This decline – which varies across segments of the sector - is predicted for a period when significant increases in investment were being anticipated in 2022/23 following major CAPEX being repeatedly deferred by many universities COVID-19, due to liquidity concerns. It also comes as the costs of decarbonising university estates in future CAPEX programmes have been put at around £6.6bn by the British Universities Finance Directors Group (BUFDG), Association of University Directors of Estates (AUDE) and Alliance for Sustainability Leadership in Education (EAUC). PwC notes: “These costs are all in addition to other investment required to implement digital infrastructure, decarbonise supply chains, and maintain quality of provision and student experience – so it is difficult to see how the base case forecasts can be achieved without further hampering the ability of members to maintain quality.” PwC notes that universities are experiencing challenges with financial sustainability due to a decreased unit of funding for students from the UK (referred to as domestic students) in England, Wales, Scotland and Northern Ireland.

In England, fees for domestic students have been capped at £9,250 since 2017 and are now worth only around £6,000 in 2012–13 prices. This means funding per student is at its lowest level in over 25 years. Universities are also experiencing a slowdown in funding from grants, coupled with costs going up. This means they’re increasingly relying on using different income streams to cross-subsidise their teaching and research activities – especially fees from undergraduate and postgraduate international students. While international fee income has grown by an average of 12% a year since 2017–18, providing a short-term boost to the sector’s financial sustainability and reducing the proportion of our members in financial deficit to 25% in 2021–22, universities are still under pressure. UUK analysis of HESA finance data shows that the proportion of universities’ income from domestic student tuition fees fell to 28% in 2021–22, down from 31% in 2016–17. Analysis of financial forecasts shows that universities of all sizes expect to rely more on international fee income in the coming years.

Many universities are assuming numbers of UK undergraduates will also increase. If this ‘base case’ scenario doesn’t happen, sensitivity analysis (PwC's analysis of potential future scenarios) shows that there are significant risks to the financial sustainability of both individual universities and the sector as a whole. These risks are heightened if the growth in international student numbers decreased; if universities’ costs increased; and if growth in domestic students decreased. If international student numbers decreased and expenditure also increased, universities would face even more pressure. All sizes and types of higher education providers – including research-intensive, teaching-intensive, and specialist and creative institutions – would be affected by the sensitivities modelled. However, notes PwC, certain institutions are more vulnerable to certain issues. For example, universities in Scotland would be particularly badly affected by international student numbers going down. Universities UK says that while visa data from the Home Office shows the current autumn 2023–24 recruitment cycle was up 2% compared to September 2022, emerging evidence from universities suggests that this has not translated into more international students. Some members have reported prospective students opting not to come to their university late on in the recruitment cycle. These concerns are prompting universities to revise down growth projections. Universities UK says universities in all four nations of the UK, and in all parts of the sector, are already making changes to adjust to these pressures – including, in some cases, some quite significant restructuring and transformation programmes. “However, while this may provide some relief, the scale of the problem means that even these best efforts will not be enough to return the sector to financial sustainability.”