Universities are drafting in management consultants to help them cut jobs, sell land and merge amid fears some could be heading for collapse.
The UK’s largest accounting firms and consultancies have seen a slowdown in other corporate contracts and are increasingly offering their services to help universities get their finances in order. EY has been hired to advise on financial sustainability for universities including Kent and Middlesex.
Its “big four” rival PwC, the UK’s largest professional services firm, has been brought in to draw up cost-cutting initiatives at the University of Dundee, which proposed shedding more than 600 jobs last month after revealing a £35 million deficit.
Meanwhile, ministers and regulators are drawing up plans for the first ever insolvency regime for universities that would prioritise students — ensuring that they get their tuition fees back in the event of an institution going bust. The plans are being drawn up by the Department for Education (DfE) and the Office for Students (OfS), the higher education regulator for England.
Many universities are grappling with crippling costs, falling numbers of international students, rising staff costs, including employer national insurance contributions, and the cost of maintaining huge estates.
One in two universities is proposing cuts to staff or courses, according to the University and College Union, which says up to 10,000 staff could lose their jobs this academic year, with 5,000 cuts already announced since September. Some 35 per cent of English universities reported a deficit in 2022-23 compared with 13 per cent in 2015-16, according to data from the Higher Education Statistics Agency.
Susan Lapworth, chief executive of the OfS, warned that some universities could fail if they do not make major changes to improve their finances in the next two to three years. If this happens, she said protection for students would be limited without new legislation.
“The trajectory for a small number of large universities is worrying,” she said. “They still have time to get a grip on their issues, right-size the institution and think about whether more radical steps — including mergers — are necessary. There are opportunities and there is time for institutions to ensure their future sustainability.
“But of course we need to be prepared in case that work doesn’t come good.
“There’s not currently a special administration scheme for higher education that prioritises students’ interests as creditors. Without one, if a large institution failed it would be difficult for students — and our ability to protect their interests would be limited.”
Papers from a December meeting of the OfS board, only published last month, reveals its risk and audit committee believes the finances of English universities are worse than feared and “towards the most pessimistic end of the scenarios we modelled in May 2024”. The board said: “This increases the risk of sudden market exit of a large provider.”
Universities are run in a similar way to charities and ideally show small surpluses every year. While they have access to state funds, they also borrow heavily from private sector banks, including Lloyds, HSBC, NatWest and Barclays. One restructuring firm told The Sunday Times the fear was that a university failure could lead to capital flight with banks withdrawing funding from the sector more widely.
Around 23 universities have failed to file their accounts on time this year. It is understood that many institutions are currently locked in negotiations with their bank lenders, hoping to ensure confidence that they will not breach the covenants of their loans.
Universities are not covered by the Companies Act, meaning there is no insolvency regime currently in place if a UK university fails. These rules set out in which order people and businesses owed money by a company that goes bust can be repaid. Typically consumers are at the bottom of the pecking order.
A formal insolvency regime would make it easier for students to claim for lost fees, the cost of moving to another university, missing a year of education, or even waiting longer to enter the jobs market if a university suddenly closed.
In the event of a university going bust, a special administration regime could be put in place to enable the government to keep the college open until its existing students have completed their studies.
Lapworth said the OfS was reviewing the finance of all of England’s universities but “working more intensively with a small number that need to take action now to secure their long-term futures”.
She said: “We are not concerned today that we’re going to start seeing institutions fail but there are a number that need to do the hard work to become sustainable as we look to a two-to-three-year horizon.”
Universities have blamed the higher education crisis on years of domestic tuition fees not rising in line with inflation. Fees were frozen at £9,000 between 2012 and 2017. After rising to £9,250, they were then capped for another eight years but will increase to £9,535 in September.
Institutions are also struggling with falling numbers of students from countries including China, India and Nigeria, as well as a decline in EU numbers since Brexit.
The regulator has warned that some institutions have become over-reliant on overseas students, who pay higher tuition fees, leaving them vulnerable to a downturn.
The OfS said about 100 providers had failed to meet the UK undergraduate recruitment targets they reported in January 2024 and an estimated 150 failed to meet their international recruitment targets.
Institutions are also struggling with property operating costs that have risen by 35 per cent in the past two years, posing problems that are particularly acute for universities with historic buildings to maintain. The increase, according to a report by the Association of University Directors of Estates, “represents hundreds of millions of pounds lost across the sector and, for some, the complete erosion of their financial cushion”.
The property firm Savills said some universities could look to sell off land and “right-size” their estates due to the pressure of running costs. The University of Kent has recently put up for sale 240 acres of open fields close to its Canterbury campus, with the site marketed as potentially delivering 2,000 houses, if approved by council planners. The university said it was supporting the local need for more housing.
James Clark, managing director at the restructuring firm Interpath Advisory, which has worked with Manchester United to cut costs, said his firm had been approached by universities.
Clark said: “What you would like to see is a regime that allows the administrator to effectively keep the university trading and in so doing, keep tuition going and find a successor partner to take those students over time.
“I think institutions will be forced into mergers. I think there will be new insolvency legislation — and I dare say, there might be the odd one that does go. The government won’t want to step in.”
Last month, the Scottish Funding Council approved a £22 million support package for the University of Dundee to give its administration “the space and time to work through a plan for financial stability”. Acting chair of court Tricia Bey said that, without financial support, it would have run out of money by the end of June and said insolvency would be a “real possibility”.
The Welsh government is to provide £19 million in extra higher education funding to help with capital costs of estate maintenance and digital projects to “reduce operating costs”. However, the UK government has yet to announce any emergency funding for English universities despite pressure from universities and unions to do so. Universities UK, which represents 141 of the 166 UK universities, said its members had taken “exceptional measures” over the last few years to ensure their financial stability but that “universities will need access to funds to enable transformative change to happen”.
A spokeswoman for Universities UK said: ‘Universities have been taking exceptional measures over the last few years to ensure their financial stability. In some cases, these measures require universities to bring in specialist advice, for example to make rapid structural changes. These services can be costly in the short term, but few universities would either need, or could afford, to retain such expertise in-house on a permanent basis.”
The DfE said it would publish its plan for higher education reform in the summer. A spokeswoman said: “The Office for Students is rightly refocusing its efforts on monitoring financial sustainability to help create a secure future for our world-leading sector.”
