Addressing the immediate challenges facing our universities and their students
UK universities now incur losses of £6bn annually on their core activities of research and teaching for UK home students. Our members are making significant changes to adjust to financial pressures, including major restructuring and transformation programmes. Recent analysis by PwC demonstrates that all universities remain extremely vulnerable to scenarios that are not directly within their control. This includes costs running higher than anticipated, and changes to international and domestic student recruitment.
In the long term, government should seek options for restoring the unit of resource to the equivalent of 2015/16 levels as soon as practically possible, and we hope to engage in constructive conversations around how that may be achieved.
In the immediate term, there are three areas where government support is needed now.
1. International student demand
International student fees now fund UK university research and teaching:
Universities have diversified their income streams in recent years to compensate for reduced public funding, and increased surplus-generating income sources, especially international student tuition fees, to cross-subsidise other activities.
- International student fees provide £3bn cross-subsidy to fund other university activities: research (which runs at a deficit of £5bn) and teaching home students (which runs at a deficit of £1bn)
- Without international students, the UK university sector would be looking at a £6bn deficit, rather than the £2.1bn deficit it currently faces.
Declining international student demand poses a serious and imminent threat to the university sector’s stability:
- PwC analysis shows that if the growth rate for international students were to decrease by 20 percentage points relative to university forecasts in 2024–25, 80% of universities could be in deficit in 2025–26.
- Early indications from our member universities suggest that they are now forecasting decreases of 20-40% for 2024, meaning that the worst-case eventuality modelled by PwC is now likely.
- This decrease has likely been driven by government policy restricting the ability of one-year international masters students to bring dependents with them to the UK, combined with anti-international student rhetoric and more generous visa offers from international competitors such as Canada and Australia.
Asks for the Spring Budget:
- While not expressly financial, the UK government could act now to stabilise international student demand by preserving the Graduate visa on its current terms.
- Given that previously announced policies are already constricting demand from international students, protecting the Graduate visa would not be at odds with the government’s goal of reducing legal migration.
2. Managing the cost of the Teachers’ Pension Scheme (TPS)
- The majority of professional and technical universities, and all Alliance universities, are statutorily obliged to participate in public sector pension schemes, including the Teachers’ Pension Scheme (TPS). There are approximately 58,000 active scheme members of TPS working in the English higher education sector, representing around 8% of the TPS membership.
- Professional and technical universities are extremely concerned by the rise in employer contributions, caused by a reduction in the SCAPE discount rate used in the 2020 unfunded public pension scheme valuations. This concern is compounded by the fact that universities will not receive additional government funding to mitigate this increase, unlike other centrally government funded TPS employers in England.
- The anticipated increase in the TPS employer contribution in England and Wales is around 5% of pensionable pay, taking the rate from 23.7% to approximately 29%.
- PwC analysis demonstrates universities’ vulnerability to higher-than-expected expenditure: if this was to increase by 2 percentage points per year above the levels that universities forecast from 2024-25, 63% of universities could be in deficit in 2025-26. Significantly increased pension costs are therefore likely to push more universities towards this eventuality.
Asks for the Spring Budget:
- Provide sufficient additional funding to all higher education employers in the TPS, to allow them to manage this significant and unforeseen increase in expenditure, and prevent any detrimental impact on their services.
- Commit to exploring options for allowing TPS and Local Government Pension Scheme (LGPS) member universities the flexibility to offer other pension schemes to their employees. Such universities currently still have a statutory obligation to participate in public sector pension schemes, despite no longer being categorised as public sector organisations by the ONS.
3. The student cost of living crisis
Student maintenance support is now falling far short of student living costs:
- The student maintenance package in England is at its lowest real terms value in seven years.
- According to the National Student Money Survey 2023, the average student’s maintenance loan falls short of covering their living costs by £582 per month (up from £340 in 2021).
- In December 2023, the Sutton Trust found that for 57% of students, their essential spending was higher than the current maximum maintenance loan (£9,978). For 19% of students, their housing costs alone were higher than the maximum loan.
Students from the poorest families are the most impacted, and social mobility may be threatened as a result:
- Given the parental earnings threshold has been frozen since 2008, fewer students are eligible for higher loans than in previous cohorts. Analysis from the IfS shows that students from the poorest families are therefore £1,500 worse off this academic year as a result.
- In 2023, the ONS found that young teenagers from lower-income households were less likely to plan to still be studying in two years’ time.
Universities, Students’ Unions and the Government have increased support, but current hardship funding cannot meet demand:
- A 2023 Save the Student survey found 21% of students said they had received hardship funding from their university in the past year. This is up from 12% who said the same in the previous year.
- The additional £15m delivered for hardship support in England in early 2023 was welcome but was far outstripped by demand. This was worth only £10 per student.
Increasing maintenance support for students commands popular support:
- In October 2023, a Public First report found that student maintenance support is broadly popular among the public. 55% were in support of reintroducing maintenance grants, even assuming the extra cost would be paid for through increased taxation.
- 50% of respondents said they would be more likely to vote for a party which pledged to reintroduce maintenance grants. Just 8% said they would be less likely to do so.
Asks for the Spring budget:
- In the short-term, student maintenance loans should be uprated to keep pace with the increased cost of living. Any uprating should be linked to the minimum wage, as proposed in the Augar Review.
- In the medium-term, we recommend the reinstatement of means-tested maintenance grants for the students who are most in need of them. This will ensure that everyone is able to access higher education in a fair and equitable way.
Read our full budget submission here.
