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£2.6bn ‘black hole’ for universities following Covid-19 outbreak

Union report lays bare financial impact on higher education of ongoing global pandemic

The coronavirus outbreak will result in a £2.6 billion shortfall in university finances in the 2020-21 academic year, according to analysis by the London Economics consultancy for the University and College Union.

Just over £1.5bn of this will be incurred as a result of income lost from non-EU international students, while £612m is associated with a fall in domestic recruitment. A reduction in student recruitment from the European Union will see institutions take a £350m hit, the analysis suggests, all coupled with a £137m loss of teaching grant income.

The report concludes that every university is in line to recruit around 1,845 fewer students next year, with this number increasing to 2,700 for Oxford, Cambridge and the rest of the Russell Group. This is because pre-1992 institutions, perceived by some to be more prestigious, recruit a larger number of international students.

Looking a recent survey of Chinese university applicants, the analysis estimates that the drop in international student numbers joining UK institutions this Autumn—including those from the EU—will be 47 per cent. 

The “combined direct, indirect and induced economic impacts” of the activities of the UK’s higher education institutions “declines from £101.9 billion to approximately £95.8bn—a reduction of approximately £6.1bn”, the report concludes.

“In terms of employment losses, the reduction in institutional activity would be expected to result in approximately 62,620 job losses, of which approximately 30,280 occur directly in higher education institutions, with a further 32,340 jobs lost throughout institutions’ local, regional and national supply chains.”

It comes as the UK government considers a bailout request, sent by Universities UK on 10 April. The vice-chancellors group says some £790 million could be lost from accommodation, catering and conference income, and extra spending on online learning. It is also called for a de facto numbers cap to stop higher-tariff universities scooping up students and leaving other universities struggling, but the proposals are thought to have received a cautious response from the Treasury

The UCU and London Economics say in the report that throughout this analysis “we have made a number of relatively conservative assumptions…and the consequential impact on the UK economy, will be significantly larger than the estimates presented here”.

Gavan Conlon, a 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,” he said. “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.”

UCU general secretary, Jo Grady, added: “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.”

A spokeswoman for the Department for Education spokesperson said the government understands the coronavirus outbreak “poses significant financial challenges to the sector and are extremely grateful for the work universities are doing in the response”.

“The chancellor has announced an unprecedented package of support, including the Coronavirus Job Retention Scheme and a range of business loan schemes, to help pay wages, keep staff employed and support businesses whose viability is threatened by the outbreak.

“We recently confirmed universities’ eligibility for these schemes, and we are committed to working closely with the sector to understand the financial risks they might face, stabilise the admissions system, and help them access the support on offer.”

Response from UK higher education

Rebecca Long-Bailey MP, shadow education secretary

“The government must step in to support universities and mitigate their funding shortfall to prevent the significant economic impact this report predicts.

“UK universities must be valued as part of the frontline response to the coronavirus pandemic, supplying students to the NHS and conducting world-class research into the virus.

“Labour is calling on the government to underwrite all higher education institutions to secure their future and their role in our economic recovery and acknowledge their contribution to the national effort to fight this pandemic.’’

Alistair Jarvis, chief executive of UUK

“This helpful report highlights the critical financial risks for the sector, which not only threaten this role but put some universities at risk of financial failure. The union is absolutely right to warn of the knock-on impacts this would have for jobs, regional economics, local communities and students.

“The government must take urgent action to provide the support that can ensure universities are able to weather these very serious challenges, and to protect students, maintain research, and retain our capacity to drive the recovery of the economy and communities.”

Tim Bradshaw, chief executive of the Russell Group

“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.

“The ideas, skills and expertise of our universities can and should be the foundation on which our recovery from the crisis is built. Investment now will not only protect the UK’s world-leading research and innovation base, but ensure it is ready to help the country bounce back and emerge stronger from the crisis.”

Greg Walker, chief executive of MillionPlus

“Though the loss of international students will hit some institutions harder than others Covid-19 will be like a hydra in its impact—its tendrils will likely affect a range of income streams such as the home student market and commercial income streams.

"The university sector has proposed a coherence package of measures to government in order to stabilise university finances. Institutions have crucial budgetary decisions to make between now and July for the next academic year, decisions that cannot wait until the summer or autumn. Banks will also take a lead from the government in their support for institutions.

“The Scottish Government will need to know the consequential flow of resource to them from the Treasury from the England-stabilisation package to help them support universities in Scotland.”

Daniel Zeichnner MP, chair of the All Party Group for Universities

“This is a powerful and important piece of work that merits close attention. It rightly highlights the huge financial hit facing the sector, the jobs that are at risk, and the potential impact on the wider economy and the UK’s research sector. It particularly highlights the danger of a differential impact across different parts of the sector—it is absolutely vital that institutions stick together. It will be hard, but if the pain is not shared fairly, then everyone will suffer more.

“The government needs to respond quickly to the stability measures proposed by universities—either by agreeing, or explaining their alternatives so that a proper dialogue can take place, but this must be swift.”

Raj Jethwa, chief executive of Universities and Colleges Employers Association

“This report highlights the serious potential income shortfalls facing our member institutions during these challenging and unprecedented times. Decisions regarding highly valued staff are never taken lightly and it is crucial that employers and unions continue to work together to navigate the workforce challenges created by the pandemic. “HE institutions have some of the best employment frameworks in the UK with decisions affecting jobs, involving their trade unions as staff representatives, never taken lightly.”

Nick Hillman, director of the Higher Education Policy Institute

“The research needs to be part of the debate; it must not be regarded as the final word. We are in a very uncertain place right now. No one can accurately and securely predict what will happen with the progress of Covid-19. Nor can we know for certain its full impact on educational institutions.

“This research assumes every single university will lose large numbers of students. So, for instance, it predicts 2,700 fewer first-year enrolments at each of Oxford and Cambridge…that seems odd when there is usually huge surplus demand to attend Oxbridge. Moreover, many people are so scared of other prestigious universities sucking up a greater market share in the crisis that they are demanding restrictions on student recruitment—and we know ministers are sympathetic to this.

“I do not want to underestimate the severe impact of Covid-19 on higher education. But, given the diversity of our higher education sector, we must ask if it is right for modelling to assume every single institution will face a recruitment crisis across the board.”

Diana Beech, head of government affairs at the University of Warwick and a former adviser to three universities and science ministers

“For the past decade, successive governments have referred to our world-leading universities as national assets and our current government is no exception to this rule, explicitly looking to the people, talent and research expertise from our universities to get us through this crisis. But in the past month the tables have turned and, after giving all they’ve got to fight the coronavirus outbreak, it is our universities that are now looking to government for help to pull them back from the brink.

“Universities have been warning for some time that the Covid-19 pandemic is going to take a wrecking ball to the health of the UK higher education sector. Just last week the Office for Budget Responsibility warned the government that education is set to lose 90 per cent of its output over the April to June period alone, with universities taking the brunt of the damage. And that’s not even accounting for potential losses in the next academic year, come September.

“The London Economics report lays bare the stark realities of what a significant fall in international and home students means, not just for universities themselves, but for the people and communities that rely on these anchor institutions for jobs and opportunities across the country. This is people’s livelihoods and prospects at stake, not to mention the ability of local economies to bounce back after the pandemic.”