Thirteen UK universities face pandemic-related bankruptcy
The COVID-19 outbreak could lead to 13 British universities going bust without government bailout, IFS says.
Photo by Nathan Dumlao on Unsplash
On Monday, the Institute for Fiscal Studies (IFS) concluded that 13 unnamed universities, which educate approximately 130,000 students, could enter negative reserves by 2024.
The IFS estimated that the UK's higher education sector would endure losses of between £3 billion and £19 billion in the next academic year. The report’s central estimate was that long-term losses would total around £11 billion, which is “more than a quarter of [higher education] income in one year.”
The anticipated decline in the enrollment of international students is just one threat to the pockets of Britain's 165 universities. The estimated cost of the abrupt decline is £2.8 billion.
The budgets of many of Britain's top universities, including several Russell Group universities in the capital, will be heavily hit. London universities, including University College London (UCL), are some of Britain’s most diverse educational institutions. According to the Complete University Guide, around one in five students at UCL are registered as international students.
Nevertheless, the IFS made clear that while institutions with a high proportion of international students would face an immediate hit to their finances, their future would not be at risk. These universities tended to be among the highest-ranked in the country and entered lockdown in strong financial positions that would enable them to accommodate for any economic downturn.
The report went further by claiming that: “It is not the institutions with the largest COVID-related losses that are at the greatest risk of insolvency. Rather it is those, generally less prestigious, institutions that entered the crisis in a weak financial position and with little in the way of net assets, which are at greatest risk.”
Therefore, less prestigious institutions, with far less financial headroom to accommodate for the economic consequences of the coronavirus pandemic, are the most at risk if the government does not intervene. Such institutions faced financial difficulty long before the outbreak of the deadly virus earlier this year.
Britain's top universities are expected to “admit more UK students to make up for the shortfall in their international enrolments.” Lower-ranked universities will struggle to fill their vacancies as students will apply to more reputable institutions. Consequently, the gulf in academic ability and finances between the top universities in Britain and the rest may grow even further.
Universities face an additional financial burden because of the increase in deficits placed upon university-sponsored pension schemes. The IFS placed their central estimate for the increase at just under £4 billion.
Finally, the imposition of a nationwide lockdown has also led to financial losses for universities. The lockdown has led to losses as student accommodation lies empty, there has been a decline in demand for universities to be used for conference centres and as catering services, and it is projected that there will be a drastic drop of around 10% in long-term investment, caused by a collapse in confidence.
The IFS research economist, Elaine Drayton, said that a targeted £140 million bailout would be the best way to prevent the bankruptcy of any British university. However, Drayton did concede that the intervention of the British taxpayer “may weaken incentives for others to manage their finances prudently in future.”
Jo Grady, the general secretary of the University and College Union, appeared to agree with the antidote proposed by the IFS and called upon the government to produce a “comprehensive support package that protects jobs, preserves our academic capacity and guarantees all universities' survival.”
However, Dr Stephen Davies, Head of Education at the Institute for Economic Affairs, declared his opposition to a taxpayer-funded bailout. Davies told CityAM that: “This is not a case of financially sound institutions being temporarily exposed by an unexpected shock — many were already in a precarious position before the crisis began. The pandemic has uncovered a pre-existing problem and accelerated it.”
The government has already announced some support for British universities, including an additional £280 million to help maintain funding in research, the acceleration of £2.6 billion tuition fee payments, and enabling higher education institutions access to business support and the job retention schemes.