Covid-19 crisis could bankrupt a dozen UK universities, IFS warns

Overall, the sector is well placed to deal with the fallout, but those who entered pandemic in weak financial health could be at risk, says report

July 6, 2020
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About a dozen UK universities face going bust in the long run as a result of the Covid-19 crisis if they do not get a government bailout or help with their debts, new research has suggested.

According to the analysis by the Institute for Fiscal Studies, the sector’s long-run losses could reach £19 billion – the equivalent of half of its overall income in one year – in the worst-case scenario.

However, the report adds, the picture is “highly uncertain” and universities could manage to limit their losses to £3 billion, representing 7.5 per cent of one year’s income.

More than half of the losses would be down to falls in tuition fee income from international students, which could amount to £4.3 billion in the worst case, and the effects of covering increasing pension deficits.

Universities would also be “unlikely to be able to claw back a large portion of these losses through cost savings unless they make significant numbers of staff redundant”, the report says. The IFS estimates that cost savings from making cuts to temporary staff would still reduce the overall bill by only about £600 million.

“Institutions with a larger proportion of temporary staff will likely be able to make larger savings, but this may impact teaching quality,” it adds.

The IFS report says that the highest-ranking research-intensive universities are among those facing the biggest drops in income or rises in costs because they have large intakes of international students and large pension liabilities.

However, it continues, given the extensive financial reserves that many of these institutions have, they will not actually be the universities most at risk of running into major difficulties.

Instead, it may be those lower-ranked institutions that entered the crisis in a weak financial position and with fewer net assets that may find themselves battling to stave off insolvency.

“In our central scenario, 13 universities educating around 5 per cent of students would end up with negative reserves and thus may not be viable in the long run without a government bailout or debt restructuring,” the report says.

It adds that a “very tightly targeted bailout” from the government aimed at keeping these institutions afloat could cost just £140 million, which would be a lot less than more generalised bailouts that, it says, may not even end up helping the institutions in most need.

However, Elaine Drayton, a research economist at the IFS and co-author of the report, noted that “rescuing failing institutions may weaken incentives for others to manage their finances prudently in the future”.

University and College Union general secretary Jo Grady said the report was “more bad news for higher education” and called on the government to “step in and guarantee lost funding for universities so they can weather this crisis and lead our recovery on the other side”.

“We need a comprehensive support package that protects jobs, preserves our academic capacity and guarantees all universities’ survival,” she said.

Josh Hillman, director of education at the Nuffield Foundation, which funded the research, said that as well as showing the risk of insolvency for some universities, the report also highlighted how a change in focus for some institutions might help alleviate financial pressures.

He said one example would be adopting a recommendation from the Augar review of post-18 education in England “to introduce a lifelong learning loan allowance for tuition fees that would encourage enrolment in higher education courses below degree level”.

This would potentially “help less selective universities that offer such courses and may also enable people who have lost their jobs as a result of Covid-19 to reskill”, he said.

simon.baker@timeshighereducation.com

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Reader's comments (5)

great
Perhaps this will be the event that brings common sense back to the system. When I took my first academic job in a low-ranked institution, I could not believe that the situation could continue without rationalisation and I rapidly moved on. However, some 28 years later, we are still in a position with too many universities (even more than when I started). There are many excellent providers but a shake-out is long overdue and diverting money into further education is a good idea. I just hope that the cuts can fall on the senior staff and excess administration rather than those at the bottom but I am sure this is a forlorn hope.
A rationalisation was always going to happen, but the type of catalyst enabling it happen was difficult to predict. The sector is now in a position of it's own making after years of chasing those overseas revenues which; bloated its non academic contingent, encouraged standards to plummet, converted academies in to businesses, gave respectability to charlatans and warped young minds to believe they were customers who deserved executive employment for doing very little over their time at 'University'. Successive governments, of both colours, have privatised the University sector using the back door. Those organisations which now find themselves unable to balance their bottom lines should now accept that they either; disappear, return to the non HE sectors from which they came or return to the academy values they once held.
has anyone seen this recent article https://docs.google.com/spreadsheets/d/1falakMvcuymhLqw1dDcERdidDbe5rjBQTTK7vLx_-68/edit#gid=1089779700 - it lists how each uni is at financial risk. Very scary!
When Polytechnics became "Universities", the country gained a lot of sub prime instiutions with delusions of adequacy. When local Colleges of Further Education began to call themselves "Universities", the country gained a lot of people who wished to spend taxpayers' money awarding qualifications in often semirecreational subjects. This is a splendid opportunity to weed out failing institutions as part of a long-overdue rationalisation of a bloated system which has become unfit for purpose. Carpe Diem.

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