University Finances

On 12 May​ , ten days after Reform swept the local elections, Keir Starmer launched a white paper with the title ‘Restoring Control over the Immigration System’. The timing was a coincidence, he said: ‘People who like politics will try to make this all about politics,’ but ‘it is what I believe in.’ Among other measures – fewer visas for skilled workers, stricter language requirements, more deportations – the government wants to reduce the number of international students in the UK. Starmer complained of ‘young people weighing up their future’ who are shut out of ‘colleges in their community almost entirely dedicated to one-year courses for overseas students’. ‘Is that fair to Britain?’ he asked. ‘I don’t think it is.’

The image of foreign students coming here and taking our college places misrepresents the reality of university recruitment. In 2023-24, 75 per cent of students who started new degrees were from the UK. It’s true that the number of overseas students has risen in recent years, from 550,000 in 2019-20 to 730,000 in 2023-24; over the same period, the number of UK students increased by 200,000, reaching 2.2 million. The composition of the student population has also changed. Before Brexit, EU students paid the same tuition fees as those from the UK; unsurprisingly, between 2020-21 and 2023-24 the number of new students from the EU halved. In their place, universities have recruited heavily from elsewhere, in particular China and India (which together account for more than 40 per cent of international students), as well as Nigeria and Pakistan.

It’s laughable to suggest that this situation has been unfair to Britain. Even putting aside their contribution to the economy (£41.9 billion in 2021, according to the Higher Education Policy Institute), overseas students have been propping up the university sector for years. In 2023-24 they paid 46 per cent of tuition fees, equivalent to 23 per cent of total funding. This was a crucial subsidy for UK students, whom universities teach at a loss. Annual fees for ‘home’ undergraduates have been capped at £9250 since 2017-18 (Scottish students at Scottish universities don’t pay tuition fees); overseas students pay between £11,400 and £38,000. Analysis last year suggested that undergraduate fees would need to be £12,500 for universities to break even. While there is no cap on postgraduate fees, students from the UK are still charged much less than foreign students, in large part because the government offers a maximum of £12,471 in study loans for masters students. A taught masters in my department costs £12,250 for home students; those from overseas pay at least twice as much.

The white paper includes plans to reduce the amount of time overseas students can remain in the country after graduating, from two years to eighteen months. A new 6 per cent levy on universities’ income from international fees is under consideration, with early estimates suggesting that this could cost universities £620 million a year. The white paper also promises ‘action against those who seek to abuse and misuse’ student visas. The largest proportion of asylum claims by visa holders – 47 per cent – are made by students; Labour is hoping to drive down two sets of immigration figures at a stroke. The government’s modelling suggests that international enrolment will fall 3.5 per cent as a result of the changes to student visas. In the event that universities increase fees by 6 per cent in order to meet the levy, the number of overseas undergraduate students is expected to fall by 2.4 per cent ‘in the long run’.

There had already been a significant fall in recruitment from overseas before these policies were announced, and this year it is again expected to drop substantially. Many prospective applicants have been put off by visa restrictions introduced by the Tories in 2024, which make it much harder to bring family members to the UK. The number of new international students in the current year is thought to be 21 per cent lower than was forecast. The financial consequences for universities have been dire: 45 per cent of them are expected to be in deficit this year, up from 30 per cent the year before. The losses are unevenly distributed, with larger, teaching-focused institutions (the University of the West of England, for instance) and medium-sized institutions (such as the University of Leicester) more likely to be in the red. At least 96 universities are restructuring and making redundancies; up to ten thousand jobs may be at risk. Greenwich is planning to cut three hundred academic staff, a quarter of its workforce (it claims the cuts are to part-time staff, ‘some’ of whom work only a few days a year); another three hundred jobs will go at Dundee (this can be attributed in part to the Nigerian government’s devaluation of the Naira, a sign of the sector’s sensitivity to global financial shifts). Research-intensive universities are generally in better shape, although they too are cutting staff: 13 of the 24 Russell Group universities have announced plans for redundancies, including voluntary redundancy schemes. A further decline in student numbers could prove catastrophic for the most indebted institutions. Philippa Pickford, director of regulation at the Office for Students (OfS), has said that the collapse of one or more universities is ‘something we are preparing for’.

The most recent OfS report blames university leaders, whose forecasts for foreign student recruitment have tended to be ‘too optimistic’. The numbers support this view. Despite the restrictions introduced last year, many universities continued to predict a 20 per cent increase in overseas recruitment by 2027-28. But the situation is actually a direct result of regulatory fudges by successive governments. A reliance on international students is only the most recent attempt to solve a broader problem, one that continues to dog British policymaking when it comes to major social and cultural institutions. Our politicians dream of world-leading provision, with all the social and economic benefits that would bring (the skills minister, Jacqui Smith, boasts of Britain’s ‘global reputation for excellence in higher education’), but want to achieve this without American levels of private investment or European levels of state spending.

Students have been directly funding the higher education system for almost three decades, but the balance shifted significantly under the coalition government. The tripling of tuition fees to £9000, which was voted through in December 2010, did little more than offset the £2.9 billion of cuts to higher education announced by George Osborne two months earlier. With that, the state stepped back from funding teaching in higher education (directly, at least: the latest forecasts are that only 65 per cent of home students in the 2023-24 cohort will repay their loans in full). Osborne also lifted the cap on student numbers (before that, the intake at each university was limited to within 5 per cent of a figure set by the government). The financial security of universities became dependent on their ability to maintain student numbers. Prestigious universities could expand quickly, hoovering up applicants, while smaller institutions were left even more vulnerable to any fluctuations in demand.

The then home secretary, Theresa May, attacked student migration in terms that seem familiar. ‘Britain is, rightly, the destination of choice for many people wishing to study abroad,’ she said in 2011, ‘but under the last government the student visa system became the symbol of a broken and abused immigration system.’ The solution? New restrictions that limited the ability of overseas students to stay in the UK after completing their courses. May suggested that these, in combination with other changes to visa entitlement, would reduce numbers by a hundred thousand; the actual drop was closer to forty thousand. International recruitment remained relatively flat for the next few years, before starting to rise. In 2017 May, by now prime minister, raised the cap on tuition fees for the first time, in line with inflation; at the election later that year, young voters flocked to Jeremy Corbyn’s Labour, which had pledged to abolish fees. Chastened, May introduced a freeze that remained in place after she left office. The value of the fees paid by UK students was gradually, and then rapidly, eaten away by inflation; today they are worth a third less in real terms.

The policies that Starmer is trying to unpick were put in place by May’s successor. Boris Johnson’s boosterish instincts found expression in his higher education strategy. He knew that the inevitable decline in EU student numbers after Brexit would hit university finances and risk bad headlines, and so he reintroduced the two-year post-study visas that May had scrapped, proclaiming that Britain was ‘open to the brightest and the best from across the globe’. Universities were an emblem of his attempt to pivot away from Europe towards the Commonwealth; indeed, they may be the only place where it can be said to have succeeded.

Most of the opprobrium aimed at universities is fantastical. I only wish that academic life was as radical and subversive as its detractors believe: if higher education was as committed to ‘woke indoctrination’ as the Tory peer Nat Wei claims, I imagine I would spend a lot less time on administrative emails. More reasonable criticism has tended to focus on the glut of shiny buildings that universities have commissioned in recent years. The extent of improvements shouldn’t be exaggerated – to install a new radiator in my office last year, the whole building had to be evacuated and sealed off because there was known to be asbestos in the walls – but a construction boom did follow the abolition of the cap on student numbers. According to one study, between 2014 and 2019 ground was broken on projects worth a total of £8.8 billion.

Universities saw these new buildings as a means of attracting overseas students as well as sources of income in themselves. But how were these construction projects to be funded? The solution, at least for some institutions, was to start issuing bonds. Cambridge was one of the first universities to do this. Its 40-year bond, issued in 2012, received an Aaa rating from Moody’s, which judged it more secure than British government bonds. By the time Cambridge issued its second bond in 2018, raising £600 million, Manchester, Southampton and Leeds had followed suit and the market was worth more than £4.4 billion, almost 15 per cent of the sector’s annual income. The turn to bonds gave universities another reason to strip academics of their defined benefit pensions. (The recent pensions dispute, which lasted from 2018 until 2023, was the longest in the sector’s history.) The investor prospectus for Cambridge’s 2018 bond listed ‘financial risks associated with the pension scheme’ as one of the factors that might affect the bond’s performance.

The increased complexity of university finances is often used to justify vice-chancellors’ exorbitant salaries: median pay last year was £340,901. As in other industries, the enormous wage disparity within universities distances the corporate leadership from the concerns of rank-and-file employees: it helps to steady the hand that wields the axe. The responses of some university leaders to their institutions’ deteriorating finances have smacked of opportunism. My own employer, Queen Mary University of London, is rushing through the merger of several departments, and the loss of at least 59 jobs, in response to what senior management refers to vaguely as the university’s ‘financial situation’. Unions have alleged that the university has been slow to provide any financial data that might justify the cuts to them and their members.

Labour’s policies on universities can appear contradictory. It wants to reduce the number of international students, leaving universities even more cash-strapped, but according to the New York Times it is spending £50 million on attracting US researchers affected by Trump’s policies. (The Department for Science, Innovation and Technology says that the UK is ‘open for business on international science’ and wants to help ‘some of the world’s best researchers bring their ideas to life here’.) The government is introducing one measure that will do something to address universities’ precarious financial position: from this autumn, the cap on tuition fees will be lifted. UK students will pay £9535, raising an additional £390 million. But that gain will be cancelled out by the government’s changes to national insurance, which will cost universities £372 million. The government has also announced funding cuts for 2025-26, reducing spending on high-cost subjects and access by £108 million, and halving capital spending.

For young academics – I’m an early career fellow – the situation looks bleak. We have all received at least three years of highly specialised training, often at great expense – my PhD cost the taxpayer £100,000, of which I received around £14,000 per year. But the supply of permanent jobs, or ‘open-ended positions’ as they are now called, has all but dried up. When one does come up, the competition is intense. A recent opening for an entry-level lectureship at a Russell Group university attracted two applicants who already had permanent and senior positions at other institutions. Even academics with secure jobs don’t feel secure. Meanwhile, those of us on fixed-term contracts sit and wait for our funding to run out. Never mind: my university’s website tells me that ‘great ideas can and should come from anywhere.’