Together with the CBI, we’ve written to Chancellor Rachel Reeves to highlight the serious risks posed by the proposed international student levy.
Dear Chancellor,
Universities are one of the UK’s most powerful engines of growth. They are the anchors of local and national prosperity, help bring in international investment, and drive world-class research and innovation. At a time when your government’s Modern Industrial Strategy rightly seeks to rebuild Britain’s productive capacity, the UK needs its universities operating at full strength.
Last week, the government set out a compelling vision for the higher education and research system, in which universities and colleges will be core to delivering government ambitions. We support that vision. We warmly welcome the fact that the government has recognised the need to put universities on a firm financial footing, for them to drive growth and opportunity. We welcome the investment in students – through increased maintenance loans and the commitment to introduce targeted grants. We also strongly support and endorse the decision to increase the undergraduate tuition fee in England, in line with inflation, which is intended to address the problem of growing deficits across the university system. It is also designed to be an important step in restoring lender confidence.
We want to work with you to make sure that universities make the strongest possible contribution to national ambitions.
However, the introduction of a levy on international student fees is a serious concern which undermines the objective of stabilising university budgets, and risks wiping out the beneficial effects of linking domestic tuition fees to inflation. There is a real risk that the levy results in decreasing support for students, and further constrains universities’ ability to offer high-cost courses.
We have shared detailed modeling and case studies with your officials which suggests that universities will not be able to pass on the cost of the levy in higher fees without hitting demand. Although there is variation across universities and price points, we would like the government to engage with us in understanding the full impact of the levy on demand before moving forward, and to work with us on a mechanism for funding grants which will preserve the objective of putting universities in a stronger financial position overall, when the combined effect of these policies is taken into account.
If, as many universities believe, their ability to raise fees will be limited, the levy will represent a straightforward tax on income, which will more than outweigh income from inflation linked tuition fees in many cases, reducing their ability to invest in the support they offer their own students, and in research and innovation. If we are right, the policy will have the following consequences:
1. It will directly reduce investment in research and innovation: Universities already subsidise research by over £5.4 billion annually, cross-funded primarily through international student income. 19% have already cut academic R&D, and four in five say they may be forced to do so within three years. A levy would accelerate this contraction, eroding the UK’s £52 billion research base and the pipeline of commercial innovation it supports.
2. It will undermine high-cost, high-value courses critical to the growth mission: Shortfalls of up to £14,800 per medical student and £6,500 per engineering student are already deterring universities from maintaining capacity in strategically important subjects. International fee income fills that gap. Without it, the proportion of places in high-cost disciplines, which are already down from 52% to 47% since 2016, will fall further, weakening the UK’s advanced manufacturing, energy and life-science skills base.
3. It will harm local economies and jobs: Universities support more than 815,000 jobs across the UK and add over £71 billion to GDP. Modelling suggests the levy could reduce local GVA by almost £40 million per constituency in the hardest-hit areas—impacting both regional growth and levelling-up ambitions.
4. It will diminish support for domestic students: In 2023, English universities invested £730 million in outreach, access, and hardship funds. Yet a third have already reduced student-support spending. Further losses in international income will inevitably lead to deeper cuts, undermining social mobility at the very moment the government seeks to expand opportunity.
5. It will add further pressure to already stretched business budgets, including higher employers’ National Insurance costs: Universities are facing a £430 million-a-year increase in employer National Insurance contributions from 2025-26 onwards. For people-intensive employers like universities, this adds a substantial cost burden on top of other financial pressures, reducing the resources available for teaching, research and student support. CBI analysis also shows that receipts from employers’ NICs rose by 5% over the past year and are projected to rise by a further 28% in 2025-26, making them one of the fastest-growing costs facing employers nationwide. Introducing a levy on international income would therefore compound these cost pressures at the very moment the sector is working to maintain investment in people and programmes that underpin the UK’s growth ambitions.
We urge you to work with the sector and business communities to identify alternative, growth-positive funding mechanisms to deliver the government’s goals, which do not weaken research, innovation, and skills investment that underpin the UK’s economic renewal.
We would welcome the opportunity to meet with you and your officials to discuss this further.
Yours sincerely,
Vivienne Stern, Chief Executive, UUK
Louise Hellem, Chief Economist, CBI