Coronavirus: Universities face £2.5bn funding ‘black hole’, warns new report

The report, by London Economics for the University and College Union (UCU), assesses the impact of the coronavirus crisis upon higher education

New independent analysis into the potential impact of the coronavirus crisis upon higher education has revealed the extent to which universities, the jobs market and the economy could suffer if the government does not intervene.

The report, by London Economics for the University and College Union (UCU), warns that universities risk facing a £2.5bn “black hole” that will cost the economy £6bn and 60,000 jobs.

The union has called for the government to protect university funding in order to safeguard the country’s recovery from the Covid-19 pandemic and ensuing recession.

Student numbers

111,000 fewer UK and 121,000 fewer international first-year students will attend UK universities this year, the report says. This will lead to a £2.5bn loss of funding.

As significantly higher tuition fees are charged to non-EU students, the largest decline in income is the expected loss of £1.51bn from those students. Universities that cater for significant numbers of international students will be hit hardest by the falls in fee and grant income, resulting in severe knock-on effects for the rest of the sector.

A drop in EU students would lead to a loss of £350m, with approximately £612m set to be lost from a drop-off in UK students.

All universities would suffer substantial falls in income, with 91 institutions (almost three-quarters) seeing their expenditure only just covered by their income, according to London Economics’ analysis.

The report also takes issue with a recent proposal from Universities UK to allow institutions to recruit up to 5% more students on top of their existing numbers. “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,” said Dr Gavan Conlon, partner at London Economics.

Job losses

Without government intervention, the impact of the coronavirus crisis upon higher education could lead to an estimated 30,000 university jobs are at risk, says the report. A further 32,000 jobs are also under threat throughout the wider economy.

The total economic cost to the country from the reduced direct and indirect economic activity generated by universities due to the loss in income is estimated at more than £6bn.

This alarming report shows that university staff and students are now staring over the edge of a cliff

Background

The report is the latest attempt by the sector to secure financial help from the government.

On 2 April, the union wrote to education secretary Gavin Williamson with seven proposals it said would ensure universities and colleges can retain academic capacity now and play their part in the recovery.

Eight days later, Universities UK (UUK) submitted a bailout package request to the government – this has not yet been approved, although universities minister Michelle Donelan told shadow universities minister Emma Hardy on Tuesday that she was considering the request.

On 14 April, the Office for Budget Responsibility (OBR) said education would be the sector hardest hit by the coronavirus crisis, with the impact likely to be felt most by universities – this report does not take account of other income losses, such as accommodation or conferencing.

‘Act now or inflict huge damage’

UCU has urged the government to act now to protect the income of universities or risk inflicting huge damage on a sector which, it said, will be crucial to the national recovery, and plays a role in local economies across the country.

“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,” said UCU general secretary Jo Grady.

“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.

What students and staff really need at the moment is the government to stand behind their universities

“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.

“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.”

‘Absolutely right’

The London Economics analysis for the University and College Union was welcomed by Universities UK (UUK).

The chief executive of Universities UK, Alistair Jarvis, said: “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.

“Government must take urgent action to provide the support which 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.”

Universities UK’s own research into the impact of the coronavirus crisis upon higher education has found that some institutions with higher levels of external borrowing and lower levels of cash reserves will have limited ability to increase their borrowing and so will be particularly impacted by reduced student numbers.

It also found that institutions facing the greatest financial pressure in general have higher proportions of BAME students, meaning this group could be disproportionately affected if their institutions face financial difficulty.


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