Universities are grappling with a reduction in grant funding and rising costs, prompting them to increasingly rely on income from international students to subsidize their teaching and research activities. Despite an average 12% annual increase in international fee income since 2017–18, financial pressures persist.
Recent analysis conducted by PricewaterhouseCoopers on the financial outlook of 84 universities across England, Scotland, and Northern Ireland offers a comprehensive and concerning insight into the challenges faced by the UK higher education sector. The study did not extend to Welsh universities due to data limitations, although it is posited that the financial trends would be similar.
The sector has seen robust growth in both domestic and international student numbers from 2017-22. However, financial sustainability has become a major challenge. In England, the tuition fee cap for domestic students has remained at £9,250 since 2017, effectively reducing its value to around £6,000 in 2012–13 prices. This represents the lowest funding per student in over 25 years.
Universities are also grappling with a reduction in grant funding and rising costs, prompting them to increasingly rely on income from international students to subsidize their teaching and research activities. Despite an average 12 percent annual increase in international fee income since 2017–18, financial pressures persist.
The proportion of universities’ income from domestic student tuition fees dropped to 28 percent in 2021–22 from 31 percent in 2016–17, as per Universities UK analysis of Higher Education Statistics Agency finance data.
Assumptions in financial planning
Universities anticipate a growing reliance on international fee income. Many also expect an increase in the number of UK undergraduates.
There is an assumption that annual growth in spending will decrease to around three to 3.5 percent, significantly below recent trends and income growth projections.
However, if these ‘base case’ assumptions do not materialize, PwC’s sensitivity analysis indicates significant risks to both individual universities and the sector as a whole.
Potential sensitivities
PwC’s scenarios for England and Northern Ireland highlight the vulnerability of universities to various risks, including reductions in international student numbers, increased expenditure, and slower growth in domestic undergraduate students. These risks could potentially occur simultaneously, exacerbating the pressure on universities.
All types of higher education institutions would be affected by these sensitivities. Scottish universities, for instance, could face severe impacts from a decline in international student numbers.
Real-world risks
Current trends show only a marginal increase in international student recruitment, contrary to expectations. Late decisions by prospective students not to enroll are already prompting universities to revise growth projections.
The obligation for certain universities to contribute 29 percent to the Teachers’ Pension Scheme (up from 16.4 percent in 2019) for 58,000 staff members is significantly increasing their expenditure. This rise in pension contributions may exceed the two percentage points considered in PwC’s sensitivity analysis, further straining financial resources.
Strategies for securing financial sustainability
Universities across the UK are implementing various measures, including significant restructuring and transformation programs, to adapt to these financial pressures. Continued efforts to regulate costs will be essential for universities in all four nations.
Finding new solutions
Despite these efforts, the severity of the challenges means that internal adjustments alone may not suffice to restore financial sustainability. Urgent action by the UK Government is needed. Over the past year, a national conversation has been ongoing to identify issues with university funding and explore possible solutions.
Potential government actions could include stabilizing demand for international students, reducing regulatory costs, and allowing flexibility in participation in the Teachers’ Pension Scheme. The government could also facilitate major operational changes in universities, such as incentivizing collaboration between institutions.
The PwC analysis, while concerning, presents an opportunity to avert worst-case scenarios and secure the long-term financial success of the higher education sector. This will require a combination of internal adjustments by universities and supportive actions from the government.
The analysis underscores the need for a holistic approach to address the sector’s challenges, ensuring that the UK’s higher education system continues to thrive in an increasingly complex and competitive global landscape.
