The TRAC methodology is not providing the detailed insights that could help support better decision-making
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After being in place for 25 years, the system used by UK universities to cost their core activities like teaching and research is not providing the detailed insights needed to navigate the sector's mounting challenges, according to a new report by the Policy Institute at King's College London.
The paper examines how the Transparent Approach to Costing (TRAC) methodology - the primary tool for understanding cost recovery across teaching and research activities - could be significantly enhanced to support better decision-making at both institutional and policy levels.
The need for better financial intelligence and more widespread understanding
The report argues TRAC data is still seen by many as having only limited purposes, for example informing how UK Research & Innovation (UKRI) calculate the rates that universities can charge to cover costs associated with carrying out UKRI-funded research, like staff time, equipment and overheads.
But while TRAC data has played a more expansive role than this, such as influencing broader government policy about levels of research funding support, it has the potential to be of much greater value to the sector.
A lack of widespread awareness of TRAC data and how it is used among those who work in the sector limits its potential to drive improvements, and in its current form it provides insufficient detail for effective benchmarking and identifying efficiencies, the authors say.
Key limitations of TRAC identified include:
- Inconsistent approaches to data collection across institutions, limiting comparability.
- Lack of granular breakdowns that would enable meaningful benchmarking (eg by subject, course level, or type of cost).
- Insufficient contextual information such as regional variations, estate size, and performance metrics.
- Time lags that limit usefulness for financial planning.
A critical moment for reform
The report comes as the government's post-16 education and skills white paper commits to working with the sector to improve universities' cost-recovery and the use of TRAC data - a crucial opportunity for reform, the authors argue.
The white paper shows that the government and universities want the same thing - a sustainable sector. But achieving that vision requires much better financial intelligence than we currently have, they say.
The report calls for action on multiple fronts: better communication about TRAC's purpose to increase buy-in, enhanced benchmarking capabilities with richer contextual data, and crucially, greater engagement with TRAC data in institutional decision-making and governance.
The analysis also notes that the government's recent announcement linking tuition fee increases to inflation will have limited immediate impact on reversing the £1.7bn deficit that higher education providers in England and Northern Ireland build up from educating domestic students. The proposed 6% levy on international students, meanwhile, could reduce sector income by £735 million in 2026-27, according to Universities UK modelling.
Dependence on international students
The authors say the white paper's recognition that "the diversity of the sector underpins its strengths" is important, but that the current system incentivises all universities to compete on those metrics which boost international league table rankings.
This is because higher rankings directly correlate with the ability to charge premium fees to international postgraduate students. This creates a troubling dynamic where institutions are driven towards converging behaviours rather than capitalising on their unique strengths, the report says.
It argues universities are willing to continue conducting research even at a loss partly because it may boost league table rankings and attract more high-paying international students. This interconnected revenue system may seem to be "working" in one sense - but the motivation weakens dramatically if income from overseas students falls, the researchers say. Enhanced TRAC data could help institutions understand their comparative advantages rather than all trying to compete on the same metrics, they conclude.
The concentration of research funding
TRAC data reveals a £5.4bn black hole due to under-funding of research, which is systemic across all types of research grant. While the UKRI funding model is based on covering 80% of full economic costs, the report highlights that actual recovery for research council-funded projects averages just 68%.
The recovery rates for research funded by industry and government departments aren't much better - 75% and 76%, respectively. And UK charity-funded research fares even worse at 56% cost recovery, even as UKRI's dedicated fund to support universities' charity-funded research has seen below-inflation increases for 15 years.
Universities also fund their own research, which can be a way to counterbalance the uncertain and often short-term nature of externally funded grants, and to conduct research of strategic importance or which is novel and risky in nature.
While some see quality-related research (QR) funding as being responsible for plugging this gap, the report highlights the highly concentrated nature of QR funding, with 66% of all QR and Higher Education Innovation Fund (HEIF) funding - totalling almost £2bn annually - going to just 21 institutions. This concentration means that using QR funding to plug deficits in research activities is not a viable solution for most universities.
Building trust through transparency
Drawing on international examples, the report highlights how sector-wide agreements on financial transparency - such as those in Ontario, Canada - can build trust between institutions and regulatory bodies.
Neither universities nor regulators can solve financial sustainability challenges alone - the actions of one need to be in step with the other, the authors say, with better shared understanding of costs, enabled by improved TRAC processes, providing the foundation for that collaboration.
Richard Salter, Director of Analytics at King's College London, said:
"There is much to commend in the higher education data infrastructure - the existence of a national sector specific data agency is a boon and the main regulatory bodies' stated aims are to be data-driven, yet there are many stakeholders having to make critical and challenging decisions who find they don't have the information they need.
"There are certainly instances where existing data and intelligence is under-utilised, but also areas where the sector's data maturity is lagging. In a period of significant change, the TRAC return has been a relative constant. While it has its advocates and detractors, it offers a unique lens through which to view the financial sustainability and efficiency of the higher education sector in the UK. Over the years, various reviews of the TRAC process have been undertaken and made constructive recommendations about how it could be improved. Sometime those reviews have been focused too much around reducing the burden of completing TRAC.
"Perhaps in time of relative plenty, viewing TRAC simply as a regulatory burden to be discharged as painlessly as possible might be excused. The sector can no longer afford to hold such a view. There is an opportunity for a step-change in the sector's data maturity to enable financial sustainability to be more effectively measured, monitored and managed - which will benefit all stakeholders."
Dr Eliel Cohen, Research Fellow at the Policy Institute, King's College London, said:
"The government has shown genuine concern for universities - and with the announcement that tuition fees will increase with inflation, it has expended political capital on supporting the sector. But at the same time, it is asking difficult questions about value and sustainability.
"The TRAC data shows a £5bn black hole in academic research funding. The government acknowledges that publicly funded research may need to be resourced at a higher rate, but its main solution seems to be for universities to do less research - possibly a lot less. This could mean a significant cultural shift within universities, and indicates how cutting costs is seen as a major part of the way towards sustainability.
"It shouldn't come as a surprise that the government is much more concerned with preventing university insolvencies than with preserving university practices. We know from our past polling as part of the Future of Higher Education programme that the public is against the government using extra taxes to maintain current levels of teaching and research in universities. But if a university does fail, it's the government who will be seen as mainly to blame by the public - far more so than university leaders."
