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UK higher education restructuring 'inevitable' without targeted support

Cambridge University

The UK university sector should brace for potential insolvencies and reluctant mergers as the medium term impact of the coronavirus pandemic becomes clear, according to higher education experts at Pinsent Masons, the law firm behind Out-Law.

A new report (35-page / 1.7MB PDF), commissioned by the University and College Union (UCU), estimates a £2.5 billion "funding black hole" for the sector in the coming academic year, as both UK and international students opt to defer or cancel places. According to the report, every UK university will experience a substantial loss of student fee income and teaching grants, while almost three quarters will be left in a "critical" position with income only just covering expenditure.

The report, which was produced by London Economics on behalf of UCU, does not take the loss to institutions of income from other sources, such as student accommodation or conferencing, into account. It is based on what the authors describe as a "relatively optimistic" approach to recovery once the current crisis is over.

Insolvency law expert Tom Withyman of Pinsent Masons said that insolvencies in the sector were "inevitable" without targeted support from the UK government.

"With the level of the lost income faced by the sector and the competitive nature of admissions, without a significant government bailout it seems inevitable that there will be casualties among the less well-resourced institutions," he said. "We can expect to see some consolidation in the sector as a result - but with the lack of a special administration regime, like that in place for further education, there is bound to be disruption to their studies for some students."

Earlier this month Universities UK (UUK), which represents the UK's universities, wrote to the government requesting support (5-page / 175KB PDF), including increased funding for research and targeted support for courses such as nursing, healthcare, medicine and teaching. In return, it promised cost efficiencies, potential mergers and capping admissions of domestic and EU students to 5% above official projections, so that more popular institutions would not aggressively recruit domestic students away from less popular institutions.

The UK Treasury is resisting the proposals, preferring instead to direct universities to existing government support programmes such as the Coronavirus Job Retention Scheme and business continuity loans, according to the Financial Times (registration required). Universities are also applying or considering applying for Covid Corporate Finance Funding, subject to meeting eligibility criteria. The UCU has now said that allowing universities to recruit even 5% more students than originally planned will shift the financial impact of the crisis to institutions that are already struggling.

The UCU report anticipates that 111,000 fewer domestic students and 121,000 fewer international first-year students will attend UK universities in the coming academic year. It estimates a £1.51bn loss in income from non-EU student fees, a £612 million loss from domestic students and a £350m loss from students from the EU.

The hardest hit universities will be those that cater to significant numbers of international students, including Oxford, Cambridge and the Russell Group universities, although there will be knock-on effects for the rest of the sector, according to the report. The losses will put 30,000 university jobs at risk without government intervention, as well as a further 32,000 UK jobs in the wider economy that are particularly dependent on students.

Ditchburn Gayle

Gayle Ditchburn

Partner, Head of Office, Birmingham

Encouraging competition and effective governance and management have been key facets of the new regulatory system under the Office for Students. The current crisis will bring both into sharp focus.

Universities expert Gayle Ditchburn of Pinsent Masons said that universities were facing both immediate and medium-term financial challenges.

"In addition to managing operational challenges, universities and higher education providers are facing immediate financial challenges this term. These are arising from the loss of revenues from student accommodation and commercial activities such as conferencing and summer school activities, while at the same time dealing with requests from students for discounts and refunds of tuition fees in respect of those programmes which cannot be fully delivered on an online or distance learning basis," she said. "This is coupled with the uncertainty facing the sector in the longer term: a potential decline in both international students, as they choose not to travel to study next academic year; and UK students, who choose to defer as they are unhappy with the outcome of their A-Level results or the prospect of starting their university studies on an online-only basis."

"Encouraging competition and effective governance and management have been key facets of the new regulatory system under the Office for Students. The current crisis will bring both into sharp focus. We are undoubtedly going to see rationalisation in the sector, something which the Regulator has previously indicated that it would not shy away from, therefore some hard decisions facing governing bodies lie ahead," she said.

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