Universities face insolvency but government ‘has no plan’

MPs on Parliament’s Education Committee have criticised the government for having “no clear plan for universities facing insolvency” and inadequate protections for students.

The MPs warned that the UK’s higher education sector is under “unprecedented” financial pressure with universities facing potentially serious consequences.

These include “staff redundancies, closures of courses and departments, recruitment freezes, and the selling off of assets”.

In its Student Report: Universities at breaking point, published on 12 May, the committee said the sector in England is facing a financial crisis that now poses a “real risk of institutional insolvency”.

“We heard compelling evidence that, without urgent and coordinated action, there is a clear possibility of a university closing. The consequences would be severe, not only for students and staff but [also] for local economies, communities and the UK’s global academic reputation.”

Chair of the Education Committee Helen Hayes MP said: “The possibility of a major UK university becoming insolvent is a real possibility, not a theoretical warning.”

She said such a development would be devastating to students, staff and the wider local community. It would deliver a severe and lasting blow to the UK’s research footprint and international reputation.

“These financial risks must not be taken lightly. The risk of insolvency is real, and that happening would be devastating not just for students and staff but for the institution’s local community, the UK’s research footprint and our international reputation.”

Hayes said developing an early warning system is essential.

“The government and the Office for Students should be ready to step in when the lights are turning amber, not when they are already flashing red.”

Action must also be taken to protect students, who have invested time, money and energy into their studies, she said.

“The government should clarify whether universities will be able to continue teaching if they reach insolvency, and Student Protection Plans must offer students peace of mind that they will not suffer through no fault of their own.”

Financial pressures mounting

The MPs noted that the financial pressures on universities have been mounting as a freeze in cash terms of the value of tuition fees over most of the past 15 years has resulted in sustained cuts to core funding.

The government made a commitment to allow fees to rise in line with forecast inflation from September 2025.

But the fee freeze has driven universities to rely too heavily on increasing income from postgraduate and international students, creating an “unhealthy reliance on international recruitment to cross-subsidise both teaching and research”.

Many providers have expanded franchising and transnational education provision, with too many exposing themselves to additional financial and reputational risk, MPs said.

And government funding has consistently failed to reach the promised 80% of full economic cost.

Many universities have also taken on commercial debt, leaving them exposed to higher interest rates and restrictive borrowing covenants.

45% of providers face deficit

The Office for Students, the sector regulator, has warned that 45% of higher education providers could run a deficit in the 2025 to 2026 financial year without mitigating action. Across the country, universities are already responding by closing courses and campuses and making staff redundant.

The MPs warned that given universities’ anchor role in their local communities, the collapse of a provider would be “calamitous”.

“It would risk closing off opportunities for students from lower socio-economic backgrounds, lead to the loss of irreplaceable expertise, and undermine local research and development. The ripple effects would be felt throughout local economies and internationally,” the MPs said.

They recommend that student protection regulations be significantly strengthened and expanded to protect not only students but also staff and local communities.

Call to align policies

They also recommended that the Home Office become a co-owner of the International Education Strategy and be required to align immigration policy with it.

The government has recently announced policies expected to reduce international student numbers, including shortening post-study work visas and tightening Basic Compliance Assessment requirements.

These changes come amid intensifying global competition and an expected medium-term decline in demand from China, MPs noted.

The MPs also warned that providers may not be able to absorb or pass on the cost of a proposed £925 (US$1,250) international student levy that could disproportionately hit institutions serving local and disadvantaged communities.

They said: “Without decisive action, the financial crisis facing higher education risks undermining students’ life chances, hollowing out regional economies and damaging one of the UK’s most valuable national assets.”

Hayes said: “The government must demonstrate more joined-up action to protect a sector so vital to our national future.

“If it wishes to reduce the number of international students coming to the UK, it must set out how it will stabilise university finances. Unclear planning priorities will only increase the risk of parts of the sector collapsing.”

Warning against cuts

The MPs’ criticism came on the same day that Universities UK, the vice-chancellors’ body, warned the government against further cuts to public funding for higher education as it prepares to make decisions about the level of next year’s Strategic Priorities Grant (SPG) – the main way in which it directly funds undergraduate education.

New analysis from London Economics produced on behalf of Universities UK (UUK) shows how, since higher education funding was reformed in 2012, the cost of getting a degree has shifted significantly towards graduates and away from government.

When government tripled the cap on tuition fees in 2012, it envisaged covering 54% of the cost of teaching English undergraduates. However, the report found that for students starting university in 2025 and 2026, government will be contributing just 23% – less than half the proportion originally planned.

UUK says that while recent decisions to increase tuition fees in line with inflation are welcome, government must avoid undermining this decision by cutting the SPG and putting more of the cost of getting a degree onto graduates.

Anticipated per student funding from government for teaching has fallen sharply since 2012 and 2013, declining in real terms by two thirds, from £7,720 (under the original Plan 2 system and macroeconomic conditions in 2012 and 2013) to £2,480 (under the current 2025 and 2026 system).

This has happened as universities face rising costs and growing expectations on teaching quality, student outcomes, access and support, UUK says.

Vivienne Stern, chief executive of Universities UK, said: “Universities are now teaching with far less funding per student than a decade ago, while expectations on quality, access and outcomes keep rising.

“If we want to retain world-class universities that deliver for students, employers and the economy, government needs to maintain public investment.

“It is not fair to students and future graduates to keep raiding funding for higher education to meet growing costs elsewhere in the education system.”

Dr Gavan Conlon, partner at London Economics, added: “There has been a fundamental shift in the balance of contribution to higher education in England since 2012 and 2013. Graduates pay considerably more, and the Exchequer pays considerably less.

“The higher education sector contributes substantially to economic growth, so there is an ever-present economic rationale for the government to make a significant contribution to the funding of the sector.”

Universities are ‘anchor institutions’

Throughout the Education Committee’s inquiry into the financial crisis universities face, witnesses underlined the immense value of higher education institutions.

Universities are major economic drivers, creating skilled jobs and sustaining local economies through student and staff spending.

They incubate startups, support innovation and help develop the next generation of entrepreneurs, the MPs noted.

“Universities also act as anchor institutions: in many areas they are among the largest employers, train public sector workers, support local businesses through research partnerships, and work with schools to raise attainment. They are indispensable to the delivery of the government’s missions.”