Policymakers need to realise that financial turbulence in higher education will hurt the whole nation

Shân Wareing calls on the higher education sector to make sure MPs appreciate the public consequences of a decline in international students

Shân Wareing is Deputy Vice Chancellor at the University of Northampton

Long term gradual financial pressures on the higher education sector are now being exacerbated by changes in government policy on international students, impacting student recruitment and budget projections across the UK higher education sector.

Suddenly, the financial concerns raised in the recent PwC report on the financial sustainability of UK universities commissioned by Universities UK have flipped from chronic to acute.

Media reporting and responses to the financial impact have focused mainly on the potential risks to individual providers, or parts of the sector. However, the scale of the current risks, and the interaction of factors, make this a concern for the whole UK HE sector, and indeed for the UK economy and society. If the current international recruitment trends continue, the consequences will be profound and, importantly, not easily reversed by either the current or any future government. This is a moment for immediate and robust collective action.

Acute case

The sector’s financial issues are a result of decreasing income and increasing costs over years. Falling income is primarily due to the decreasing value of home undergraduate fees, fixed since 2012 at £9,000 (with an uplift to £9250 in 2017) and now worth around £5,990 at 2012 prices – arguably the 2019 Augar report implemented by stealth – and a decline post-pandemic in home undergraduate recruitment despite the demographic increase in 18 year olds, understood to be primarily a response to the cost of living crisis. Unavoidable rising costs for the sector include pensions and energy, pay and capital repayments, as well as essential investment in physical and digital infrastructure in order to remain safe, competitive, and travel towards net zero carbon.

In response to these pressures, universities are controlling costs, diversifying income streams, and reviewing their underlying operating models. It has been clear for some time that there are not public funds to bail the sector out, and we would not in any case expect to be at the front of the queue for public spending, given pressures in schools and colleges, health and social care. Therefore many HE providers have been rising to the challenge by getting our own houses in order.

However, the risk to international student income exceeds what can be met by a prudent and imaginative individual institutional response to financial challenges. The unmitigated consequences could have a profound knock-on, long term impact on the wider UK economy, affecting industry productivity and the ability to staff graduate level public sector jobs; these effects would be difficult to reverse.

International students contribute approximately £42bn to the UK annually. The benefits of the income international students accrue across all 650 UK parliamentary constituencies. A reduction in international students will impact UK property rental, hospitality and catering, entertainment, and other industries which support regional economic sustainability. Three changes in government policy are causing the fall in international student applications: the restrictions on family members accompanying students to the UK, the rise in the pay threshold for skilled worker visas, and the announcement of the graduate visa review. Alongside these policy changes, prospective students perceive “a cold welcome.”

Systemic problem

Research intensive universities rely more heavily on international student income than post-92 providers. International students apply in larger numbers to universities with global reputations for research and, as a market consequence, research intensive universities can charge higher fees to international students, using this income to shore up their finances against the reducing value of home UG student fees, and to enable research activity.

A reduction in international student income could result in a sudden and immediate financial cliff edge for many research intensive universities, those already struggling financially and those with borrowing where repayments are contingent on international student revenue. Many post-92 universities also depend on international students. As a result, within 12 -24 months not one or two providers but a substantial proportion of the sector could face huge financial instability. This would impact on the system of HE and the whole economy, not only those providers at risk.

In response to the existential threat of this prospect, levels of competition between providers will become ever more intense, potentially generating unpredictable behaviour, and possibly compromising academic standards and student welfare. Universities would struggle to continue to invest in activities such as mental health support and to maintain accommodation standards in halls of residence.

As an example of a systemic risk to the sector, under the strain of additional competition generated by financial pressure, if national pay bargaining breaks down under a combination of financial and industrial action pressure, it would fracture the sector. A subgroup of the Russell Group could afford to pay staff more to avert industrial action, the rest of the sector, including some of the Russell Group, can’t. This would potentially intensify the financial challenges faced by many providers, as well bifurcating career paths for staff between two divided sections of the sector more firmly than at present.

In the event of press coverage of financial instability, reduction of standards, or student welfare concerns, the UK HE sector as a whole might rapidly become less attractive to international students. In the face of competition from Canada, the USA, and Australia, this would make it difficult for the UK to return to our current global reputation and levels of international student recruitment.

A medium term reduction in international student income would either significantly increase the financial burden of higher education to the public purse, students and their families (already identified as a very unlikely outcome), or result in a much contracted sector. Both might be necessary.

Call to action

Obviously no one who works in HE wants this; we all have many reasons for why this would be a destructive and undesirable development. In addition to fewer students accessing higher education, a contraction of the sector would almost certainly impact directly on UK industry and productivity. It would be expected to reduce discovery research which contributes to the competitiveness of UK businesses. It would impact the ability to fill graduate level public sector jobs vacancies, many of which are already reported as facing long term staffing shortages.

The sector is already lobbying industry partners and regional stakeholders to ensure the risks are understood and raised publicly. In addition there are 650 Members of Parliament in the UK, reported to take a matter seriously when they receive in excess of ten letters about it. A co-ordinated project by the sector to write to our MPs reminding them of the proportion of families in their constituency who currently have members attending universities, and spelling out the impact on regional economies of a loss of international student income, of a reduction in graduates to fill graduate level jobs in the region and of, in a worst case scenario, a local university failing, would ensure that the risks are visible, understood and debated in parliament.

We should point to the importance of the soft diplomatic power that accrues to the UK from having graduates in business and politics across the globe. We should not call for a financial bail-out at this stage. Special pleading would make us look unaware of the pressures on public sector employers. We should ask for a speedy review and a reversal of the policies impacting on international student recruitment. We should point out that this is a funding stream which can’t be switched off and then renewed later when the consequences become clear. Let’s act now to avoid a set of events that, however much we regret the outcome, we are unable to reverse.

3 responses to “Policymakers need to realise that financial turbulence in higher education will hurt the whole nation

  1. “Arguably the 2019 Augar report implemented by stealth”

    Not really because the Augar Review also recommended that “Government should replace in full the lost fee income by increasing the teaching grant, leaving the average unit of funding unchanged at sector level in cash terms” and was also premised on low inflation of ~2% per year rather than the historically high inflation we have had in practice.

  2. An interesting article but I do not agree that allowing more international students, undergraduate and post graduate, to come to the UK, is the best way to solve financial problems in the university sector.

    Nor does this help the Government stem the growing tide of people opposed to more net immigration.

    When it comes to improving “…….industry productivity and the ability to staff graduate level public sector jobs;..” it is also not the answer.

    There are now 1 million job vacancies, yet we have 4 million people of working age claiming benefits and not working. Another 4 million aged 16 plus are engaged in Further and Higher education.

    In the last 20 years the number of graduates has grown while our productivity has fallen. Public sector productivity has fallen the most. There is little evidence that increasing the number of UK graduates or the number of public sector workers is good for economic growth – quite the opposite is true.

    The current model for widening participation has also failed, from an economic viewpoint. Those from a disadvantaged background are still less likely than the average to get higher grades, higher rates of employment or higher salaries / incomes.

    The money and resources currently spent on WP should be reallocated to schools if we want to improve return on investment and social mobility.

  3. I am not very sympathetic to the plight of universities who have come to rely on the income from overseas students. At best, such income should only be treated as a bonus rather than being an integral component of university income. It has always been a risky business model, one particularly susceptible to changes in the political climate (home and abroad).

    In chasing the oversea student UK universities have not focused on developing their ‘offer’ to the domestic student. Certainly, while recent falls the recruitment of domestic students might be a response to the cost-of-living crisis, lackluster NSS results and unimpressive data on graduate outcomes (across all ethnicities) suggests that many universities have still not got their ‘eye on the ball’ when it comes to the quality of their undergraduate provision. Something an astute MP might surmise in the coming election year. What is perhaps not widely understood by the general public or MPs for that matter is the nature of this international provision, in particular the increasing reliance on developing overseas partnerships.

    International Partnerships
    In these partnerships an overseas institution undertakes to provide accredited tuition for levels 4 and 5 on the understanding that its students can finish off their studies by completing the associated level 6 at the UK accrediting university. The idea is that two of the three years of study granted by a UK student visa can then be used to undertake (more profitable) post-graduate awards. For the overseas institution such a partnership can greatly increase its local recruitment. For the accrediting institution this model, while potentially profitable, is disruptive to the teaching at level 6 and has (in my experience at least) generated additional cost in assimilating these new arrivals in the final year of the award.

    Developing these partnerships has largely been the job of the university finance departments and senior management, usually pushed through without any meaningful discussions with the academics involved in delivering the targeted awards. The irony is there is usually no intention or monies made available to develop joint research projects (surely a laudable ambition). The outside observer might be forgiven to see this model of international recruitment as cynical and bereft of any underlying pedagogic or cultural aspirations. In the meantime, many jobs within the HE sector and the local economy have come to rely on it.

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