More than 40 per cent of UK universities are facing a financial crisis, leading to staff redundancies in several institutions. Bulent Gokay and Farzana Shain offer two policy proposals that would help out universities at no-cost to the Government, but argue that an alternative funding model is ultimately needed to ensure the future financial stability and educational excellence of the UK’s higher education.
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A crisis is enveloping higher education. Numerous universities are teetering on the brink of bankruptcy due to international competition, government policies, and inflationary pressures. A few even face potential mergers. Over 40 per cent of universities are in a financial crisis, with over 50 institutions undergoing redundancy or restructuring programmes. According to the Office for Students, the regulatory body for universities in England, 40 per cent of higher education institutions are projected to run at a deficit this year, with some experiencing their third consecutive year of financial losses. University finances reportedly appeared on the risk register prepared by Keir Starmer’s former chief of staff, Sue Gray (referred to as “Sue’s shit list“) before the election.
The current financial challenges facing UK universities are largely due to funding reforms implemented in 2012 and the decreasing government support since then.
The ongoing financial crisis has directly impacted university staff and students. Staff reductions, including job cuts, have resulted in increased workloads for remaining staff and larger class sizes for students. Cuts are often made to “critical” (social science and arts and humanities) educational programmes in the name of economic efficiency and fear of deficits. The heightened pressure can also impact staff well-being with the potential to diminish the quality of education provided. The looming uncertainty regarding job security and the possibility of further cuts intensifies the pervasive atmosphere of fear and stress among staff. A demoralised and overburdened workforce is also likely to engage in innovative teaching and research.
The Financial Times estimated that English universities are currently losing approximately £2,500 per student a year on domestic students.
The origins of the crisis
The current financial challenges facing UK universities are largely due to funding reforms implemented in 2012 and the decreasing government support since then. These can be summarised under three groups: First, the current tuition fee for full-time home students in the UK for an undergraduate degree is £9,250, which will go up to £9,535 from 1 August 2025, has been insufficient to cover the full cost of education. The last tuition fee increase in England and Wales was in 2016. Since then, it remained frozen despite soaring inflation, and the operational cost of university education has continued to rise; the Financial Times estimated that English universities are currently losing approximately £2,500 per student a year on domestic students. This significant financial strain underscores the need for reforms in the education sector to ensure a sustainable and secure future for both students and institutions. In 2016, Brexit initiated the process of losing EU funds, too. The planned rise in tuition fees, from £9,250 to £9,535, could have made a difference. However, the extra cost to the universities of the National Insurance contributions announced in the budget, would wipe out any potential gains for universities.
Some mechanism is needed to halt prestigious institutions’ unlimited recruitment, which leads to job cuts at other universities.
Second, the coalition government removed the cap on student admissions in 2014, allowing universities to recruit as many students as they wanted. This measure reinforced the idea that higher education is a financial investment for students and that universities should compete for customers, just like any other sector. Implementing this policy has not resulted in increased efficiency within the sector. Ten years after the cap was removed, this measure has primarily benefited only a few universities, particularly those within the inner circle of the Russell Group, which comprises elite institutions. Due to financial constraints, these institutions were forced to admit more domestic students with lower entry grades to offset the decline in revenue. On the other hand, smaller teaching-intensive universities catering for predominantly working-class students witnessed a sharp reduction in the number of first-year students. Some mechanism is needed to halt prestigious institutions’ unlimited recruitment, which leads to job cuts at other universities.
Attracting international students has helped institutions offset funding shortfalls, as the government has not placed limits on what they can charge these students until last year. In the past year, there has been a notable decrease in the number of international students applying to study in the UK. This decline is the third reason for the current financial strain. It can be attributed to the strict immigration policies and tighter visa restrictions implemented by the previous government. The decrease in international students has led to significant funding challenges for educational institutions. The previous government’s restrictions on international students bringing their family members to study at UK universities are projected to result in nearly £5 billion in lost tuition fees for the higher education sector. Over the period of 2013-2017, the UK Treasury lost between £8.2 and £9 billion in export earnings. These figures are comprised of tuition fee income and spend to support living costs. The income from the international students, both tuition fees and their spending in the country, has been one of the main drivers of UK’s economic growth, and if the current policies continue to reduce the number of international students, this would further damage the economy. Government estimates indicate that limitations on the entry of international students do not provide any overall benefit to society.
Two measures, at no significant additional cost, could help to alleviate the immediate pressure and may provide short-term financial relief while more longer-term sustainable strategies are sought
How to resolve the crisis
Due to these factors, the entire sector is currently experiencing a severe funding crisis. Two measures, at no significant additional cost, could help to alleviate the immediate pressure and may provide short-term financial relief while more longer-term sustainable strategies are sought:
- Restoring individual university student number caps but allowing each university to admit widening participation students without a cap would manage enrolment more fairly. Restoring the cap on admission numbers could increase demand for struggling universities.
- Exclude international students from immigration statistics, which is in line with the practice in the rest of Europe.
Many universities in England face a “tipping point” which could lead to a financial crisis and painful restructuring processes. University leaders are urging government intervention to prevent institutions from going under. The long-term financial sustainability of universities requires a more nuanced and sustainable approach. This could include, as stated in the Universities UK (UUK) September 2024 paper, A blueprint for change from the UK’s universities, “increasing funding for teaching to meet the real costs through a combination of linking fees to inflation and restoring the teaching grant”.
Sector leaders widely recognise that the most feasible short-term solutions without enhanced long-term funding involve consolidating institutions and reorganising departments. Jo Grady, the general secretary of UCU, has written to ministers, asking them to expedite support plans. She stated, “anything less than an emergency rescue package for the sector will not be enough to prevent a catastrophe.” The Government may need to intervene to establish a safety net for struggling institutions. Universities and policymakers should explore alternative funding models to ensure financial stability without compromising educational quality or workforce well-being.
All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science.
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