Universities' £2.5bn 'black hole' will cost economy £6bn and 60,000 jobs, warns report

The Covid-19 pandemic and ensuing recession will lead to 111,000 fewer UK and 121,000 fewer international first-year students attending UK universities this year, resulting in a £2.5bn funding black hole, warns a report released today. (See table 1.)

The report, by London Economics for UCU, shows that the universities hit hardest by the falls in fee and grant income are those that cater for significant numbers of international students. However, the difficulties those universities face will also have severe knock-on effects for the rest of the sector.

Driven by the significantly higher tuition fees charged to non-EU students, the largest decline in income is the expected loss of £1.51bn from those students. Approximately £612m of the loss comes from a drop in UK students, with a further £350m from the fall in EU students. (See table 2.)

The report warns that, without government intervention, an estimated 30,000 university jobs are at risk, with a further 32,000 jobs 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. (See tables 3 and 4.)

The report comes just a week after analysis by the Office for Budget Responsibility said education would be the sector hardest hit by the coronavirus crisis, with the impact likely to be felt most by universities. The report does not take account of other income losses, such as accommodation or conferencing, and is predicated on what the authors believe is a relatively optimistic approach to the recovery.

UCU said the government had to act now to protect the income of universities or it risked inflicting huge damage on a sector which will be crucial to the national recovery, and is a key player in local economies across the UK.  

According to London Economics' analysis, all universities would suffer substantial falls in income, with 91 institutions (almost three-quarters) left in a critical financial position where income only just covers expenditure. (See table 5.)

The report also warns that a recent proposal from Universities UK - to allow institutions to recruit more students - up to a cap of 5% on top of their existing numbers - would merely shift the financial impact onto less wealthy institutions. (See table 6.)

At the start of the month, 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.

UCU general secretary Jo Grady said: '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. 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. 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. This analysis shows how Universities UK's student recruitment proposal simply shifts the financial pain around the sector. 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.

'The vast majority of universities do not have the cash reserves to cover these losses and we would expect no university to exploit the crisis. They need to work with us to protect jobs and the sector.'

Dr Gavan Conlon, 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.

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. Given the expected financial losses across the sector, the government's response clearly needs to be sufficiently well funded and well planned.'

Note: All numbers are rounded to the nearest 5.
Source: London Economics' analysis

Note: All numbers are rounded to the nearest £m.
Source: London Economics' analysis

Note: All numbers are rounded to the nearest 5.
Source: London Economics' analysis

Note: Staff numbers are rounded to the nearest 5, and monetary estimates are rounded to the nearest £m.
Source: London Economics' analysis

Note: All monetary estimates are rounded to the nearest £m.
Source: London Economics' analysis

Note: All student numbers are rounded to the nearest 5.
Source: London Economics' analysis