Read the Office for Students’ recent report on?sector financial sustainability, and you’ll find a?curiously mixed picture.
Based on financial data from the start of?the year, the OfS says 40?per cent of?institutions are likely to be in?deficit this year, with a?growing number showing “low net cashflow”.
So far, so worrying. However, the report says institutions are forecasting a gradual recovery on both measures from next year (2024-25), albeit with significant variation across the sector.
Strikingly, though, it warns that “providers’ forecasts and the assumptions on which they are built can only be relied on to the extent that those forecasts are credible. We are concerned that at an aggregate level, the sector’s forecasts are too optimistic.”
It is not often that the sector can be accused of that particular vice.
According to those projections, sector finances will improve by ?10?billion over the next three years, with half of that coming from increases in international tuition fee income, and almost a quarter from growth in domestic fees fuelled by growth in overall student numbers.
As the OfS drily notes, “these increases at a sector-wide level are not supported by the latest trends”, and it offers alternative modelling of more pessimistic scenarios.
Among these, a scenario in which there is no growth in domestic student entrants over the next three years, coupled with a significant decrease in international recruitment from next year (applied on an increasing scale based on tariff score strength), would result in 84?per cent of the sector running at a deficit, and 73?per cent with liquidity to cover no?more than 30 days’ operating expenses.
All of which speaks rather more accurately to the sense of gathering financial gloom, and the mood of near panic ahead of the recent report from the Migration Advisory Committee, which in the event recommended the retention of the graduate visa route.
In some ways, none of this is new: while the OfS report is useful in putting up some hard figures, it has been clear for some time that the combination of the domestic tuition fee freeze, inflation, political pressure on international recruitment and the impact of the cost-of-living crisis has left some – perhaps many – universities facing very considerable uncertainty.
The notion that a university could go to the wall is now accepted, with the most recent financial accounts revealing that at least one has already breached banking covenants.
What has been less clearly articulated, however, is what that would actually mean in practice, and the implications for the many interested parties, including staff, students and alumni, the government, the regulator and lenders, or cities, regions and their residents.
In our cover story this week, we flesh out what those impacts could look like, noting that while politicians are keen to talk tough (and in some cases would genuinely welcome a bankruptcy, as a sign that the era of university expansion was over), this ideological enthusiasm may come crashing down when they are faced with the reality of a “disorderly exit”.
Students are one key constituency that is at least theoretically planned for under universities’ student protection plans, but block transfers to alternative providers look all but impossible – and a collapse would likely mean relocation far and wide.
The loss of jobs would cause further shock waves that would be hard to contain, with additional complexity around pension liabilities, and the economic impact would extend well beyond the university: the effect on the wider local economy would in many cases be disastrous.
Perhaps more concerning still is the assessment that there would be a real risk of contagion, a domino effect, that could spread across the sector if banks responded by reviewing their lending arrangements, and prospective students took the view that investing in education at a time when a university could go bust was not worth the risk. This could be a particular danger among international students, with the UK’s stock declining compared with other study destinations.
Get into the detail, then, and even for politicians who have waged war on universities almost in the hope of triggering a collapse, the implications look grave.
The conclusion for the likes of Suella Braverman, the leading Conservative right-winger who recently said that a university going bust was not “necessarily a?bad thing”, must surely be: be careful what you wish for.
