- Jack Booth and Maike Halterbeck at London Economics take a closer look at the recently published HESA Finance data to investigate the financial state of UK higher education.
- At 11am today, we will host a webinar to mark the launch of the Unite Students Applicant Index. You can register for a free place here.
In recent years, financial pressures have mounted across the entirety of the UK higher education (HE) sector, and have left many institutions in an exceptionally vulnerable position. In England alone, 43% of institutions are expected to face a financial deficit for 2024-25, prompting the House of Commons Education Select Committee to announce an inquiry into university finances and insolvency plans. Wide-ranging cost-cutting measures and redundancies are taking place across the sector, and the first institution (to our knowledge) has recently received emergency (bailout) funding from its regulator.
With the recent release of the full HESA Finance data for 2023-24, we now have an updated picture of the scale of the financial challenges facing higher education providers (HEPs). London Economics analysed HEPs’ financial data between 2018-19 and 2023-24 to better understand the current financial circumstances of the sector.
While other recent analyses focused on England only or covered other types of financial variables, here, we include providers across all of the UK and focus on three core financial indicators.
What does the analysis cover?
Our analysis focuses on four broad clusters of HEPs, following the approach originally developed by Boliver (2015), which categorises a total of 126 providers according to differences in their research activity, teaching quality, economic resources, and other characteristics. Cluster 1 includes just two institutions: the University of Oxford and the University of Cambridge. Cluster 2 is composed mainly of other Russell Group universities and the majority of other pre-1992 institutions (totalling 39 institutions). Cluster 3 includes the remaining pre-1992 universities and most post-1992 institutions (67 institutions), and Cluster 4 consists of around a quarter of post-1992 universities (totalling 18 institutions). The latest HESA Finance data were, unfortunately, not available for 8 of these clustered institutions, meaning that our analysis covers 118 institutions in total.
We focus on three key financial indicators (KFIs):
- Net cash inflow from operating activities after finance costs (NCIF). This measure provides a key indication of an institution’s financial health in relation to its day-to-day operations. Unlike the more common ‘surplus’/‘deficit’ measure, NCIF excludes non-cash items as well as financing-related income or expenditure.
- Net current assets (NCA), that is, ‘real’ reserves. This measure captures the value of current assets that can be turned into cash relatively quickly (i.e. in the short term, within 12 months), minus short-term liabilities.
- Liquidity days. This is based on the sum of NCA and NCIF, to evaluate whether institutions can cover operational shortfalls using their short-term resources. We then estimate the number of liquidity days each institution holds, defined as the number of days of average cash expenditure (excluding depreciation) that can be covered by cash and equivalents. The Office for Students requires providers to maintain enough liquid funds to cover at least 30 days’ worth of expenditures (excluding depreciation).
What are the key findings?
The key findings from the analysis are as follows:
- In terms of financial deficits (NCIF), 40% of HEPs included in the analysis (47) posted a negative NCIF in 2023-24.
- The average surplus across the institutions analysed (in terms of NCIF as a percentage of income) declined from 6.1% in 2018-19 to just 0.5% in 2023-24.
- In terms of financial assets/resilience (NCA), 55% of HEPs analysed (65) saw a reduction in their NCA (as a proportion of their income) in 2023-24 as compared to 2018-19.
- The decline in NCA has been particularly large in recent years, with average NCA declining from 27.4% of income in 2021-22 to 20.0% in 2023-24.
- In terms of liquidity days, 20% of HEPs (24) had less than 30 days of liquidity in 2023-24, including 17 providers that posted zero liquidity days.
A challenging time for the sector
The analysis shows that the financial position of UK higher education institutions is worsening, with all three indicators analysed (i.e. NCIF, NCA, and liquidity days) showing a decline in providers’ financial stability. Major challenges to the sector’s finances are set to continue, especially as the UK government is looking to further curb net migration through potential additional restrictions on international student visas. Therefore, the financial pressures on UK HE providers are expected to remain significant.
Want to know more?
Our more detailed analysis, including a number of charts and additional findings on each indicator by university ‘cluster’, can be found on our website.