Are UK Universities at the financial “tipping point”?

September 30, 2024

image: ©Poohz | iStock

UK universities support over a quarter of a million jobs and contribute more than £130 billion to the UK economy, according to UUK figures⁽¹⁾, but there are concerns they are at a financial tipping point. Ray Dorney, Director from Rockford Associates, explores

Letting the university sector implode will have a lasting impact on the economy and the UK’s standing on the world stage. So, what really happens if a university goes bust? No one really knows because it’s never happened to a British University, but the concerns within the sector are enough to warrant some deeper insight.

“An awful lot of institutions are placing extremely large bets on this recruitment round and I think the tipping point will follow clearing – it’s usually 1 October before the dust has settled and people know how many students they are going to get. I think some will be calling in the books, as it were, and assessing the financial viability of their organisations, so I’m very worried about the months of October, November and December,” Dave Maguire –
Vice Chancellor, University of East Anglia said. ⁽²⁾

In 2024, the financial landscape for UK universities is more precarious than ever. Institutions across the country struggle with a host of financial challenges that threaten their viability.

From declining income streams to rising operational costs, universities are being forced to make difficult decisions to ensure their survival.

The five key financial challenges facing UK universities today are:

1. Stagnant domestic tuition fees

One of the most significant financial pressures facing UK universities is the continued freeze on domestic undergraduate tuition fees. Set at £9,250 since 2017, these fees have not kept pace with inflation, and sources indicate that if they had, tuition fees would be nearer £14,000 a year. This shortfall erodes the real-term income that universities rely on to cover their operational costs. This stagnation has left many institutions with limited financial flexibility.

Many universities have publicly expressed concerns over the impact of frozen tuition fees on their budget. Still, most face significant financial pressure to maintain the quality of teaching and research while managing the many financial challenges. The freeze on student fees has forced universities to seek alternative revenue streams, including increased international student recruitment and commercial partnerships.

2. Overreliance on international students

To offset the shortfall in domestic fee income, many UK universities have become heavily reliant on international students, who typically pay higher tuition fees. However, this strategy comes with significant risks, particularly in light of recent government restrictions on student visas and the uncertain global economic environment.

A report by the Office for Students (OfS) has warned that 40% of universities in England are expected to run budget deficits this year, largely due to their overreliance on international student fees.

“Financial performance and strength vary significantly for different institutions and our analysis shows that an increasing number will need to make significant changes to their funding model in the near future to avoid facing a material risk of closure,” Susan Lapworth OfS Chief Executive commented. ⁽³⁾

3. Rising operational costs

The cost of running a university has continued to rise, driven by inflation, increasing energy prices, and the need for investment in digital infrastructure. These rising costs have placed additional strain on university budgets, particularly for smaller institutions that lack the financial reserves of their larger counterparts.

Multiple universities have had to make difficult decisions, including staff redundancies and the closure of certain academic programs, to balance budgets. While necessary, these measures have sparked concerns about the long-term sustainability of some universities across the UK.

4. Staff redundancies and course closures

As financial pressures mount, many universities have resorted to staff redundancies and course closures as a means of cutting costs. While these measures may provide short-term relief, they can have long-term consequences for the institution’s reputation, student satisfaction, and overall educational quality.

5. The threat of institutional closures

The most severe consequence of the current financial challenges facing UK universities is the risk of institutional closures. While this has long been a concern for smaller, financially vulnerable institutions, even larger universities now face the possibility of closure if they cannot adapt to the changing financial landscape.

The OfS has indicated that a reasonable worst-case scenario could see four out of five institutions running deficits by 2027 if current trends continue. ⁽³⁾ This dire prediction underscores the urgency for universities to reassess their financial strategies and explore new ways to ensure long-term sustainability.

The situation at smaller institutions with limited financial resources is dire, with some at risk of closure unless they can significantly reduce costs, find new sources of income, or explore options such as partnerships with other institutions and potential mergers to secure their future.

And this is where Rockford Associates can help!

Rockford’s Accounts Payable Audit service consists of a review of historic payment transaction data, utilising proprietary in-house forensic software to uncover overpayments resulting from;

Goods or services being paid for twice.
Payments being made to the wrong supplier.
Payments being made in the wrong currency.
The by-passing of existing software duplicate checks.
The same invoice being paid across different Accounts Payable systems, divisions or ledgers.
Credit notes being paid as invoices.
Cleansing data for potential mergers or acquisitions.

“Rockford Associates is proud to work in partnership with Crown Commercial Service to assist Universities and Higher
Education Establishments recover historical overpayments and help make future ongoing savings. Don’t wait for a “tipping point”. Our independent track record of success within the education sector is second to none, and strongly evidenced by an ever-growing existing client base who enjoy the returns of significant funds,” Ray Dorney, Director – Rockford Associates explained.