• Thursday, February 29, 2024
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UK universities face risk of deficit over falling foreign student intakes


Universities in many United Kingdom (UK) nations are faced with the risk of deficit over falling foreign student intakes and this is feared to cause a reduction in income generation, increase investment requirements, and an escalating cost base.

According to PwC findings, this is placing strain on margins and drives greater reliance on cross-subsidisation, particularly from international student fee income, which has led to increasing concerns about over-reliance.

The report indicates that funding per student, in tuition fees and teaching grants, has been falling across the UK member countries over the last decade.

In England, domestic fees have been capped since 2012, with only a minor uplift of £250 in 2017 for providers with a teaching excellence framework award, and are now worth only £5,990 in 2012 prices.

Funding per international student is at its lowest level in over 25 years, and without any additional investment, is expected to fall to £5,590 in England by 2025/26 in 2012 prices, and in Scotland, it is estimated that per international student funding has already been cut by 39 percent per student in real terms since 2014/15.

An increasing number of university estates require investment, with some no longer fit-for-purpose and many requiring retrofitting to meet net-zero targets (a 2023 British Universities Finance Directors Group (BUFDG), Association of University Directors of Estates (AUDE) and Alliance for Sustainability Leadership in Education (EAUC) report estimates that £6.6billion of investment is required to decarbonise all higher education built environments.

Paul Kett, senior adviser and global director of education & Skills, and Damien Ashford, education lead and government and health industries restructuring leader at PwC pointed out that the outlook for the sector, according to the analysis of UUK member forecasts highlights that there is provider optimism around sustained international student growth particularly in some segments and around expenditure growth falling below historical levels.

“As a result, most providers are particularly exposed to shocks in international student demand and to persistent inflationary pressures. Within a diverse sector, how these shocks impact individual institutions, and their capacity and capability to respond, will vary widely.”

As a result of the development many capital works including investment in both digital and physical infrastructure were postponed during the pandemic to preserve liquidity, meaning significant capital expenditure is now required alongside rising maintenance costs and tightening operating margins.

No doubt, the UK higher education sector has a well-established international reputation for its excellent academic education and world-leading research; it is the second most popular study destination in the world.

However, the survey highlighted that over the past decade, the sector has been facing increasing financial pressures that threaten providers’ ability to maintain the quality of their provision, and this may even bring the future of some providers into question.

Nevertheless, despite its strong international brand and academic excellence, the UK higher education sector and its institutions are facing significant financial challenges that threaten to impact the quality of provision and student outcomes.

In the longer term, this may impact the UK’s international standing and its ability to attract and retain students and therefore undermine the considerable economic benefits the sector brings to the UK.

Constraints on income generation, alongside cost pressures, have driven providers to increasingly cross-subsidise domestic student teaching and research activities with higher levels of non-fee-capped international students.

Capitalising on strong international student growth in recent years, this strategy has led to an over-reliance in some cases and leaves some providers exposed to international demand or geopolitical shocks that they cannot control.

“Our analysis shows that, across the sector, providers would be materially impacted by a gradual or sudden drop in international student numbers in the coming years – with up to 80 percent of providers falling into deficit.

Our analysis shows that, just a two ppt increase per annum in the cost growth assumptions, could result in 65 percent of providers falling into deficit (and this analysis is before the recent announcement of increased TPS contributions has been taken,” the report stated in part.

The survey further disclosed that the future of the UK higher education sector will depend on how well it responds and adapts to the changes that lie ahead.

Whilst some providers may see these as opportunities, to others these changes will represent serious threats, particularly from a financial sustainability perspective.

Within a very diverse sector, these pressures are not felt evenly, but in times of uncertainty and squeezed financial margins, many providers have responded by delaying much-needed investment in physical and digital infrastructure to protect their cash flow.

The researchers affirmed that unless there is meaningful change at a sector level, there is a risk this will remain the first response, with cashflow and affordability continuing to drive investment and operating decisions ultimately at the expense of maintaining quality which is at odds with ensuring a sustainable, thriving sector in the long term.

They however proffered strategies to adopt to drive meaningful and sustainable change.

“We see providers that are already taking necessary steps to optimise their operations, drive their top-line and reduce their cost base, including back-office transformation, adopting modern digital solutions, estates rationalisation and strategic partnerships.

Nonetheless, these strategies alone will not solve systemic sector challenges and constraints, and for certain providers – particularly those smaller providers with less levers available to them – they are unlikely to be sufficient in the long term, and more radical solutions, such as consolidation, may be required.”