased numbers would only be possible if university enrolment from within the UK were to fall or put differently our
own nationals denied access. Another perceived expense if we were to open – still further – the doors to our universities to
Chinese students is that we would be forced to also do so to our labour market. The extension of this “fear” is that the result
would be a crowding-out of British graduates from the UK workforce. Let us dismiss such concerns by making this simple
point. In the years ahead, the UK labour market will grow in large part precisely because of its ever closer symbiotic
engagement with China. This will be fruitful because the process of the UK providing China with an ever expanded western
hub will generate a phase of considerable job creation within the UK. Whilst this will call upon all skill sets, it cannot fail to be
skewed towards graduates across all faculties. And as the UK’s Higher Education Institutions capitalise on the lucrative fees
levied on students from China, this should not only relieve them of the need to raise fees paid by Britons, but allow them to
extend generous bursaries and scholarships to home grown students. In short, the considerable number of young Chinese
keen to be in the UK should not be viewed as a threat but an opportunity to the economy. We should see it as it were as a
‘Gift Horse’, not a Trojan horse.
2.1 The first mover offers a critical advantage

There is a persuasive argument that as students arrive from a particular emerging nation, their numbers will increase all the
more strongly by virtue of critical mass. Let us elaborate. As students from China and India enter the UK education system,
there is a very good chance their siblings, other relations, or indeed close friends follow. From one perspective, this will be
the result of shared motivations. After all the UK’s appeal is likely to be more common to a community than specific to an
individual. There will also be the comfort of being amongst familiar faces in unfamiliar surroundings. From another
perspective, there will be something akin to economies of scale creating a clustering as families see the advantages of having
their young educated close by. There will be the cost advantage when choosing to visit, as well as in shared accommodation.
There will also be the convenience in terms of travel time for families when journeying to visit their young studying overseas.
For whilst the UK is some way from India and still further from China, killing as it were more than one bird will make the long
journey all the more acceptable. The simple truth is that for all the UK’s clear comparative advantages in attracting the
growing number of young men and women across the emerging world keen and affluent enough to be educated overseas, it
could squander much of this by allowing others to grasp the first mover advantage.
2.2 Making education a family business

On the day of their son’s or daughter’s graduation ceremony, the parents or guardians of those from overseas studying in the
UK are almost certain to make the journey here. Indeed, it is unlikely this will be their only visit. And one would expect each
trip from so far afield as India and China to extend beyond a few days. As much then as those from overseas studying in the
UK will deliver widespread economic benefits, parental and wider family visits are themselves certain to lift our fortunes still
further; the UK’s hotels, restaurants, theatres and retailers. Each additional student from overseas will in short create a new
family business for the UK.
A lesson in detail
We write throughout this research of the value to the UK economy derived from the fees and general (very often generous) spending
of those students from overseas pursuing first degrees. We add here that our reasoning extends to those keen to fulfil post-graduate
degrees at a British university. It also includes children from overseas whose parents are set on them enjoying a British “public school”
education, at whatever the cost. What we speak of then throughout this research is the UK’s Education Industry in all its aspects,
aspects which as they take on ever more students require ever more real estate to accommodate them.
38
2.3 Occupying the higher ground is not consistent with a race to the bottom
Let us deal here with one specific criticism of a considerable rise in university capacity aimed at enrolling generous fee-paying
students from overseas (table 11). And this is that a race to attract these lucrative students will involve a race to the quality
bottom.
Before we address this specific concern let us say that the rapid expansion recorded over the last two decades in UK university
capacity cannot have avoided a ‘dilution’ in undergraduate quality. This said, any such dilution was a price worth paying for
diversification of higher education, beyond what had undeniably become an extremely narrow socio-economic cohort. Let us
return to the question of dilution because we allow in the world’s ‘rich kids’.
The caches which universities achieve have been earned through the quality of their content, and this is seen in the graduates
they send into the workforce. The reality then is any UK university which plays the short-game of going for the fees of overseas
students at the expense of their quality cannot win the longer-game based on reputation acclaim. We also add that a growing
number of those born in the likes of China and India seeking higher education in the UK will have already had some education
on our shores, for the most part in fee-paying schools with a tradition of exam excellence. Even those for whom our
universities are their first experience of a UK education are likely to have enjoyed the privilege of the best education ‘money
can buy’ in their home nations. Now in writing of privilege, we are in no way recommending our universities becoming
overwhelmed with students drawn from the emerging world’s plutocratic class. As our universities capitalise on those around
the world wealthy but also gifted enough to ‘make the grade’, they can recycle some of this windfall into bursaries and
studentships for those in the UK and elsewhere gifted enough but not wealthy enough to pursue higher education here. We
cannot see any reason to object to this, very much progressive, transfer of wealth.
A word on fake news

The focus throughout this paper is the potential for a considerable increase in those arriving from around the world to legitimately study
in the UK and pay generously for the privilege. We emphasis the significant economic good these will generate far and wide across the
UK. So to be clear we consider only those who apply to pursue bona fide full-time study; in the case of young adults arriving from overseas
those studying at one of our one hundred and sixty or so accredited universities.
There will no doubt be those concerned by prospects for a rising trend in bogus students arriving to study at any one of the UK’s
private colleges; all the more so because an increasing number of these are establishing links with accredited universities, but with far
less demanding entrance requirements and vetting procedures. This problem was highlighted recently by the BBC’s investigated news
documentary programme, Panorama. The worry it expressed was far from providing economic good to the UK bogus enrolees were
abusing the student loan system to defraud the UK Government. Panorama also raised the issue that in masquerading as students, but
in effect being economic migrants engaged in cash in hand work, bogus students were disrupting the UK’s labour market. Indeed, it
went on to raise the issue that with such rogue students managing to graduate, through say their plagiarising or paying for course-work
they were debasing the standing of the UK education system, a standing which this research claims will be the magnate to attracting
ever larger numbers of genuine generous fee-paying students from the likes of China. We will not challenge what Panorama uncovered
but will add this point. Fakes appear wherever there is a branded product to imitate. This said imitation tend to be obvious and do little
to undermine the market for the genuine article.
Source: BBC News (Panorama 7:30pm, 13th November 2017 – Student Loan Scandal)
39
2.4 Let’s avoid finals being the final chapter
Those “freshers” from overseas enrolled at our institutions of higher learning will for the most part spend generously for
three years. There will be tuition fees and accommodation costs as well as what is spent across a wide range of essential and
recreational activities, and the revenues generated will be added to with visits made by friends and family. In total, young
adults from overseas making their way through the UK university system will throw off considerable value to the UK economy.
As well as their spending whilst studying, there is even more economic value that can be extracted from those who arrive in
the UK to advance themselves. For as much as many of those studying here will be intent on returning home, or move on
elsewhere once graduated, there will be those keen to apply what they have learned working in the UK. Now if we are to be
more ‘accommodating’ in our universities towards students from overseas, why should we not – continue to be – in our
workplaces? After all by giving graduates originating from overseas ‘leave to remain’ we will be ensuring they not only
continue to spend but pay tax. As for the concern these will “crowd-out” British-born graduates, we see no reason to be
alarmed. After all, in providing work-visas to ever more graduates from our universities who originate in say China, India or
Indonesia, we will be enhancing commercial contact between the UK economy and these large developing nations. We should
in short, avoid the finals taken by students from overseas being the final chapter of their symbiotic relationship with the UK
economy.
2.5 An educated way to avoid going Dutch

There will be those concerned that if events unfold in the way predicted in this research then areas around the UK’s
universities will become over-dependent on the business derived from overseas students. There will be the worry that this
reliance will expose local economies to the vagaries of the likes of the Chinese and Indian economies and their currencies.
After all, a sharp fall in the yuan and rupee against the pound would produce an immediate adverse effect on the affordability
of the UK’s Higher Education Industry; an adverse effect to existing students from China and India, and prospective entrants.
Another concern from the ‘success’ of the UK in attracting students from the likes of China and India is that areas which
become dependent on the business spawned by this will do so at the expense of a ‘more balanced’ mix of businesses.
To address the concerns that if the UK ‘succeeds’ in growing to any significant extent the number of students it attracts from
overseas, then it will ‘fall victim’ to the Dutch Disease, let us begin by arguing that far from throwing the areas around
universities into some form of economic imbalance, an increase in student numbers from the likes of China and India will
actually broaden their commercial base. After all, the students will demand a wide range of services as will their family and
friends when visiting. Moreover, an ever greater number of students from the likes of China and India will create an ever
greater connectivity between those nations and the areas where their young adults have and are studying. What of the risk
that a derailing in the economy of China will derail economies around the universities which have become reliant on educating
Chinese students? Well we see no interruption anytime soon to China’s economic momentum. And if there IS, the impact will
be felt far more nastily beyond the UK.
A view of an improved room with a view

There was a time when the majority of students in UK higher education spent at least part of their university life calling home a garret
in a lodging house or a room equally as unwelcoming. Even where student digs were ‘purpose built’ they invariably took on a rather
undemanding flat-pack quality. The reasoning here was that their occupants would only be ‘passing through’, and would spend little
time holed-up. Now, it would be fanciful to suggest such experiences will become extinct. This accepted we can confidently claim that
the future of UK higher education is one where the accommodation it provides its ‘customers’ increases in quality as it expands in
quantify. It will do so because generous fee-paying students will demand as much, and it will do so because ever more professional
institutions will be supplying student accommodation, landlords who appreciate the sensible economics of providing quality. As we
wrote in our paper of June 2015 “UK Private Rental: Multi-Year Growth”: “Student accommodation will prove a particularly strong
market, one very much ‘urban’ in its nature, with full-time students in the UK who originate overseas ‘super-prime’”.
40
3. Why three becoming two means more not less
This research makes the case that the pace at which an Affluent Chinese middle class has grown since the early years of this
millennium ensures that we are on the cusp of a surge in demand for higher education from within it. The research goes on
to argue that whilst China will accommodate for this surge in demand from a rapid expansion in its own Higher Education
Industry, this will be unable to satisfy the Appetite for the luxury-end, that is to say study overseas.
Tantalisingly few nations have the attraction to capitalise on the accelerating Chinese Appetite for luxury study more than
the UK, if it can offer Access, and Access will not simply involve a willingness to significantly increase the issuance of student
visas to applicants from China. Increased Access cannot come without increased capacity to accommodate the surging
demand for a UK education coming from the Affluent enough Chinese families capable of generously funding multiple years
of overseas study for their offspring.
True, the UK’s higher education industry is investing in increased capacity. No less true is the fact that this is a slow, costly
and disruptive process. The development of increased capacity requires the commitment of up-front capital and often
involves some loss of existing capacity. One solution to this frustrating problem of long term gains involving short term losses
would be to rapidly accelerate the rolling-out of two-year degrees. If 20% of the current UK student body was to switch to an
accelerated degree, 52,500 rooms would free up, equivalent to 30% of the annual supply of new build homes in 2015
according to the ‘UK 2020’ report by Richard Tice and Tariq Al-Humaidhi. Whilst this would not be free of disruption and
would require changes to the activity of academic staff and students, it would significantly increase the pace of student intake.
For this to happen, attitudes have to change within the UK to the wider economic roll taken by our Higher Education
Institutions. We need to move away from universities being an indulgence to being an industry. And just as we welcome
increased productivity wherever it can be achieved across the UK economy, so we should welcome changes which achieve
this in our Higher Education Industry. This is why we recommend to readers a move from three to two-year degrees.
We would like to turn now to how moving from three to two-year degrees would help the UK’s universities more quickly
capitalise on the growing global appetite to study here. To repeat, shifting to a two-year degree programme would allow
more students to be educated at British universities without major changes to infrastructure. To repeat, a higher rate of
graduate turnover, whilst maintaining overall student numbers, will increase the revenue generated by fees while the cost of
the students will be less.
Of course there is considerable resistance to reducing the length of degrees. According to some, the greater “short term” cost
of the two-year degree alongside the inability to work part time, will actually increase the likelihood of students taking out
loans. There is also the claim that in losing a third year and more intensively studying over two, students will lose the full
university experience and fail to fully develop and enjoy the “soft-skills” which are part of a three-year degree. Whilst there
is no denying that there will be short term pecuniary and non-pecuniary costs, one cannot escape from the fact that graduates
are currently entering the world of work burdened with student loans whilst the academics who taught them face a
considerable pension shortfall, both of which pose a threat to the Exchequer. Change is now an imperative but can it happen
given the resistance? We turn to this question now.
Two-year degrees are an educated option for those being taught in the UK and the institutions educating them. After all for
students the overall cost of a degree is lowered and so made more affordable (as reported by both the National Audit Office
and Office for Fair Access). The reality is that even if their fee per year rises from the £9,250 of a three year degree to £11,100
for a two year, the overall cost is £5,000 less, on top of which there is the saving of a third-year of living expenses with the
benefit of being able to take up work one year sooner. For the universities part there is the near 20% inflation in annual tuition
fee, which should comfortably cover additional staffing and other costs. In fact the university can capitalise by selling a one-
year Master’s degree to those of its graduates completing their first-degree one year early (something being practiced by the
University of Buckingham, see chart 60). In addition to this there is the potential to raise annual enrolment by 50%. For even
with overall enrolment constant universities could use a move to two year degrees to shift the mix of their student body to
those paying more lucrative fees; for instance increasing the share of post graduates and undergraduates paying 'premium'
fees, notably those from outside the EU and in particular applying from China.
41
3.1 Accounting for the benefits of a two-year degree
It is irrefutable that a two-year honours degree would be beneficial to students, universities and the taxpayer. For the student,
a two-year degree course saves on expenses and allows earlier entry to the jobs market. At the University of Buckingham, a
student’s typical savings is in the region of £11,000 (if we assume living costs are the same as other universities which charge
£9,250 each year for tuition). This saving is despite the fact that at Buckingham annual fees are £12,000. Interestingly, a two-
year course at the University of Plymouth, one of the universities piloting two-year courses, lowers the total cost for a typical
student from £52,350 £38,180 (assuming a 20% increase in living cost for a two-year degree). If we perform the “two-year
degree accounting exercise” comparing a degree at Buckingham with a three year degree elsewhere, we find that the total
cost comes to £43,680 versus £52,350, a c16% total saving, even with c30% inflated annual tuition fees and 20% higher yearly
living costs (Table 4).
Table 4: Cost comparison for students on two-year degrees vs three-year degrees, £
Two-year Three-year
Tuition Estimate of Living Costs Tuition Estimate of Living Costs
Year one 12,000 9,840 9,250 8,200
Year two 12,000 9,840 9,250 8,200
Year three 0 0 9,250 8,200
Sub-total 24,000 19,680 27,750 24,600
Total 43,680 52,350
Source: Toscafund
Shifting one’s focus from student costs to the net returns for universities, here too there is a compelling case for change. Net
revenues would rise even though annual costs would increase for two-year degrees as a result of the need for a summer
semester. It has been reliably estimated that by more effectively sweating real estate assets, the cost of running the estate is
unlikely to be more than five per cent higher. Moreover, whilst annual costs of “other services” are also likely to be higher,
the increase would be modest. In short, it has been estimated that the cost per student of a two-year degree would be
between 71% and 74% that of a three-year degree (table 5).
As evidenced, two-year degrees are far more cost effective to students and the universities themselves. Let’s now turn to the
practicalities at work.
Table 5: Cost comparison of two and three-year degrees. (Business and Management studies)
3 year Cost impact on 2- Cost impact on 2- 2-year degree 2-year degree

3 year degree
degree year degree (low) year degree (high) actual (low) actual (high)
weighted %
actual £/yr % increase % increase £/yr £/yr
Academic contact time 14 650 15 25 747 812
All other academic staff
28 1,299 5 10 1,364 1,429
time
Other academic
11 510 5 10 536 561
department costs
Estates 12 557 0 5 557 585
Library and IT 10 464 5 10 487 510
Other central service costs 25 1,160 5 10 1,218 1,276
Total annual cost 100 4,640 5.8 11.5 4,909 5,173
Total degree cost per
13,920 9,818 10,346
HEFCE fundable student
Cost of two-year degree as % of three year degree 71 74
Source: Costing study of two-year accelerated honours degrees, Foster et al. Note: Costs for Social Studies and Law degree in table 3
42
This short aside is peppered with tables which illustrate the cost benefits to students and the gains in net revenues for
universities of moving from three to two-year degrees. Let us now try to provide a narrative of how, by reducing the length
of degree courses to two years, university revenues and academic salaries can jointly rise without much need for additional
campus capacity, whilst at the same time lowering the overall cost to students.
For simplicity imagine a university with capacity for ninety students, and in a steady state of enrolment these are evenly
spread year by year. To serve the student body, let us have a staff of six each being paid £2,000. Assume that students are
charged £1,000 for each academic year, and their annual living costs are broadly the same. In this stylised model, students
face a bill of six thousand pounds for their three years university. For its part, the university can boast annual revenues of
ninety thousand pounds, which allowing for academic staff costs (£12,000) nets to £78,000.
Assume now that the university has introduced two-year degrees, the fees and staff salaries inflated by 20%, to allow for
more intensive and/or longer academic years. Assume too that because of an increase in the length of the academic year
student living costs and fees also rise 20% to £1,200. Fully utilising its capacity, the university can take in forty five students
each year, so that annual revenue is now 20% higher at £108,000. However, because the original academic staff were
reluctant to take on all the increased teaching duties, let us assume that the university has to recruit two more academics.
With academic staff costs now £19,200, the university now earns £88,800 net, 14% increase in its annual net ‘profit’ when
running degrees over three years, table 6.
Table 6: Simple example showing student costs and university net revenue, £
Students University
Tuition Costs Living Costs Staff Costs Tuition Revenue Net Revenue
3 Year Course 1,000 1,000 12,000 90,000 78,000
2-year Course 1,200 1,200 19,200 108,000 88,800

Source: Toscafund
Let us return to student costs in this new two-year degree structure. Whilst overall costs per year have risen from £2,000 to
£2,400, the loss of a third year means total costs over the course length are £4,800; 20% below the £6,000 ‘student debt’
which would have been accumulated over three years. In fact, not only do students leave university with a lessened debt
burden, they can begin earning to pay it down one year earlier, the benefit to the exchequer and taxpayers should be obvious.
In total then, the university raises its net income despite higher salaries and a higher academic staffing level. It achieves these
twin feats within the parameters of the existing campus and dormitory space; as it were more effectively sweating its real
estate assets. For their part, graduates enjoy a shorter but more academically intensive student experience.
Now whilst we accept the figures used in this illustration are all imaginary, they have not been contrived to make the case.
We also accept the argument that the extension into “old vacation time” may deprive the hypothetical university of the
income it would have earnt from summer schools and the like. We also acknowledge that a more protracted and more
academically intensive graduate experience will have to come at the expense of students enjoying non-curricular “soft-
experiences”. The reality is that if these are “the costs” of reducing the debt burden which graduates enter the workplace,
whilst also lifting net university revenues so that part can be used to address its staff pension fund shortfall, then these are
small prices to pay.
43
Chart 56: UK University revenues from tuition fees Chart 57: Year on Year growth in university revenue from
tuition fees; more growth ahead
18 25
£ Billions
16
20
14
%
12
15
10
8
10
6
4 5
2
0 0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: HESA, Toscafund Note: Dotted line is the average growth
3.2 Student demand

We are told that there is little appetite amongst those keen to attend university for a “mere” two-year course, particularly if
it denies the full non-curricular student experience. A review of ‘flexible and innovative types’ of higher education published
by the Higher Education Funding Council for England (HEFCE) in 2006 revealed, “a strong preference for three-year over two-
year degrees” among year 12 students considering higher education. We critique this finding by arguing that the focus group
used would most likely have been unfamiliar with the practical advantages in terms of overall cost and employment success
of the two-year course being offered by Buckingham University. There is also the issue that compared to 2006, accelerated
programs will have become more recognised and so too their advantages. This is apparent in a more recent report ‘UK 2020’
by Richard Tice and Tariq Al-Humaidhi where 47% of students surveyed by YouGov showed interest in an accelerated degree.
Now let us return to Buckingham.
Despite being a private university, Buckingham does not make egregious profits teaching two-year courses. In 2015, the total
revenue from the university was £27,101,000, of which £21,081,000 came from fees. £5,725,000 from UK and EU
undergraduates, £7,162,000 from International undergraduates, in general its fees for international students are 60%-80%
greater than ‘home’ students (excluding medicine). The mode was 64% more across all undergraduate courses. The student
body was 71% home students in 2015, a share higher than a great many public universities.
It is worth noting that having pioneered two-year courses, the University of Buckingham has offered three-year degrees since
the early 1970s. It is instructive that applicants continue to prefer the less protracted option, and one would expect that were
two-year courses to be more widely available, they would become the preferred option.
Cleaning up on British education

Having secured university status, the Dyson Institute of Engineering and Technology has enrolled its first students. Some readers will no
doubt point to the fact that these are embarking on four-year courses, and so double the degree length this research claims should become
the norm, in the fashion of the University of Buckingham. Be in no doubt, there is no inconsistency.
What Dyson is delivering is a university which has its students immersed in business from their very beginning. It is after all located in
Malmesbury in Wiltshire. This happens to be where Sir James Dyson has his research and development campus, from which engineers will
mentor students at the Institute. All undergraduates will be given paid full-time jobs in research, design and development. The model is in
fact very much like the one where medical schools are linked to functioning hospitals and where medical students continue their education,
whilst in work as “junior doctors”. And just as medical degrees are hardly suitable to a two-year model, neither are those where vocational
work can be blended into a three, four or even five year degree. Our point is that whilst degree lengths need to be tailored for certain
specialisations where students have signalled where they wish their careers to be – as in engineering and medicine – two-years is the perfect
“off-the-shelf” length for a great many where young men and women wish to keep their options open.
44
3.3 Career progress
For “young” graduates, the world of work opens up one year earlier with a two-year degree. For ‘mature’ students, these are
especially likely to benefit a shortening in course length and cost both financially and in time “out of the job market”. Back in
2009, statistics were released on students who took part in the pilot programs. These revealed the type of courses which had
been “tested” on the two-year programme (table 7) – most studied business and administrative studies – as well as
“estimates” of salary progression (chart 58) and measures of student satisfaction (table 8). In terms of the latter one needs
to point out that in the National Student Survey of final year students, the answer ‘neither satisfied nor dissatisfied’ was
shown as ‘not satisfied’. In statistical terms there was no marked difference in satisfaction between graduates on two or three
year degrees. Turning to the salary simulation, we would question “the convergence” shown in chart 58 since it does not
seem to “price in favourably” the speed of progress up the earnings ladder/escalator on stepping onto it early.
Chart 58: Estimated Salary progression of graduate for 2-year and 3-year degrees
40
Salary, £000
35
30
25
20
15
10
0
20 25 30 35 40 45 50 55 60
2 Year 3 Year Age
Source: National student survey, Toscafund
Table 7: Subject groups of students in 2008-09
Two-year Other Flexible

Subject group All other provision
accelerated Learners
Architecture, building and planning 0 505 37,930
Business and administrative studies 265 530 172,525
Creative arts and design 5 0 124,625
Education 0 70 50,545
Languages, literature and related subjects 10 20 89,190
Law 80 0 66,485
Mathematical and computer sciences 20 220 93,660
Physical sciences 10 0 64,135
Social studies 0 55 138,405
Combined studies 0 50 44,135
Other subject areas 0 0 639,835
Total 390 1,455 1,396,855
Source: National student survey 2008-09 & 2009-10, Toscafund
Table 8: National Student Survey results for 2008-09 and 2009-10
Satisfaction Two-year Three-year

Satisfied 125 212,995
Surveyed
Not satisfied 45 49,360
No answer 110 138,560
Total 280 400,915
Satisfied (of those who participated) 74% 81%
Source: National student survey 2008-09 & 2009-10, Toscafund
45
3.4 Progress & resistance
In 2015, the Higher Education and Research Bill reinstated the Government’s interest in two-year or fast-track degrees. In
February 2017, Jo Johnson, Minister for Universities, recommended amending the 2015 Higher Education and Research Bill
to give the Secretary of State the ability to raise tuition fees on two-year courses to £14,000 (Table 9). The Bill has since
become The Higher Education and Research Act. Johnson’s motivation in introducing the amendment to the original bill was
to create a financial incentive to otherwise recalcitrant universities, to offer compressed two-year degrees.
Table 9: New cost of two-year degree vs three-year degree for students, assuming higher costs for the former, £
Two-year Three-year
Tuition Estimate of Living Costs Tuition Estimate of Living Costs
Year one 14,000 9,840 9,250 8,200
Year two 14,000 9,840 9,250 8,200
Year three 0 0 9,250 8,200
Sub-total 28,000 19,680 27,750 24,600
Total 47,680 52,350
Difference 4,670
Source: HESA, Toscafund
Jo Johnson’s amendment caused an outcry from the Lecturers’ Union (UCU). Some claimed it was a scheme to turn
universities into ‘sweatshops’ or ‘diploma mills’ simply to increase profits. Labour spokesperson Gordon Marsden even called
it a ‘Trojan Horse for increased tuition fees’, despite Johnson’s emphasis that the fee hike would apply only to specific two-
year courses. One commenter expressed the concern that a two-year course would reduce the quality of graduates claiming
that “University in two years is not ‘University’ at all, it would just be an accelerated process of force feeding ‘content’ down
students’ throats. University is about developing critical thinking skills, problem solving and learning to apply scientific
methods to answering questions (and not just in STEM). All takes time.” Returning to a point already made, some feel that
university should be a time of wider experimentation and time spent thinking, which a ‘rushed’ degree would infringe upon.
The UCU published a statement shortly after the Johnson speech opposing the fee increase. This said, the UCU has opposed
the idea of a two-year course since its inception, citing concerns over the quality of teaching and working conditions for staff.
To quote from the UCU there is “very significant opposition to summer semester teaching on the part of the majority of
academic staff”. More specifically the UCU argued that academics are already generally busy during summer with exams
resits, admissions, and preparations for the new academic year. Summer is when academics time the bulk of their research
and are often committed to summer schools, both of which a summer term would take time from. The UCU pointed out that
in many of the two-year degree pilot programs, ‘casual staff’ were taken on to teach the third semester, furthering
perceptions that the two-year degree lacks quality. The reality is that the perception that a two-year course would be inferior
to a three-year course has no actual data to support it. In fact, a study of accelerated degree courses actually showed no
difference between the performances of students from those on the regular three-year programs. To those concerned that
accelerated degrees reduce student-academic contact, it is worth noting that the University of Buckingham has the best
student-teacher ratio in the UK, 10.4:1 at Buckingham vs 15.9:1 the national average.
Now the flexible learning scheme, which the two-year course was part of, has been supported by those keen to open higher
education to accommodate a more diverse student body. However there is some concern that the two-year honours program
would do exactly the opposite, as it would exclude students from lower income backgrounds who need to work over summer
to support themselves through university. There is indeed another argument against two-year degrees along the lines that
“better off” students could afford the “full” three year University experience whereas less well-off students could only afford
the “inferior” two-year experience. There is also concern that the two-year degree would not be recognised by some
European countries and would also conflict with the Bologna process; the Bologna process being a series of meetings between
European ministers every two or three years to ensure comparability or higher education qualifications in Europe, potentially
deterring EU and non EU international students from enrolling for a two-year degree (Appendix 2).
46
4. Investing in infrastructure
The history of UK property development is littered with follies delivered by those who have believed ‘build it and they will
come’ is some form of aphorism. There are also plentiful instances where economic predictions of increased future occupancy
have failed to materialise, to the great cost of those who have developed in this mistaken expectation. The issue here is that
having predicted a sizeable rise in UK university enrolment, we build out its University campus and dormitory capacity only
to find that the forecasts contained in this research prove woefully exaggerated. This concern can easily be addressed and
dismissed.
This paper has been forthright that future HE demand from China to the UK cannot fail to increase impressively from 2020.
The reason this is certain is because of the undeniable socio-economic momentum enjoyed by China since 2002. For the UK
to accommodate these applicants it is of course crucial that it proves accommodating in its visa issuance to them. [We must
quite frankly exclude full-time students from migration statistics]. Furthermore, it is important we take steps to improve
transport and visa access for their families to visit. Fortunately all the indications are favourable in all these regards, with
since 2015 significant efforts by the British Government to make China a very “special case” when it comes to all forms of
access to the UK.
A very few words on political risks to our conclusion
The UK is under a minority Government, one moreover involved in seemingly fraught Brexit negotiations. As for the
political opposition, in Westminster the Government is up against what is generally described as “Old Labour”; called by
some with disparagement and others with pride, the “Hard Left”. The Conservatives face opposition which is not confined
to the Parliamentary Labour Party, or indeed dissenters within its own ranks. It also has to contest with the Scottish
National Party in both London and Edinburgh. The Conservatives are also a minority in the Welsh Assembly. Against such
a tenuous and febrile political backdrop producing any form of report providing forecasts out to 2034 may appear fanciful
and deluded.
To be clear this research is predicated on a divergence in political ‘management’ and in particular policies relating to
Higher Education tuition fees in England, Scotland and Wales. The paper also makes it perfectly clear that it cannot
anticipate what, if anything, will change with how students from across the European Union are treated in the tuition
fees they are charged and the visa-less access they are allowed. Even against this uncertainty we feel confident in making
our projections since for the most part students from the EU attending UK and in particular English universities are
relatively small in number. But what about political risk? After all the General Election timetabled for 2022 could come
sooner. Indeed even if each Westminster Parliament sees out its five years, we face another two scheduled General
Elections in the period this paper provides forecasts for. The point which needs to be emphasised is that the thrust of
this work on the future of UK Higher Education is less about what is happening within the UK as what is unfolding in
China, in which the Affluence and Appetite to study abroad is growing unrelentingly. As for any uncertainly concerning
the continued Appeal and Access to the UK under “different political scenarios” this must not be exaggerated. It should
in fact be considered in the context of what weakness in the pound triggered by ‘political concerns’ would do to make
the UK’s universities all the more Affordable to prospective Chinese students. As is made clear elsewhere the forecasts
made in this study can and will be revised if events unfold which require them to be.
47
4.1 The educated signs to look for when investing in student accommodation across the UK
This research has made a case that the UK’s higher education sector will benefit widely from ever increasing interest coming
from China, India and other emergent nations. This said, there will be institutions and areas which will be particularly
favoured. In what follows we point to the characteristics to look for to identify which areas of the UK will benefit most.
Some will claim that the most important factor in deciding institutions most favoured by those in China and India keen to
pursue higher education will be appetite for a particular brand. From our perspective, we maintain that the deciding factor
will be access. We speak here of capacity to accept the ever rising number of those who are keen to study here. With this in
mind, London will be challenged. This is not to say that London’s universities will “miss out”, simply that they will have to
accept that to increase their study capacity they must develop new campuses outside of the capital. Further analysis on
London will follow, although it is important to remember that capacity is fundamental to demand in the future.
Also playing a part in determining where will benefit most from the inchoate market to teach Chinese students in the UK will
be an area already having a nucleus of Chinese-born students in attendance, and in this regard the Midlands does not rank
unfavourably.
Table 10: Universities that attracted Chinese Students in 2014
University Name Chinese Students Enrolled Percentage of total

enrolment
Liverpool 3,200 14
Manchester 3,100 8
Nottingham 2,800 9
Birmingham 2,500 7
Sheffield 2,500 9
Southampton 2,000 8
Newcastle 1,900 8
Leicester 1,900 11
University College London 1,800 5
University of East Anglia (UEA) 1,700 10
Herriot Watt 533 5
Cardiff 138 0.93
St Andrews 117 1.1
Source: HESA, British consulate, respective university statistics, Toscafund
Universities with a high number of Chinese students are likely to grow their share even more. Already with strong
communities within them including shops, societies, and facilitates designed to cater for the Asian market, prospective
Chinese students are likely to be drawn to these hotspot universities. In addition to this, friends and relatives of the Chinese
students may be encouraged to apply to the same universities, further boosting Chinese enrolments at such universities. The
table above (table 10) shows the universities which currently have the highest Chinese student population and if capacity
allows, will continue to be popular.
48
Taking heed of Brighton’s Regency Model
There are two features which will increasingly distinguish the cohort of those studying in the UK who originate from our
own shores from those arriving from overseas. One will of course be cultural. For whilst the arrival of students from
abroad is hardly a new experience, traditionally many have come from Europe or the Commonwealth. And whilst Hong
Kong, now part of China, has long been a source of students in the UK’s universities, the numbers applying from mainland
China are considerably larger and set to grow ever more so. For these, the nature of the residential product will need to
be as tailored as the other consumables which will be demanded, something which we will return to in a moment. The
other differentiating feature of home grown students from those entering from the developing world will be the average
financial position of one relative to the other. The simple truth is that the considerable cost of education in the UK means
that on average, students from China and India will be drawn from comparatively wealthier households, than from even
our own privileged ranks. This combination of cultural and financial difference means, and indeed demands, a different
approach to the residential space which is delivered to students; different in level of quality and design; having for
instance to accommodate (sic) Feng shui. Let us continue by looking at how many enterprises within the UK have already
adapted their business models to the very different demands of the Chinese market. Let us call it the New Regency
Model.
On Brighton’s seafront just down from its West Pier is the Regency Seafood Restaurant. Although long established and
well regarded by locals and those visiting Brighton from around the Britain Isles, the Regency’s renown literally went
global in 2013. The catalyst for this was a visit by a Chinese celebrity chef. A favourable post by this extremely well
followed personality has made the Regency a magnet for Chinese visiting Brighton. Now whilst it’s new found reputation
has hardly been unwelcome to the owners, it has frustrated those of us who face long waits for a table, since its capacity
inside and out has not altered. As for its staff, whilst the food they serve remains essentially the same, how they deliver
it has adapted, certainly for its newest customers; the Chinese it seems like their food arriving all at once; starter, main
and dessert. Now in the 2016/17 academic year, Brighton’s two main universities had 5,920 international students from
outside the EU, with the majority studying at the University of Sussex (chart 59 and 60). Just as the staff at the Regency
have learned to deal with the differences in service expected by their new Chinese customers from those they have
traditionally served, so too those serving up student accommodation must see the commercial sense in adapting how
their product is delivered differently to an entirely new and fast growing Chinese customer base. The tip here is not
optional.
Chart 59: Number and Percentage of non-EU Chart 60: Percentage change of Non EU Students in
students in University of Sussex University of Sussex (with average)
5 30 45
40
%
Thousand
25 35
%
20 30
3 25
15 20
2
15
10
10
1
5 5
0
0 0
2005 2007 2009 2011 2013 2015 -5
International students (non-EU) Share of all students 2005 2007 2009 2011 2013 2015
49
4.2 A view from the Top
It has been argued elsewhere in this research that of the UK’s “regions” London and Scotland are over-represented of students
from the EU; certainly when compared to how such arrivals are settled to study in relation to those from beyond the European
Union. The rationale for this skew, or the rationale we choose to adopt, is that this reflects the generosity in fees shown
towards students from the EU; particularly the indulgence in their regard from Scottish universities. It could in fact be argued
that the EU27 student representation of Northern Ireland’s universities is similarly skewed, albeit to a differing degree, seen
also in the scatter of chart 61. As a companion to this we have chosen to capture the relative spread of where UK-born
students choose to study across the UK relative to how we as a general population are distributed. The largest outlier by far
in this regard is England’s eastern region. Within this area covering mostly East Anglia, barely half as many young Britons
study, as Britons live more generally. To some this under-representation of students will be a concern for the eastern region’s
ability to capitalise on the steep increase in overseas applications which we anticipate from 2020 (mainly Chinese). Of course
to other observers its underrepresentation is an opportunity to significantly scale-up student numbers. This said, improved
transport connectivity will be essential if this is to be achieved.
Chart 61: Distribution of EU27 against Non EU students, Chart 62: Distribution of UK students against population
shows EU bias to Scotland and London distribution, shows East is under-graduated
30 16 SEAS
Proportion of UK students (%)
EU27 students (%)
14 LOND
LOND
25
12
20 SCOT NWES
10
SCOT YORH WMID
15 8
EMID SWES
SEAS WALES
6
10 EAST
EAST NEAS
SWES WMID 4
WALE NWES
5 NIRE
NIRE YORH 2
EMID
NEAS
0 0
0 5 10 15 20 25 0 2 4 6 8 10 12 14 16
Non EU (%) UK Population Proportion (%)
Source: HESA, ONS, Toscafund
The point to make here has been made elsewhere, but is worthy of repeating all the same. From a macro-economic
perspective it does not really matter were precisely the ‘Hockey-Stick’ rise from 2020 in student numbers happens to be
distributed across the United Kingdom. However, from an investment perspective, particularly in relation to real estate, it
matters very much. With this in mind we continue looking at where full-time university students have thus far been spread
across the UK and how they are likely to be in the future.
50
4.3 Distribution of students across the UK
In comparing how students from overseas happen to be spread across the UK, we notice a number of “skews”. We also notice
differences between where students from the EU27 happen to be distributed around the UK from the spread of those from
beyond the European Union.
Map 2: Dispersion* of non-EU students to different Map 3: Projected dispersion of non-EU students to
regions throughout the UK 2016 different regions throughout the UK in 2034
Most popular
Least popular
`
Source: HESA, ONS, Toscafund – *dispersion measured by the difference in UK population distribution and EU or non-EU student distribution by region
For more information on total UK student dispersion by cities, see appendix 3
Map 4: Dispersion* of EU27 students across the UK, 2016 Map 5: Projected dispersion of EU27 students in
different regions throughout the UK in 2034
Most popular
Least popular
51
It is noticeable how London’s universities are more popular with students from across the EU27 than they happen to be with
those arriving from beyond it. A large part of the explanation are the lower fees faced by EU27 students. These give them
something of a subsidy in living in “costly London”, a subsidy which is denied those from beyond the EU paying considerably
higher tuition fees. This fee-differential also helps explain the popularity of Scotland with those from the EU27 (charts 63, 64).
After all, the Scottish government’s generosity to its own university students extends to arrivals from the EU (except England
that is). Were such subsidies to students from the EU27 removed, we should see an end to the distortions noted in London
and Scotland in the geographic spread of students, whilst also opening up the possibility of actually reducing the fees charged
to English students.
Chart 63: Distribution of EU27 students in UK against Chart 64: Distribution of Non EU students in UK against
population distribution 2015 population distribution 2015
30 30
Proportion of EU27 students (%)
Proportion of international students (%)

LOND
25 25
LOND
20 20
SCOT
15 15
SEAS SEAS
10 10 SCOT
NWES
WMID YORH WMID
EMID
SWES EAST NWES WALE
5 WALE 5 NEAS SWES EAST
EMID YORH
NEAS
NIRE NIRE
0 0
0 5 10 15 0 5 10 15
UK Population Proportion (%) UK Population proportion (%)
Source: HESA, ONS, Toscafund
Table 11: Annual tuition fees for undergraduates charged by selected HEI’s, 2016/17, £
Student Domicile Northern England Wales Scotland EU International

Ireland
Queen University Belfast 4,030 9,000 9,000 9,000 4030 15,550

Ulster University 4,030 9,000 9,000 9,000 4030 13,240
Newcastle 9,000 9,000 9,000 9,000 9,000 13,315
Exeter 9,000 9,000 9,000 9,000 9,000 12,600
Leeds 9,000 9,000 9,000 9,000 9,000 15,500
St Andrews 9,000 9,000 9,000 1,820 1,820 17,890
Source: HESA, Universities websites, Toscafund
Of course when it comes to how its population is distributed the UK is a veritable tapestry of densities, one which in part,
informs how its university students are spaced out (sic). After all how we are spread across the UK in terms of where we live
and study reflects common factors such as how well developed are transport links and the vagaries of the wider natural and
built landscape. Indeed, as much as the university experience is thought to be “an adventure”, the data shows that young
Britons have tended to study not too far from “home”. This said a comparison of how the wider population is distributed
relative to how universities students are spread reveals a far from one to one correlation, and a changing pattern at that,
implying an increasingly peripatetic student body. Indeed, as we have welcomed more and more students from overseas the
52
pattern has changed all the more. What this research has made very clear is that the prejudice in tuition fees which exists
between those with EU passports and those without has acted to skew matters, something accentuated in Scotland and
London. The simple truth is that London and Scotland have been “over populated” by EU passport holders, or seen differently
“under populated by those from beyond the EU.
Map 6: Distribution of all university student in the UK by Map 7: UK population distribution by region, 2015-16
region, 2015-16
% Share
>15
10-15
7-10
5-7
<5
Source: ONS, HESA, Toscafund
For its part, London is – temporarily – home to a proportion of students from overseas much larger than the share it accounts
for of the British population, and this is all the more the case for students from the European Union. At the other extreme,
Northern Ireland is home to a smaller proportion of overseas students than what its – even rather modest – share of the UK’s
population might warrant. That Scotland stands out in its popularity with students from the European Union is hardly
surprising when one considers just how much more generous its fees happen to be compared to those being charged by
universities across England (table 11).
In addition to the fees and general costs being faced by students, there are of course a wide variety of reasons for the skews
which are evident in where young adults from overseas choose to study. What we would like to stress however is that we
should not use the pattern of displacement across the UK of students from overseas recorded thus far as a guide to the future.
After all, the reality is that London’s ability to build-out campus capacity is becoming ever more strained. It is becoming
strained because even where there is space to expand into, this is becoming ever more costly. In fact, in predicting where
campus capacity is likely to expand fastest, a sensible point to start from is looking spatially at the cost of development land
and built real estate (map 8).
There is not only the need to create capacity, but to do so where it will be needed across the UK. In this regard, maps 4 and
5 take our projection for the demand coming from China for places within our Higher Education sector and allocates this
across the regions of the UK, doing so on the assumption that spatial distributions seen thus far no longer hold for reasons
that can be easily rationalised. There is also the important issue of accessibility which we will discuss later.
53
Map 8: Average Office Rental in towns and cities by region (£)
Source: Toscafund. For a breakdown of office rent prices in towns and cities, see appendix 3
4.4 The educated direction of travel is out of London

This research has made the case that the UK is on the cusp of a surge in applicants from overseas of those seeking to study
within its Higher Education Industry. This of course possess the question of where these arrivals will be accommodated.
Within London property prices are at levels markedly higher than anywhere else in the country, with considerable competition
across sectors for what space is available. To solve this supply problem, we have suggested that there is no reason why
prestigious college brands across London do not travel to areas where space is not so constrained or costly.
The brand value of a university is maintained by the quality of its academic franchise. And if there is both a force and a friction
to moving academics and students in their turn from place to place, it is the quality to ‘transport’ the university brand in
question. Imagine for instance that a ‘provincial’ university established a campus in London whilst a London university college
made the journey in reverse. We would claim it is unlikely that the former would attract the calibre of academics as the latter
or draw the same student demand. The chances are then that creating a successful London campus of a ‘provincial’ university
would be far more challenging than a ‘regional’ campus of a London branded university. Suppose then that London’s
university colleges expanded their capacity through the creation of new campuses beyond the capital. This raises the issue of
meeting staffing needs in what could prove distant outposts. We have argued that as an inducement for their existing staff
to relocate and an enticement to those they are keen to hire, salaries in these satellite campuses will be close to those being
paid in London. If this indeed happens, then it cannot fail to create a ‘boot-strap’ uplift to academic salaries around the
country and narrow the dispersion between what is earned in London and what is paid beyond the capital. Indeed, the
dispersion we do see in academic salaries has a coefficient of variation already less than half that for the UK labour force
more widely, map 9. We are in no doubt that were academics already in London to be given the option of relocating to new
campuses beyond it, but branded as ‘London’, there would be little reluctance to do so.
54
Although London’s attractions are undeniable and unparalleled, so too are the costs. In our opinion academics and other
university staff who are offered the chance to relocate from London to newly formed campuses beyond it, will perfectly well
appreciate the considerable financial benefit of moving. For whilst they will be on essentially the same nominal salary as in
London, their livings costs will be markedly lower. And nowhere will this affordability benefit be more accentuated than in
housing costs. If we compare the marked variation in house prices across the UK with the narrower spread of academic
salaries we see just how much improved purchasing power is beyond London (map 10). In statistical terms the coefficient of
variation in house prices is ten times that of academic salaries. Put differently, academics relocating from London will improve
their property purchasing power by ten-fold even if they have to take a “modest pay cut”. For some university staff it could
provide the opportunity to buy their first home rather than rent in London. For others who own a home in London it would
allow them to make a significant step up in the size of their property.
Map 9: Academic staff salaries by region (£000s) in Map 10: Current* average house price (£000s)
2014/5
Source: Times Higher Education 2014-15, Land Registry, NI Department of Finance, Toscafund *As of July 2017
So then an element of the future success of each of England’s regions in building-out university capacity will be their being
‘cuckooed’ by London’s increasingly space constrained university colleges. These will be motivated to add new campus
capacity in areas where large-scale development is not only possible but more affordable than in congested and expensive
London. The locations of their new campuses will also be chosen because they are readily accessible to the capital; a
requirement in large part because it would encourage staff relocation, and ease of new academic hiring. And to repeat, we
see no reason why staff relocating from London will not demand and receive salaries close to those earned in London.
55
4.5 Education is a more even playing field for regional growth
We are all too often presented with ‘Britain’s regional problem’. This should be recognised as short-hand for ‘Britain’s most
recent regional economic skew’. For whilst Britain’s economic strength has latterly been centred on London and the south
east of England, this has not always been the case.
As much as during the reign of Queen Victoria, London was the seat of Government, its capital happened to be many hundred
miles south of the UK’s epicentres of wealth creation. Indeed, go back further and one can arrive at a time when London
could boast neither political nor economic hegemony over the UK. In modern times of course things changed.
As large scale industrial and transport activity and related finance declined, so such cities as Manchester, Liverpool, Bristol,
Glasgow and Newcastle, having flourished from lucrative Empire-linked trade, suffered proportionately most. Just consider
Liverpool, which at its zenith in 1931 boasted a population of 855,000, but which by 2001 had shrunk to barely 441,000. The
– often – sudden decline of Britain’s ‘northern cities’ acted to shift its economic centre-of-gravity southwards. The subsequent
rise in modern financial services exaggerated things still further, drawing London into an ever more rarefied economic
atmosphere from the rest of Britain. This separation became all the more noticeable as what was left of Britain’s industrial
base was forcefully restructured in some sectors to extinction.
For too long an economic demarcation line has run longitudinally from Bristol across to Oxford and then to Cambridge. This
line separated cities around London from those to the north, Indeed, this became part of Britain’s economic landscape “north
versus south”, no less than the physical line traced by the Pennines “east versus west”. The point that needs emphasising is
that the revival of Britain’s cities is not nascent but already firmly established and, set to accelerate, in large part because of
the growth in our universities. For Liverpool, Manchester, Newcastle, Coventry, Leeds and Sheffield et al, can compete with
London in academic terms on a playing field more even than across practically any other sector. That London’s university
colleges are likely to begin building new capacity beyond the capital will prove the most powerful evidence that the regional
problem is being fixed in an educated way.
Looking back to predict the future

One of the most quoted epigrams is George Santayana’s “those who do not remember the past are condemned to repeat it”. Indeed,
many consider it more an aphorism or general truth than a mere pithy saying.
Now whilst this research makes much of historical events, in its efforts to predict the future for the UK’s higher education industry it
does so not because the past offers anything like a precedent. Without contradiction this paper claims that whilst events in China since
2002 play a crucial role in what will unfold from 2020, what we are about to see is without precedent. The argument is that since 2002
China has experienced watershed event after watershed event, as those that govern it have adjusted the economic tiller often in
reaction to events.
From joining the WTO in late 2001 China’s economy not only began to truly integrate and influence others but to transform internally.
In dealing with the 2008 financial crisis which was essentially centred on the developed world, China’s internal economy was made to
reorientate still more. Another catalyst for change occurred in March 2013 when Xi Jinping became China’s 7th President, initiated the
Belt and Road Initiative (née One Belt and One Road) and pledged to dramatically raise living standards within China. On each occasion
the nature of China’s macro-economic growth changed, not least the speed and breadth of growth in household wealth.
Most recently China has seen the easing of the One Child Policy, leading to an immediate and very noticeable increase in annual births.
Only then by being aware of the varied changes since 2002 within China can we hope to anticipate the fortunes of those there turning
eighteen from 2020, and still more those reaching this watershed in 2027, 2031 and 2034. We talk here of how the improving financial
fortunes of Chinese families with teenagers will influence their educational fortunes as each birth cohort comes of university age. It is
in essence by looking back at how lives have unfolded within China that we can claim to have some chance of anticipating what unfolds
from 2020. We can therefore agree with Santayana, it is by remembering the past that we can be confident in knowing what awaits us
is no repeat of anything that has come before.
56
4.6 An academic solution to our ‘regional problem’
There is broad indeed universal agreement Britain’s economy should not be allowed to move forward at regionally divergent
speeds. Confusion however reins over how best to avoid a growth bifurcation. Indeed, many commentators are adamant the
UK’s ‘regional problem’ is insoluble.
Scholarly economies of scale

This paper is unequivocal in asserting that we should welcome the rapidly growing number of those from overseas willing to pay
generously for a place at one of our universities. Not all will of course agree. There will no doubt be those claiming allowing others in
would involve Britons ‘losing out just’. Indeed an argument will be made that if overseas students are allowed to enter in the numbers
suggested, then Britons will be not only displaced from universities but even more crowded-out of residential markets around university
centres, and generally disadvantaged in their search for work. Such claims fail however to appreciate how much economic good being
welcoming to overseas students can deliver.
For a national economy to grow a necessary condition is that it enjoys increasing demand. This said unless supply increases in line with
demand pricing will have to rise to restrain matters, or some other form of rationing device sought. Now inflation has unwelcoming
consequences and rationing is invariably subjective and results in ‘losers’. With this in mind the question is why should we object to the
UK enjoying all the economic multipliers generated in adding supply to fulfil increased demand? After all across every aspect of adding
real estate – from architectural services, the manufacture of building materials and their assembly, across to providing a wide range of
property services – an economy cannot fail to benefit across all skill-sets, crafts and professions. It benefits all the more in meeting the
daily needs of those who come to occupy the premises so added. It is then only be to the UK’s overall benefit, not least in its level of
employment and the geographic spread of where jobs are created, to capitalise on the economies of scale and growth multipliers
accruing from the heightened overseas demand for our education services. As for Britons somehow being displaced by applicants from
overseas, the reality is that there is no reason why the generous fees paid by the latter are not in part used to fund generous bursaries,
so the former can more readily enter university.
Amongst those who do see economic potential beyond London, the growth prescription recommended in most cases is for
‘the regions’ to try to recreate their trading past ‘glories’. Let us be clear, returning to ‘traditional’ manufacturing sectors is
not a positive step forward. Yes, during the late 19 th and early 20th centuries these provided employment for many, albeit
wealth to a few. Crucially, however, there was no tradition or unique ‘Britishness’ in textile, steel and ship making etc., simply
opportunism. And whilst what is appropriate for 21st century Britain is similar trade opportunism, the cornerstone should be
cooperation with, not colonisation of other sovereign nations. The reality after all is that Britain’s ‘halcyon’ industrial past was
essentially achieved by suppressing manufacturing where raw materials existed across ‘the Empire’, so these resources could
instead be transported to Britain, processed and the resulting finished goods sold widely into an ‘Empire’ which was often
force-fed them, hardly a proud boast. New Britain should focus where it is best suited in delivering what the Emerging World
actually wants. This will include manufactured goods, ranging from prestige cars and across to aero engines and industrial
machinery, all of whose value lies not in price competitiveness but uniqueness. The emerging world’s appetite for what Britain
can almost uniquely provide does not stop here.
An educated future filled with real degrees of growth for the UK

When raising their capacity few industries have as voracious an appetite to consume real estate as education. After all to existing
campuses cannot be ‘sweated’ in the same way as say car assembly plants; academics and students alike hardly welcome scheduled
night or weekend ‘shifts’. In fact the production function for education is like few others, exhibiting little of the substitutability between
factor inputs of the Cobb Douglas. It demands instead that ingredients are added commensurately, almost a perfect example in fact of
the Leontief production function.
To repeat, a UK university already close to capacity which is seeking to materially raise its total enrolment is hardly likely to run
additional lectures overnight, or into the weekend. For whilst these are solutions perfectly suitable for car assemblers, they are ill
suited to educators. For the latter to increase output there is little option that to invest in new campus and dormitory capacity, as well
as increased staffing. It is for precisely these reasons why English universities, particularly those ever more squeezed within London,
will have to find room beyond it. This centrifugal movement will regenerate existing real estate as well as creating new space on
hitherto undeveloped ground, quite possibly traditional agricultural land.
57
A strict education in ratio
There is a general mood that the advance of technology and decline in employment run in tandem, with no part of the UK economy immune
from this inexorable development, even higher education. Certainly in the latter respect, this paper argues otherwise. It makes the case
that enrolment in the UK’s universities is set to increase impressively and so too staffing levels, at all levels.
The reality is that to maintain a high level of recognised quality higher education has to employ strict staff-student ratios. True lectures can
often involve large audiences, a sort of mass assembly as it were. And true too one faculty is different from another in the intensity of its
staffing needs. This accepted it is in classes and even more personal tutorials where the real finishing of a university education is carried
out, across all faculties.
In the context of the UK's universities being high volume ‘factories’ – all part of a higher education industry – they have production functions
which exhibit a constant elasticity of substitution. Their production functions are in fact close to being Leontief; the ratios of the key factor
inputs – labour and land – having to increase in near lockstep with the number of students enrolled (the product as it were). Of course
Universities can and indeed do use postgraduate students to tutor undergraduates, creating a form of para-academic. The issue is that this
has long been the case and is also an implicit part of the university production function, one that helps determine the proportion of
undergraduates to postgraduates. With higher education then, even the humanities and arts involve the use of strict ratios.
Of those who agree that the advance of technology will not deflect British universities from increasing their staffing in tandem with student
enrolment, some will argue this will lift employment fortunes elsewhere. The claim will be that UK universities will indeed capitalise on
increased demand from students overseas not by welcoming them here, but by journeying overseas themselves. In response we repeat the
claim made elsewhere in this paper that whilst UK university brands will indeed increasingly 'offshore', this will not interfere with continued
'on-shore' growth. In short the UK’s real estate and labour markets will need to prepare for one million additional full-time university
students by 2034. True this is an unprecedented increase, but then these are unprecedented times for the likes of China and Britain.
With the idea of value and uniqueness in mind we need to recognise Britain has considerable trade potential in services.
However in treating universities as lucrative sources of overseas income, an entirely new attitude to trade sectors is needed;
one where not least full-time students are excluded from ill-judged curbs on migration. Once this shift in attitude has been
achieved, so it will be realised how much foreign income producing productive capacity is spread widely across Britain in its
expansive Higher Education Industry. And just as thriving traditional primary manufacturing spurred on secondary and tertiary
sectors so will be the case in the new tradition. This time, however, we would argue the multipliers will be far more
considerable.
Where the old tradition was raw material intensive manufacturing, the new will require an entirely different set of imported
ingredients. In place of cotton and iron ore, Britain’s ‘export’ leaning universities will need to import academics. Where once
part of the value of goods exported from Britain had to be written off against arriving raw materials (often purchased at
artificially low prices), the doctors of philosophy “imported” to lecture in our universities will in their way create export line
entries in New Britain’s balance of payments. They will after all enter with capital which they will spend widely. Multiplier
effects will extend to property markets and foster internal consumption. Indeed a virtuous cycle cannot fail to follow and will
extend across large swathes of the UK.
While London’s Higher Education Institutions (HEI’s) will enjoy an increase in interest from overseas they will be in
competition for such ‘customers’ with HEI’s widely across England. However, the colleges of the University of London (and
indeed those of Oxford and Cambridge) as much as they wish to expand, are struggling in finding space to do so; or certainly
commercially viable space. This provides an opportunity for England’s regional HEI’s to capitalise. And doing so will be far
easier we feel for England’s out of town/city campus universities less constrained as they are for affordable “growing room”
as universities within busy urban centres. And for academics looking to relocate into England, London’s relative attractions
will be measured alongside its high cost of living. In short, academia will do a great deal in helping fix the UK’s ‘regional
problem’.
58
A marked expansion in the UK’s universities will be land hungry
The University of Buckingham holds a Royal Charter but however operates with a funding structure outside of the norm. It is a HEI which
could rightly be considered to be in the UK’s private sector and a growth beacon for others to follow. Specifically in the five years to
2012 it more than doubled its student body, investing generously to maintain this momentum. In short whilst it may operate with
charitable status as a non-profit making body dedicated to education and research, the University of Buckingham is uniquely
commercial. The University of Buckingham is also unique in offering two year full-time degree programmes, a template others are sure
to follow. Buckingham is a university whose behaviour perfectly captures how refurbishing existing, and building entirely new CRE, is at
the core of educated ‘business’ growth.
Consider this extract from the University of Buckingham’s annual report and financial statement for the year to December 31st 2012:
“we will be building a bridge this year over the river to link the six acres of the right bank that we now own, to the main campus. We are
applying for planning permission to start the development of the right bank.”
Here we have evidence of investing in property infrastructure being at the forefront of the development of revenue generating CRE. It
also reflects the power of Britain's CRE to generate foreign earnings. With one-third of the student body originating outside the EU and
absolute numbers growing, here again The University of Buckingham provides a real instance of this favourable trend.
Consider also the idea that refurbishment and refocusing can bring property back into economic life. Let us draw again from the
University of Buckingham's 2012 annual report, where the Vice-Chancellor reflects:
“We have refurbished all of the Tanlaw Mill, from top to bottom, and it has been transformed as students' building and as a Students
Union. And to further improve the recreational spaces for the students, we are completing the refurbishment of the cellars in the
Franciscan Building. Meanwhile the newly-refurbished Radcliffe Centre, a converted church which provides a 150-seat venue for lectures,
performances and community events, has added significantly to the capacities of the University. The refurbishment of Prebend House
and of its gardens has now been completed [which we] are using as the postgraduate centre of the School of Humanities, which speaks
of our general commitment to upgrading research within the University.”
In this ONE passage, we see evidence of a church conversion, cellars being made useful as “recreational spaces” and evidence in addition
of investment to attract undergraduates by improving the quality of their experience, whilst also capitalising on how postgraduates can
engage (often very commercially) with academics in research. On this note, the Vice-Chancellor was keen to that that “much of the
growth of the University can be attributed to the growth of the Business School, which now has twice as many students as four years
ago. We continue to be proud of our Business Enterprise programme, which currently has students running a number of intriguing
businesses”.
The following extract gives another angle in the University of Buckingham's growth ambition, “we are working with the Milton Keynes
Hospital NHS Trust over the possible creation of an undergraduate medical school”.
Chart 65: Number of students studying undergraduate Chart 66: Share of International students studying at
and postgraduate degrees at University of Buckingham University of Buckingham
3000 50
%
2500
40
Number of students
2000
30
1500
20
1000
500 10
0 0
2006 2008 2010 2012 2014 2006 2008 2010 2012 2014
Undergraduate Postgraduate Undergraduate Postgraduate
In noticing the increase in the proportion of post graduate students attending Buckingham one needs to point out that much of this
increase can be attributed to its two-year graduates opting to add a third year so as to earn a Master’s degree, lucrative to the university
and beneficial to them in searching for work. (Section 3.1)
The simple truth is that the UK’s universities will become ever more present as occupiers and developers of its real estate doing so
widely across its regions. They will consume existing developed space and redevelop where needed and they will build on hitherto
undeveloped land, quite possibly on what has until now been used for agricultural purposes. And with overall enrolment set to increase
so this figure should be considered the degree to which the UK’s universities will expand their real estate footprint.
59
4.7 The importance of transport links
Some readers may be concerned that academics and other university staff will be reluctant to move from it given the
opportunities London offers, especially in regards to “brainstorming and networking” and so career advancement. In response
to this, we would argue that from Bristol, Warwick, Exeter, Glasgow and Cardiff, academics make the journey to London just
as London based academics make the journey in return. Moreover, technological advances already upon us and
improvements to transport still to come have, and will make the UK an ever smaller place for all most notably academics to
connect with one another.
In considering where across the UK new campus capacity will be added, existing transport accessibility has featured as a
crucial determinant. As we know however, transport infrastructure is evolving in terms of road, rail and air. With this in mind,
the development of HS2 and in its turn HS3 will encourage campus development activity along and around these routes as
with all other innovations in our transport network (map 11, table 12).
Map 11: Existing HS1, HS2 and selected existing rail lines Table 12: Current statistics for selective rail journeys
across Britain.
Time Average
Speed (mph)
London Manchester 02:07 90.3
London Leeds 02:12 84.4
London Sheffield 02:05 77.7
London Birmingham 01:22 76.3
London Nottingham 01:44 72.9
Birmingham Bristol 01:21 69.3

London Southampton 01:14 63.2
Middlesbrough Sheffield* 01:56 52.8
Manchester Sheffield 00:48 52.4
Manchester Leeds 00:49 51.9
Birmingham Swansea* 03:01 51.8
Cardiff Liverpool* 03:16 50.6
Glasgow Inverness 03:50 48.4
Manchester Nottingham 01:49 46.7
Edinburgh Aberdeen 02:50 46
Middlesbrough Liverpool* 03:36 43.7
Leeds Liverpool 01:50 41
Lincoln Manchester* 02:20 39.8
Birmingham Wrexham* 02:09 34
Manchester Wrexham* 02:37 21.9
Source: Toscafund Note: Black line in table signifies 70mph *No direct trains, 1 or 2 stops required
With all this in mind stand-out areas for “satellites” of London’s universities will be East Anglia, Sussex, Surrey and the Shires
around the M25. Also favoured will be areas further afield but with developed road and rail links. Tracing motorway and
mainline rail routes out of London should provide a guide to areas which will be ‘short-listed’ (map 12).
60
Map 12: Transport links around the UK Map 13: Population density distribution 2011
Source: 12go – UK Motorways by junction, ONS, Toscafund
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4.8 Foreign bodies in London
Between 2009 and 2014, London experienced an influx of “regional” universities establishing a presence within it. The
motivation we were told was to increase the recruitment of international students. This however seemed a fundamental
miscalculation. As noted in section 4.1, none of the top eight universities for Chinese applicants were London based (or indeed
close to it). Whilst UCL was placed 9th, it boasted merely one in twenty students from China.
A report was published at the end of 2014 by The Quality Assurance Agency for Higher Education. It was an investigation into
the presence of regional universities in London and was commissioned in part because of academic concerns over these
moves. The report found a number of potential problems. These included: management problems, the use of teaching staff
not employed by university, insufficient checks on student qualifications, the use of agents for recruiting students, academic
malpractice, limited space and a reliance on part-time staff. So then since 2009, 10 universities chose to establish London
campuses. Of these nascent campuses three have already shut down. This 30% failure rate should be no surprise considering
the risks we have presented. Of these ‘failures’ we will pinpoint the University of South Wales (USW) as an exemplar.
In the summer of 2015, the University of South Wales (USW) suffered the expensive ignominy of calling time on what it had
hoped would prove a successful London campus. Despite opening premises and recruiting staff no students were attracted
to the USW Dockland campus. Indeed, such was the expense of opening and then closing the building the USW was forced to
cut back its budget and staff at its Caerleon campus in Newport. In their defence the university’s management pointed the
finger at the government’s toughened stance in issuing visas, claiming this had deprived the campus of the foreign students
which had been hoped for.
Now whilst the Home Office’s more restricted stance on student visas would hardly have helped the USW cause in London, it
cannot entirely excuse the fact that there was absolutely no student enrolment. In our opinion, the failure was in trying to
export the USW brand beyond where it could boast a “home” following, into a city with no shortage of rivals; almost all of
which were far better known internationally, indeed some world renowned. Just as with any failure, one hopes that lessons
have been learnt. Most notably, that the direction of travel should not be universities from beyond it entering the congested
London market, but London’s university colleges diffusing outwards from it.
London’s increasing congestion charge
One part of central London illustrates perfectly how the various colleges of the University of London have been vying with
one another frantically for campus space so they can meet increasing “overseas demand”. The precinct in question is
traced from Holborn down Kingsway along to Aldwych, continuing via Chancery Lane, through Lincoln’s Inn Fields back
to Holborn. For as well as being home to a large number of legal professionals, the area in question has seen its traditional
academic occupants with the London School of Economics and King College competing with one another for space on an
unprecedented scale. Indeed such has been the leapfrogging involved that the once clear delineation between the LSE
and Kings has been lost; one attaching its logo to new building after building, next to those long established by the other.
Indeed congestion matters have been complicated by the arrival onto ‘this turf’ as it were of both Queen Mary College –
whose traditional home is many miles east – and the University of the Arts, which has been forging an ever larger presence
across large parts of London. That the area is home to a raft of private colleges all too seeking to grow their capacity raises
still further congestion costs for those very much in the business of education. Let us make clear that what has been
playing out in the particular area focused on here has been imitated widely across central London. Across postcode after
postcode we have seen academic adversaries crowding-out one another in their efforts to expand campus capacity to
meet the growing demand from overseas. The simple truth is that a point is close to being reached where London’s
‘congestion charge’ will be so high that the academic institutions across it will have to accept that if their expansion
ambitions are to be met they will have to open their minds to opening campus capacity far beyond the capital.
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4.9 Exploiting naming rights nationwide
Until relatively recently, the various illustrious institutions which fall under the umbrella of the University of London had their
distinct territories or ‘turfs’. As much as the LSE was on Houghton Street and UCL synonymous with Gower Street so Kings
College was of The Strand. This is not to claim they were terribly far apart but rather that they were still detached. Consider
things now.
The LSE now sits amongst newly installed faculties from Kings. For its part the area once considered Kings Territory has been
overrun by the London School of Economics. Elsewhere the University of the Arts has created its very own footprint in areas
such as King’s Cross which had seldom if ever been touched by higher educational hands. More remarkably the University of
East Anglia can boast a presence on Middlesex Street in ‘The City’ whilst The University of Liverpool has created one on
Finsbury Square. Elsewhere across London one can find buildings occupied by elements of Warwick Business School and
Coventry University. Even the University of South Wales forayed – unsuccessfully and expensively – into London, with an ill-
fated campus by City Airport.
The far from exhaustive list of campus expansions and new arrivals is quite frankly exhausting the space across London that
can be affordably developed and occupied by HEIs. It also raises the question why if universities from England’s North West,
Midlands and East Anglia can ‘transport’ their brands to London, shouldn’t London’s colleges exploit their own naming rights
beyond the congested and expensive capital? Well to our mind at least that they have not yet done so does not mean they
cannot or will not. We are sure that with time the names London School of Economics and University College London will
become metonyms for campuses beyond London.
London is of course not alone in facing up to this, simply the most significant. In their own ways, Oxford and Cambridge are
also confronted by capacity challenges, with the apogee of both having now extended all the way to their railway stations.
Others too will have to deal with the same problem of being space constrained in their traditional sites or ‘turfs’. Of course
in many cases universities have a great deal of room to grow ‘locally’ and in doing so will reenergise city centres, absorbing
and re-orientating vacant or underutilised real estate. One is seeing this in Coventry and in Leicester to name but two cities
enjoying the widespread economic benefits of their voracious appetite for real estate. Do not be surprised if in travelling
through English towns and cities you notice signs directing you to a university campus whose names seems rather out of
place.
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4.10 The very best franchise value for university brands, in Britain
It is undeniable that the UK’s universities have considerable global ‘brand reach’. Neither however can it be denied that
around the confines of their traditional campuses the UK’s universities with the highest international reputations are close to
capacity, and face lessening scope for commercial expansion. So then given increasing overseas demand the question is how
will the UK’s celebrated universities capitalise once their commercial capacity to develop around their traditional centres is
quite literately maxed-out? There are those who answer unhesitatingly that they will franchise their brands overseas; building
campuses across the developing world, and in particular China. This paper does not seek to challenge this idea but merely
put it into context. This paper recognises the UK’s universities will increasingly build ‘remote’ campuses across the world.
They will also no doubt use technology to develop other forms of distance learning. This said the research makes clear such
franchising will not come at the expense of developing entirely new campus capacity across the UK.
Where there is limited scope for further parochial growth the solution to meeting rising student demand from across the
emerging world is indeed to develop it beyond traditional techniques and traditional centres. However to satisfy the needs
of staff and students alike new campuses must not been overly far from their kernel. There is the fact that the quality of each
university brand rests with teaching and research excellence, something which relies on retaining, recruiting and rotating the
very best academics. And this is achieved most effectively at relatively close quarters to the original site, not across multiple
time-zones, certainly not for the time (sic) being. As for student demand from across the emerging world, this will rely on the
perception the degree course they are taught is in no way inferior or ‘second-class’. And this comparability is far easier to
maintain the closer the satellite is to the nucleus, and the more the teaching received is real than virtual.
An educated use of leveraged growth across the UK
This research has made clear that a growing number of UK universities are becoming growth constrained around their
traditional homes, particularly in urban centres. It has gone on to claim that these can continue to capitalise on rising
applications from the developing world by creating new campuses elsewhere across the UK where accessible space is
more readily available. Let us add here that such ‘near-afar’ campuses would be able to leverage on the considerable
central costs involved in maintaining any university. Crucially, there would be far less scope to leverage on economies of
scale were satellite campuses to be developed multiple time-zones away. Moreover, it is highly unlikely that our
universities would be able to command the same fees in overseas satellites as they could teaching students from overseas
at metonym campuses in the UK. Another point worth adding is that efforts to lift capacity on or around existing campuses
– say lifting the number of floors – can hardly occur without ‘business disruption’; effectively losing capacity for a while
in the process of trying to add it. Creating entirely new campus capacity avoids this. Let us be clear, we are not claiming
there are no financial returns in developing campuses across the developing world. Rather than in relative terms there is
a greater return doing so somewhere across the UK.
In short, were Kings College London or Kings College, Cambridge to develop campuses in say Staffordshire or Shropshire
these should be considered a better use of financial and human capital than ones developed in Shanghai or Singapore.
There will no doubt be those claiming that remote campuses overseas would improve brand awareness and so increase
applications ‘back home’ as it were. Well, one wonders whether a UK university which sees the need to make its name
better known internationally has actually come remotely close to utilising its existing ‘home’ capacity.
True then the names University of London, Oxford, Cambridge et al will take on virtual internet teaching presences. True too
they will become metonyms for very real international campuses; a process in fact already underway for many of the UK’s
universities. No less certain is that more and more of the UK’s universities will have their names adorning buildings across the
United Kingdom, teaching in the traditional way but far from their traditional centres. Having seen this phenomenon come
to London, the London brands will soon be seen beyond it. We are in short about to see the creation of an entirely new
dimension to Britain’s regional growth, and a very educated one at that.
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Cross-country and cross county synonym campuses
Much has been made in this research of British universities long established in one area of the UK creating entirely new
campuses in another. Particular emphasis in this regard has been given to London, whose various university colleges with
campuses in the centre of the Capital are finding it increasingly difficult to secure proximate real estate to add capacity. Rather
than remain frustrated London's university colleges are certain to build capacity outside “of the M25” potentially at some
distance from it but along transport networks linking to it. Let us be clear the idea that British and in particular London
branded universities will cross counties to create new campus capacity in no way conflicts with them also crossing into other
countries to add further still to their student reach.
Whether in China or India we will see British universities creating satellites so as to capitalise on their well-regarded campus
‘brands’. As much however as the names of UK universities will become metonyms for campuses some distance from where
they originate, the reality is the most desirable degrees, and so those where universities will enjoy the greatest pricing power,
will be those earned closest to the original campus. There will no doubt be those arguing that synonym campuses of British
universities in say China will save students on the travel and living costs in being based far from home. They will claim these
savings can be passed on to increased student fees. I would however argue that a degree taught in the UK has both positional
value and Veblen good qualities. Given Such premiums our universities would be wanton not to capitalise.
A case study of rare value
In this short aside let us consider this extract from the paper “Britain’s valuable property CREdentials, issued in January
2016:
Into the 1990s, momentum began to build (sic) towards regenerating the generally run-down King’s Cross
and St Pancras areas of Camden in central London. In 1997, after years of delay, the British Library opened,
the largest public building to be constructed in Britain in the 20th century. Soon after the opening of the
British Library on one side of St Pancras Station, efforts began at the other to create the new London
terminus for Eurostar. Work on HS1 began in 2000 and the London terminus of Eurostar moved to St Pancras
from Waterloo in November 2007, ushering in the revival of the whole of the station and triggering efforts
to redevelop more widely, not least spurring on efforts to regenerate the neighbouring King’s Cross station
and its environs.
The University of the Arts has become notable as the first occupier of King’s Cross Central where its Central
Saint Martins campus is located (unifying a number of formerly disparate buildings into a single, purpose-
built and state-of-the-art college site). The ongoing redevelopment is proving one of the largest construction
projects in an already frenetically building London.
We draw upon this extract for a number of reasons. One is to point out that in releasing space to the UAL the developers
did not follow the “line of best commercial practice”. For the reality is that the regenerated Granary Building of Kings
Cross, in which Central Saint Martins is now located, could easily have been let to tenants paying a more lucrative rent
(Google were very quick to pre-let a mammoth one million square feet close to the Granary Building). Argent however
considered the bigger commercial picture in accepting the UAL as a tenant. They reasoned that having such a creative
educational institution as Central Saint Martins in the heart of Kings Cross, they would attract an impressive and varied
array of commercial tenants to their developing “campus”. UAL were quite frankly fortunate that Argent could see the
value of their presence in a development in which occupancy was so competitively contested. Not all developers have
been, or are so farsighted. This myopia will increasingly leave London’s universities overlooked.
Another reason we draw on this particular instance is that it illustrates how those remaining areas of Central London
which provide development opportunities are fast disappearing. And for London’s Higher Education Institutions this
increasingly rarity means fewer and fewer opportunities to expand “close to home”.
To close the upshot is that in their efforts to expand campus capacity to meet increasing demand for places, London’s
universities will find fewer and fewer prospective locations close to home.
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4.11 A scripted University Challenge
This research has made the case that from London being a magnet for universities from beyond it opening “satellite
campuses”, its eponymous colleges will themselves begin to see their expansion fortunes best served beyond the capital.
These centrifugal forces will be spurred on by real estate practicalities, specifically that development space across central
London is becoming ever more limited, and what is available, priced accordingly. However, let’s suppose we are wrong in this
assertion. In the event we are mistaken, this is what is likely to unfold.
With their capacity constrained by space and without creating their own satellite campuses beyond London, its university
colleges will find their only means of increasing fee income is not through heightened student enrolment but heightened
tuition fees; an option which many within their ranks will no doubt try to obstruct. Indeed, ultimately the confluence of rising
demand but relatively inelastic supply cannot fail to inflate entrance requirements and tuition fees, both combining as
rationing devices.
As London’s higher education institutions grapple with how they can increase incomes but less and less able to increase
student numbers, many other universities across England will be exploiting their access to comparatively affordable
development land to expand campus capacity. The result will be that many of England’s “provisional” universities begin to
see their financial fortunes improve. This would in turn help in their efforts to recruit “star” academic staff, and very possibly
enticing those teaching and researching in London. By thus becoming ever more competitive in attracting staff, so universities
across the midlands and elsewhere will find themselves moving up academic “league tables”. This will see them ever more
favoured by those using these tables when choosing where to study in the UK. This sequence of events would hardly fail to
entice a – belated response – from London’s university colleges. By this time of course, the “best” development land beyond
London will most likely have been taken up by provisional universities “moving first”.
In short, for one to assume that London’s university colleges fail to develop campus capacity beyond their traditional central
hubs, one has to assume they are uneducated in the concepts of first mover advantage.
Sky high naming rights for regional campuses
Those flying into or from airports in Southend (Essex), Stanstead (Essex/Hertfordshire border),Gatwick (Surrey) or Luton
(Bedfordshire) will have noticed that all have the additional appendage of “London”, this despite there not being located
within it and some at no inconsiderable distance from it. The reality is that with airports giving themselves names in
breach of strict geographic appellations, why shouldn’t London’s university colleges do so too? Indeed, one is less likely
to take issue if the academic staff in a satellite some distance from the core are of the same calibre as of the ‘home’
campus, than if one had booked a hotel room in London only to find the airport into which one is arriving is some distance
from it. The point is that whilst there may appear to be some degree of name misrepresentation in both cases, their
extent is quite different. Indeed, do we actually feel there has been some misrepresentation or that we have been misled
when we buy a pastry from the Primrose Hill Bakery on Kensington High Street, even though it is some distance from
Primrose Hill itself? The issue here is consistency of product. For if the degree being taught at the “provincial” campus of
say Kings College London, has the same calibre of academic staff as work in the campus along the Aldwych comparability
of educational quality is assured. The simple truth is that the spatial designations of British universities are not the subject
of any form of PDO (Protected Designation of Origin) rules. Just as much as customers are drawn to the Primrose Bakery
on Kensington High Street because it is more convenient to them but of the same quality as the original on Primrose Hill
(Gloucester Avenue to be precise) so those buying education from the LSE or UCL will not much mind whether it is from
within London or somewhere else across England where the product is of the same quality.
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4.12 Cap in hand to consolidate
We have suggested that the expansion ambitions of the UK’s ‘urban’ universities will be frustrated by their exhausting the
available and affordable areas around their original city and town centre campuses. They could of course see this as the
maximum head room of their ambitions. However, we very much doubt this will be the case.
As we know, when something with momentum reaches a barrier, it tends to redirect itself to where there is no obstacle or
certainly less of an impediment. And this is precisely what we expect of those UK universities which become capacity
constrained. After all, the ambitions we speak of here stem from time honoured competitive human instincts.
Those charged with stewarding universities across the UK’s higher education industry share the competitive instincts of
managements across any commercial industry. And whatever their protestations that they have a ‘higher calling’, Britain’s
‘public’ institutions of higher education are now very much part of its private sector. As such, we need to consider the
potential for consolidation or M&A.
There is an argument that as the lines between universities become blurred by their overlapping into one another’s traditional
territories, they might actually begin to see they can share costs, in some form of cooperation. If this is indeed what we
eventually see, the result of greater cost efficiencies will be to accelerate still further enrolment. After all, shared
administrative and other fixed costs should release funds for front-line teaching and through this increased student numbers
– British born as well as generous fee payers from overseas (table 11).
Brainy Bonds
This research has made the case that British universities can enjoy a virtuous revenue and investment cycle if they open themselves
up to ever more high-fee-paying students from beyond the EU. There will no doubt be those curious as to how our universities will, in
the first instance, find the capital to build-out their campus capacity to allow in more students overseas. The answer lies in Brainy
Bonds.
The first public offering of a bond by a British university – £35 million by Lancaster in 1995 – did not start auspiciously. In the event,
Lancaster ended up paying compensation to its bondholders whenever its rating slipped. After a disastrous restructuring, where the
university essentially gave up control over future projects to its insurer, Lancaster paid off early its bondholders, costing the university
£15.9 million beyond the interest already paid. With another unhappy experience with the University of Greenwich, no other university
resorted to bonds for financing until only very recently.
De Montfort began in July 2012, raising £110 million. The University of Cambridge followed in October, raising £350 million,
hypothetically to build new housing and research facilities. And on 4 July, the University of Manchester announced it too would go to
the bond market through a 4.25% coupon bond maturing in 2053 to raise £300 million to help fund the Manchester 2020 Strategic
Plan. The plan will involve £700 million spent over the next seven years to expand teaching and research facilities as part of its aim of
becoming one of the world’s 25 most important research universities; an ambition it could not see being achieved through public
funding. With Manchester’s healthy surpluses (£49 million in 2012) and large endowment fund (£158 million in 2012, the third largest
in the UK) there was little surprise its ‘Brainy Bond’ was four times over-subscribed.
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4.13 More than a Two Horse Race
It is a perennial wise-crack which we certainly cannot resist voicing at least once each spring. Whenever I hear mention of the
University Boat Race – contested over 4.2 miles of the river Thames – I quip how remarkable it is that in over one hundred
and fifty years, the same two teams have manage to reach the final. Now this very tired joke has a very serious side. For
across all the UK’s great many great universities, Oxford and Cambridge, or Oxbridge as they conjointly have become known,
are something of first amongst equals. And merely equals they are with the likes of Exeter, Warwick, Imperial, LSE, Edinburgh
and many, many other institutions of higher education across Britain, if one compares them faculty by faculty. It helps of
course that whilst the colleges of the University of London contest rankings, those of Oxford and Cambridge do so with a
collective strength. It also helps that the Oxbridge architecture and their natural surroundings conjure up in most minds what
a University should look like in a way say, the built and natural environments of the university of East Anglia or Brunel cannot
do. The reality is that as much as space to build out university capacity across London is at an ever greater premium, Oxbridge
too is close to its capacity constraints. In racing to take their respective brands out across the UK, do not imagine London’s
colleges come third to an Oxford and Cambridge one-two.
Table 13: UK University Rankings – Domestic Table 14: UK University Rankings – International
Rank University Name Rank University Name
1st Cambridge 5th Cambridge

2nd Oxford
6th Oxford
3rd St Andrews
4th LSE 7th UCL
5th Imperial College London
8th Imperial College London
6th Durham
7th UCL 23rd King’s College London
8th Warwick
23rd Edinburgh
9th Lancaster
34th Manchester
th
10 Loughborough
35th LSE
44th Bristol
57th Warwick
Source: QS World University Ranking 2018, The Complete University Guide 2018, Toscafund
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Without prejudice
Like it or not, or more to the point warranted or not, “class prejudice” continues to permeate the UK’s Higher Education
Industry. The prejudice we refer to is not any conscious bias where particular socio-economic classes are favoured with
places over others, but a distinction in the class of certain universities over others. There is the split between Russell and
non-Russell group universities. There is also the fact that former polytechnics and teacher training colleges continue to be
bucketed “as a class apart” from traditional universities. We also have the distinction between red brick universities and
those that pre-date them, not least the dreaming spires of Oxford and Cambridge. True these distinctions are not what
they once were. This accepted they persist in the minds of Britons two decades after an attempt at singularity was initiated.
We argue however that such biases are far less pronounced for beyond looking into the UK from outside.
Now whilst we are not claiming that applicants from the likes of China will be unaware of the histories of the UK’s
universities we are confident they will for the most part be far less conscious of their “class” than we continue to be.
Whether or not we persist in being prejudiced by a sense of plurality in the “brands” across our higher education system,
for those looking to study here from the emerging world and in particular China, it will be seen in the very much singular
form of British branded.
Chart 67: Percentage change of Non-EU students Chart 68: Percentage of non-EU students
50 30
%
40 25
30
20
20
15
10
10
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 5
-10
0
-20
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Warwick Coventry Warwick Coventry
To illustrate our point we have considered the growth in non-EU student numbers for the University of Warwick and
Coventry University (chart 67 and 68). Whilst there isn’t much to separate these geographically there is a great deal of
difference in their histories. After all until quite recently Coventry was a “mere” polytechnic. This said it has grown its non-
EU numbers – including Chinese – more impressively than Warwick and now boasts a larger share of these; a share which
will rise for both but not at a rate prejudicial to the parvenu university that is Coventry.
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4.14 Driving forward with a wide range of educated options
From VW owned Bentley to BMW’s Rolls Royce Motors across to JLR owned Jaguars and Range Rovers, to part Daimler owned
Aston Martin, the UK can boast capacity to assemble some of the worlds most desirable and expensive road cars. The UK’s
automotive industry is of course not confined entirely to the high-end, as it is home to plants assembling Toyotas, Nissans
(45% Renault owned) across to Minis (BMW). For all these marquees, export sales are a crucial part of their commercial
success.
Just as the UK’s automotive industry provides a range of branding and pricing options for buyers from overseas, so does its
Higher Education Industry (HEI). And the experience of the UK’s automotive industry is a template for its HEI. From the
prestige to the budget car marquees made in the UK, output has grown significantly. In fact, once low volume brands are now
being assembled in high volume, helped by the addition of models. To achieve this, built capacity has been added and labour
recruited. So we should expect that Oxbridge and Imperial college grow their enrolments from overseas and so too the
universities of Sheffield, Coventry and Leicester.
This of course raises the question of which faculties should have their capacity raised by most. The reality is that whilst being
here will carry a luxury cost, for the most part the increasing keenness in China and India to be educated in the UK will be
focused on vocational study. This is in no way to diminish say the classics or claim these will see no increase in interest. All
we are arguing is that growth in interest will be outpaced by ‘practical’ courses. After all, those families committing
considerable capital sums to educate their offspring will be doing so because they view it as an investment that will deliver
generous returns.
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4.15 The importance of visas and transport links between the UK and China
We talk extensively of the potential for a considerable increase in the number of Chinese studying within the UK. Our
reasoning is that if access were unrestricted, then an escalating number of Chinese will come here for their education:
boasting the financial power to pay and grades to qualify them. They will come, that is, if we have the university capacity to
accept them. And they will only come if we provide them with student visas. These in essence are the two limiting factors
which we have the control over, and hopefully will control wisely.
Fortunately, considerable efforts have been made to ease matters for those Chinese wishing to travel to the UK to study. A
big improvement came following unprecedented trips to China back in late 2013, when the Chancellor and Mayor of London
jointly visited Beijing in October; the Prime Minister journeying to it a few months later. Indeed, to get an idea of the speed
of both China’s development and its growing engagement with the UK, we can refer to official visa statistics. In 2005 figures
showed that 124,000 visas to travel to the UK were issued to Chinese nationals, accounting for 6% of the total issued, barely
one in seventeen. By 2016, the figures were 580,000 visas released to Chinese nationals, or almost one-quarter of the total,
whilst student visas granted rose from 20,000 in 2005, to over 93,000. Indeed, if we annualise figures for the first nine months
of 2017 the indication is that we are heading for an increase of almost 22% to over 114,000, representing over one in three
of all student visas (chart 69).
Map 14: Existing & predicted airports linked to direct

Chart 69: UK student entry visas granted to Chinese nationals
flights to China
120 40
Thousand
35
100
30
80
25
60 20
15
40
10
20
5
0 0
2005 2007 2009 2011 2013 2015 2017
Student visas granted % of Total Student Visas granted (rhs)
Source: Home office, CAA, Toscafund (Predictions as to which airports can have direct flights to China in the future are based on whether they have
any long haul flights currently operating)
It has also been made clear that as the number of Chinese studying in the UK increases, so will the number of Chinese wishing
to fly into and out of the UK. Here we speak specifically of family and friends visiting those studying here, as well as graduates
on occasion returning to their alma mater. Fortunately, what could have proven a limiting factor, has recently been addressed.
Specifically in October 2016 Chris Grayling, the UK’s Transport Secretary, announced a more than doubling in the number of
flights between China and the UK from 80 to 200 everyday, removing all restrictions on which airports in the two nations
airlines could operate from. Importantly even before this announcement, Manchester Airport had seen its first direct
scheduled flight linking it with China. As for which of Britain’s airports will open up new and/or additional routes to China,
one can be confident in this prediction. The connections between Chinese and UK airports will align with which universities
open up their capacity most to students from China (map 14).
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4.16 Remote learning
In this short aside, we reflect on where some claim the real growth in the UK’s higher education industry lies, namely distance
learning. In fact, two aspects of education are captured by the notion of distance learning. There is the considerable potential
for the UK’s higher education institutions to open campuses remote from where they are based. Rather however than expect
as we do that they will expand around the UK, there are those anticipating they will choose to focus their efforts at growing
their brands overseas. In short, far from a surge in Chinese students arriving across the UK, they will instead largely stay put
as the UK’s universities go to them. What the latter means is a failure to see our predicted surge in the development of
campuses and dormitories across the UK. If this were not enough of a threat to the UK’s educational real estate revolution,
there is another being suggested.
In this age of “virtuality”, there are those claiming there is no need for Chinese or Indian students to come to the UK, nor for
that matter for our universities to create campuses in China or India. The argument is that Britain’s universities will not build
out any physical campus capacity to accommodate a surge in enrolment but rather their technology platforms.
The idea of distance learning is hardly new of course. Just consider the Open University (OU) which was established in 1969
and in the 2014/15 academic year had 173,889 students within the UK and 8,353 beyond it. Rather however than the OU
provide a template for the UK’s Higher Education Industry to develop “real estate light”, it highlights the continued
importance of having a physical presence. As well as its main campus in Milton Keynes, it occupies real estate widely across
the UK.
Whilst not dismissing the growth of distance learning within the UK’s higher education industry for a growing number of those
coming of university age, this will be no real substitute for the real thing of being ‘on campus’ in the UK.
China to the English Manor Born
The educational cache held by the likes of Cambridge, Oxford, Edinburgh, el al. is as undeniable as it is exploitable. Just
consider London where private colleges have taken names uncannily similar to the Capital’s illustrious educational
institutions, some close enough to only add to the illusion/deception. With this in mind let us reflect on how the change
of ownership of an imposing building steeped in English history has become a contemporary example of how China is
being educated in its approach to investing in the UK.
Around four miles from the hallowed college halls of Oxford sits Boars Hill. This 15 acre site is the former estate of the 8th
Earl of Berkeley. Its centre piece is the imposing 19th century manor Foxcombe Hall. For forty years this was part of the
Open University until it was sold in 2017. Although specifics are unclear, against the backdrop of competitive bidding,
including interest from an unarmed ‘Oxford College’, the winning bidder was Peking University. From the summer of 2018
Boars Hill and Foxcombe Manor within it will begin to House students attending the Peking University HSBC Business
School (PHBS). This was a venture first launched in China back in 2002, the year which this paper pinpoints as a watershed
for the Chinese economy.
The purchase of Boars Hill is notable for a number of reasons. There was for instance its timing, coming as it did well after
the UK referendum on its EU membership. There is also the location; close enough to Oxford to bask in its naming glory,
but in reality in no way part of the University of Oxford itself. Thirdly that the growth ambitions of one of China’s most
well regarded universities was achieved at the expense of one of the UK’s, and on its own doorstep. If one is seeking the
zeitgeist of China’s ever more educated engagement with the UK, look no further than Foxcombe Manor.
72
5. Conclusion
This paper makes much of the escalating affluence of Chinese households since their nation joined the WTO in 2002 and why,
from 2020, this will dramatically increase applications to Britain's universities. India too will contribute to this rise, albeit not
to the same extent. Soon then we will notice a change in where in the world our student body originates as well what it
expects of where it lives. This will not simply be in the quantity of its residential needs, but more generally in the quality of
the goods and services students from overseas will demand. The result will be a cultural and economic exchange and
enhancement to Britain.
The thrust then of this research is that the UK’s Higher Education Industry needs to prepare for a surge in “quality”
applications from overseas. And to repeat the argument behind this claim is the irrefutable evidence of how far the economies
of China and India have advanced since the turn of the millennium. This has meant a considerable increase in the number of
those born since 2002 who are now part of families affluent enough to fund their higher education as they “come of age”
from 2020; to fund their higher education in general terms. And more specifically to fund a period of study overseas, and in
particular in one of the United Kingdom’s universities.
In making the case that the UK’s universities need to expand their campus capacity, we are in no way claiming this will come
at the expense of building-out remote or satellite capacities in the likes of China or India, far from it in fact. The UK’s
universities should develop their brands both at home and abroad, these providing one another with complementarity rather
than competition. For reasons of affordability or “home comfort”, a China or India based British-branded University issuing
UK-accredited degrees will no doubt be an attractive education option. This will, however, almost invariably, come second to
being educated at the “real thing” in Britain. For the positional value of UK based education should not be underestimated,
nor too its Veblen Good nature; a high price will not deter but attract. So in short, the UK’s universities have the ability to
build out their UK capacity alongside, not at the expense of nascent campuses overseas.
This research then claims that the UK is on the cusp of a steep rise in the number of applicants to its universities, in particular
keen students from China. It does not claim these prospective students will be different in any way from what we have
become accustomed to. Many are likely to spend what time they pass in the UK in perfunctory study, choosing to enjoy the
social side of university life just as those originating from within the UK and other nations are known to do. The difference
will be purely in the sheer number of Chinese arrivals and their average familial wealth. Indeed, even though their academic
scores are likely to be in line with traditional averages their social spending is very likely be above averages we have seen,
and in particular what they will be willing to pay for accommodation. As a consequence the UK’s real estate markets will be
transformed from 2020.
Increased student enrolment across the UK’s Higher Education Institutions cannot fail to economically empower the real
estate markets which surround growing campuses. This ripple-out effect will encompass residential, retail and leisure. In fact,
it will extend across a raft of business service sectors, not only those facilitating activities within the higher education
institutions but those working in collaboration. Just consider for instance the development and extension of business and
science parks which capitalise upon the academic research emerging from ever more industrially sized and commercially
focused universities. Now whilst there will be a case that existing parts of the real estate linked to universities can be more
intensely utilised as student numbers grow and so without the need for expansion, this cannot be said to be the case for
dormitory capacity. We have of course argued elsewhere that, were the UK to shift from three to two-year degrees, this
would allow for a sharp increase in annual enrolment without the need for any significant expansion in university estates.
The reality however, is that whilst such a “revolution” is warranted, it is unlikely to happen with any expediency, and would
most likely be drawn out, were it to indeed to occur. The reality is that if even if our growth projections for the number of
applicants from overseas looking to study in the UK are close to accurate, they cannot be realised if we fail to deliver the
increased campus and dormitory capacity essential to meet this demand. With this hugely important caveat in mind let us
put into numbers what the demand for our higher educational services is likely to be in the years ahead.
Using a combination of demographic and macro-economic data from within China since 2002, we predict that in 2025 there
will be something in the region of 117,000 applicants from China keen to enter the UK’s higher education sector. Numbers
will increase to 239,000 by 2034. For context the most recent figure for 2016/17 was 66,415. It is true that these merely
represent estimates for the potential volume of applications from China, and are based upon a number of ceteris paribus
assumptions. However, we do not consider these assumptions as either unreasonable or doing more than simplifying matters
73
rather than characterising them. In terms of what these figures mean for the overall number of Chinese students in the UK,
they are 236,000 in 2025 and 554,000 by 2034, compared to 95,090 in 2016/17. Moreover, whilst China has the promise and
potential to be a sizeable source of student applications to the UK, so too does the other emerging behemoth, India. Those
doubting that between them China and India have the potential to absorb a considerable expansion in UK university capacity
have not reflected hard enough on how many births there have been in these nations since 2002. Neither have they
considered fully how rapidly those born since 2002 have grown up in families whose wealth has been escalating, so much so
in fact that buying a British education has come within the grasp of ever more of them as they turn eighteen.
Chart 70: 1st -year Chinese students in UK HEI’s Chart 71: Total Chinese students in UK HEI’s
250 600
Thousand
Thousand
500
200
400
150
300
100
200
50
100
0 0
7% (core projection) 5% (lower case) 7% (core projection) 5% (lower case)
Source: HESA, OICA, Toscafund Note: 1st grey vertical denotes 18 years after China accession to the WTO, 2nd 18 years after 2008 Global Financial Crisis,
3rd 18 years after end of One Child Policy
The projections make no assumptions on the future of fees for students from the EU27, or how applicants to our universities
from overseas are treated in the context of migration statistics. This said, two points are made perfectly clear though. One is
that those institutions which continue to show favour in fees to students from the EU27, over those from beyond it, will fail
to fully capitalise on the willingness of applicants as far afield as China and India, to pay generously for a British education.
The second point is that continuing to include fee-paying full-time students in migration statistics is not in the UK’s economic
good. With this in mind we welcome the UK government’s recent announcement that it had commissioned a report into the
net `socio-economic impact of those entering to study’. Although I, like everyone else, will have to await the reviews findings,
I am confident there will be the grateful recognition of the considerable economic good that generous fee paying foreign
students bring to the UK. I can also only hope that the report recommends student numbers are excluded from migration
statistics, and encourages that study visas are made more readily available, particularly to those applying from the growth
behemoth that is China.
It cannot be stressed enough that the regional distribution of overseas students in 2034 is likely to be quite different from
what it presently is. For both EU27 and non – EU students, London will lose its attraction as the university campuses within
London struggle to expand. Also if there is any commercial sense to such things, the lower cost of entry for EU27 over non-
EU students to study in London should end. And if/when the EU27 student fee structure aligns with that for non – EU students
this will reduce the draw of London for EU27 students. Whatever the chances that fees in England for EU27 students aligns
with those from beyond it, we see little likelihood of matters changing in Scotland for the foreseeable future. This will ensure
it fails to fully capitalise on the surge in Chinese applications to study in the UK predicted in this paper. Looking at the cost of
development land and real estate across regions, and taking into account the accessibility of towns and cities within these
regions, we predict where campus capacity will increase most rapidly and where satellite campuses of London universities
are likely to appear. In all these respects the, areas around London, the Midlands and the Northwest of England and Yorkshire
and the Humber are all in the running.
74
5.1 A picture of success

For each year out to 2034 – when those born last year will turn 18 – this paper provides predictions for the number of those
within the UK and outside it applying in the hope of attending our universities. The research also identifies how this growth
in successful applications is likely to be distributed across the UK. The rise in numbers is predicated on past and projected
demographic and macroeconomic developments, not solely in the UK, but as far afield as China and India. For its part the
basis for painting the spatial picture in 2034 is a combination of the political policies and real estate practicalities at work
within the UK now, alongside what is likely in the future.
Table 15: Regional HE student development (UK & ex-EU) Map 15: Regional HE student distribution (UK & ex-EU),
change between 2015-16 & 2034-35
2015-16 2034-35
Growth (%)
(000s) (000s)
East midlands 155 318 105
Northeast 97 169 75
Yorkshire 186 325 75
West midlands 185 321 74
Northwest 221 363 64
Southwest 151 251 67
Southeast 328 541 65
East 93 140 51
Northern Ireland 53 57 9
London 328 350 7
Scotland 215 220 2
Wales 123 127 3
Source: HESA, ONS, OICA, Toscafund
Scotland’s poor relative performance is accounted for by the generosity its political leadership chooses to show in the fees
charged to successful applicants from ‘home’ and the European Union (England excepted); generosity that is, when compared
to what is being demanded by Westminster of universities across England. The consequence is Scotland in effect ‘crowding-
out’ applicants from across the emerging world and so missing out on the full potential of their high fees.
75
Turning to London the poor growth picture can be explained by spatial constraints on campus expansion within it. As for the
East of England, containing as it does the world renowned Cambridge, the issue is not lack of growth in applicant interest or
poor connectivity – in all its forms. Rather, as with London’s universities, the constraint on expansion is access to affordable
real estate ‘close to home’. With this in mind the question is over how far might the respective King’s Colleges’ of Cambridge
and London be willing to take their campus development to capitalise on global demand for their brands? We have to admit
that for Cambridge one is torn between a recognition of the considerable development potential across Cambridgeshire and
the fact that outlying areas, close as they may be, are known to frustrate in their general accessibility. One region which
emerges as being as densely populated with students in 2034 as it is today is the South East. This region extends from Oxford
and Reading down to Southampton and Brighton and across to Canterbury. And whilst some of the Universities contained
within this region face the same campus growth constraints of London and Cambridge, we would argue that considerable
room for growth exist in parts of the region. This said we cannot help being most excited by growth prospects across what
can best be described as Central England – the Midlands, the North West and Yorkshire and Humberside. The array of
‘branded’ universities which this region contains, their transport connectivity and the availability of real estate to develop
close to their existing hubs, is there to be commercially capitalised upon.
We will close this section with the following observation concerning our projections of how university students are likely to
be distributed across the United Kingdom by 2034. Each development in the years ahead in student fees and transport links
across the UK will force a re-evaluation of how the steep rise in applications for British degrees will be capitalised across it.
What we present here is our best guess using the information at hand and assuming continuity. As much as change is likely,
one only hopes it is educationally enlightened for the UK economy
A few words on the transformational impact on the UK economy of China’s evolution

Toscafund has written extensively on how the sizeable inflow of Chinese financial-capital to the UK has been driven by
Beijing’s self-interested economic management. This accepted we have made clear that this arriving financial-capital has
served the UK’s economy perfectly well. For its part this research has its focus on the recent and future arrival of China’s
human-capital to the UK. It looks specifically at the transformational nature on UK higher education of those born in China
since 2002 “come of age” from 2020. The reason 2002 is so important is that it is the year when the economy of this huge
nation began to rapidly develop and internationalise, and its currency doubled in value relative to the pound. It is instructive
to note that China's post-2002 birth cohorts – the oldest of which turn 16 this year – have already had a noticeable impact
on the UK's fee-paying boarding schools. This is an influence not examined much in this piece because it is quite frankly there
to be seen in plain sight.
Let us reflect for a moment on statistics from the Independent School Council (ISC) representing as it does more than 1,200
institutions educating half a million pupils. According to the ISC in the six years to 2017 there was a 77% rise in boarders
whose parents reside in China, up from 3708 to 6559; an annual compound growth rate of c10%. This took the Chinese share
of all international students to one in four, a doubling in ten years. Indeed, if we add Hong Kong into the figures the share
rises from c25% to c40%. It is worth noting that as the number of pupils from China increasing, the overall share of pupils
from overseas boarding in the UK stood at 5.2% in 2017, not greatly higher than the 4.4% recorded in the first survey year of
1982. It is also instructive to note that 2014 proved a noticeable inflexion year in enrolment of Chinese boarders, instructive
because that was the year those born in 2002 came of 'boarding school age' (11/12). Crucially too the rise in Chinese pupils
attending UK boarding schools was coincident with, rather than in conflict with, an increase in the number of Chinese satellite
campuses of British-branded public schools. Consider also the fortunes of private equity funded BE Education. This was
founded in 2003 to facilitate Chinese pupils entering British fee-charging boarding schools. BE Education now arranges 2,000
such arrivals and has been talked of as a sizeable London listing this year.
As much then as the impact of those born in China since 2002 has already begun to be felt in the UK in both financial and
human capital terms, we must not imagine this will be interrupted, for it will be unrelenting. Neither too should we
extrapolate it in some linear fashion, for it will be exponential. And we should be prepared to see the influence spread widely
across the UK economy as China's post-2002 generation reaches each new age milestone.
76
Chart 72: Chinese boarders with parents living overseas Chart 73: China’s 2002 babies HAVE impacted our
boarding schools and WILL do so for our universities
7 7 200
Thousands
24
%
6 22 180
6
Thousand
Thousand
20 160
5 5
18
140
4 16 4
120
14
3 3
12 100
2 10 2 80
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2007 2009 2011 2013 2015 2017
Number of Chinese boarding students 2013 2015 2017 2019 2021 2023
Share of total students with parents abroad Chinese boarding students China total students
Source: ISC, Toscafund Note: RHS shows share of International boarders, Grey vertical denotes 2002 birth cohort at ages 11/12
This paper makes clear that for our universities a dramatic watershed change in applications from China is set for 2020, when
those born there in its economic inflexion year of 2002 turn 18. Other years of dramatic change are certain thereafter. There
will be a step-change in 2027 when those born in 2009 – the year China swiftly and successfully re-orientated to deal with
the developed world’s 2008 financial crisis – come of university age. Another acceleration in applications will be witnessed
in 2034 when the first Chinese generation born free of the One-Child-Policy turn 18. To repeat, these are the transformational
years specific to UK universities. Elsewhere across other sectors of the UK economy the inflexion years will be different;
different yes, but no less dramatic and favourable.
From 2024 those born in 2002 and who have attended university will seek to enter the UK's labour market. Their impact in
this instance will be no less transformational than their effect on our universities. The sharply rising number of Chinese
graduates entering the world of work will look to the UK not simply for employment but to insure themselves and their
property and to engage with it more extensively. As they become parents many will wish for their children to have the UK
preparatory education they were fortunate to enjoy. These ranks will be swelled by those who did not experience a British
public school education because their family fortunes at the time did not allow it, but who have the finances to provide this
for their own children. As the post 2002 generations move on in their career fortunes their impact will be felt by UK car
makers, hoteliers, restaurants, theatres, football clubs and all other sectors whose goods and services they seek to enjoy.
What must be stressed is that in painting the future in such broad brush-strokes we employ the law of large numbers in
dealing with China. In fact it is because the numbers we are dealing with are so unprecedentedly large they cannot fail to
offer up a credible picture of the UK's future engagement with the Chinese economy, an engagement which will prove
extremely well educated.
The UK and China: On a Loop
This paper has predicted that 2020 will record a marked increase in applications to UK universities from China, doing so as
those born there from 2002 begin to ‘come of age’. The research points to what has been recorded since 2014 – when those
born in 2002 came of high school age – in Chinese enrolment into the UK’s fee-charging boarding schools. And just as an
increase in the number of Chinese-born boarders attending British public schools has not conflicted with a rise in numbers
in the satellites of these within China, so our universities will increase enrolment of Chinese students, in both their UK and
nascent Chinese campuses. Chinese graduates will then move into work and the UK labour market will be one sure to be
favoured. The point worth stressing here is that there is a self-perpetuating element in all of this. Those born post-2002 will
in turn become parents and their off-spring will with time enter education and then the world of work. In short, that our
predictions end in 2034 in no way means that the pace of growth will in any way revert back to what it was but begin an
entirely new loop.
77
6. Appendices
Twenty or so years ago, the UK government embarked on an ambitious plan to change the way we viewed universities; no
longer were they to be for the elite few, but a higher education option for everyone. Tony Blair’s vision was unequivocal; he
wanted to see half of 18/19 year olds progress to higher education by 2010. In order to deliver on this, considerable campus
infrastructure projects were undertaken. To fund this building out of university capacity Blair announced the introduction of
tuition fees; fees which have now risen threefold. In the years since Blair made his commitment the percentage of 18 and 19
year olds entering Higher Education had risen continuously, reaching 33% and 13% respectively in 2016, and so taking the
combined figure tantalisingly close to the 50% Blair has targeted. With accelerated two-year degrees and more competition
between universities in the fees they charge, the number of young Britons entering university should continue to impress.
This said we look to the future of UK higher education beyond the strict focus on young Briton’s entering it, to the prospects
in a wider global demand perspective. We argue that keeping our minds open to increasing numbers of generous fee-paying
students from the likes of China and India will benefit us all. The demand will certainly be there which will require a significant
expansion in campus and dormitory capacity if it is to be met. In the short-term we should embrace increased demand by
expanding our minds to changing the length of time degrees are taught over.
In 1973 The University of Buckingham, then the University College at Buckingham, was granted a Royal Charter. It was not
only the first “Private” University in the UK to have been recognised in this way, but it remains unique in this way with a
current student body of 2,400 (1,300 living on campus). Now, if one were asked to identify the most significant innovation
pioneered by Buckingham it would have to be a two-year undergraduate degree course. Losing the third year was made
possible by the inclusion of a fourth term into the summer. Whilst this of course cut the total “holiday period” for students,
this remained a still rather generous twelve weeks each year, whilst maintaining the number of teaching weeks as for a three
year course. As a successful pioneer, one might have expected others to have followed in their footsteps. The reality, however,
is that it remains unique amongst the UK’s Chartered Universities in offering two-year degrees. A 2017 YouGov survey for
Timebomb found that 47% of students would be interested in a two-year degree option. We now need to provide them with
such an option and so too students from overseas.
Throughout this paper we make the case that for all the resistance to change and general inertia with such things there is
now an imperative for UK University’s to begin imitating Buckingham. One imperative is the weight of student debt.
Introducing an accelerated two-year degree would allow graduates to enter the workplace sooner, but ensure they are no
less educated than in the past, simply with lesser debt, which can hardly be unwelcome. Another imperative is the need to
quickly raise net revenues across the UK university sector, contributing in part to narrowing the significant shortfall in the
staffing pension fund. After all, moving from three to two-year degrees would allow universities to increase their annual
student intake and their net revenues, but do so largely within the parameters of their existing “built” campus and dormitory
capacity. We speak here of increasing intake of generous-high fee-paying students from across the world and in particular
China.
We applaud when British factories raise the share of their production destined for overseas buyers. Why, however, do we
object when British universities seek to raise their own ‘export’ activity? After all, the fees earned from teaching foreign
students appear on Britain’s balance of payments no less, say, than dispatching British-made auto-components to foreign
markets. Indeed, such soft service exports often earn more generous margins than hard goods.
Those who hark back to Britain’s exporting heyday seem to forget traditional manufacturing was all too often dangerous and
invariably mundane, with factories polluting as they produced generally low value-added goods. The reality, if one is willing
to accept it, is that Britain’s manufacturing past was not some halcyon heyday that it should strive to return to. It was instead,
a period of non-transferable skills, a time which exposed large parts of Britain to the vicissitudes of the violently cyclical
markets of the commoditised goods they were involved in, leaving them reeling for decades when the sectors in which they
were tied, floundered.
Modern Britain should capitalise on the services it has comparative strengths in, and in few areas can it boast a better global
advantage than education.
In promoting the cause of soft exports we are not dismissing the role of hard. From JCB earthmoving equipment and Rolls
Royce aero engines to prestige car making and mechanical engineering, Britain has excellences across a range of valued added
78
manufacturing sectors. However, to build on these Britain needs to encourage its young to enter apprenticeships rather than
pursue frivolous degree courses. It must also be welcoming to those from overseas who have the skills to contribute to its
needs directly or to study here so they one day might. Let us quote from a report penned in 2012 by Lord Heseltine and titled
‘No stone unturned: In pursuit of growth’:
There is pressure from business for streamlined access to qualified foreign workers to address domestic skills
shortages -particularly in science and engineering disciplines where shortfalls are projected to be ongoing
[and] the education sector too needs a welcoming environment for foreign students because this is an
important market in which the UK excels’.
This is the point we cannot emphasise enough. Applicants to study in the UK and pay generously for the privilege, should be
welcomed. Indeed the demand to do so is certain to grow strongly in tandem with the emergence of the new growth
economies, most notably China. We should ensure we not only welcome applications but expand capacity so that we can
match the growth in this demand. Britain’s smokestack past is behind it, and we should all be grateful it is. Britain’s universities
are becoming its new high volume and largely green export ‘factories’.
In the following parts, we include a collection of pieces which whilst not essential to the main body help to inform it. There
are instances of pieces written in the past which highlight how the issues covered have been fermenting and formulating with
us for some time. We also include additional data not presented in the main body, or certainly not in the same way.
Appendix 1- Chinese and Indian Proportion numbers
Chart 74: % of UK university students numbers: China Chart 75: % of UK Non- EU international students: China
versus India versus India
60
% 70
%
50 60
40 50
40
30
30
20
20
10 10
0 0
Source: HESA, Toscafund Note: After the grey line indicates predicted forecast
Appendix 2 – The Bologna Process
From the Bologna Declaration (1999):
“… we engage in co-ordinating our policies to reach in the short term, and in any case within the first decade of the
third millennium, the following objectives, which we consider to be of primary relevance in order to establish the European
area of higher education and to promote the European system of higher education world-wide:
• Adoption of a system of easily readable and comparable degrees, also through the implementation of the Diploma
Supplement, in order to promote European citizens employability and the international competitiveness of the European
higher education system.
• Adoption of a system essentially based on two main cycles, undergraduate and graduate. Access to the second cycle
shall require successful completion of first cycle studies, lasting a minimum of three years. The degree awarded after the first
cycle shall also be relevant to the European labour market as an appropriate level of qualification. The second cycle should
lead to the master and/or doctorate degree as in many European countries.
79
£/sq ft Thousands
0
5
10
15
20
25
30
35
40
45
50
0
50
100
150
200
250
300
350
400
Bedford Bedford
Cambridge Cambridge
Oxford
Source: Toscafund, HESA

Oxford
Norwich Norwich
Nottingham Nottingham
Leicester Leicester
Source: Toscafund The property archive

Derby Derby
Toscafund Discussion Paper
London (Region) London (Region)

Appendix 3 – Students and Average Rents by towns
Newcastle Newcastle
Belfast
Growth of Britain’s University Cities
Belfast
Liverpool Liverpool
Manchester Manchester
80
Aberdeen Aberdeen
Glasgow Glasgow
Edinburgh Edinburgh
Portsmouth Portsmouth
Southampton Southampton
Brighton Brighton
Reading Reading
Chart 76: Estimate of student numbers by town and cities (2015)
Bristol Bristol
Bath Bath
Bournemouth Bournemouth
Exeter Exeter
Plymouth Plymouth
Cardiff Cardiff
Chart 77: Average office rental price £ per square feet per calendar month (2015)
Birmingham Birmingham
Sheffield Sheffield
Leeds Leeds
January 2018
TOSCAFUND
Appendix 4 – Regional employment in the overall Education sector (ONS)
Chart 78: Regional Employment in Education Chart 79: Regional Employment in Education
800 180
Tuition fees To increase by: Tuition fees To increase by:
introduced introduced 45%
700 160
39%
Thousand
Thousand
140 2%
600
120
500
45% 100
400 4%
80 5%
300
60
200
40
100
20
0
0
London South East North West North East Wales Northern Ireland
Source: ONS (NomisWeb), Toscafund
Chart 80: Regional Employment in Education Chart 81: Regional Employment in Education
400 400
Tuition fees To increase by: To increase by:
Tuition fees
introduced 44% 40%
introduced
350 350 31%
63%
45%
Thousand
Thousand
300 300
250 250
200 1% 200
150 150
100 100
50 50
0 0
West Midlands East Midlands Scotland South West East Yorkshire and The Humber
Source: ONS (NomisWeb), Toscafund
81
Appendix 5 – From Toscafund Discussion Paper – Growth of Britain’s Primary Cities (October 2013):
Mini-University Challenge: Reading vs. Oxford, Cowley
There is a 'world' of difference in how British based 'industries' contribute to its balance of payments and their regional
representation. For as welcoming as rising car exports have been to its economic recovery, we need also consider the
contribution to Britain's balance of payments from other less obvious but far more regionally spread sectors.
Consider the export of any one of the 250,000 Mini's - c80% of total production - made in Cowley, Oxford - employing 3,500
- to a buyer in say Indonesia. Now compare this to the University of Reading - 28 miles away and employing 4,000 - selling a
degree to the younger brother of the buyer of the Oxford-made Mini (map 13).
The basic Mini “First” model costs just under £12,000, equivalent to what an international student pays in a single year to
study at the University of Reading. And whilst the fees for the degree are paid for three years, the Mini is purchased once.
Since to assemble a Mini, 60% of its components are foreign imports, when calculating the value added in Britain, their cost
has to be offset against the car's selling price. Of course, to produce a degree, academics are essential and some of these will
be foreign. These 'imports' enter Britain in need of accommodation and once housed, consumer goods and services, just as
will the student from overseas they will teach.
Whilst it is impossible to calculate precisely the total return to Britain of 'exporting' an undergraduate degree, one can be
confident it is more than exporting a Mini, and arguably only bettered by a very high-end Bentley. This said, part of the
'surplus' earned by exporting a (VW) Bentley or (BMW) Rolls-Royce - just as that from exporting a (BMW) Mini - is ‘repatriated’
to Germany (BMW is of course investing £760 million across the three UK plants until 2015 to increase capacity). Contrast
this with the value-added from 'exporting' a degree, almost all of which remains within Great Britain. And as with its globally
sought after cars, so with its degrees, their cache being “Made in Britain”. The themes are moreover not unconnected. Whilst
in Britain, and again when – indeed if - they return to where they originated, students from overseas may opt to own a British
made car.
82
Appendix 6 – From Toscafund Discussion Paper – UK Private Rental Sector – Multi-Year Growth (July 2015):
Section 10 – Students
I have made much of the importance to the UK’s private rental sector of full-time students. Not least will be those arriving
from overseas to advance their education and in need of somewhere to live whilst they do so. With this in mind table 3
highlights the considerable gearing of London’s universities to students from beyond the EU. Rather however than imagine
‘provincial’ England is eschewed by overseas students, I can see that Higher Education Institutions (HEI’s) across the North
East and Wales have significant non-EU student representations. Looking ahead I have little doubt that the ‘penetration’ of
overseas students will increase into English HEI’s, with much of this reflecting raised capacity. And to repeat increased student
numbers will necessitate an expansion not so much in ‘dormitory’ space as desirable student accommodation. I would also
like to spend a moment on ‘regional creep’.
Over recent years London has seen the arrival of off-shoot campuses from the likes of Liverpool University and the University
of East Anglia, as well as Warwick Business School and Coventry University. Rather than simply suggest this usurping of space
into London will merely ease off, I will argue that such ‘regional creep’ will begin to be recorded in the opposite direction.
London’s HEI’s will very soon come up against capacity constraints, and when they do they will face land and labour cost
headwinds thwarting their expansion ambitions across the city. This will force them into developing off-shoot campuses
beyond London, indeed well beyond The Capital. Such new capacity will be more cost effective for the university and its
students, with no shortage of academics and support-staff willing to relocate from London given their own cost-of-living
benefits in doing so. Whether University College London or The London School of Economics, I see no inconsistency in these
operating campuses beyond the city whose name they carry in their titles. After all, students from overseas - and more
importantly parents funding the experience - will be more than satisfied to be receiving an LSE or UCL education in the UK,
whether this happens to be in London itself or Lancashire or Staffordshire, indeed wherever else a new campus is developed.
And with a new campus will have to come student accommodation, which is where the story reconnects with that for the
development of private rental property.
TABLE 16: Top 10 universities ranked by the share of TABLE 17: Bottom 10 universities ranked by the share of
Non-UK/EU students Non-UK/EU students
Region University Non-UK/EU % Region University Non-UK/EU %
London London Business School 52.5 Scotland The University of the West of 2.7
Scotland
London London School of Economics and 48.9 West Midlands Harper Adams University 2.2
Political Science
London London School of Hygiene and 39.6 Scotland University of the Highlands and 2.0
Tropical Medicine Islands
South East The University of Buckingham* 35.4 Scotland SRUC 1.9
North East The University of Sunderland 33.1 West Midlands University of Worcester† 1.9
Scotland The University of St Andrews 33.1 South East The University of Chichester 1.8
London University of the Arts, London 32.9 South East Canterbury Christ Church University 1.6
London Royal College of Art 32.0 Yorkshire & Leeds Trinity University 1.5
Humber
London The School of Oriental and 31.4 East Norwich University of the Arts 1.4
African Studies
Wales Cardiff Metropolitan University 31.1 North West University of Cumbria 0.9
Source: HESA, Toscafund Notes: The Open University has been removed from the analysis and *Buckingham University is private and degrees are 2 years
Notes: Full table in Appendix 4, table 13.
83
Appendix 7 – Extract from Toscafund Issue 18, December 2012.
1. An educated export option
It is no exaggeration to suggest a more commercial university system has the potential to link closely with improvements to
the wider British economy. In tandem with its universities attracting ever growing numbers of non-EU students, the British
economy can engage more closely with the invariably strongly growing nations from where they originate. Having been
expanded considerably since the late 1990’s through significant investment, Britain’s university capacity has considerable
scope to increase still further; and crucially do so through self-funding.
There is no doubt in my mind that as they gain greater budgetary autonomy, universities will be all the more able to tap into
the voracious and lucrative market for British degrees coming from emerging economies. The resulting revenues will, I am
certain, be reinvested in increased capacity, creating a cycle no different from any other commercially astute sector: greater
supply meeting ever strengthening demand. This is not some fanciful outlook but a very plausible and realisable one for
Britain’s education sector, most notably its higher education ‘industry’.
What of the raw materials needed across higher education to ‘manufacture’ ever larger numbers of foreign graduates? There
is again little doubt in my mind that more and more academics and support staff from across Europe and indeed beyond, will
endeavour to find employment in Britain’s ever expanding education ‘industry’. As they arrive they will be part of an
expanding productive labour force, consuming as they produce and lifting demand for residential property where higher
education institutions exist.
The process of developing Britain’s education sector over coming decades will not be new, just that much more geared to
overseas students and, as a consequence, potentially on a much greater scale.
Over the years Britain has consistently expanded capacity in higher education. This accelerated from the 1950’s, lifted by both
Conservative and Labour Governments. Alongside long-established names were added red-brick, city-centre universities.
These were followed by campus institutions whose grey concrete exteriors housed colourful new faculties. More recently
1992 proved a watershed as the ‘class distinction’ between polytechnics, teacher training colleges and universities finally
ended. However, a handful of years later an ever more significant watershed began to be planned.
On December 16th 1996, whilst in opposition Tony Blair delivered a keynote speech at Oxford’s Ruskin College. Early into his
speech he delivered this line:
‘Education will be a priority for me in government... [because] our economic success and our social cohesion depend
on it’.
He went on to repeat the mantra he had first aired in his Party’s Conference a few months earlier:
‘My three priorities for government would be education, education and education’.
Tony Blair’s ambitions for Britain went well beyond reduced class sizes and improved facilities. In a speech to the Labour Party
Conference in September 1999, Tony Blair – by then Prime Minister – made this sweeping policy commitment:
‘Today I set a target of 50 per cent of young adults going into higher education in the next century’.
Crucially, to cater for the flood of student 50% enrolment would entail a significant leap in higher education capacity was
needed. To this end, universities were offered generous central government funding to expand. Far more controversially they
were also freed to begin charging tuition fees (initially to a maximum of £3,000 each year) with students offered interest free
loans to fund their studies.
The result of the considerable investment directed into higher education was that in the decade to 2007, university intake of
British nationals rose by 400,000. Of course, more recently student fees have been increased to £9,000 annually and
universities have unsurprisingly complained of falling applications from British nationals.
Fortunately, the appetite from overseas for a ‘British’ university education has never been greater. It will moreover only
increase as wealth becomes more pervasive across the developing world (see charts 80 and 81). My point is that thanks to
the capacity increase pushed through by Tony Blair’s ambitious 50% target, Britain’s universities added capacity which they
can now deploy to capitalise on considerable overseas demand for British-based degrees.
84
Chart 83: Total international students in British HEI’s Chart 84: Origin of new international students in British
HEI’s, % (2010/11 – undergraduate and postgraduate)
600
10
500
7 Europe (EC) (2006: 36%)
30
Student numbers, 000s
400
Africa (2006: 9%)
300 Asia and Australasia

(2006: 42%)
200 Americas (2006: 9%)
100 9 RoW (2006: 4%)
44
0
2002 2006 2010 2014 2018 2022 2026 2030
Undergraduate (non-EU) Undergraduate (EU)
Source: HESA, UCAS, Toscafund
Blair’s strategy on higher education provides a more than welcome example of the Law of Unintended Consequences. One
the one hand and in our opinion there was never a justification for a participation rate of 50%. This figure was entirely arbitrary
and far too ambitious, without basis in economic or social thinking. On the other hand, however, targeting this ratio required
a considerable increase in university capacity. And this, as we have already said, can now be put to use for ‘overseas demand,
and as a provider of significant and very welcome overseas income.
We are convinced that Britain’s universities – most likely those across England – offer the promise of major growth drivers
for service sector exports. Each additional fee-paying overseas student studying in Leeds, Manchester, Newcastle or Exeter
will provide valuable incremental ‘foreign’ income spread liberally across the nation. On top of tuition fees, we can add
accommodation and living expenses, and all the other sundry payments that are part of university life.
Britain will of course not be alone in attracting students from nations enjoying the fruits of economic emergence. Australia,
Canada and the United States will benefit from their reputations in education and their teaching in English. Australia in
particular stands out having already recorded strong enrolment from India and China over recent years; with numbers going
there set to continue growing strongly. After all, across Russia, India and China and in Indonesia too, English is the most
widely-taught foreign language. Despite their undoubted educational excellence, German universities will fail to attract
overseas applicants in numbers anything like Britain due to the language barrier and German degrees tending to take five
years.
However strange it may be to think of them as such, Britain’s universities have far greater potential to create value-added
foreign income than traditional factories. And each foreign academic entering Britain to work at one of its universities will
produce positive economic multipliers, requiring accommodation and consuming goods and services.
It is not simply British universities that can and will capitalise on global demand for education. British fee-paying – ‘public’ –
schools will generate their own stream of ‘export earnings’ as they educate pupils from overseas. Many of these are sure to
continue their education at British universities. Britain’s education sector, quite frankly, should be viewed as a powerful
‘exporting’ supply-chain.
In addition to the direct employment it creates, Britain’s education ‘industry’ supports numerous secondary and tertiary
sectors. Students provide customers for cafes, restaurants, bars, gyms and shops across the local economy. When their
families visit they boost hotel occupancy and create their own spending multipliers. Even when returning home, students
transiting across and out and back to Britain will produce economic multipliers.
85
Chart 85: Total international students in UK independent Chart 86: Origin of new international students in British
schools independent schools, % (2010)
70 2.7
5.3
5.5
60
Independent school pupils, 000s
50 Asia and Australia (2009: 47.0%)
Europe (2009: 38.3%)

40
45.8
Americas (2009: 6.9%)
30
Africa (2009: 5.3%)
20 Middle East (2009: 2.4%)
40.8
10
0
2000 2005 2010 2015 2020 2025 2030
Source: ISC, Toscafund
Given their undeniable and frankly inestimable ‘economic value’, no attempt should be made to restrict the inflow of
legitimate students from outside the EU looking to be educated in Britain. Sadly, recent developments have been more to
discourage than encourage fee-paying students from beyond the EU; essentially using visa issuance as a barrier. Until recently,
new graduates from British universities without EU passports were given a two-year visa waiver to look for work in Britain.
The condition has now tightened and graduates have to provide evidence they have been offered a skilled job paying over
£20,000. Foreign students are also not allowed to take degrees or masters lasting over five years.
Whilst we cannot ignore the fact that barriers to their arrivals have been raised, we are confident non-EU full-time student
numbers will increase, continuing the upward trends of recent years; commercially savvy universities certainly across England
will ensure as much. With this in mind, there is a loudening cry to remove full-time students from net migration statistics
and we can only add our voice to it. In 2011 there were close to 135,000 non-EU passport holders studying as full-time
undergraduates in British universities. In 2006 the figure was under 90,000. By 2030 we predict this figure could have risen
to 400,000, reflecting both a shrinkage in places demanded by Britons themselves and an ongoing increase in capacity
The simple truth is that there is excess capacity in the British higher education system. And this must be put to good use and
the best use of all is filling in with those keen to study in Britain and pay generously for the privilege. As universities exploit
this demand and earn the financial rewards, the likelihood is further capacity will be added.
Of course not all parts of Britain are as well placed to capitalise on ‘exporting’ education. The most frustrating part is Scotland,
where tuition to ‘its’ nationals’ remains free and encouraging young Scots to ‘crowd out’ generously fee-paying non-EU
students. There is also the absurdity, and plain illegality, of Scottish universities extending their fee-free generosity to all those
across the EU seeking a place to study, with one exception: English applicants.
Even within manufacturing, the effect of regional concentrations has been reduced. Some will, of course, argue that if Britain’s
long-term comparative advantage is essentially – but not exclusively – services, the geographic tilt of these to the South East
and London in particular exposes Britain to an unbalanced growth future. Our rejoinder is that of course Britain’s future will
be growth which is better in certain places than others. The issue is that whilst financial services will continue to be
concentrated in London, other service sectors which are certain to prospect over coming years are geographically spread far
beyond it. These will not only provide foreign income for Britain without it having to revert to manufacturing but many will
have no obvious regional concentration. If one sector epitomizes this, it is higher education.
86
Map 17: British car plants – Present Map 18: British HEI’s, figures 000’s
Edinburgh Students: 27
Staff: 12
Leeds Students: 34
Nissan 5,000 Staff: 12
employees
Cars produced 507k
Sheffield Hallam:
Students: 33
Toyota 3,000
Manchester Students: 39 Staff: 4
Jaguar, Land Rover employees
Cars produced 180k Staff: 15
40,000 employees
East Anglia
Cars produced 372k Cardiff Students: 28 Students: 20
Staff: 7.6 Staff: 6
Vauxhall 3,200 Exeter Students: 18

employees Honda 3,500 Staff: 6.2
Cars produced 118k University of London Students: 120
employees
Staff: 11
Cars produced 134k
Source: Toscafund
Take a map of Britain and pin-point on it car assembly plants. Now do the same for the country’s institutions of higher
education. It is impossible to miss the fact that whilst most parts of Britain are not exposed to car assembling there are few
parts of the country without some higher education presence. Indeed if we consider why firms in a particular industry cluster
together, we see that universities are not tied to a particular area; after all the essential input for a university is its staff; for
the most part academics are highly mobile, not simply within national borders but internationally. Of course accessibility is
important. If one looks at the advances made in the past two decades in the British transport network and the plans in place
for the next twenty years, one sees that in transport terms at least, Britain will get smaller and smaller and more and more
international. This of course raises the potential for a degree of (sic) misunderstanding and misinterpretation, even more so
than the idea of Britain’s universities being ‘overrun’ by foreigners.
From international developers and foreign investors looking to diversify, across to students and tourists looking for plush
rental accommodation during their respect stays, all add to British property demand. Some would argue that these new
arrivals to the British property market only have an effect on London. We disagree.
First let us examine the direct effect. There will no doubt be interest from international developers in projects outside of
London, particularly as Britain’s residential market begins to stand out favourably, and there will be cash rich arrivals to Britain
looking for a cottage in the Cotswolds or an estate in Yorkshire. Expanding higher education and health sectors within and
beyond London will also lift property demand. Higher education institutions are already hiring increasingly from abroad. In
2009/10, 41,765 non-UK academic staff were employed across Britain’s higher education institutions (HEIs). The NHS too
employs large numbers of non-UK staff, ranging from support staff to GPs and consultants. As with those in higher education,
arriving health-staff are spread widely across the country and provide economic benefits as consumers and tenants.
Having reflected on Britain’s capacity to create considerable current account surplus in “exporting” education, we turn to a
similar capability it enjoys in its health sector; a capacity which as with education should be deployed in satisfying demand
from those overseas and the proceeds reinvested to add capacity for Briton’s and overseas buyers.
87
Appendix 8 – Extract from “BRITIAIN’S PROPERTY CREDENTIALS”, January 2016
1.4 Educating CRE
Education is one of the UK’s most property hungry ‘commercial’ sectors, so we reflect on the recent and prospective growth.
1.4.1 British Universities
There may be some curiosity why Britain still has a predominance of non-profit making universities and other institutions of
higher education, which we have identified as quasi-CRE. After all, the enhancement they provide to the human capital of
their students will associate in general with a long-term gain, which should attract commercial and entrepreneurial interest.
The reality is that there are many privately and very commercially operated colleges across Britain serving the needs of
students originating mostly from overseas. Their reputations are, almost without exception, inferior, precisely because of
suspicions over their motivation. There is certain to be a suspicion that the motivation behind the college is less about
improving the human capital of students than about raising the financial capital of its operators. It is for this reason, where
reputation concerns are either real or imagined, that so many higher education institutions (HEIs) remain stubbornly within
the realms of quasi CRE rather than morphing into its direct form.
The University of Buckingham is an institution holding a Royal Charter and has a strong reputational standing, but it operates
with a funding structure outside the norm; a HEI which could rightly be considered to be in the private sector. The University
of Buckingham operates with charitable status, but its model is nonetheless commercial. Looking ahead, we would not be
surprised if established HEIs begin to alter their models to move closer to the funding practice of the University of
Buckingham, and so overcoming reputational risk as they become ‘more commercial’.
1.4.2 An educated CRE case study: The University of Buckingham
The University of Buckingham’s size should not distract from the growth that it has achieved and the potential it promises,
more than doubling its student body in five years, and investing generously to maintain this momentum. Whilst it may operate
with charitable status as a non-profit making body dedicated to education and research, it can boast being Britain’s first
independently funded university holding a Royal Charter. It is also unique in offering two year full-time degree programmes.
Its behaviour and experiences perfectly capture how refurbishing existing and building entirely new CRE is at the core of
successful ‘business’ growth.
Whilst we have illustrated elsewhere how a bridge can be economically empowering (in Part 1.2.5), and so be very commercial
indeed, The University of Buckingham has only quite recently shown just how this illustration can be made very real.
Consider this extract from its annual report and financial statement for the year to December 31 st 2012: “we will be building
a bridge this year over the river to link the six acres of the right bank that we now own, to the main campus. We are applying
for planning permission to start the development of the right bank.”
Here we have evidence of investing in property infrastructure being at the forefront of the development of revenue
generating CRE.
We have also reflected on the power of Britain’s CRE to generate foreign earnings. With one-third of the student body
originating outside the EU and absolute numbers growing, here again The University of Buckingham provides a real instance
of this favourable trend.
Consider also the idea that refurbishment and refocusing can bring property back into economic life. Let us draw again from
The University of Buckingham’s most recent annual report, where the Vice-Chancellor reflects on property:
“We have refurbished all of the Tanlaw Mill, from top to bottom, and it has been transformed as students’ building and as a
Students Union. And to further improve the recreational spaces for the students, we are completing the refurbishment of the
cellars in the Franciscan Building. Meanwhile the newly-refurbished Radcliffe Centre, a converted church which provides a
150-seat venue for lectures, performances and community events, has added significantly to the capacities of the University.
The refurbishment of Prebend House and of its gardens has now been completed [which we] are using as the postgraduate
centre of the School of Humanities, which speaks of our general commitment to upgrading research within the University.”
88
In this one passage, we see evidence of a church conversion, cellars being made useful as ‘recreational spaces’ and evidence
further of investment to attract undergraduates by improving the quality of their experience, whilst also capitalising on how
postgraduates can engage (often very commercially) with academics in research. On this note, the Vice-Chancellor was keen
to that that “much of the growth of the University can be attributed to the growth of the Business School, which now has
twice as many students as four years ago. We continue to be proud of our Business Enterprise programme, which currently
has students running a number of intriguing businesses”.
1.4.3 Britain’s real commercial education industry
The following extract gives some idea of the University of Buckingham’s growth ambition: “we are working with the Milton
Keynes Hospital NHS Trust over the possible creation of an undergraduate medical school”.
Even though they are not motivated by profit, we have characterised Britain’s HEIs holding Royal Charters as quasi-
commercial, and identified their real estate accordingly. Whilst some will contest this intermediate designation even for the
independently funded University of Buckingham (considered elsewhere), they cannot deny Britain’s fully commercial and
growing further education industry.
Chart 87 UK HEIs income from tuition fees and Chart 88: Long term migration to the UK by reason
education contracts given
35 50 250
30 45
£ billion
200
%
25 40
20 35 150
Thousand
15 30
100
10 25
5 20 50
0 15
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Tuition fees and education contracts 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
Total All Migrants less Formal Study Formal Study
Tuition fees and education contracts share (rhs)
Source: HESA, ONS, Toscafund (*2015 to June)
Britain is home to at least 670 private colleges, almost all run on commercial lines. Whilst mainly concentrated in and around
London, often specialising as English language schools, 50% of these colleges are peppered across the country, almost
invariably in proximity to HEIs carrying a Royal Charter. Indeed, outside of normal term-time there is a trend amongst the
latter to open their doors to foreign students, most notably by operating summer schools functioning literally and financially
on commercial grounds.
The reality is that even if we were to exclude Royal Charter-holding HEIs, educating fee-paying foreign students is proving a
growth market across Britain, and one where its real estate is playing an essential role. True distance learning is a feature of
modern education. The number of overseas students enrolled on fee-paying tertiary courses per annum across Britain has
increased by about 70% since 2002, and is still trending upwards. The reality is that face to face tutorials, Delphic learning
and the travel experience to other countries all have considerable chargeable value. A few nations hold a more sought after
Positional Product Proposition in education than Britain.
Let us repeat a point we have made throughout this research: commercial and quasi-commercial education sectors are
providing ever more valuable capital streams into Britain’s external and internal accounts; external because of the foreign
earnings brought in through direct student fees, and internal because of the consumption, notably on accommodation,
performed by students from overseas during their period of study in Britain.
Students in full time HEI are proving one of the fastest growing markets for Britain’s Private Residential Sector (PRS) with
companies such as the two London listed; Empiric and UNITE. Empiric comprises 29 properties with 11 assets under
development, an aggregate of 3,503 beds. UNITE has 45,000 beds and is studied in depth in section 1.4.5.
89
Liberty Living, with its 16,827 room student accommodation portfolio covering 42 residences, considered an IPO in 2014 and
was later bought by the Canada Pension Plan Investment Board for £1.1bn. CPPIB Liberty Living acquired a further 2,153 beds
for £330m in August 2015.
Developers of purpose built student accommodation (PBSA) have risen to the challenge. One such example is Watkin Jones
Group who have developed more than 25,000 student units since 1999, with a third of those student units (7,800 student
units) built in just the last three years.
In short, with fee-paying education one of Britain’s fasting growing sectors, it cannot fail to register as an ever-larger owner
and occupier of full and quasi commercial real estate, coincident with its customers (students) representing an ever more
sizeable share of Britain’s rental sector.
1.4.4 Education, Education and Education
Britain’s HEIs are expanding, and as they do, they are creating CRE. They are adding campus capacity for tuition, recreation
and accommodation, forging something of a hybrid industry. For whilst in its core a university sits within the education sector,
it is part purpose built student accommodation, part leisure and recreation and part broader CRE, where the campus extends
to business and science parks.
After all, just as it could be argued that hotel rooms can be considered to fall within the private rental sector, so too student
accommodation. As student numbers rise, so will the need to add to the PRS element of Britain’s CRE, the demands on which
do not however end there.
As Britain’s education sector continues on its impressive expansion path, a commensurate rise in its staffing levels – academic
and support – will be required.
1.4.5 Case Study: Students, UNITE-d
Back in 1991, research carried out by Bristol’s University of the West of England suggested disused inner-city office blocks
could be converted into low-cost student housing. Within a year, the first UNITE property had opened in Bristol. At a time
when the choice was between the draughty, often drab, halls of residence offered by the universities, or to rent a spare room
from an obliging but not always personable landlord, UNITE offered students comfort, convenience and affordability.
Chart 89: UK student numbers, million Chart 90: UNITE revenues, £ million
0.8
Impact of Browne
Review: fees raised
300
to £7500-9000
0.7
Top-up fees
introduced:
capped at £3000
250
0.6
Tuition fees
Student numbers, million
introduced:
Revenue, £ million
maximum £1000 200

0.5
0.4
150
0.3
100
0.2
0.1
50
0.0 0
1996 2000 2004 2008 2012 2016 2020 2024 2028
England Scotland Wales NI 1998 2000 2002 2004 2006 2008 2010 2012 2014
Source: HESA, UNITE Group (Bloomberg), Toscafund (forecasts)
Since listing on the London Stock Exchange in 2000, UNITE has expanded considerably, adding to its core Bristol and London
portfolios and expanding into other regional cities, notably Leeds, Manchester, Liverpool and Sheffield. UNITE has grown in
tandem with the rising number of international students seeking easy-to-arrange and reputable accommodation. The firm
currently provides over 45,000 beds in 28 university towns and cities. It recently raised £115m to fund further expansion,
with the aim of funding its development pipeline in key university towns and cities.
Whilst the UNITE model has gone through changes, the emphasis remains redevelopment and conversion of former
commercial properties into student accommodation. UNITE’s story is not unique and highlights one of our core points in
assessing the growth future of Britain’s regional cities and the importance of commercial property in its dormitory form.
Britain’s undergraduate accommodation is not simply serving students from abroad but investors too.
90
The focus of this research has been the outlook for UK university enrolment, forecasts for which have seen applications from
China play a crucial role. It is worth making clear here that the impact on the UK of all things Chinese has and will continue to
grow in importance. With this in mind we reproduce below an extract from a recent Toscafund Discussion Paper, “The Wealth
of Nations in China’s Hans” (March 2017).
Across Europe, the UK has been a stand-out destination for Chinese investment. Now, not only has capital from China
continued to flow into the UK since June 23rd, its pace has accelerated. In fact, in the period following its referendum on EU
membership, one-fifth of all Chinese investment into the UK since 2005 has arrived. This is a staggering share when one
remembers how loudly we were told that investment in the UK would ‘dry up’ in the event of a ‘Leave’ vote. Importantly,
Chinese investments have covered a variety of domestic UK sectors ranging from the deal in July to acquire Odeon and UCI
Cinemas ($1.2bn) to CIC’s investment in the National Grid ($1.78bn for an 11% stake) and the $2.96bn committed by a
consortium led by Jiangsu Shagang to the data-centre group Global Switch.
It really is impossible to exaggerate the transformational nature of Chinese capital being committed to the regions of the UK,
particularly England’s midlands and its north. Chinese finance is not arriving into the UK to lift assets out of it – the way it is
doing so much of around the world – but very much to invest IN our infrastructure. Let me make perfectly clear that I have no
delusions that Beijing’s commitments to the UK are in any way made out of altruism or benevolence. It is motivated very much
by China’s self-interest in developing areas that can be of use to its economy in providing, as it were, off-shore centres to house
its firms and people. This accepted its capital is, and will, continue to generate benefits to the wider UK economy which it
would otherwise struggle to enjoy. Those who have long wished to see a narrowing in the UK’s north-south divide should
welcome Chinese investment because it is helping that wish come true. Consider the partnership between Sheffield City Council
and Sichuan Guodong Construction Group, one of the biggest firms in China’s south-western Sichuan province. The intention
here is to fund Sheffield’s first five-star hotel, as well as new office and leisure developments alongside a combination of high-
end and affordable housing in the city centre. The deal, which took 18 months to conclude, is the biggest Chinese cash injection
to date in the north of England. In fact the voracious appetite for UK real estate has shown China’s determination to create
for itself a sizeable western hub to complement its own expanding capacity across sectors, including, but far from exclusively,
financial services, hence why its investment have been made widely across the UK.
China’s emphatic Brexit vote
The data since 2005 all too clearly shows how on a per capita basis the UK has been the EU’s standout destination for Chinese
investment (charts 88 and 89). Reassuringly, since the referendum there has been no evident let-up in Chinese investment to
the UK (Table 16). Indeed, the improved affordability of the UK has triggered a significant increase in China’s engagement,
seen on the street as it were through enhanced tourist numbers and seen too in the size of the deals China has been involved
with. As for where Chinese capital has been targeted, it is evident how different China’s attention to the UK has been
compared to that of the EU more widely (chart 88). If one could summarise this difference it would be that China’s interest
in the UK is very much its internal economy and how it can complement China’s, whilst across the remainder of the EU it is
what is owned elsewhere and can be lifted out.
91
Chart 91: Cumulative Chinese investment per capita Chart 92: Chinese investment by sector per capita
Source: American Enterprise Institute and The Heritage Foundation, Toscafund Note: Chinese investment from January 2005 to December 2016
Across Europe, the UK has been a stand-out destination for Chinese investment. Now, not only has capital from China
continued to flow into the UK since June 23rd, its pace has accelerated. In fact, in the period following its referendum on EU
membership, one-fifth of all Chinese investment into the UK since 2005 has arrived. This is a staggering share when one
remembers how loudly we were told that investment in the UK would ‘dry up’ in the event of a ‘Leave’ vote. Importantly,
Chinese investments have covered a variety of domestic UK sectors ranging from the deal in July to acquire Odeon and UCI
Cinemas ($1.2bn) to CIC’s investment in the National Grid ($1.78bn for an 11% stake) and the $2.96bn committed by a
consortium led by Jiangsu Shagang to the data-centre group Global Switch.
It really is impossible to exaggerate the transformational nature of Chinese capital being committed to the regions of the UK,
particularly England’s midlands and its north. To repeat an earlier point, Chinese finance is not arriving into the UK to lift
assets out of it – the way it is doing so much of around the world – but very much to invest IN our infrastructure. This accepted
its capital is and will continue to generate benefits to the wider UK economy which it would otherwise struggle to enjoy.
Those who have long wished to see a narrowing in the UK’s north-south divide should welcome Chinese investment because
it is helping that wish come true. Consider the partnership between Sheffield City Council and Sichuan Guodong Construction
Group, one of the biggest firms in China’s south-western Sichuan province. The intention here is to fund Sheffield’s first five-
star hotel, as well as new office and leisure developments alongside a combination of high-end and affordable housing in the
city centre. The deal, which took 18 months to conclude, is the biggest Chinese cash injection to date in the north of England.
Table 18: Chinese Deals, EU referendum to December 2016
Date Investor Amount, $bn Target Share Size, % Sector
December Jiangsu Shagang led consortium 2.96 Global Switch 49 Technology
December CIC 1.78 National Grid 11 Energy
November Ctrip 1.74 Skyscanner 100 Tourism
November CITIC 0.38 Royal Albert Dock (ABP) Real estate
November Cultural Investment 0.14 Framestore 75 Entertainment
September Vanke 0.15 Henderson Global Real estate
September China Mingshen Investment 0.11 Société Générale Real estate
August Yunyi Guokai Shanghai 0.19 West Bromwich Albion FC 100 Entertainment
July Dalian Wanda 1.21 Odeon and UCI Cinemas 100 Entertainment
July Sichuan Guangdong Construction 0.29 Sheffield city council Real Estate
That Chinese buyers have acquired the English football clubs Birmingham City, Aston Villa, Wolverhampton Wonderers and
West Bromwich Albion (WBA) should in no way be viewed as a sign China is spending its capital on frivolous assets. For all are
92
trophy assets in very much the financial sense. Wolves, Birmingham and Aston Villa were recently and West Brom still is a
Premiership football club, and so in receipt of considerable income from the deal to sell television rights internationally. And
a large part of the reason that these rights have been sold for so much, is the audience for English football across Asia, and in
particular China. So in many ways Yunyi Guokai’s investment in WBA, Fosun International in Wolves and the deals for
Birmingham and Villa, all four clubs long established in the West Midlands of England, are very much investments in the
Chinese market.
The UK: A stand-out island, China’s developed home from home
I will chronicle in more detail later the nature of the targets for China’s ongoing global acquisition spree. In general terms,
China’s strategy is to buy the ingredients essential for its internal economic success. To ensure this Beijing has and continues
to send its wealth to every continent. It has committed to Pakistan because that nation provides a corridor to the Arabian Sea
and access to the important Gulf of Oman. In addition Pakistan promises the exploitation of natural resources that have for
too long been left largely untapped. For its part Angola has been attractive because of its reserves of oil and Chile its wealth
in copper. In investing in Australia the prize has been arable land, coal etc. In Canada too the attraction has largely been coal
and other minerals. Of course certain nations are more willing than others to sell their assets to China. In the case say of
Qatar, rich as it is in natural gas, or Abu Dhabi, wealthy in oil, these countries have sufficient piles of wealth anyway to not
really need Beijing’s money. This said both have signed currency swap agreements with China, allowing their respective
central banks to directly exchange currencies. Crucially, in expanding the use of the yuan across the Gulf region, this is
disintermediating the dollar. For the record also the yuan is now a member of the IMF’s Special Drawing Rights, a clear albeit
long delayed recognition of its global standing.
In identifying where China is spreading its wealth around the world I could have performed the same exercise for other nations
such as Qatar and Abu Dhabi, the likes of which have accumulated capital which they have then been investing overseas.
After all Norway has been spreading its energy wealth, and so too have Singapore and the UAE been liberally deploying their
own sovereign wealth-piles around the world. The exercise of examining where the world’s sovereign wealth is being invested
overseas is particularly instructive in identifying favoured destinations. And one target in particular stands out, the United
Kingdom; where appetites have far from been much diminished since June 23rd.
A key part of the UK’s ever strengthening links with China is the role London will play as the western hub for trading in all
financial instruments denominated in the renminbi. And as China opens up and deepens its capital markets, London will
experience something on a scale it has never done so before. From general commercial banking across to investment finance
and insurance, there is no doubt that demand for office space and staff will rise to unprecedented levels. Any European or
US firms choosing to depart London because of the UK’s departure from the EU will find the staff who choose to remain being
more than accommodated by newly arriving Chinese firms.
If one region of the United Kingdom has seemingly – thus far – been ‘over-looked’ by Chinese investment it would appear to
be the North East of England (see map 18 overleaf). Now it may be that there has been investment but it has gone unrecorded,
although this is unlikely. It might instead be that the region is too remote or too sparsely populated to have an appeal. The
shortcoming with this argument is that at 3.0 people per hectare the North East is more densely populated that the South
West – at 2.2 – which actually features more heavily as a destination for Chinese capital. In fact, the East Midlands shows up
impressively as a target for China with practically the same population density as the North East. An explanation which I for
one think is plausible for the North East appearing to ‘miss’ Chinese capital is because it has already proved a target for Asian
sourced capital. In its case the investment dates back from the mid 1980’s when it began to attract Japanese investment
which is represented most significantly by the burgeoning Nissan car plants around Sunderland. Indeed, one could argue that
just as Japanese capital proved transformational in its day so Chinese capital will do so from now, but on a grander scale.
Readers might be struck by how heavily targeted with Chinese capital Scotland has proven to be. I would make the point that
it has benefited from what is largely ‘off-shore’ investment in the oil and gas sector. There has also been the ‘exceptional’
acquisition for $1.75bn of SkyScanner, the airline price comparison site, headquartered in Edinburgh and employing 700
around the world.
93
Map 19: Chinese investment across Britain on a per capita basis, 2005-16
Source: American Enterprise Institute and The Heritage Foundation Note: Over 85% of Chinese investment into UK attributed to regions.
Map 19 shows clearly just how widely China’s capital is being spread across the UK, with the table alongside revealing its
particular nature. It is important to emphasise the figures are lower bounds of how much Chinese investment is making its
way into the UK. Furthermore as much as the map provides a useful indication of how China has been targeting the UK widely
it must be stressed that a heat map for the Chinese capital certain to arrive in the years ahead is likely to look quite different.
Put differently I am convinced that Chinese investment into the regions of England is only likely to heat-up.
Wherever in this research I write of Chinese investment to the UK, I mean just that the UK writ large. True London has featured
heavily in where capital from China has been deployed, and indeed continues to do so. This said it has received capital
proportionate to its size; not geographic but economic. Let me quote from a paper from January 2010 titled “An Employment
outlook for London in 20/20”.
“London has the largest GDP of any European city and the fourth largest in the world. Despite accounting for less
than one per cent of the UK’s land area, London is home to one-eighth its population and one-fifth its gross
economic valued added. Indeed, if we include London’s wider metropolitan area it accounts for 30% of the UK’s
GDP. London’s population stands at nearly eight million, – twelve if we include the metropolitan area – having
grown 8% over the last decade, twice the national average. Within London, financial and business service sectors
account for one-third of total employment and generate almost £50bn in trade surpluses, still more if tourism is
added. Within the UK, London is a crucial economic engine, its households enjoy disposal incomes one-quarter
higher than the national average. It is no exaggeration to claim the UK’s wider economic fortunes will turn on those
of London, and in particular, its’ financial and business service sectors.”
As I write elsewhere Sheffield has been targeted with considerable Chinese capital. This might seem incongruous given the
city’s population barely touches 600,000. To explain the attraction let me draw from another Toscafund discussion paper,
“Mapping the growth of Britain’s New Cities”, issued in September 2013.
“Sheffield-Rotherham’s higher education sector is we are convinced its best asset. Indeed, thanks to the University
of Sheffield’s efforts, the city already benefits from the presence of high-tech industries, and this will only continue
94
– the development of the Advanced Manufacturing Training Centre was key in Rolls-Royce choosing to base its
Advanced Blade Casting Facility in the city. The university’s links with industry has helped make it a popular
destination for international students, whose number exceeded 9000 in 2012. Additionally, Sheffield-Rotherham is
productive in terms of spinouts and start-ups, ranking second in Britain with 18 firms per university. As the
universities’ collaborations with industry increase and more firms choose to base their research in Sheffield-
Rotherham, the institutions will only improve how they commercialise their output.
It is not, perhaps, surprising that Sheffield-Rotherham does not feature on a great many tourist itineraries. This said
it is still well-visited, recording 125,000 arrivals in 2012. The majority of these were visits to friends or family, a
reflection of the diaspora communities that are a feature of the city’s identity. However, there was a significant
amount of business travel, and we anticipate levels to increase in the coming years as an increasing number of firms
open operations in Sheffield-Rotherham to capitalise on its excellence in research and development and
affordability.
And just as Sheffield can boast attractions for Chinese capital so too can cities across the UK widely.”
I have been insistent throughout this research that on On Leicester City’s historic win
almost all meaningful metrics, the UK has been and In 2014 The Crown Estate established a £345mn joint venture with the
continues to be Europe’s stand-out destination for state-backed Chinese property group Gingko Tree. The target for this
Chinese capital. I speak here of capital in its financial capital was one of the UK’s largest retail parks. The deal was no less
and human senses. Indeed considerable efforts have notable for combining the ‘sovereign wealth’ funds of the UK and
been made to ease matters for those Chinese wishing China, as it was in being the largest acquisition in the Crown’s close to
to travel to the UK. A big improvement came following 1,000 year history, as it was by the fact Fosse Park is in Leicester.
unprecedented trips to China back in late 2013, when Birmingham’s Chinese homes from home
the Chancellor and Mayor of London jointly visited In 2016 the Chinese housing developer, Country Garden, committed to
Beijing in October; the Prime Minister journeying to it a invest up to £2bn in Birmingham, with a focus around the site of High
few months later. Indeed, to get an idea of the speed of Speed 2 (HS2).
both China’s development and its growing engagement Ever more Chinese capital sent to Coventry
with the UK we can refer to official visa statistics. In With a momentum undiminished since the summer of 2016 Chinese
2005 these showed that 124,000 visas to travel to the capital has been committed to Coventry, drawn in large part to its
traditional excellence in automotive engineering and its growing
UK were issued to Chinese nationals, accounting for 6%
reputation in Low Carbon Vehicle research, technology and
of the total issued, barely one in seventeen. By 2016,
production. As well as Geely, now the owner of the London Taxi brand,
the figures were 600,000 visas released to Chinese Coventry has most recently seen considerable investment from the Far
nationals, or almost one-quarter of the total. East Energy Group in the electric vehicle maker Detroit Electric.
Chart 93: National Insurance registrations from

Chart 94: Chinese entry visas granted, by type
China
Source: Home Office, Toscafund
95
It is interesting that with all its stored wealth and ambition to buy assets it considers essential in serving its growth ambitions,
certain prizes seem to be beyond China’s reach. If one class of ‘asset’ stands out in this regard, I would argue that it is the
UK’s universities. Whilst these may not be ‘for sale’ I would make these two points: first, the number of students from China
studying in the UK will increase from here and do so I believe at a pace only limited by the capacity of our campuses to
accommodate them. Second, whilst the universities themselves may not be ‘for sale’ be in no doubt that Chinese funding for
bursaries and general funding will increase at a pace matching if not even beating the arrival of Chinese students.
Chart 95: Chinese entry visas granted, Student Chart 96: Chinese entry visas granted, Work
120 7
Thousand
Thousands
6
100
5
80
4
60
3
40
2
20 1
0 0 2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: Home Office, Toscafund
As much as this research is an exercise in examining historical data it should be seen as making a categorical forecast; the
number of Chinese nationals travelling to the UK as tourists, students and workers will only rise from here, and do so more
than for any other nation across the EU. That the number of direct passenger flights between China and the UK has recently
been lifted from 80 to 200, with no airport restrictions, can only increase the connection between the two.
Commonwealth spoils
Much is made in this research of the direct economic benefits accruing to the UK as China’s human and financial capital flows in to it. I
would like to add that alongside these the UK will be certain to enjoy ever increasing transitive gains, as countries it engages with are
themselves targeted by Chinese capital. This will be the case say with the likes of Pakistan, Australia and Malaysia, indeed widely across
the 51-strong British Commonwealth of Nations (the UK making it 52). This is not to say nations beyond the Commonwealth will miss the
benefits accruing from possessing what China demands to achieve its internal economic growth ambitions; or those that enjoy this
connection fail to pass on some of their good fortune to the UK economy.
Chart 97: Chinese capital into The Commonwealth Chart 98: Chinese capital into The Commonwealth
45 300 120
Of tota l Chinese i nvestment,27.8 % 18.3% of total Chinese investment in this sector
Billion, $
Billion, $
40
Billion, $
15.9 250 100

35
30 200 80
21.0 16.2
25 13.0 9.5 38.9
60
24.5 150
20 18.2
12.5 40
15 100
11.6 6.6
10 20 16.9
16.4 11.5 50 14.3 17.9 10.3
2.9 5.7 8.6 9.5
5 6.1 0
Finance
Chemicals
Transport
Technology
Metals
Utilities
Food & Drink
Entertainment
Energy
Tourism
Other
Real estate
0 0
2005 2007 2009 2011 2013 2015
Real estate Finance Technology Food & Drink
Transport Entertainment Tourism Other
Chemicals Metals Utilities Energy
The issue here is that the UK is the nexus of one of the world’s largest “Commonwealth groups”, many of whose members have precisely
what China requires. Of course Portugal will itself be grateful for its historic links to Angola and Mozambique, and France, Holland and
Belgium rewarded in some way from their connections with resource-rich former dominions. This said and to repeat, Britain’s
Commonwealth is far larger than of any other European nation. As for the United States it will find that as China’s influence increases, this
will come largely at its expense.
96
A word to those cynical towards China

It is one of the most often quoted of his many wonderful aphorisms, and it is up there with my favourites of all literally quips
ever. In Oscar Wilde’s brilliant Lady Windemere’s Fan Lord Darlington is asked “what is a cynic?”. He answers “a man who
knows the price of everything and the value of nothing”.
I have heard it said that China has been overpaying for the resource assets is has been buying. Let me be clear that the value
China places on assets is quite different from what they are worth to others; just as a sporting memento will be priced very
differently by someone who supports the person or team in question and one who does not. This is not a flippant comparison
but one which illustrates how we must understand what say owning a copper mine means to China from what others may
think it is worth. China’s interest in copper is not to trade it but use it in building its economy, quite literally. After all from
construction to power transmission and across to the auto industry, copper is a crucial ingredient. In many ways copper is
priceless to Beijing.
97
Toscafund Discussion Papers

Getting the Bitcoin between my teeth, November 2017
Capital idea Mr Hammond, October 2017
Life and Labour of the People in London, August 2017
That was some year..., June 2017
Keep Calm & Carry On Regardless, June 2017
2017 Never quite lost for words, June 2017
The Wealth of Nations, in China's hands, March 2017
Charting the speeding journey from “Made in China” to Owned by it, February 2017
Trading in Poor Forecasting, February 2017
Trump's Curve Balls, January 2017
May’s internationalism trumps isolationism, January 2017
1992 – It will be déjà vu all over again, June 2016
Post-Brexit, June 2016
The EU Referendum Part II: Even Further Out, April 2016
Britain stands up – Better to exit European Union, February 2016
Britain’s Property Credentials – a report commissioned by the British Property Federation, January 2016
UK Private Rental Sector – Multi-Year Growth, July 2015
Prime Central London Residential Property, March 2015
The 2015 UK Election Outcome, January 2015
Growth of Britain’s Primary Cities, October 2013
Banking-on positive change in London’s property markets, April 2013
Where in the world is this looming food price crisis? March 2013
Britain’s Got Growth II: beating Germany on penalties, January 2013
Seeing a quite different island in 20/20, September 2012
Britain’s Got Growth, May 2012
The building storm over Cyprus – Update, May 2012
The Darkest of Greek Dramas: A Play for Survival, May 2012
London 20/20 – Update, March 2012
Toscafund Economic Papers
Issue 41 – Why so Single-Minded? – September 2017

Issue 40 – Fool me once, shame on you, fool me again, shame on me – May 2017
Issue 39 – The real state of UK real estate & other economic realities – October 2016
Issue 38 – The Bank of England should make good on its Gilt – September 2016
Issue 37 – Here’s to a more measured view of the UK economy – July 2016
Issue 36 – For FX’s sake be prepared for wider currency turbulence in 2016 – December 2015
Issue 35 – Mind the Gap George – November 2015
Issue 34 – An Encomium on Britain, mostly England – August 2015
Issue 33 – Don’t get your Chinese order wrong – July 2015
Issue 32 – False Chinese Whispers – May 2015
Issue 31 – EXITSTENTIAL thinking, March 2015
Issue 30 – 2015, Thank you for reading, December 2014
98
Toscafund Asset Management LLP
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Toscafund Discussion Paper - Growth of Britains University Cities

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Growth of Britain’s University Cities January 2018

One million more students to attend British Universities by 2034

1.5 3.4 250 70

50 £1000 £3000 £9000

% of Total Student Visas

Source: Toscafund, HESA, OICA, NBSC

1. Forecasting international demand for higher education

The immeasurable nature of the economic benefit from all this

1.1 China’s roll-call of economic revolutions

1.2 China’s “2002 babies” turn into 2020’s “fresher’s”

Re: An educated letter to The Editor

Why we drive household wealth along with new car sales

7% (core projection) 5% (lower case) 7% (core projection) 5% (lower case)

Big data is the future of higher education

As it has journeyed on its post 2002 path China has

A few words on competitive studies

Source: HESA, OICA, Eurostat

Do we need mention the D word?

Source: OICA, Toscafund

4% (core projection) 3% 4% (core projection) 3%

Source: HESA, OICA, Toscafund

China India China India

Source: Worldbank, Toscafund – Note: Chart 19 dotted lines represent averages

Source: Toscafund, HESA

Hong Kong foreshadowing demand from China-PROPER

1.9 Exit so others can Enter

Romania Bulgaria Poland Turkey Romania Bulgaria Poland Turkey

BREXIT to Leave the UK educationally more open-minded to China

Source: World Bank, Eurostat

PS Looking up at China’s economy

1.10 An emerging story everywhere yes, but nowhere like China

Table 3: Comparative analysis; China Stands Out for the Better

International lessons in the economic value of the English language: Part I

1.11 China has already become The Wizard of Oz

Source: Australian government department of education and training, Toscafund

Source: Bloomberg, Australian government department of education and training, Toscafund

International lessons in the economic value of the English language: Part II

Indian students per

850 250 2.5

750 150 1.5

700 100 1.0

Source: UIS (UNESCO), McGill University, Toscafund

1.15 Confidence when forecasting

China India EU (constant level) China India EU (constant level)

China versus India: A tale of quite different growths

China India China India

Source: ONS, Toscafund

2.1 The first mover offers a critical advantage

2.2 Making education a family business

A word on fake news

2.5 An educated way to avoid going Dutch

A view of an improved room with a view

Table 4: Cost comparison for students on two-year degrees vs three-year degrees, £

3 year Cost impact on 2- Cost impact on 2- 2-year degree 2-year degree

2-year Course 1,200 1,200 19,200 108,000 88,800

Source: HESA, Toscafund Note: Dotted line is the average growth

3.2 Student demand

Cleaning up on British education

Source: National student survey, Toscafund

Table 7: Subject groups of students in 2008-09

Two-year Other Flexible

Table 8: National Student Survey results for 2008-09 and 2009-10

Satisfaction Two-year Three-year