What is the problem with university funding?

Underfunding

Similar declines are seen across the devolved administrations, where universities have been underfunded relative to England for many years due to lower government grants and lower fees. This means that UK universities currently incur an annual £1 billion loss in teaching domestic students.  

Financial pressures and risk

In addition to this underfunding, universities face ongoing financial pressures from inflation and rising costs in materials, labour, energy, and borrowing. Although we found evidence of the work that universities across the UK are doing to manage their budgets through efficiencies, innovating their business models, and diversifying their income streams, a shortfall in funding will inevitably impact on the student experience.  

In particular, while increased recruitment of international students recently has brought a surplus, this involves risk and is not sustainable in the long term. Students themselves are also faced with increasing financial pressures as the student maintenance package in England is at its lowest value (in real terms) in seven years, which has an impact on the ability of students, particularly from disadvantaged backgrounds, to benefit from and succeed in higher education.  

Losses in research activities

Despite the world-leading impact of UK research, UK universities across all types of institutions face significant losses in their research activities. Universities in the UK incur an annual £5 billion loss in their delivery of research, covering less than 70% of their costs from government grants and other income sources, with cost recovery in England and other home nations continuing to decline.  

Institutions face particular shortfalls in funding for the provision of postgraduate researchers, recouping less than 50% of costs, which has serious implications for the future talent pipeline. The underfunding of research threatens the ability of the UK to remain globally competitive and fulfil government ambitions to be a science superpower.