We commissioned PwC to independently review the financial sustainability challenges that our members are currently facing collectively and may face in the future.
PwC have analysed 84 universities’ financial predictions to assess their financial outlook in a range of different scenarios (referred to as sensitivities).
Due to data limitations, sensitivity analysis has only been carried out for England, Scotland and Northern Ireland, although we believe that the broad picture is likely to be similar for Wales as well.
Income: Analysis of financial forecasts shows that universities of all sizes expect to rely more on international fee income in the coming years. Many universities are assuming numbers of UK undergraduates will also increase.
Expenditure: Universities are also assuming that annual growth in their spending will fall to approximately 3–3.5%, significantly below recent trend and income growth projections.
If this ‘base case’ scenario doesn’t happen, sensitivity analysis (PwC's analysis of potential future scenarios) shows that there are significant risks to the financial sustainability of both individual universities and the sector as a whole.
These scenarios apply to England and Northern Ireland.
If the growth rate for international students were to decrease by 20 percentage points relative to university forecasts in 2024–25, 80% of universities could be in deficit in 2025–26, 61 percentage points higher than forecast.
Even if international student numbers remain the same from 2024–25, without declining, 27% of institutions could be in deficit in 2025–26, 9 percentage points higher than forecast.
If university expenditure were to increase by 2 percentage points per year above the levels that universities forecast from 2024–25, 63% of universities could be in deficit in 2025–26. This would be 44 percentage points higher than in the base case.
If the rate of growth of domestic undergraduate students were to be 5 percentage points per year lower than forecast by universities from 2024–25 onwards, 56% of universities could be in deficit in 2025–26. This would be 37 percentage points higher than in the base case.
This analysis shows that a significant proportion of our members are vulnerable to reductions in international student numbers, increased expenditure, and reduction in the growth rate of domestic undergraduate students.
And although PwC’s analysis considers these sensitivities individually, it is possible that they could happen at once. For example, if international student numbers decreased and expenditure also increased, universities would face even more pressure.
All sizes and types of higher education providers – including research-intensive, teaching-intensive, and specialist and creative institutions – would be affected by the sensitivities modelled.
However, certain institutions are more vulnerable to certain issues. For example, universities in Scotland would be particularly badly affected by international student numbers going down.
The risks identified in PwC’s analysis, based on forecasts submitted in the past year, are not just hypothetical.
Some examples of how risks could become reality include:
While visa data from the Home Office shows the current autumn 2023–24 recruitment cycle was up 2% compared to September 2022, emerging evidence from universities suggests that this has not translated into more international students. Some members have reported prospective students opting not to come to their university late on in the recruitment cycle.
These concerns are prompting universities to revise down growth projections ahead of January. While it’s too early to tell whether this is a one-off or a trend, it will have an impact on institutions’ financial sustainability.
Universities that are statutorily obliged to be members of the Teachers’ Pension Scheme (primarily modern, post-1992 institutions) will shortly need to pay pension contributions of 29% for 58,000 members of staff (compared to 16.4% in 2019).
This is already significantly increasing their expenditure, potentially even beyond the 2 percentage points captured under PwC’s sensitivity analysis.
Universities in all four nations of the UK, and in all parts of the sector, are already making changes to adjust to these pressures – including, in some cases, some quite significant restructuring and transformation programmes. More of this activity will be needed. We will continue to support universities as they seek to do everything within their control to regulate their costs.
However, while this may provide some relief, the scale of the problem means that even these best efforts will not be enough to return the sector to financial sustainability. Universities also need urgent action by the UK Government. There is no quick fix, but over the past year, we’ve been part of a national conversation to uncover issues with university funding and suggest possible solutions.
Alongside action to address the long-term decline in funding for teaching in all four nations of the UK, the government could also relieve pressure on the higher education sector without additional investment.
These include taking steps to stabilise demand for international students, reducing costs associated with regulation, and offering institutions flexibility around whether to participate in the Teachers’ Pension Scheme. The government could also help institutions make significant changes to the way they operate, for instance, through incentivising collaboration between universities.
While this analysis is concerning, there’s now an opportunity to prevent the worst-case scenarios from happening and secure the higher education sector’s long-term financial success.
