It has emerged that the Office for Students (OfS) are helping universities assess their financial liquidity situations with access to accountants from some of the leading practices in the UK for those judged to be most at threat.

Accountants from Deloitte, Ernst & Young, PwC and KPMG were hired under a “framework of suppliers” to safeguard students throughout any “financial adjustments or transition, including potential market exits” – which means closure and insolvency. 

Nick Hillman, director of the Higher Education Policy Institute (HEPI) said that “some universities are worried about their short-term future – weeks rather than months or years. 

“The situation is urgent. That’s why those tenders are out there and why the OfS has been told to focus on financial sustainability and the exclusion of pretty much everything else.”

Any university going into administration or other insolvency process would leave serious questions about what happens to students, whether their tuition fees are refunded, whether foreign student visas would be valid and what the consequences would be for alumni degrees. 

On December 2nd, the OfS announced it would be temporarily closing its accountants register to new providers so staff could prioritise “severe pressures” facing existing higher education institutions. 

This comes after OfS modelling data published last month that showed 72% of higher education providers could be in deficit by 2025/26 with 40% already in arrears by the end of 2023/24.

Universities already in deficit include the University of Kent; Coventry University and London South Bank University – although there is no indication that any of these institutions are close to insolvency. 

Jonathan Simons, a former Downing Street education official under both Labour and Conservative governments who is a partner at Public First policy consultancy said that the OfS contract is intended to “understand how financially vulnerable certain institutions might be and therefore give a better understanding of the risk to the university and the students.”

Public First issued a report in July calling on the OfS to take a more proactive approach on managing and forecasting financial risk to ensure students are protected. 

The report stated that the current regulatory regime does not protect students from an institution having a “disorderly exit” from the market and that Student Protection Plans have “no force in insolvency law”. 

He described the OfS contract with accountancy firms as the “biggest and most focused time” that the regulator has “brought external resources to bear” since it was formed with the Higher Education and Research Act 2017. 

An OfS spokesperson said: “Engagement with institutions is a routine part of our work – we work with individual institutions to understand their financial position and their plans to respond to, and address financial risks. 

“Our tender, which was published over the summer, will help increase the OfS’s capacity to understand long-term financial issues. It is not designed with imminent risk of institutional failure in mind.”

Education (including Higher) insolvencies 2019 to September 2024

201920202021202220232024Totals
Higher966139750
All Education1511541812703142041,274

Education insolvencies have remained static during 2019 and the first year of the pandemic before rising dramatically from 2022 onwards.  The total number of insolvencies doubled from 2019 to 2023 and had already numbered over 200 this year with a quarter of the year to go.

Higher Education insolvencies made up 3.9% of all education insolvencies over the past six years but the external pressures could see this number rise both this year and in 2025.

A recent conference organised by the Policy Institute at King’s College London looking at “financial failure in higher education” found that institutions in London would be more likely to be allowed to fail than elsewhere because the capital would be better able to absorb the ramifications, both in terms of displaced students and the local economic impact.

Baroness Wolf of Dulwich, a professor of public sector management at King’s and former adviser on skills in the No 10 Policy Unit said: “My sense is when it comes to where governments would step in, it comes down far more to geography than with having a shake-out of the system to have different evolving institutions.

“Bluntly, there are geographical areas where you just don’t let it close down. Either for raw politics or for labour market reasons. It really does matter if this chunk of the country is left without a properly functioning institution.”

The panel agreed that there was a risk of contagion should any university become insolvent with one insolvency potentially becoming five or ten because of the knock-on impact of student recruitment and market confidence. 

Sir Steve West, vice-chancellor of the University of the West of England, said neither the sector nor the government seemed prepared for a market exit and student protection plans required by the OfS were “not fit for purpose.”

What has caused many universities financial distress?

There are several factors that have exacerbated the challenges facing higher education institutions. These include:

  • Tuition fees being held at £9,250 since 2017 (£1,820 for domestic students in Scotland since 2022)
  • More A-Level students not going on to study degrees due to a combination of a stagnant job market, high accomodation costs and strikes affecting tuition in recent years
  • Some universities (mainly modern institutions) are statutorily obliged to be members of the Teachers’ Pension Scheme. The affected universities have to pay pension contributions that have risen from 16.4% in 2019 to 29% today. 
  • Recent changes to UK immigration policies have deterred international students from studying in Britain. As of July 2024, applications for sponsored study visas have fallen by 16% year on year, resulting in 81% fewer applications by dependents of students year on year.
  • Domestic undergraduate tuition fees have not risen significantly since 2012 and not at all since 2017. Universities lose £2,500 per year, per domestic student on average. 
  • International students have no such limits and can typically pay between £22,000 and £40,000 per year in tuition fees alone. In 2022 20% of all UK university revenue derived from international students’ tuition fees.

Redundancy and restructuring

As a result of these and other factors 67 higher education institutions, including members of the prestigious Russell Group of universities, have begun or carried out redundancy and restructuring programmes causing the University and College Union (UCU) to write to the government requesting urgent intervention saying “anything short of an emergency rescue package for the sector will be insufficient to stave off catastrophe.”

The student accomodation market will also come under pressure with universities that manage their own accomodation unable to boost their income during off-peak periods with little or no income from them.

If you’re involved with managing an educational establishment or supporting business in the sector then you know better than anybody what a challenging present and future you’re facing. 

Which is why we offer a free initial consultation to help anyone who wants the best future for their business. There are always many variables to consider but our advisors will be happy to work through them with you to better understand what your end goals are and how to achieve them efficiently and effectively.

Get in touch with us at your earliest convenience and we can begin to help you work on the most important assignment you’ll probably undertake this year. Your own future.