The Financial Sustainability of the UK Higher Education sector report, published by PwC and commissioned by UUK, found that “significant financial challenges” could impact quality provision and student outcomes.

Up to 80% of providers could fall into deficit if there is a gradual or sudden drop in international students in coming years. Inflationary pressures are an added worry for balance sheets.

Pressures are not evenly felt across the sector, but many providers are delaying investment in physical and digital infrastructure to protect cashflow, it says.

However, some have optimised operations to “drive their top-line and reduce their cost base” by transforming back-offices, adopting digital solutions, rationalising estates and establishing strategic partnerships.

The report concludes that these are not enough to solve “systematic sector challenges and constraints”. Smaller providers may have to resort to “more radical solutions” in the long term, such as consolidation, it suggests.

Larger research intensive and specialist providers in England are “particularly dependent” on income from international students and risk being exposed if international enrolment forecasts are not met, it added.

Typically, specialist institutions are reliant on international for 65%, while research intensives have a high based too, at circa 60%. In recent years, recruitment departments have been seeking to diversify their international student cohorts away from key markets such as China due to geopolitical tensions.

Total international student numbers are expected to grow at a CAGR of 4.4% between 2021/22 and 2026/27 – a slower rate than the previous period. It comes as universities have been under pressure to find students.

York University has reportedly said overseas applicants who missed their forecast grades can join undergraduate programs with the equivalent of B/B/C grades at A level while those with a 2:2 degree can enrol on postgraduate courses. The change in ‘tariff’ represents a “more flexible approach” for international offer-holders, it said.

Coventry University is another English institution that has already blamed government policy on international students for its plan to make £40 million in cuts this year.

The report notes immigration policy and relative affordability of the UK as key risks to international competitiveness.

Stagnating tuition fees for domestic students (fixed at £9,250 since 2017 at undergraduate level) is noted as a “potential threat” to the sector.

In Scotland, caps on domestic students are one cause leading some 36% of providers expected to fall into deficit by 2024/25. This week, Scotland’s finance secretary said at least 1,200 funded university places created during the pandemic would be cut back.

In 2021/22, international student fees made up 26% of total income at Scottish universities, compared with domestic fees accounting for 9%.

Politicians are aware that the UK’s higher education is in a bind after years of government policy.

In early December last year, Lord Davies of Brixton said in the upper house, “Unfortunately, we have developed a system of funding higher education that depends on legal migrants.

“The education of UK citizens and residents depends on generating a flow of overseas participants”

“The education of UK citizens and residents depends on generating a flow of overseas participants in higher education who count as legal migrants.”

Any cuts in international student numbers will have a “direct and immediate” on education provided for UK nationals, he added.

PwC estimates that a “sharp contraction” of international student FTEs by 20% in 2024/25 would lead to 80% of the institutions analysed in England and Northern Ireland being in deficit – while the same drop would see 71% of the 14 institutions in Scotland featured in the report in deficit.

Jamie Arrowsmith, the director of UUKi,  has also spoken of “conscious policy decisions” by successive governments leading to high levels of international students subsidising domestic students fees.

A review into the Graduate visa route this year – described by sector as a “gift to competitors” – after decisions on banning taught masters students from bringing dependants, hiking visa and health surcharge fees, in addition to visa delays, could all result in fewer prospective internationals applying to UK universities, stakeholders fear.

Research has suggested that interest in masters programs from international students is already “swinging away” from the UK while UCAS has repeatedly urged the UK not to take the number of international students applying to undergraduate courses in the country “out of proportion”.

Despite some levelling accusations that international students are ‘taking seats’ from domestic students, stakeholders have repeatedly highlighted that growth is at masters levels and international students subsidise and create more places for domestic students.

Concerns that the government is failing to act on the looming financial crisis facing the higher education sector is nothing new. A report from the House of Lords last year said that the regulator, the Office for Students, “does not command the trust or respect of either providers or students” and is ignorant of the sector’s current finances.

UUK’s chief executive Vivienne Stern told Financial Times last week that three interventions are necessary to stabilise the sector – uprating tuition fees in line with inflation, increasing government teaching grants and stabilising the international market by dialling down negative rhetoric and ending question marks over the graduate route.

The PIE is launching a campaign calling on the government to support the UK Graduate Visa – a policy which featured in the Conservative Party manifesto in 2019. If you are interested in writing in support of the visa route, get in touch editorial@thepienews.com.