How would proposed reforms impact the economic contribution of universities?

Universities are huge contributors to our economy. Latest estimates from Frontier Economics suggest that the higher education sector supports over 815,000 jobs in England and contributes more than £52 billion in GDP.

In February this year, the government announced that it wanted to reform the higher education and student finance system in England and launched consultations on related policy proposals.

The government is considering whether to introduce caps on student numbers in higher education, and whether to establish minimum eligibility requirements (MERs) to access student finance – such as achieving a grade 4 in English and maths at GCSE or two E grades at A level.

Both proposals could reduce student numbers, meaning less income for universities. They could also prevent disadvantaged students from going to university, undermining efforts to level up regions across the UK.

A cap would prevent student numbers from growing by as much as they otherwise would in coming years. This means less income from tuition fees, subject grants and additional top-up income – especially for institutions which have been successful at growing domestic student numbers.

We’ve examined the financial implications of capping student numbers at current levels (defined as 2020–21 academic year levels) for those universities which perform below the national average in terms of student outcomes after graduation.

Assuming that student numbers would grow in line with past trends, we estimate affected universities could potentially lose around £1.9 billion of their income over a five year period, or around £400 million annually. This is around 1% of the higher education sector’s income in England.

If student numbers were capped at current levels in courses not seen as being of ‘strategic importance’, there may be an even higher income loss of around £2.7 billion over five years, or over £500 million per year.

The government’s own analysis suggests that minimum eligibility requirements (MERs) would affect a considerable number of students – between 24,100 and 26,800. Our calculations, based on multiplying the number of affected students by the current tuition fee cap, suggests that the tuition fee income losses for universities from this proposed reform could be between £100 million and £200 million a year.

These potential income losses are unlikely to be shared equally by all universities, and some are more at risk than others.

If student number controls were based on projected completion and employment from entrant data (Proceed), we estimate (based on a 60% threshold) that around 36 universities could be impacted, with the majority of income risk concentrated in around a third of those.

This policy is likely to disproportionately affect modern universities, those with high intakes of students from low participation neighbourhoods, and universities located outside of London and the South East.