The report analyses the financial data returned to the OfS from universities, colleges and other higher education providers in England (excluding further education colleges). It covers the period from August 2020 and includes forecasts for the whole sector from 2022 to 2026. Annex C, published alongside the report, shows data for particular groups of providers including larger teaching-intensive, larger research-intensive, medium, smaller, specialist creative, specialist and Level 4/5.
- Total non-EU overseas tuition fee income was reported at £7.8 billion in 2021-22, an increase of 25 per cent on the previous year. It is estimated to rise to £12 billion by 2025-26. Overseas fee income as a proportion of total income is forecast to increase from 19.3 per cent in 2021-22 to 24 per cent in 2025-26, highlighting the sector’s increasing reliance on international fee income to sustain activities (p18)
- This “overreliance”, particularly where recruitment is heavily weighted to a single country, remains a vulnerability for some, the report warns. The OfS has written to 23 institutions with high levels of Chinese students to ensure they have contingency plans in case recruitment patterns change and there is a sudden drop in income from overseas students (p9 and press release)
- The data shows that larger research-intensive universities brought in the most overseas income, followed by the medium group and then larger teaching universities (Annex C)
- Overall the OfS is not currently concerned about the short-term viability of most providers. The majority of institutions performed better over the last year than anticipated in last year’s forecasts. Many universities and colleges are expecting their financial performance to improve over the longer term (p4)
- The aggregate financial position of institutions remains sound, although there is significant variation between providers (p3)
- Providers acted quickly to manage risks to their financial performance from the pandemic and subsequent increases in the cost of living. However, the financial environment and outlook is increasingly challenging (p3)
- Some providers that faced challenging circumstances have successfully restored their financial position, for example by rationalising their teaching portfolio (p4)
- The sector’s cash flow and surplus for 2021-22 improved compared to 2020-21. However, the sector is forecasting a decline in financial performance and strength in 2022-23, with inflationary pressure and a significant dip in the income and expenditure surplus (p7)
- The sector is expecting to report growth in income across the next three years, rising from £40.8 billion reported in 2021-22 to a forecast £50.1 billion in 2025-26 (p12)
- Fee income is forecast to increase to £29.3 billion by 2025-26, with a 17.5 per cent forecast rise in student numbers between 2021-22 and 2025-26 across all levels of study. However, this trend varies significantly between different universities and colleges (p14)
Implications for governance:
Overall the report shows the sector is in good financial health and has weathered the storm of the pandemic and recent rising costs.
Tuition fee income, cash flow and surpluses for 2021-22 have all improved compared to 2020-21. However, beneath the sector-level picture, there continues to be significant variation in the financial performance of different universities and colleges. Governors may wish to ensure they are fully aware of where their institution stands within this spectrum.
Forecasts for 2025-26 are also optimistic about future growth, both in student numbers and income. However, the report highlights three main risk areas that governors will want to note: the impact of inflation on costs and challenges in growing income to meet rising costs; increasing reliance on fees from overseas students in some business plans, especially students from China or any individual country; and challenges in meeting investment needs for facilities and environmental policies.
On the first, the report says providers have acted quickly to manage risks to their financial performance but warns that the environment and outlook is increasingly challenging. It cites “successful” action taking by some institutions, such as “rationalising their teaching portfolio” to restore financial positions.
Providers have forecast total student numbers, across all levels of study, to increase by 17.5 up to 2025-26. Despite a 3 per cent dip in home student UCAS applications to January 2023, the sector has forecast an increase of 6.9 per cent in UK undergraduate entrants for 2023-24 compared with the previous year. However, there is significant variation in student number trajectory forecasts by individual institutions. Some 21 universities, just over 8 per cent of the total, predicted a downturn in student numbers to 2025-26. Again, governors may wish to check where their own institution stands on these forecasts.
A warning is also sounded over a dependency on international student fee income. Some 60 per cent of the forecasted increase in postgraduate numbers is accounted for overseas students, for instance.
In the press release Susan Lapworth, OfS chief executive, says that while overseas students bring “enormous economic, cultural and educational benefits”, some universities have become over-reliant, particularly where students from one country play a significant part of the financial model.
From a governance perspective, governors need to be confident that “credible contingency plans” are in place to protect them from the consequences of a sudden reduction in their income.
The OfS warns of “an increasing financial sustainability risk” for some providers in the longer term, particularly if multiple risks materialise at the same time. Good modelling and forecast data is needed to ensure governors are kept aware of different scenarios going forward and can assure themselves that their institutions can adapt to specific challenges and uncertainties.
“Financial challenges could affect individual providers differentially and each will have its own range of mitigating actions available,” Lapworth says. “We expect providers to be alive to the risks to their financial position and know how they would address these risks if they were to materialise in isolation or in combination.”
She points to the importance of strong leadership and governance, active planning and rapid action and encourages providers to consider the range of options available to them early, “so they are prepared to act quickly as and when risks do begin to materialise”.
A series of case studies published recently by the regulator demonstrating how it works with and supports providers facing financial challenges could be of interested to governors.
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