As new visa data shows a slowdown in international recruitment, the potentially staggering economic costs of sector contraction have become clear.
This year’s visa data suggests a drop in student applications after years of record recruitment. Applications from January to July 2024 were 16% lower than the same period in 2023. This decline, if continued over the next few months, could result in 60,000 fewer students attending UK universities.
The immediate costs
For this exercise, we will assume the average international student is paying about £19,000 per annum (this lines up with assumed estimates from other sources for previous years). If the courses impacted are high-cost MBAs at prestigious institutions the numbers could be much higher.
On that basis, a 60,000-student drop could reduce university income by £1.14 billion whilst also reducing accommodation income and other revenue streams that result from students coming to campus. For context, the sector’s 2022/23 surplus was £1.5 billion, mostly concentrated in institutions less likely to be affected by declining numbers. Discussions with sector colleagues suggest post-92s and institutions in the South East and North of England will be under more strain, with a mixed picture in London. Income loss for impacted institutions could exceed £1.14 billion if others, as expected, gain market share. This loss could push many vulnerable universities to the brink of financial ruin.
The wider consequences
Currently, the Treasury is planning to prioritise other areas, but a failure to support universities could prove a costly mistake. While the short-term costs of a bailout or emergency loan system could cost a few billion pounds, long-term reductions in student recruitment and, consequently, institutional collapse could result in far greater economic and social damage.
And if no action is taken, institutional collapse is now a real possibility. Therefore, we need to talk honestly about the consequences of the failure of different kinds of institutions. I’ve laid out plausible consequences for the failure of two different kinds of institutions.
A big, regional post-92 institution
A university like this could teach up to 40,000 students and employ 4,000 or more staff. If such an institution were to fail, immediate job losses could exceed those at the Port Talbot steel mill (approximately 3000). In this case, the economic and social consequences of these kinds of localised job losses were so severe that the UK government had to implement a local regeneration and job support programme, the cost of which could well run to hundreds of millions of pounds, and will still leave the area substantially worse off.
A university supports a much wider economic environment than a steel mill through student spending, supply chains and various other mechanisms. Universities support at least as many jobs in the local economy as they do directly, meaning that if one of the larger institutions were to fail, local economies could be decimated.
These institutions also teach large numbers of local young people, meaning local economic damage would cascade beyond just the immediate area. In large parts of the UK, higher education is the second or third largest employer after the NHS and its collapse could rival the trauma of a town losing their heavy industry over the last century.
A London social mobility powerhouse
In comparison, London has a more resilient economy, but the consequences of the collapse of an institution could still be catastrophic.
London universities make up almost all of the leading universities for social mobility, according to the Sutton Trust. Many institutions have more than 20% of their student population who were eligible for Free School Meals at age 16, and many become the top 20% earners. The failure of a top social mobility institution would set progress back by decades, with individuals experiencing lost career earnings in the billions.
London institutions are also vital talent pipelines for industries such as film, while the soft power that these institutions provide is immense. These industries support the whole UK economy, with damage to them having national consequences.
A loss of confidence in the sector: further reductions in international recruitment, increased borrowing costs and contagion risk
A crisis in the sector is likely to further impact the UK’s international reputation, reducing confidence in UK institutions. The UK’s reputation (outside of its most prestigious institutions) is already fragile following Brexit, hostile rhetoric from previous governments and safety concerns heightened by recent far-right protests and an ensuing travel warning. That reduced confidence could have spiralling consequences if international recruitment is further impacted.
A single year of reduced international recruitment alone may have devastating consequences for the sector and the wider economy. International students contributed upwards of £40 billion to the UK in 2021/22, so a multi-year reduction in student numbers could result in a reduction of 0.5% of GDP. Combined with the economic losses from institutional collapse, regional economic damage and increased unemployment, it’s entirely possible that the failure to support UK universities could tip the economy into recession, with growth predicted to remain below 2% of GDP for the next 4 years.
Contagion risk
Historically, there has always been an assumption that the failure of one institution would benefit others. While work on potential contamination risk is limited, shared international reputation marks one of several areas where the failure of one institution could have snowballing effects. Two others which require serious thought, are shared pension liabilities and reduced confidence of creditors. Universities are part of vast, ‘last man standing’ pension schemes, where the collapse of an institution would increase the liability for others. If a few large institutions collapsed simultaneously, liabilities could increase rapidly.
Alongside this, a variety of institutions are heavily indebted, with the refinancing of said debt becoming increasingly expensive if creditors believe institutional risk is increasing. While the extent of this effect is hard to model and predict, it also has the potential to snowball if institutions fail simultaneously.
Conclusion
None of this is inevitable, and there is a high degree of uncertainty. Offer acceptance rates, delayed applications, and uncertainty in other international recruitment destinations could all impact final recruitment numbers, but institutions have limited scope to reduce costs after years of falling income from home students and rising costs.
Regardless, the role of universities in society must not be underestimated. The massive immediate and long-term contributions of universities to the economy, social progress, science and the arts mean that their failure should be seen alongside other public institutions such as the NHS and the school system – as an absolute non-starter.
Universities are being crippled by uncertainty created by the imposition of a partial market system and frozen funding. This has forced universities to rely heavily on income from volatile sources, placing critical public institutions at risk. UK universities need a sustainable, long-term funding settlement, not just to continue to function but to allow them to make the long-term investment in infrastructure and expansion that the UK will require over the next decade. Alongside this, the government, universities, and sector bodies such as London Higher must work together to ensure that the UK retains its status as one of the best places to study and conduct research in the world.
