Government Estimates Universities Will Lose £1bn From International Student Levy
The international student levy was first proposed under the Starmer government (Alamy)
4 min read
The proposed tax on international students will cost universities up to £1bn over three years, more than originally forecast, the government has said.
The updated analysis was published by the Department of Education (DfE) on Wednesday as Chancellor John Healey delivered the Andy Burnham government's first Budget.
The data prompted calls for the government to rethink the levy, which the Keir Starmer administration brought in as part of efforts to reduce net migration.
Helen Hayes, Labour MP and chair of the education select committee, said the figures "bring little comfort" to the higher education sector as it faces ongoing cost pressures.
The impact analysis of the international student levy – a tax on the income universities make from overseas students set to be introduced in 2028 – "supersedes previous estimates", the government said today.
The updated analysis sets out that the higher education sector could lose more than £1bn in income by 2030-31. This is up from the £900m previously estimated by the government in November 2025.
The analysis anticipates that "a decrease in international student income is likely to decrease the cross-subsidy available to research".
The DfE has also revised down the total income that the levy is expected to raise over three years by £50m, from £1.39bn to £1.34bn.
The updated government analysis says the number of international students lost to UK universities as a result of the new levy will be smaller than initially believed: 28,000 over three years, rather than 46,500 as previously estimated.
However, it predicts that less prestigious universities will be most acutely impacted financially, explaining that providers like Oxbridge and Imperial College London will be more likely to be able to pass on the increased costs to students without deterring enrolments.
Jess Lister, director at PF Global, told PoliticsHome that the costs will be felt most by "the providers least able to pass it on, many of whom are also at present the most financially vulnerable".
The Starmer administration announced its intention to impose a levy on international student income in the Immigration White Paper, published in May 2025.
Some Labour MPs voiced alarm over the decision at the time, expressing concern that the move could exacerbate funding pressures already facing higher education.
PoliticsHome later revealed that Whitehall departments had disagreed over how big the levy should be, before eventually agreeing to a flat fee of £925 per international student.
While there was relatively little focus on higher education in Healey's Budget, it did reveal that the government planned to restore the two-year graduate visa for international students.
Joan Concannon, chief reputation and stakeholder relations officer at the University of York, told PoliticsHome that while this particular move would send a more welcoming signal to overseas students, it "risks being undermined by the government’s own analysis of the International Student Levy".
"The cost will ultimately be borne by universities, putting further pressure on the teaching and research they provide and indeed support the government’s wider ‘prosperity in every postcode’ agenda, which we fully subscribe to.
"The government should therefore consider pausing the levy’s implementation in order to work with the sector to review the policy in light of its own evidence."
Dr Hollie Chandler, Director of Strategic Policy at the Russell Group, said: "The desire to welcome international talent – and the focus on a strong labour market – underlines why it is so important for government to rethink the International Student Levy."
Chandler said the increased cost revealed by the DfE will "seriously harm universities' role as essential partners in generating growth in every postcode and making greater devolution a success."
Hayes, committee chair and MP for Dulwich and West Norwood, said: "During our inquiry into university funding, my Committee heard evidence that many in higher education were deeply worried about the impact of the international student levy on a sector already under immense strain.
"I am therefore pleased to see the government provide more detailed analysis of this policy's impact, as we recommended.
"But these figures bring little comfort. The government still has work to do to help shore up the university sector's fragile finances."
