OfS report paints “bleak” financial picture for English higher education

Higher education providers must “retest their assumptions” about the growth of domestic and international students in an uncertain future – that was the message from the Office for Students, following its annual report on financial sustainability. analysis. The regulator is calling on providers in England to “carefully examine” the credibility of their forecasts and make changes to funding models after the review found a decline in financial performance in 2022-23. It painted a picture of declining surplus levels, cash flow and net liquidity, with more suppliers expected to fall into deficits in the coming years. The lack of growth in the sector could leave almost two-thirds of institutions in deficit by 2026-27, with 40% facing low liquidity at the end of the year, he warned. “Many universities continue to manage their finances well. Many have built a strong asset base that has allowed them to weather financial storms. But the outlook across the sector is becoming increasingly challenging,” said Susan Lapworth, chief executive of the OfS. “Performance and financial strength vary significantly between different institutions and our analysis shows that an increasing number will need to make significant changes to their funding model in the near future to avoid facing a material risk of closure.” The OfS added that although net liquidity has fallen, there is “evidence that the sector is adjusting to protect its cash flow in the face of financial challenges”. He highlighted that, although prospects are expected to improve by 2026-2027, much of the projected additional income comes from expected growth in both the number of national and international students. The OfS warned of “uncertainty” over the ability to recruit significant numbers of additional students, resulting in a “significant risk that the actual financial challenges facing the sector in the short, medium and long term are greater than providers are anticipating ”. The report is therefore “a signal to all institutions to retest their assumptions about the rise in UK and international student numbers”. “The numbers being communicated to us for the industry as a whole are simply not credible,” Lapworth said. “Some institutions will certainly be able to grow. But in a competitive market – and with some evidence that the number of applicants is dwindling – others will find it difficult to expand.”

“The value of national tuition fees is now 25% lower than in 2015, when adjusted for inflation.”

In response to its analysis, the OfS calls on all universities and other higher education providers to identify the steps they will take if future growth is not achieved. The worst-case scenario described in the report is a significant reduction in the number of international students and no cost-saving activities. Such a scenario would see more than 80% of institutions in deficit and almost three-quarters facing low levels of liquidity, Lapworth warned. “That’s why universities must redouble their efforts to avoid optimism bias and identify now the actions they will take to ensure they remain on solid financial footing.” The report highlights five key risks affecting the sector:

• Continued decline in the real value of UK university student income, combined with inflationary and economic pressures on operating costs
• An apparent recent reduction in applications from international and UK students, following years of strong growth, particularly from international students
• A higher education financial model that has become dependent on revenues from international student fees, with particular vulnerability when recruitment comes predominantly from a single country
• The affordability of required property maintenance and development and the significant cost of investment required to reduce carbon emissions as part of suppliers’ commitments to achieve net zero
• Cost of living difficulties for students and staff, which challenge both student recruitment and the support students need during their time in higher education.

Jo Johnson, president of FutureLearn, described the report as “very concerning”. The former universities minister blames the sector’s situation, in part, on the ongoing freeze on tuition fees and therefore calls on the government to allow national tuition fees to rise with inflation. “National tuition fees are now 25% lower than they were in 2015 when adjusted for inflation,” said Jo Johnson, speaking on Radio 4. “It’s a very bleak outlook and, of course, it comes at a time when the government is considering measures that could significantly worsen this outlook if they take action to reduce the ability of international students to stay for a short period of time after studying to work in the UK economy.” In the same week as the regulator’s report, the Migration Advisory Committee published the results of its review in the UK Graduate Route. The Committee was unequivocally in favor of this route in its conclusions, and Johnson said he is “critical” that the government takes note. “If we see the types of reductions in international student numbers that we are currently seeing, we will push our institutions to the limit. The government needs to take stock of the damage this will do to the government’s core objectives.” Johnson highlighted the wider benefit of international students, using the case of Teesside University, where each international student intake brings £240 million of value to the local economy. Cities such as Darlington, Stockport and Middlesborough benefit significantly in this way, he highlighted, and would be “hammered” if international students stopped coming to the UK.

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