Universities Face Over £1bn In Funding Cuts, Sector Warns
5 min read
Labour government policies have led to losses of more than £1bn from the higher education sector since it came to power in July, new analysis suggests.
The analysis, carried out by higher education body Universities UK and shared with PoliticsHome, estimates that the net impact of policy developments on institutions in 2025-26 is a £1.398bn reduction in funding.
The figures come amid rising uncertainty about just how far the government is willing to go with its reforms to higher education as the sector struggles with ongoing financial pressures.
PoliticsHome also understands that there is concern in the sector over the direction of the government's higher education reforms, which are expected to be published as part of the Post-16 Education and Skills Strategy White Paper in the summer.
Specifically, sector figures fear a government move to bring together skills and higher education into one reform package could lead to problems in the sector remaining unresolved.
The government has raised domestic tuition fees for the first time in eight years in a bid to help support universities. However, since then, the sector has been disappointed by what the Department for Education has brought forward to further relieve financial pressures.
The UUK analysis calculated the impact of policy decisions, including the increase in employer National Insurance contributions announced at the Autumn Budget, cuts in grant funding, and changes to seven degree apprenticeships.
UUK also included the proposed levy on international student income as part of its analysis, modelling that the policy would cost the sector an estimated £600m a year.
Chief Executive of UUK Vivienne Stern told PoliticsHome: “It does feel like in the last few weeks, we have had a series of announcements that rather than helping to address the underlying financial challenges facing the sector, just make them a bit worse."
PoliticsHome reported earlier this month that Labour MPs were uneasy about the decision to impose further restrictions on international students in the Immigration White Paper, with Rachael Maskell, the MP for York Central, saying the move was "misjudged and seeks populism over pragmatism".
The cost of a five per cent increase to the employer contribution to the Teachers' Pension Scheme (£125m a year) was also included. While the decision was taken in November 2023 under the previous Tory government, groups have been lobbying for the current government to ease the burden on institutions.
PoliticsHome analysis earlier this year revealed that some institutions in England and Wales were facing an increase of £10.4m in expenditure for universities.
Stern told PoliticsHome that while ministers keep saying "they get the pressure on the system and that the government is looking to stabilise it in the long term", the sector needs to see "'a little bit less conversation, a bit more action, please' ”.
She added that universities had been working in recent months to make efficiencies and cut costs where possible, and it was now the government's "turn to act".
"And not to act to make things worse, which is roughly what's been happening in the last few months, but to make a contribution to sustaining and improving the higher education and research system, which this country relies on."
Stern also described the government's proposed levy on overseas income as "completely insane".
“The university system is being repeatedly deprioritised in favour of investment in schools and colleges. I understand the huge pressure the government is under, but we cannot sort out the pressures in the school and college sectors by weakening our university system. That is what is currently happening.”
Jess Lister, director in the Education Practice at Public First, told PoliticsHome that the analysis shows the problems facing university finances are multifaceted.
Lister added that "government — knowingly or unknowingly — is taking an increasing amount of funding out of the sector in a way that is clearly unsustainable if the sector is to remain the size and shape it currently is into the medium term".
Professor Andy Long, the Vice-Chancellor and Chief Executive of Northumbria University, told PoliticsHome that UUK’s analysis "shows the scale of the financial pressures on universities, which would challenge any industry".
“The sector has made some progress in reforming its approach, and whilst we recognise there is more to do, this needs to be matched by support and investment from government,” Long added.
UUK's analysis of negative impact on funding:
- Teachers’ pension scheme - £125m per annum
- Employer National Insurance contributions - £430m per annum
- Proposed international student levy - £600m per annum
- Cut in strategic priority grant - £108m in 2025-26
- Cut in capital funding for teaching - £66m per annum
- Changes to foundation year fees - £332m per annum
- Decision to remove funding for level 7-degree apprenticeships - £108m in 2025-26
The analysis takes account of the increase in income of £371m per annum from the domestic undergraduate tuition fee uplift.
A DfE spokesperson said: “We increased the amount universities could charge in tuition fees last year and have protected Strategic Priorities Grant funding for important, high-cost courses which are vital for economic growth and our Plan for Change.
“We are also protecting core funding to support access to higher education and break down barriers to opportunity for disadvantaged groups.
“We are taking the tough but fair decisions necessary to put universities on a firmer financial footing, while encouraging them to focus on delivering for students and growing the economy.”
