Chinese tap may be turned off
All universities except Oxbridge ‘could go bust’
Overseas students are a vital source of income
All universities apart from Oxford and Cambridge could go bust amid fears they could lose up to 75% of overseas students, according to a new study.
Calculations of the financial position of all UK universities suggest that between 30 and 50 could be in immediate danger of insolvency.
There is now speculation that the Treasury will demand restructuring and possible mergers as a condition for providing financial support.
In a policy paper for the Centre for Economic Policy Research, economics professor Peter Dolton says the financial problems at Britain’s universities are rooted in a growing reliance on the surge in overseas students – more or less exclusively from China.
While numbers coming from nearly all other countries has remained broadly constant, the numbers arriving from China have risen from 25,000 in 2006 to nearly 90,000 by 2019. Now there are concerns that this flow of students will be switched off as the economic effects of the coronavirus pandemic kick in.
Prof Dolton, a research director at the National Institute of Economic and Social Research, notes that in 2010 over half of the funding for universities came from central government. That has fallen to about 25% with the remainder now coming directly from student fee income. In Scotland, the government continues to pay tuition fees for Scottish students and First Minister Nicola Sturgeon says she has no plans to change this policy.
“The truth of the matter is that we do not presently know the exact nature of the implications of COVID-19 for future student demand,” says Prof Dolton.
“Some universities are planning for worst-case scenarios that could involve losing up to 75% of their overseas students and a drop of 20% of home students attending university this September, potentially leading to severe financial trouble. In this worst-case scenario, it has been suggested that all universities except Oxford and Cambridge could become insolvent.”
In a survey conducted by the British Council this year, it was suggested that up to 50% of postgraduate students who were planning to come to the UK are planning to defer and around 20% are likely to change where they go as a result of the COVID-19 pandemic.
Clearly there will be many overseas students who choose not to come to the UK in September 2020– Prof Dolton, NIESR
Prof Dolton says: “If the demand for UK university education from countries like China, India, and many of the African countries proves to be resilient, then these measures may not be necessary.
“Clearly there will be many overseas students who choose not to come to the UK in September 2020. But does this mean that they will never come? Surely a sizeable fraction of this demand will still be in place in September 2021 and many students will simply defer for a year. This logic may justify the government viewing the impending financial crisis of UK HE as a short run liquidity crisis.”
He says the main issue currently facing universities is to prevent themselves from going broke in the short run and planning for the opening of campuses in September.
“But what will happen if universities are not allowed to open again in September? Or indeed what happens if there is a second or subsequent wave of the pandemic?
Universities should have contingency plans for these eventualities. Those without reserves or endowments will have little alternative but to make representations to central government for special financial help. But it has already been signalled that this will come at the price of considerable structural reforms.”
Faced with these large expected losses in income, many universities in the UK are already implementing, or planning to implement, hiring freezes, redundancies, termination of short-term contracts, dropping courses and even whole degree programmes, and closing departments.
Talk of mergers of neighbouring universities have been rumoured – although Prof Dolton says the evidence on the efficiencies to be gained is weak.
Senior management at some universities has taken a voluntary pay cut and proposed that professorial staff follow suit. These measures have large adverse implications for employment in the university sector, with some estimates suggesting up to 300,000 job losses (London Economics 2020).
“Arguably, it is expensive to merge and restructure a university with a neighbour and there is relatively little evidence in favour of potential economies of scale,” says Prof Dolton.
“But this should not prevent universities from seriously considering this option in an attempt to rationalise their provision and economise on costs. Another pertinent point to consider is whether neighbouring universities should be forced to merge by the government.”
In response to the potential loss of overseas student fee income, UUK asked the government for a £2.2 billion boost to short-run research funding.
What the government decided to do instead was increase research funding by only £100 million and allow an advance on undergraduate fee income from the Student Loans company to the tune of £2.6 billion.
Prof Dolton is sceptical about this measure. “This represents a loan of around 10% of fee income to universities. While this loan will be a short-run lifeline for some universities, it only stores up future funding problems as these loans will inflate future financial obligations,” he says.
“Word from the HM Treasury is that a potential financial handout to any institution in financial trouble could be possible in exchange for restructuring reforms.”
Jagjit S. Chadha, director of the NIESR, tweeted: “The University sector has become so reliant on overseas student fees that it may not be able to take a leading part in the solution to #COVIDー19 problems.”
Anton Muscatelli, principal and vice chancellor at Glasgow University, responded: “Indeed – that is why the sector has suggested a temporary financial intervention to support research.”