English elite report highest borrowing and biggest deficits

England’s most selective universities were expecting the highest levels of borrowing and biggest deficits this year, according to the latest financial report from the sector’s higher education regulator.

According to the report from the Office for Students, higher tariff institutions were forecasting borrowing to reach almost 45 per cent of their income for 2020-21, with deficits reaching more than 1 per cent of income, even after adjusting for the effect of pension scheme liabilities.

However, the report says that, overall, all types of institutions were forecasting a bounce back over the next few years, backed by a strong growth in the recruitment of domestic and non-European Union international students.

“Overall, the short-term financial health of higher education providers in England is reasonable at an aggregate level,” the report says, adding that universities “experienced stronger student recruitment in 2020-21 than many predicted at the height of the pandemic.

“The sector is forecasting a decline in financial performance and strength in 2020-21, relative to 2019-20, followed by an expected slow recovery from 2021-22.”

According to the report, the sector still faces uncertainties such as continued restrictions on the movement of students domestically and internationally due to Covid, “higher numbers of students dropping out, and reduced income from accommodation and commercial activities that rely on open buildings and facilities”.

The regulator was also “monitoring more closely how a small number of providers are addressing the challenges to their financial viability and sustainability. However, we consider that, at this time, the likelihood of multiple providers exiting the sector in a disorderly way because of financial failure is low.”

Overall sector income was projected to increase from £34.7 billion in 2018-19 to £40.7 billion in 2023-24, with aggregate student numbers forecast to rise by 12.3 per cent between 2020-21 and 2024-25.

The recruitment of UK full-time undergraduates was projected to increase by about 124,000 students over the next few years due to the 18-year-old population starting to rise after years of decline. For non-EU international students, the forecast is for more than 90,000 extra full-time equivalent (FTE) enrolments up to 2024-25, a rise of 30 per cent.

At the same time, universities were expecting recruitment from the EU to plummet by a forecast 35 per cent over the period, representing 40,000 FTE students, thanks to the end this year of them having the same fee and funding arrangements as their UK counterparts.

Overall, universities were not expecting this to hit their bottom line, with fee income from EU students forecast to drop only 1.1 per cent for the sector between 2020-21 and 2024-25, something that “indicates an anticipated higher fee per student”, the report says.

But this does mask a “mixed picture” among different types of universities, with low-tariff providers in particular estimating income from EU students dropping by 40 per cent.

“Medium average tariff and low average groups forecast a decline in EU fee income over the forecast period. All other groups expect EU fee income to increase, indicating a higher level of confidence that EU students will be willing to pay higher fees for their courses,” the report says.

Nolan Smith, director of resources and finance at the OfS, said the overall financial data showed “continued evidence that the higher education sector as a whole is well placed to recover from the pandemic”.

But, he added, it was “important to recognise that, while this is a positive set of projections, a number of factors may continue to affect the financial performance of universities in the coming years”.

“The pandemic – and the potential for future disruption – continues to cause significant uncertainty given that many income streams for universities require fully open campuses,” he said.

“A number of other economic factors could pose opportunities and challenges as the country recovers from the financial impact of the pandemic. And the prospect of increased pension contributions could pose significant financial challenges for some higher education providers.”

On this last point, the report warns that the “sustainability of pension schemes continues to be a significant concern”.

“Both defined benefit and defined contribution pension schemes have required increased contributions from both employers and scheme members to support their sustainability. This trend is widely expected to continue over the forecast period and proposes a potentially significant financial challenge for some higher education providers,” it says.

simon.baker@timeshighereducation.com