The COVID-19 pandemic and consequent recession will lead to a steep reduction in student numbers, causing a £2.5bn funding “black hole” with dramatic impacts on the wider economy, warns a new report.
Meanwhile, the Treasury is opposing a sector-specific bailout of UK universities, in face of calls for doubled research funding among other detailed measures from Universities UK. The Financial Times reports that this has caused “division in Whitehall” and “objections from senior figures in the university sector,” but that the Treasury is “not receptive to what is viewed as universities’ special pleading.”
The report, by London Economics for the University and College Union, estimates that 30,000 university jobs and a further 32,000 jobs in the wider economy will be lost. The “total economic cost to the country” from direct and indirect changes is expected to be more than £6bn, and “may be much worse… unless there is significant government intervention to support universities through this crisis.”
It estimates that 111,000 fewer UK first-year students and 121,000 fewer international first-year students will start university this year. This means 47% of international first-year students are expected to delay or cancel plans to study in the UK.
The analysis predicts that 91 institutions will be left in a “critical financial position where income only just covers expenditure.” It warns that Universities UK’s recent proposal to allow institutions to recruit up to 5% more students would shift the financial impact onto less wealthy institutions.
The report states that the University of Oxford and the University of Cambridge are “assumed to be the least negatively impacted” when modelling the impact of an economic recession and the pandemic on institutions.
In an economic recession, Oxford and Cambridge are assumed to face the “relatively largest increase” in the number of full-time students and the “smallest decline” in part-time students and international undergraduate students. Deferral rates from UK and international first-year students due to the COVID-19 pandemic are also predicted to be lowest for Oxford and Cambridge.
However, Oxford is predicted to have a negative net cash inflow from operating activities in 2020-2021, which means a deficit-based on day-to-day operations. This does not consider cash flow from investing and financing activities.
36 institutions, out of a possible 125, are expected to similarly have a negative net cash inflow from operating activities. 91 institutions, almost three-quarters, are expected to have a net cash inflow of <5%, which puts them in a “critical financial position.”
Oxford and Cambridge are predicted to see an average loss of 255 jobs each: similar to the average 240 job losses per institution, but much fewer than the predicted job losses for the second tier of institutions (the 22 other Russell Group members and some other older universities).
The report states that: “While the analysis assumes relatively optimistic outcomes for higher education institutions, in reality, the potential financial impacts may be much worse than those presented here unless there is significant government intervention to support universities through this crisis.”
The UCU says the government must act to protect the income of universities, otherwise it risks inflicting damage to “a sector which will be crucial to the national recovery.”
The Financial Times reports that a cross-departmental meeting last week showed “broad support for a bailout” for the higher education sector, but that “the Treasury refused to be drawn.” The Treasury’s opposition was “confirmed by officials from three Whitehall departments.” A Treasury official said: “We are working with our colleagues at the Department of Education to come up with a sensible and targeted solution.”
UCU general secretary Jo Grady said: “This alarming report shows that university staff and students are now staring over the edge of a cliff and desperately need the government to step in and protect the sector. The government’s own analysis puts universities most at risk of financial pain from the current crisis and this report does not take account of other income losses, such as accommodation or conferencing.
“Our world-renowned universities are doing crucial work now as we hunt for a vaccine and will be vital engines for our recovery both nationally and in towns and cities across the UK. It is vital that the government underwrites funding lost from the fall in student numbers. These are unprecedented times and without urgent guarantees, our universities will be greatly damaged at just the time they are needed most.
“Even with the current unfolding crisis, universities are still itching to compete to recruit students. This analysis shows how Universities UK’s student recruitment proposal simply shifts the financial pain around the sector. What students and staff really need at the moment is the government to stand behind their universities and for institutions to work cooperatively in the wider interest.”
Dr Gavan Conlon, partner at London Economics, said: “Many institutions have a very considerable exposure to international students, and the pandemic will result in a very substantial loss in enrolments and income. Government support of universities is crucial to protect students in the short term and institutional research and teaching capacity in the longer term.
“The proposed student numbers cap will not be enough to avoid an overly competitive market for the remaining pool of applicants, with the impact of this actually being worse for some institutions than the effect of the pandemic itself. Given the expected financial losses across the sector, the government’s response clearly needs to be sufficiently well funded and well planned.
“The vast majority of universities do not have the cash reserves to cover these losses and we would expect no university to exploit the crisis. They need to work with us to protect jobs and the sector.”
Tim Bradshaw, Chief Executive of the Russell Group, said: “The whole Higher Education sector – like almost all others in the UK – is at risk at this unprecedented and challenging time. There are no simple solutions and while our universities play their part in responding to the immediate crisis through research, testing and practical support for the NHS, they are also taking steps to make savings and deliver the best value for every pound they spend.
“To secure long-term sustainability for students and for the UK’s vital research and innovation base, sector-wide support across both teaching and research will be needed to help universities mitigate the disruption caused by COVID-19.”
Oxford University has announced measures to save costs and preserve income streams, including a recruitment freeze, a pilot furlough scheme in six departments, and continued engagement with the government to seek funded extensions to disrupted research.