Written evidence by Russell Group (HEF0026)

Education committee

Higher Education and Funding: Threat of Insolvency and International Students

Summary

1. Russell Group universities educate more than 750,000 learners each year across diverse pathways, helping deliver the graduate talent for the UK’s future workforce. Government’s own analysis shows that 88% of new jobs are expected to require graduate-level skills by 2035, with an additional 11 million graduates needed. These skills are also crucial to underpin the growth-driving sectors identified in the government’s Industrial Strategy: 87% of undergraduates from higher tariff universities are employed in IS-8 growth sectors five years after graduation.
2. However, mounting financial pressures, driven by the falling value of tuition fees and real terms decline in public funding for teaching and research, are placing significant strain on institutions. Recent figures show 43% of English providers are forecasting a deficit for 2024/25, with universities in devolved nations facing even steeper challenges due to differing funding models. In its annual report, the DfE recently updated the risk of higher education financial failure to “critical – very likely”. Furthermore, DSIT’s annual report listed higher education financial sustainability as the second most significant risk to the department’s ability to deliver on its objectives.
3. Russell Group universities are taking steps to operate more efficiently, including by collaborating to share student services and specialist facilities, reducing module choices, and initiating workforce changes. But these measures alone cannot address the scale of the challenge, with annual funding shortfalls of £6.2bn and £2bn in research and teaching respectively. These pressures risk:

• Undermining the UK’s R&D ambitions, with consequences for government’s growth mission and industrial strategy.
• Creating regional “cold spots” through diminished course provision and access, with consequences for ensuring young people from all backgrounds have the opportunities they need to succeed.
• Triggering institutional failure, damaging the UK’s reputation at home and overseas.

4. The government must work in partnership with the sector to develop a long-term sustainable funding model which offsets the impact of inflation on per-student funding, ensures affordability for students and the taxpayer, and protects the graduate skills pipeline. This should include:

• A commitment to increase tuition fees in line with inflation for the long-term and to reviewing the Strategic Priorities Grant (SPG) to address the funding deficits in teaching.
• A commitment to address the decline in quality-related research (QR) funding and for government to work with the sector to improve cost recovery rates on publicly funded research.

5. While we recognise the government’s ambition to reduce net migration, the proposed tax on international fee income would reduce university spend on UK skills and R&D. This would undermine their ability to support communities, drive regional and national growth and help deliver on key government priorities. We therefore encourage government to scrap the proposed levy to avoid diverting funding from universities’ core activities and enable them to be key partners in government’s mission to drive growth and opportunity and deliver the Industrial Strategy and NHS 10 Year Health Plan.
6. The closure of a university would significantly destabilise local economies. Job losses would extend beyond the institution itself to surrounding businesses, small retailers, landlords, and transport services. Tax revenues and business rates to local authorities could also decline, compounding pressures on local services and further weakening economic resilience. Protecting regional course provision and averting institutional insolvency will require a sustainable funding model, a supportive international student environment, and stronger coordination between regulators and government departments. We would like to see a strategic, multi-agency approach, with OfS working closely with all relevant government departments and agencies.

Part 1: Impact of Government Policy on International Students

1.      How will current Government policies affect the financial stability of higher education institutions?

1.1         In 2023/24, Russell Group universities hosted 257,005 international students, representing one in three of our students. International students are an integral part of our student body, bringing diverse perspectives that enrich the learning environment. They boost UK soft power, with over a quarter of world leaders having studied at a UK university.[1]

1.2         International students also generate over £20bn in vital export income[2] annually and support the delivery of high-quality education and research across the UK. Public First research shows international students make each UK resident £355 better off every year.[3] Retaining these students after graduation helps the UK compete globally for R&D talent and provides businesses with the skilled workers they need to grow.

1.3         Our universities pride themselves on responsible recruitment of high-quality students. The tuition fees international students pay enable our universities to further expand opportunities for domestic students. Over the past 5 years, the 13% growth in international undergraduate students (+14,000 students) at Russell Group universities has supported a 10% growth in UK undergraduates (+36,000 students), despite the per student funding deficits.[4]

1.4         However, international student numbers are falling. Our universities have identified the dependants ban, ongoing uncertainty around the Graduate Route, and negative political rhetoric as key factors contributing to declining applications and enrolments in 2024:

• Home Office data showed a 5% fall in study visa applications to Russell Group universities in 2024 compared to 2023, and a 14% drop across the sector.[5]
• Private survey data from April 2025 shows international student enrolments for the September 2024 intake fell by 13% across the sector (n=54) and by 4% across the Russell Group (n=16).
• We expect this downward trend will continue for our universities in the September 2025 intake, particularly for taught master’s programmes.[6]

1.5         Teaching international students is the single largest surplus-generating activity at UK universities. At most Russell Group institutions, international students’ tuition fees make up between one-fifth and one-third of total income.[7] Universities reinvest the surplus from international tuition fees into activities central to the Industrial Strategy and R&D-led growth, including:

• Teaching home students, where UK universities face a £2bn annual funding shortfall.[8]
• Research, where UK universities invest £6.2bn annually. This includes investment in the training of postgraduate research students, the UK’s pipeline of research talent.[9]
• Widening participation, where Russell Group universities invest over £250m a year to ensure more under-represented students across the UK have the opportunity to access higher education and can thrive during their studies and beyond.[10]

Immigration White Paper proposals

1.6         Proposals in the Immigration White Paper[11] – such as the international student levy and Graduate Route restrictions – may have unintended consequences for wider government missions given the additional financial pressure they would place on the sector.

1.7         The proposed reduction in the length of the Graduate Route to 18 months will make the UK’s post-study work offer less competitive than other countries. For example, Australia offers 2 to 3 years depending on qualification level, while Canada offers up to 3 years, including for master’s programmes.[12] Our universities report that limiting the Graduate Route will hinder efforts to diversify their student intake, particularly from countries like India where post-study work opportunities are a key factor in choosing where to study.[13]

1.8         According to IDP’s Emerging Futures 7 report, international students already think the UK’s post-study work offer is less attractive than those offered by Australia, Canada, and New Zealand.[14] 38% of surveyed students said they would consider changing their preferred study destination in favour of countries offering longer post-study work visas.

1.9         Further measures that impact international student recruitment, whether through changes to the Graduate Route or other policy levers, would reduce universities’ ability to cross-subsidise high-impact research and places for UK students. Russell Group modelling suggests a 10% drop in international student numbers could reduce our universities’ collective income by over £500m a year in tuition fees alone.[15]

1.10     The proposed international student levy also presents a significant risk to the financial stability of universities. It is unlikely universities would be able to pass this cost on through higher tuition fees as international students are becoming increasingly price sensitive. Alongside rising living costs in the UK, international students already face the highest upfront visa and health surcharge fees among major study destinations. We estimate that upfront costs for a 3-year undergraduate student now total around £3,000 – a 61% increase from 2023.[16]

1.11     Our universities therefore anticipate having to cover most, or all, of any levy by reducing spend on core activities. If applied at the 6% rate proposed in the White Paper, a levy could:

• Force research-intensive English Russell Group universities to reallocate more than £315m per year from core activities to pay the tax – over half the total sector cost.[17] Individual Russell Group university forecasts suggest the cost could reach £400m in the 2025/26 academic year.[18]
• Push more Russell Group universities into, or close to, operational deficits.[19] In 2023/24, seven English Russell Group universities operated a deficit, and a further ten operated with a surplus below 5%.[20] A 6% levy could push three more of our universities into deficit and result in 90% of English Russell Group universities operating with a surplus below 5%.[21]

1.12     These estimates are likely to underestimate the long-term financial impact given inflationary pressures, recently announced funding cuts and rising costs for the sector. Even without a levy, Universities UK (UUK) estimates recent policy announcements will impose a net cost of £800m on the sector, despite the domestic undergraduate tuition uplift.[22] Examples include rising National Insurance contributions and Strategic Priorities Grant (SPG) cuts.

1.13     To manage these financial pressures, universities are:

• Reducing staff numbers. More than 5,000 job cuts have been announced to date.[23] This is double the number of jobs that were at risk at British Steel’s Scunthorpe plant.[24]
• Pausing infrastructure projects, for example upgrading laboratories.
• Reducing R&D activity. 19% of universities recently surveyed have reduced investment in research in the past three years and 79% are considering future reductions.
• Cutting course and module options available for UK students. 49% of universities recently surveyed have closed courses in the past three years and 18% have shut down entire departments.
• Considering scaling back outreach and widening participation programmes for UK students including cutting scholarships and bursary awards. Almost half of universities recently surveyed said they may need to consider this in the next three years.[25]

1.14     Government policies that hinder international student recruitment therefore risk undermining the cross-subsidy model that sustains our universities’ research, teaching and access activities. In the long term, this could limit universities’ ability to contribute to R&D-led growth, industrial strategy ambitions and the government’s opportunity mission.

2.        What implications will these policies have on future tuition fee increases?

2.1         Our analysis shows that the real terms value of undergraduate domestic tuition fees in England has declined significantly over the last decade, placing pressure on the financial sustainability of higher education funding. When adjusted for inflation, the £9,535 fee is worth an estimated £6,700 in 2012/13 terms. This represents a fall of around 26%.[26] This erosion has contributed to the £2bn annual funding shortfall universities face for teaching domestic students.[27]

2.2         Without increases in funding for domestic teaching, this shortfall will continue to grow. Policies that dramatically reduce international student numbers will significantly limit our universities’ ability to offset these gaps, inhibiting our capacity to teach domestic students, particularly in high-cost disciplines. The proposed levy in particular is a concern given the likelihood this would significantly further destabilise university finances. We therefore encourage government to scrap the proposed levy to avoid diverting funding from universities’ core activities, including their investment in UK skills.

2.3         More broadly, the government must work in partnership with the sector to develop a long-term sustainable funding model which offsets the impact of inflation on per-student funding, ensures affordability for students and the taxpayer, and protects the pipeline of skills the economy needs. This should include:

• A commitment to increase tuition fees in line with inflation for the long-term and to reviewing the SPG to address the funding deficits in teaching.
• A commitment to address the decline in quality-related research (QR) funding and for government to work with the sector to improve cost recovery rates on publicly funded research.

3.        How will the interaction between international student enrolment and tuition fees shape the sector’s financial outlook?

3.1         See answers to section 1 and 2.

3.2         A more sustainable approach to funding higher education is needed. We would welcome a wider conversation about a sustainable approach to funding higher education that can offset the impact of inflation on per-student funding, is fair and affordable for students and the taxpayer, and protects the pipeline of skills the economy needs.

Part 2: Ramifications of Institutional Insolvency & Regional Impact

4. What would be the consequences of a higher education provider becoming insolvent?

4.1          The insolvency of a higher education provider would have far-reaching, disruptive consequences. Universities are hubs of innovation, engines of regional growth, and gateways to opportunity. Institutional insolvency risks cutting-edge research, harming local economies, limiting access to education for under-represented, disadvantaged groups, and damaging the UK’s global reputation.

Risks to regional and national growth

4.2         Universities are major local employers and economic contributors. In many towns and cities, they are the largest employer, sustaining regional supply chains and service industries. For example:

• Durham University directly supports 5% of jobs in County Durham and generates £489 million in local economic impact each year.[28]

4.3         The closure of a university would equate to the loss of a major economic pillar. Job losses would extend beyond the institution itself to businesses reliant on staff and student spending. Retailers, landlords, and transport providers could see sharp declines in revenue, while local property markets may soften due to falling demand. Local authorities would face reduced tax income and business rates, further straining public services and economic growth.

Risks to the UK’s research capability

4.4         Research and commercialisation activities at Russell Group universities alone deliver £38bn for the economy every year, and support more than a quarter of a million jobs across the UK.[29] This is in addition to the huge positive economic, social and soft power impacts of their teaching, community outreach and other related activities.

4.5         Our universities’ R&D activity is also critical in attracting inward investment and supporting national priorities in health, technology, climate, and security.[30] Examples include:

• The University of Bristol’s quantum technologies cluster supports dozens of spinouts and Small and Medium-sized Enterprise (SME) partners.
• Imperial leads pioneering work in AI and advanced manufacturing, attracting global investment.

4.6         Insolvency at a research-intensive institution would disrupt long-term programmes, breaking up interdisciplinary teams and eroding local knowledge economies. Public and private R&D investment could be lost, along with the flow of patents, discoveries and skilled researchers that drive productivity and improve lives. It could also impede the UK’s ability to respond rapidly to future health, climate, or security crises.

4.7         Breakthroughs like the Oxford AstraZeneca vaccine and the RECOVERY trial that identified affordable, life-saving treatments were only possible because of the sustained investment in university-based research and stability of these institutions. Over 3 billion doses of the vaccine were made available to 183 countries with an estimates 6.5 million lives saved in the first year of its rollout.[31] The RECOVERY trial saved a further 1 million lives globally.[32]

4.8         Much of the UK’s research strength depends on long-term investment in local infrastructure, specialist facilities, and deep-rooted partnerships with regional NHS trusts, businesses, and civic organisations. These place-based networks cannot simply be re-located. Financial collapse would sever these ties, leaving gaps which take decades to rebuild.

Risks to opportunity

4.9         Universities play a critical role in social mobility, including by widening access to higher education for young people in every region of the UK. Where local institutions thrive, participation rises; any university closure would risk reversing this progress. Russell Group universities collectively invest over £250 million annually in access activities. For example:

• The University of Glasgow’s Higher National Certificate (HNC) Articulation Programmes, developed with eight West of Scotland colleges, enables eligible students – including those who are care experienced or from refugee backgrounds – to progress directly into Year 2 of select undergraduate degrees.
• King’s College London’s Parent Power programme, launched in partnership with Citizen’s UK, supports under-represented families to navigate higher education, offering guidance on admissions, finance, and tutoring.

4.10     The closure of a university would result in a significant contraction of opportunity, disproportionately impacting under-represented and disadvantaged groups who are less geographically mobile. This would lead to the removal of vital local outreach programmes and widening participation activities that help raise aspirations, support attainment, and connect young people and adults to new pathways. The loss of this local engagement could severely undermine regional efforts to build inclusive growth and social mobility.[33]

4.11     Disadvantaged students – especially those more reliant on local provision – could face higher risks of dropping out entirely if a local university were to fail.[34] In regions where a single institution acts as a primary or sole provider of higher education, the collapse of a provider would effectively eliminate local access to degree-level study, worsening regional inequalities in skills and social mobility.

Risks to the UK’s global reputation

4.12     UK universities consistently rank among the top three destinations worldwide for international students. This reputation underpins student recruitment, research collaborations, and education exports. However, institutional insolvency could trigger a perception of systemic fragility, reducing global confidence in the UK’s ability to deliver degrees reliably. Evidence suggests that even a single high-profile closure could significantly impact global demand, with a “contagion effect” both geographically within a university’s locality, and to the wider ecosystem of teaching and research in the UK.[35]

4.13     The reputational loss to UK science would also be significant. Global collaborations depend on confidence in UK research institutions, and any high-profile failure could undermine trust, jeopardising future funding, talent recruitment, and joint programmes.

Risks to students’ education and wellbeing

4.14     University insolvency would threaten students’ learning, progression, and overall welfare. While student protection plans are required by the Office for Students (OfS), in practice they are largely untested in an insolvency context and lack detail on preserving qualifications or teaching continuity.

4.15     Uncertainty about the continuity of study, financial security, and accommodation could also exacerbate mental health pressures. Even without the threat of insolvency, nearly one-third of students already worry about the long-term financial sustainability of their institution.[36]

5. How do higher education institutions contribute to growth in their local economies, the provision of public services, and their wider communities?

5.1         Universities act as anchor institutions in their regions, reinvesting in the local economy. They drive business demand, support service industries, and help attract skilled workers and investment to underserved areas. Their status as major employers and exporters makes them central to regional growth, attracting talent, investment and innovation. As such, universities will be critical partners in realising the potential of city regions and clusters across the UK as a core objective of government’s new Industrial Strategy. It is notable that each of the 10 Cluster Champion regions in the Industrial Strategy contains a Russell Group university.[37]

5.2         By delivering graduates and apprentices with advanced technical, scientific and professional skills, universities underpin local economies; ensuring businesses can hire the skilled staff they need. Our universities work closely with local employers, schools, further education colleges and local governments within their regions to identify skills gaps and ensure their education offer meets local labour market needs.[38] For example:

• The University of Manchester, together with Greater Manchester Combined Authority and four other regional university partners, developed the first city-region Civic University Agreement (GMCUA) in the UK. It aims to transform the relationship between local actors and drive work around mapping skills and opportunities. GMCUA is engaging residents, the FE sector and students. It has a focus on innovation and collaboration in areas such as green skills, the creative sector, health and social care.

5.3         Russell Group universities also work with NHS trusts, further education colleges and professional bodies to train the nurses, doctors, dentists, technicians, researchers and other professionals the NHS needs to cut waiting lists and bring advanced technologies and treatments into everyday use.[39] Universities will be key partners in government’s ambition to increase the number of domestically trained healthcare professionals. Universities looking to increase the number of students they train can be limited by physical teaching space and placement capacity. That is why some Russell Group universities have established innovative new partnerships in under-doctored areas. For example:

• The Lincoln Medical School is a partnership between the University of Nottingham and the University of Lincoln, which currently delivers Nottingham’s Medicine and Medicine with Foundation Year degree programmes to a cohort of around 400 undergraduate students. The partnership with Lincoln looks to address future shortages of doctors by offering training that will encourage graduates to complete their junior doctor training locally and apply for jobs in the region. Lincolnshire’s hospitals serve one of England’s largest and most dispersed rural populations of more than 730,000 people, and the establishment of a medical school in the area will benefit generations to come. 

5.4         Our universities are also using their expertise and resources to provide direct services to their communities including legal advice and healthcare services. For example:

• Cardiff University’s Mountain Ash Primary Care Dental Unit provides a wide range of free dental care for local residents unable to access regular dental care. It is part of a wider outreach programme developed by Cardiff University School of Dentistry across Wales with the aim of enabling the local populations to attain a high standard of dental health.[40]

5.5         Through partnerships with NHS trusts, local councils and businesses, universities translate research into real-world impact, tackling public health, transport, and energy challenges, embedding innovation into the local economy and laying the groundwork for new industries and high-value jobs.

5.6         Our universities generate real-world breakthroughs – from quantum technologies to advanced manufacturing and health innovations – that often lead to the creation of spinout companies, attracting private investment to local areas. In 2021/22 businesses spun out of Russell Group universities alone supported over 80,000 jobs and generated £17.8bn in economic output.[41] Universities are collaborating to support spinouts in their regions. For example:

• Northern Gritstone, universities of Leeds, Manchester and Sheffield: Supports spinouts and high-growth businesses emerging from the universities and their wider ecosystems, commercialising the region’s world leading science and research.
• Midlands Mindforge, universities of Birmingham, Nottingham and Warwick: Accelerates the commercialisation of university spinouts and early-stage IP rich businesses in the midlands.
• SETsquared, universities of Bath, Bristol, Cardiff, Exeter, Southampton and Surrey: A business incubator providing a wide range of support for academics, students and local businesses; turning innovation into thriving businesses. Since launching in 2002, SETsquared has supported over 5,000 entrepreneurs to raise £5bn investment.

5.7         The local impact of university-led research can also be seen in the formation of localised technology districts, biotech hubs, and clean energy clusters. Many of these are in areas that would otherwise struggle to attract high-growth industries. For example:

• The University of Leeds is a partner in the Innovation Arc, formed around the city's main universities, hospitals and major private sector partners. The university is actively contributing to the regional innovation ecosystem through its innovation hub, Nexus, which has built a community of over 130 businesses that have raised £117.3m of private investment.[42]

6. What strategies should be implemented to prevent insolvency and ensure sustainable regional provision of courses?

6.1         Protecting regional course provision and averting institutional insolvency will require a sustainable funding model, a supportive international student environment and stronger coordination between regulators and government departments.

6.2         Russell Group universities are taking steps to operate more efficiently, including by collaborating to share student services and specialist facilities, reducing module choices and initiating workforce changes. But these measures alone cannot address the scale of the challenge: with annual funding shortfalls of £6.2bn and £2bn in research and teaching respectively. These pressures risk:

• Undermining the UK’s R&D ambitions, with consequences for government’s growth mission and industrial strategy.
• Creating regional “cold spots” through diminished course provision and access, with consequences for ensuring young people from all backgrounds have the opportunities they need to succeed.
• Triggering institutional failure, damaging the UK’s reputation at home and overseas.

6.3         The government must therefore work in partnership with the sector to develop a long-term sustainable funding model which offsets the impact of inflation on per-student funding, ensures affordability for students and the taxpayer, and protects the graduate skills pipeline. This should include:

• A commitment to increase tuition fees in line with inflation for the long-term and to reviewing the SPG to address the funding deficits in teaching.
• A commitment to address the decline in quality-related research (QR) funding and for government to work with the sector to improve cost recovery rates on publicly funded research.

6.4         As described in Section 1, the proposed levy on international tuition fees would further destabilise university finances. We therefore encourage government to scrap the proposed international student levy to avoid diverting funding from universities’ core activities and enable them to deliver on key government priorities.

6.5         There is currently limited oversight of regional and national changes in course and subject provision. The OfS and Skills England should work together to identify areas at risk of losing key disciplines. This would enable targeted intervention to preserve local opportunities and avoid creating “cold spots” where students – especially mature and disadvantaged learners – have no viable higher education options closer to home.

6.6         We support with OfS’ role in working with providers at risk of market exit. However, the OfS’ focus is on protecting students, whereas there are far wider implications of provider failure, including for local economies and research. We would like to see a strategic, multi-agency approach, with OfS working closely with all relevant government departments and agencies.

6.7         We would encourage government to set up the appropriate structures to deliver this strategic, multi-agency approach as soon as possible given DfE’s recent assessment that the risk of higher education financial failure is “critical – very likely”. In doing so, government should ensure there are well-defined routes to act on intelligence about severe financial concerns at a provider and ensure early, confidential dialogue between various actors – including other providers – is supported. In addition, government should look to communicate the measures it or other actors would be prepared to take under different circumstances. Any measures should be based on learnings from other sectors and government should look to publish its assessment of measures considered.

6.8         Whilst some institutions will be in a less financially precarious position, all are facing significant financial pressures and their ability to commit resource to help with a failing institution is unfortunately likely to be limited. As much notice as possible and clear communication will help other providers assess the needs of a failing institution and identify any areas where they are able to support. In doing so, government should ensure the appropriate funding is available so an institution offering help is itself not put under further financial pressure.

September 2025

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