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Universities at risk of insolvency without Government bailout amid crisis – IFS

By: PA News

Published: 01:45, 05 July 2020

Updated: 00:13, 06 July 2020

(PA)

Around a dozen universities could be at risk of insolvency without a Government bailout amid the Covid-19 crisis, a new analysis suggests.

Research by the Institute for Fiscal Studies (IFS) suggests that the British institutions at greatest risk may need a targeted bailout costing £140 million, or debt restructuring, to keep them “afloat” in the future.

An estimated 13 universities across the UK – which educate approximately 130,000 students – could end up with negative reserves by 2024 as a result of the pandemic, the analysis warns.

These institutions “may not be viable in the long run” if they are left without financial support, it adds.

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The IFS report predicts that universities that were already in a weak financial position before the crisis hit, which tend to be less prestigious institutions, are more likely to face insolvency.

For around a dozen of these institutions, insolvency is likely to become a very real prospect without a Government bailout
Ben Waltmann, research economist at IFS

It estimates that long-run losses across the UK higher education sector could come in anywhere between £3 billion and £19 billion – or between 7.5% and nearly half of the sector’s overall income in one year.

The largest losses are likely to stem from falls in international student enrolments this year and increases in the deficits of university-sponsored pension schemes, the report says.

Universities are also expected to face lockdown-related losses of income from student accommodation and conference and catering operations, as well as financial losses on long-term investments.

The IFS research, funded by the Nuffield Foundation, concludes: “For around a dozen universities, insolvency is likely to become a very real prospect without a Government bailout.”

It adds that the Government response “will be critical in determining the future of these institutions.”

“Insolvency of a university could cause significant disruption to students’ education, potentially leaving them unable to complete their degrees,” the paper warns.

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The briefing explores a series of options that the Government could take – including letting institutions become insolvent to “set a precedent” and show that it will not reward universities with the least resilient finances.

It adds that a “very tightly targeted bailout” of around £140 million would help to avoid insolvencies at the worst-affected universities.

The researchers also warn that a more widespread bailout package could cost billions of pounds without providing much support to the struggling institutions most at risk of going under.

We are of course especially concerned about the risk to students that this instability poses
National Union of Students

Ben Waltmann, a research economist at IFS, said: “With around £45 billion in reserves and an annual surplus of around £2 billion before the crisis, the university sector as a whole should be able to cope with substantial Covid-related losses.

“However, some universities were already in a weak financial position before the crisis hit. For around a dozen of these institutions, insolvency is likely to become a very real prospect without a Government bailout.”

A National Union of Students (NUS) spokesperson: “The coronavirus crisis has exposed many of the flaws inherent in running our education like a market. When funding is so unstable, it’s no wonder that our universities and the jobs of thousands of academic and support staff are now at risk.

“We are of course especially concerned about the risk to students that this instability poses. You can’t assess the risk to universities without thinking of the risks to students – both to their education and their wellbeing.”

Jo Grady, general secretary of the University and College Union (UCU), said: “We need a comprehensive support package that protects jobs, preserves our academic capacity and guarantees all universities’ survival.”

Alistair Jarvis, chief executive of Universities UK (UUK), has called on the Government to prioritise introducing a transformation fund for universities that require support to achieve longer-term sustainability and financial support to help students who wish to study shorter higher education courses.

He added: “Any student or their parents should be reassured that the failure of a university is rare, but course closures and occasionally campus closures are something many universities will have experience in managing and all registered universities have student protection plans in place for this scenario.”

A Department for Education spokesman said: “We understand this is a very challenging time for universities and higher education staff, which is why we have introduced a package of measures to stabilise the sector, help universities manage their finances to avoid cash flow problems and safeguard students.

“We have confirmed universities’ eligibility to apply for Government-backed packages worth at least £700 million according to Office for Students estimates, along with bringing forward £2.6 billion worth of tuition fee payments.

“To stabilise the university research base, Government is also investing £280 million into grant extensions for research impacted by coronavirus and covering up to 80% of a university’s income losses from international students for the academic year 20/21 for research-active universities.

“We will continue to work closely with the sector to understand the financial difficulties they are experiencing at this time.”

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