New SFC reports paint a bleak picture
Sometimes, when you read a report about sector finances, there’s one caveat up to that changes the complexion of every conclusion.
For the Scottish Funding Council’s Financial Sustainability publication (the first published in compliance with the requirements of section 20 of the Tertiary Education and Training (Funding and Governance) (Scotland) Act 2026) that key paragraph is the second one.
This report excludes the 2024-25 actuals and 2025-26 to 2027-28 forecast figures for University of Dundee. The university has not finalised its 2024– 25 annual report and accounts and its June 2026 forecast return at the time of writing this report.
Now, the University of Dundee has been struggling financially for a while – there have been numerous exposes, parliamentary debates, and talk about bailouts (and moral hazard) so this will not come as a surprise to anyone. Among all this chaos the university has not managed to submit an annual financial report or forecasts, so cannot be included in sector averages. This flatters the position of the sector as a whole.
But not by much.
The rest of the sector reported an adjusted operating surplus of £90.6m for 2024-25, but this was projected to fall to £67.9m for last academic year and just £36.8m in 2026-27. But the majority of this surplus comes from the performance of Scotland’s four ancient universities (St Andrews, Edinburgh, Glasgow, Aberdeen) – there are ten universities with operating deficits in 2024-25 and ten universities forecasting a deficit in 2026-27. There are only six universities that are not projecting an operating deficit at any point in the three year forecast period.
Significantly, five universities are projecting a net cash outflow (spending more, in year, than they take in) in 2026-27. These weaker operating positions underpins a fall in forecast net liquidity, from 134 days in 2024-25 to 118 days by 2027-28
All of these forecast figures are predicated on what SFC describes as “optimistic forecast tuition fee assumptions” based on planned growth in international student recruitment. A forecast 7 per cent increase here would see income from this source rise to £1,490m in 2027-28 – but, as the report notes:
this continues to be an area of significant uncertainty and volatility due to intense competition in international recruitment markets, changes to UK Visas and Immigration (UKVI) policy including the stricter Basic Compliance Assessment (BCA) metrics introduced in June 2026, and wider geopolitical developments
You can add to these headwinds the wider concerns around the macro-economic outlook: potential rises in inflation and interest rates will hit struggling universities hard, as will increases in NI and pension contributions. We’re looking at a rise in energy costs that will have both a direct (the cost of electricity and gas) and indirect (the costs of logistics) impact. And a growing maintenance backlog (of both the physical and digital infrastructure of universities) will increase the pressure further.
There are signs that the sector is doing the work in driving down costs – spending on workforce restructuring is projected to grow by 244 per cent to £74.2m in 2026-27: showing growing allocations for redundancy payments and similar measures. And borrowing is forecast to drop, marginally, overall as universities seek to restrict the cost of financing arrangements. But as with all of these figures, this is not a single story: it is a different tale, albeit with similar themes, at each provider.
Unlike other parts of the UK, the Scottish government has made moves to support universities in this challenging context (beyond the Dundee bail-out) – a seven per cent uplift in SFC’s budget this year is being used to support the wider government priority of public service reform by funding specific initiatives within and across providers in the HE and FE sectors. This follows last year’s University Transformation Framework, which used SFC underspend to support a variety of transformation and innovation programmes (including the collaboration between Napier, St Margarets, and SRUC).
Although welcome, support like this doesn’t directly address more systemic issues around the sustainability of public funded work in Scotland’s universities. The parallel release of TRAC data for 2022-23 and 2023-24 (and note just how long ago that was). Public funding for teaching covered a little over 80 per cent of the cost of teaching in 2023-24 (the latest data point in a chart showing a multi-year decline) whereas research cost recovery mirrors the sad tale told in other parts of the UK.