After sector-wide speculation, the UK government released its highly anticipated immigration white paper on May 12, including the proposal of a higher education levy, which has largely taken universities by surprise.
While a final decision on the levy will be set out in the Autumn budget later this year, supplementary information released by the government gives us some insights into what to expect.
What is being proposed?
According to the technical annex published alongside the white paper, the UK government is considering introducing a 6% levy on higher education provider income from international students.
Where will the money come from?
The government is assuming that the levy on institutions’ international income stream would be passed onto students as increased tuition fees, hiking the cost of coming to study in the UK.
For UEA pro vice-chancellor Steven McGuire, this assumption is “problematic”, echoing concerns of stakeholders emphasising the already high costs of coming to study in the UK.
If the government’s aim is simply to reduce demand, this seems a roundabout way to do it
Steven McGuire, UEA
Moreover, given that 43% of English institutions are forecasting a deficit for this academic year, a further reduction of income streams is ringing alarm bells across the sector.
Where will the money go?
Apart from a vague promise that it will be “reinvested into the higher education and skills system”, the government has provided scant detail about how it will use the money.
“The language in both the document and annex suggest that even the government is uncertain about what it wants to do with the money raised,” said McGuire, who wasn’t aware of any indication that the funds would be spent on higher education providers.
The Home Office declined to comment on how the money will be spent, saying only that more details would be provided in the Autumn budget – raising concerns about what the “reinvestment” will look like.
According to the Higher Education Policy Institute (HEPI) director Nick Hillman, there are worries that some of money raised “will be siphoned off by the Treasury – just as has happened with the apprenticeship levy”.
What could the repercussions be?
The area in which the government has provided the most detail is what it hopes the levy will achieve, forecasting a short-term reduction of 14,000 fewer international students, levelling to an annual reduction of 7,000 in the long run.
Crucially, these calculations assume that providers pass the levy onto students, which the government says would lead to a short-term decline in international undergraduate (1.8%) and postgraduate (1.6%) demand, leading to a long-term overall decline of 2.4%.
Elsewhere in the white paper, tightening the Graduate Route is predicted to reduce annual student flows by 12,000 per year, and stricter compliance measures will cut numbers by 9,000 to 14,000 students annually, according to the government’s predictions.
The projected impact of the levy on international student demand uses price elasticities from a Department of Education-commissioned London Economics report, assuming that while undergraduate and postgraduate demand is sensitive to price changes in the short-term, postgraduate interest may not be price-sensitive in the long-run.
“If the government’s aim is simply to reduce demand, this seems a roundabout way to do it,” said McGuire, suggesting that regional hubs such as Singapore and Dubai could benefit from the changes.
“International students already consider the UK to be a high-cost location, and this may indeed dampen demand,” said McGuire, with stakeholders worried that the lack of clear government messaging could damage the UK’s appeal when it appears to be gaining momentum as the most welcoming of the ‘big four’.
