With the UK government’s budget now delivered, November sees a frenzied month of activity for the Scottish government as it crunches numbers ahead of its own budget for 2025–26, to be announced on 4 December.
Spare a thought for Scotland’s universities, facing the prospect of all that pre-budget speculation and anticipation for a second time.
In a speech at University of Edinburgh earlier this month, the First Minister called on the UK government to “chart a new path and invest to grow.” Arguably, the Chancellor’s approach of “invest, invest, invest” to grow the economy has delivered exactly what John Swinney asked for.
Increased spending across the public sector in England means the Scottish government is set to receive a significant uplift in cash: £3.4 billion for 2025–26 via the Barnett formula. When compared to the 2024–25 budget set out by Rishi Sunak’s government in the spring, it is a £4.3bn or almost 10 per cent increase. That’s before additional compensation from the Treasury for the cost of employers’ national insurance contributions for the public sector. Unsurprisingly then, Scottish Finance Secretary Shona Robison’s initial response was to describe the budget as “a step in the right direction.”
Best case scenario – but it’s all still relative?
The Chancellor’s tax and spend decisions for 2025–26 should therefore give the Scottish government a budget that lands somewhere closer to the best case range of scenarios that officials will have modelled over the summer.
But even so, there are caveats. There is the not insignificant question of the scale of any gap there might be between the cost of increased NIC for Scotland’s public sector, estimated to be £500 million, and any mitigations offered by the Treasury (which weren’t published in the budget and the specifics of which weren’t known at the time of writing).
If anything, any gap between cost and mitigations is likely to have a higher price tag in Scotland due to a higher percentage of the workforce in the public sector and higher salaries due to more generous public sector pay deals over the last couple of years. And while the Scottish government response to the budget was relatively positive, we can’t ignore their warnings that they still face “enormous cost pressures.”
It’s fair to say that our expectations for an upbeat Christmas budget from the Scottish government are still being managed right down.
A budget ask calibrated to tough times
Our budget bid to the Scottish government for universities for 2025–26 is calibrated to the fiscal reality still facing the Scottish government. We’ve asked for a very modest one per cent real terms increase on the teaching grant and a three per cent cash increase on capital covering research, innovation and the estate.
To be clear – and we have been with the Scottish government – this does not touch the sides in terms of addressing the long-term financial sustainability of the Scottish sector. However, we’re realistic that next year’s budget offers no prospect of a settlement on a scale that would get close to what’s needed to put institutions on the path to that.
We’ve also highlighted ways in which the Scottish government can redirect existing resource – in the form of 2,500 funded undergraduate places – into a further modest increase in the unit of teaching resource without costing the Scottish government an extra penny.
This group of undergraduate places, known as the “SQA places”, were added in by government during the height of Covid–19 so that school leavers with better grades than predicted wouldn’t miss out on the university places they were qualified for. As those students graduate, we think it’s right that the places are allowed to exit too – there’s demonstrable headroom to allow for this at sector level without disadvantaging entrants.
However, it is absolutely vital that the resource attached to the places does not leave with them. This is a “no-cost” way of making a small contribution to reverse what has been a continuous decline in the unit of public resource invested by government in each Scottish student. Just as the Scottish government made the right decision in 2020 to create these places, removing them and increasing investment in Scottish students would be the right decision now, taken for the right reasons.
Small but significant
The sum attached to the 2,500 SQA places is £14 million. If that were reinvested in the teaching grant to go towards the price per Scottish place that the Scottish government pays, it could add close to one per cent. It’s small but it’s significant.
In the meantime, pressure is piling up on institutions.
The UK government’s tax decisions means that universities’ costs are set to rise again. Whilst we expect schools and colleges to receive mitigations for the rising employer national insurance contributions, universities don’t appear to have been considered to date. This is an issue facing the sector across the UK, and we’re working with Universities UK and UCEA to explore options.
We already know the employer NIC rise will cost Scottish HEIs in the region of £45m. Against a backdrop of long-term decline in funding, increased costs of this scale cannot be absorbed without a settlement for Scotland’s universities that is commensurate with the challenges we face.
Brighter news
There was much better news than expected in the budget on R&D. Speculation had run rife on whether Horizon Europe funding would be folded into domestic research budgets. It’s very welcome that Horizon and UKRI budgets have been protected and that the government has shown it is serious about its plans for the modern (and UK-wide) industrial strategy, with additional strategic R&D investments announced in many of the growth sectors in its green paper.
All of this has the potential to benefit Scotland’s universities, directly and indirectly, given we straddle both reserved and devolved research and innovation budgets and policy.
The lack of hypothecation in the Scottish block means there’s no guarantee that the UK government’s decision to protect research and innovation spending in England will follow through to the Scottish government’s decisions. Yet, this brings us right back to the mantra of invest to grow, as shared by the Chancellor and the First Minister. There’s an exceptionally strong case that investment in university R&D and innovation will help to realise those shared ambitions for growth. We await with interest to see if those ambitions translate into budget decisions for the Scottish Government.
The elephant in the budget
Pre-budget, the rumour mill had also been turning on the prospect of an announcement on indexation of fees for English universities and changes to student finance for students in the sector in England. That rolls over for another day.
The deferment of solutions for England this time around means that England’s universities continue to look to government for answers on their future funding and long-term sustainability. In Scotland we too wish to look beyond the short-termism of annual budgets to secure a sustainable funding model for the sector.
Inevitably, the solutions to these challenges will be markedly different, but they must be found.
Note: this article was updated 8 November with a revised estimate for the cost to Scotland’s higher education institutions of the increase to employer national insurance contributions.
