United Kingdom / Analyst Insights
Back to School: The Reopening of UK Universities

What information do you want to see from IBISWorld on COVID-19? We'd love to hear from you

by Thomas Burgess, Industry Analyst
Sep 15 2020

A British education has long been an appealing prospect internationally. By bringing in revenue through international students, university tuition is considered an important export for the United Kingdom. Public funding for universities has gradually been syphoned away over the past two decades, leaving these institutions more exposed to market forces. International fees paid by foreign students have become vital to universities’ survival. Administrators have had to learn to balance their organisations’ offerings, both socially and commercially, to increase revenue while maintaining the quality of teaching on offer. However, the COVID-19 (coronavirus) pandemic has left operators in the Universities industry reeling.

State of play

Face-to-face tuition was suspended in many universities from mid-March. Thankfully, recent investment in digital learning platforms has supported the continuation of teaching online. However, with little in-person interaction taking place, the option to defer university places began to look more appealing to prospective first years. The Institute for Fiscal Studies (IFS) has estimated that universities could lose between 7.5% and 50% of their annual income over the next four years, as the market for international students, worth roughly £6.9 billion a year, is expected to contract sharply due to fears of a spike in coronavirus transmission and the change in European students fee status following the end of the UK’s transition period. For example, Oxford University recently announced that fees for students from outside the United Kingdom and the Republic of Ireland starting their studies in the 2021-22 academic year will increase to between £26,770 and £37,510 per year. The IFS has reported that up to 13 universities are at severe risk of insolvency, with expected losses ranging between £3 billion and £19 billion across the industry. The more prestigious universities are expected to fare better than others due to their international reputations.

Seeking support

Universities called for a £2 billion bailout from the government in late April, to cover an immediate shortfall of £790 million. On 4 May, the government responded with £100 million of public funding to help institutions continue supporting their research departments. Additionally, £2.6 billion of tuition fee payments were brought forward to help universities balance their books over the autumn term. Despite this, many higher education institutions have frozen recruitment and allowed existing employment contracts to reach their ends without renewal as a result of the uncertainty and turmoil caused by the pandemic and the expected contraction in demand. As Universities UK reported that a 10% fall in the number of students arriving from the Far East alone would result in a loss of £200 million in tuition fees, administrators are scrambling to find ways of filling the financial black hole. As part of these efforts, universities were told they were allowed to recruit 5% more domestic students than had previously been forecast, while the government gave itself the discretion to allocate an extra 10,000 places to support vital public services, with 5,000 of those ringfenced for nursing, midwifery, and allied health courses.

Increasing pressure

As part of another last-minute U-turn, the government has been forced to rethink its placement strategy. As GCSE and A-level exams were cancelled, all teachers were asked to supply the exam regulator, Ofqual, with an estimated grade and a ranking of each student with every other pupil at the school with the same estimated grade. An algorithm then based students’ grades on the school’s exam performance over the previous three years. Results were released on 13 August and 39.1% of them were lower than teachers’ assessments, with a clear trend in state schools being downgraded over private schools, the latter benefiting from smaller class sizes and a history of strong exam results.

The algorithm was subsequently binned and teachers’ original predicted grades were allowed to stand. Additionally, the Department for Education has lifted the cap on the number of medicine, veterinary science, dentistry and teaching courses. The Royal College of General Practitioners warned that the number of medical students would need to increase by at least 20% to ensure enough GPs were working in the future, following reports of a 2.3% fall in full-time equivalent GPs on 30 June compared with the previous year. Ministers have promised to relieve pressure on medical schools and courses by releasing more funding to support the expected increase in student numbers following the removal of the cap, which was only introduced in May this year.

Universities have been under increased pressure to deal with a high number of students whose grades match the offer of their first choice. Major upset has been caused because students who did not initially receive the required grades potentially lost out on their first-choice universities. Social distancing measures put in place in March are now in danger of becoming inoperable as operators try to juggle these requirements with capacity and staffing and the need to generate revenue. In order to cope with what is now an expected increase in the number of domestic students, extra funding has been promised, while some universities are offering bursaries in the form of discounts on accommodation costs to encourage students to defer their places for a year. As international students had been subsidising domestic students due to their much higher fees, a fall in international student numbers and the removal of the domestic student cap is expected to put increased pressure on universities trying to maintain social distancing in the current year.

UCAS data released in late June suggested that deferment numbers were down 0.7% year on year, as the number of students confirming their places for an immediate start this autumn was up by 1.2%. Deferment numbers among UK-domiciled 18-year-olds fell by 4.1%.  This is no surprise, as studying through times of uncertainty can often be the best possible option, despite potentially not receiving the same quality of experience as had been previously expected.  On the other hand, deferral by applicants from outside the European Union increased by 21.3% on the previous year. As a result, universities will need to take full advantage of the removal of the cap on domestic student numbers if they hope to maintain revenue. Social distancing is likely to obstruct this, leading to a level of dissatisfaction across the student population, as digital teaching will lead to a more isolated and less intimate university experience. Overall, the Universities industry’s revenue is expected to contract by 9.4% in 2020-21, from £41.9 billion to £38.7 billion, as international student numbers fall and social distancing measures limit the number of domestic students universities can accept to make up the deficit in revenue.

Future threats

The oncoming winter is expected to lead to a spike in the number of coronavirus cases across the country and the introduction of more local lockdowns, severely restricting the university experience for students in the United Kingdom. Outside of education, the number of people claiming unemployment benefits soared to 2.7 million between March and July 2020, proving that employment opportunities are not providing much of an alternative at this point in time. The real worry for universities is the potential loss of international student fees. In 2018-19, 143,000 students from countries within the European Union studied in the United Kingdom, and those students who start studying in the United Kingdom before the end of the transition period on 31 December 2020 will continue to study under a ‘home-fee status’ until the end of their courses. However, after this date, it will be up to universities to decide how much they charge students arriving from the European Union. Although EU students are likely to have to pay much higher fees at UK universities in the 2021-22 academic year and beyond, EU student numbers are anticipated to shrink significantly and universities will subsequently become more reliant on domestic students.

For more information on any of the UK’s 460+ industries, log on to www.ibisworld.com, or follow IBISWorld on LinkedIn and IBISWorldUK on Twitter.