Financial sustainabilityof higher education
providers in England
2024

Reference OfS 2024.21
Publication date 16 May 2024

Contents
Executive summary

2

Introduction

5

Financial health of the sector and future outlook

6

Key risks to the financial sustainability of the sector

8Impact of inflation on costs and the real-terms value of income from UK undergraduates
Recruitment and reliance on further growth in student numbers
Exposure to reliance on international student fee income
Investment in facilities and carbon reduction
Cost of living
Providers’ exposure to risks in combination
Longer-term view and risk mitigation
Implications of the steps providers take to mitigate risks

8
10
10
10
11
11
11
12

Student trends and recruitment

13

Student numbers over time
A changing recruitment landscape13
15

Analysis of the latest financial data from providers

20

Financial performance
Financial position: Strength and resilience

21
34

Potential impact of reduction in student numbers: modelling outcomes

42

Scenario 1: No growth
Scenario 2: Minor reduction in student numbers
Scenario 3: Larger reduction in student numbers
Scenario 4: Significant reduction in international student numbers

43
44
44
45

Annex A: Summary of OfS roundtable meetings with finance directors

47

Roundtable meeting groups
Summary of discussions

47
47

Annex B: Scenario modelling – additional analysis

51

Variations in student recruitment
The modelling

51
52

Annex C: How we regulate financial sustainability

65

Annual financial return and other data sources
Engaging with the sector and other stakeholders
Modelling and stress testing

65
66
66

Annex D: Notes on the data

67

Annex E: Aggregate financial data

69

1

Executive summary
The Office for Students (OfS) regulates higher education providers in England and protects theinterests of students in the higher education sector. To register and remain registered with the OfS,
higher education providers must show that they are financially viable and sustainable. Providers
submit financial information to the OfS, routinely after the end of their financial year and wheneversomething happens that is material to their financial sustainability.
This report sets out our impartial, independent view of the financial condition of the higher
education sector and its resilience to financial challenge. It is based on our analysis of the financial
data returned to the OfS from universities, colleges and other higher education providers in
England (excluding further education colleges) for the financial year ending in 2023, and covers
audited data showing actual performance for the years from 2021-22 to 2022-23 and forecast data
for the years from 2023-24 to 2027-28. The analysis in this publication uses forecast data to 202627.
In recent years, like many other sectors, higher education providers have managed significant andmultiple financial challenges. Throughout this period, the sector has responded by strengthening
student recruitment, protecting its liquidity position and maintaining its strong asset base. While
there is variation across providers, at the end of 2022-23, many had maintained a focus onsustaining cash reserves and their asset base in the face of further financial challenges.
Overall, providers are forecasting deterioration in the short- to medium-term financial outlook. Theirdata returns show that the sector’s financial performance was weaker in 2022-23 than in 2021-22,
and is expected to decline further in 2023-24, with 40 per cent of providers expecting to be in
deficit and an increasing number showing low net cashflow.
The sector is predicting an improvement in outlook from 2026-27 onwards, however, this position isbased on significantly optimistic predictions of student recruitment for the sector as a whole. Ourmodelling of different recruitment rates suggests that the actual outturn position for the sector in
the short and medium term is likely to be even more challenging than providers have forecast andthe longer-term recovery they forecast is significantly uncertain. Without the growth assumed inproviders’ student recruitment forecasts, our analysis suggests that the recovery providers are
anticipating would be reversed and the financial situation would continue to weaken across theperiod to 2026-27 unless mitigating action is taken.
In aggregate, the forecasts submitted by providers assume growth of 35 per cent in international
student entrants and 24 per cent in UK student entrants between 2022-23 and 2026-27. The latest
data on undergraduate applications and student sponsor visa applications indicates that there has
been an overall decline in student entrants this year, including a significant decline in international
students. This contrasts starkly with the sector’s growth forecast at an aggregate level. Theinternational student market is showing increased signs of volatility, making it harder to predict
which providers or types of providers will be most affected by changes in recruitment, especiallyamong those that may be particularly exposed to changes in recruitment from individual countries.
As well as an increase in international student entrants, providers have on aggregate forecast asignificant uplift in the tuition fees received from international students. Given the volatility in theinternational student market, it is not clear whether these increases can be achieved. The forecast2increase in income therefore heightens the impact on providers if international recruitment is not as
expected and also creates a risk that less income is received from students who are recruited.
Providers need to be ready to manage this uncertainty. They need to have plans in place torespond proactively if they are not able to achieve their student number targets and to respond toother risks that may be present in their specific context. We know that many are taking action tosecure their financial position. While this can involve making difficult decisions, leadership teams
are right to take action to ensure their institutions are financially sustainable over the medium tolong term and to ensure they can continue to provide a high quality education to students.

An increasingly challenging environment
Multiple factors are driving the financial challenges that the sector is facing. We expect some ofthese to increase over the forecast period to 2026-27, and this has to some extent been reflectedin the weakened financial forecasts submitted by providers. However, on student recruitment inparticular, we are concerned that the sector’s forecasts are based on an assessment of potential
growth that is too optimistic. The key drivers of continuing financial challenges include:•

Continuing decline in the real-terms value of income from UK undergraduates combined with
inflationary and economic pressures on operating costs and the costs of developing buildings
and facilities, as well as increasing employer contributions to some pension schemes.

•

A recent apparent reduction in UK and international applications after years of strong growth,
especially from international students.

•

A higher education financial model that has become reliant on fee income from international
students, with a particular vulnerability where recruitment is predominantly from a single
country.

•

The affordability of necessary estate maintenance and development and the significant cost ofinvestment needed to reduce carbon emissions as part of providers’ commitments to achieve
net zero.

•

Cost of living difficulties for students and staff, which challenge both student recruitment andthe support needed by students during their time in higher education.

We highlighted many of these risks in our report last year, but their scale and immediacy haveincreased and we expect that to continue over the short term. These risks are explored in moredetail later in the report, and we also explore how different risks can interact for different types ofproviders.

Managing financial sustainability
Financial performance and strength vary significantly between providers. However, projections
from the sector’s financial data show that an increasing number of providers will need to makesignificant changes to their funding model in the near future to avoid facing a material risk ofclosure.
We are seeing some strong examples of this in the sector, with providers proactively identifying
risk and adapting their operating model to respond to the emerging challenges. Within theinformation submitted by providers, there are examples of steps to improve efficiency. Many
providers have put significant focus on protecting their cashflow, ensuring they are well placed to3maintain their viability and are prepared for future financial risks. However, our view is that many
providers will need to take additional, or more significant, action to fully respond to the financial
risks that the sector is facing. It is important that providers are developing robust and realistic
financial plans that incorporate stress testing and contingency planning. Our Insight brief on
financial sustainability, also published today, explores these challenges and the steps providers
can take to maintain financial sustainability and protect students’ interests. 1
This report sets out the aggregate position for the sector. The risks explained above, particularly
those relating to student recruitment, will inevitably affect different providers in different ways.
Different providers will also have different mitigations available to address risks as they arise.
Context and operating environment matter and this means that it is not possible to draw
conclusions from this report alone about the financial position of any individual provider.
In parallel to developing the sector-wide analysis in this report, we are assessing the datasubmitted by individual providers and engaging with providers as part of our risk-based regulatory
approach. Providers are required to tell us when something happens that has a material impact on
their financial viability or sustainability. We encourage any provider concerned about its financial
position to get in touch with their OfS contact at an early stage.
We recognise that the bold steps providers may need to take to manage tightening finances andreduce costs are likely to have consequences. For some providers, responding to financial
challenges will deliver positive change and innovation. Others will need to guard carefully against anegative impact on the quality of students’ education and their wider experience.
At a system level, we are concerned about the aggregate impact of the many discrete decisionsindividual autonomous institutions are making in response to significant financial risk. Across thesector as a whole this may over time reduce student choice: in some subject areas, or in someregions, or for some types of students. The OfS has an important role in monitoring and reportingon financial sustainability, and intervening to protect the interests of students, as far as is possible,
if a provider is at risk of closure. But we do not have the powers or remit to intervene to preserve
provision or providers in support of sustaining the system as a whole.
This report sets out our analysis of the financial position of the higher education sector. It paints a
picture that will be of concern to universities and colleges, and to their students. We hope it will
inform future discussions about the implications of the risks we see affecting the sector in England,
now and into the future.

1

OfS, ‘Navigating financial challenges in higher education’, Insight brief #21.

4

Introduction
1.

The OfS regulates higher education providers in England. To register and stay registered with
the OfS, a provider must show that it is financially viable and sustainable. In addition, the OfS
has a duty to monitor and report on the sustainability of higher education providers.

2.

All registered higher education providers are required to submit financial data annually,
including financial and student forecasts. 2 Where appropriate, we require some providers to
submit financial information more regularly.

3.

This report starts by setting out an overall view of the financial health of the sector and thefuture outlook. It then explores the key risks facing the sector. Since our last report in May
2023, the financial landscape has become more challenging and the risks have increased inscale. This section has been informed by engagement with the sector, including through aseries of roundtable meetings with finance directors from a wide cross-section of providers.
We have summarised our findings from these roundtables in Annex A.

4.

The report particularly focuses on the risks relating to student recruitment because our view isthat these risks have not sufficiently informed providers’ forecasts. This section analyses how
student recruitment is changing and the reasons we consider sector forecasts to be too
optimistic.

5.

The report then moves on to summarise our analysis of financial data, including forecast data,submitted by 269 higher education providers in their most recent annual financial return. We
set out our analysis for different peer groups of providers to explore the context for different
parts of the sector.

6.

Most of this data was submitted in December 2023 and January 2024, or before. It may
therefore not take full account of more recent trends in undergraduate applications for 2024
entry, nor the recent adverse trends in international recruitment. We have, however,considered the impact of these changes in applications in our modelling section.

7.

Finally, the report sets out the results of the scenario modelling we have undertaken. Becauseof the increased levels of financial risk in the sector, we are adapting our approach to datacollection to ensure the data we collect is timely and facilitates effective monitoring in key risk
areas. We are also increasingly intervening with providers where there are potential risks tostudents’ studies, to drive improvements in financial management and governance. For more
information on how we regulate the financial sustainability of providers, see Annex C.

2
Except further education colleges and sixth form colleges, where the Education and Skills Funding Council
oversees financial performance.

5

Financial health of the sector and future outlook
8.

Overall, at an aggregate level, the sector reported a decline in financial operating performanceand strength in 2022-23, with surplus levels, operating cash flow and net liquidity fallingcompared with 2021-22. The overall financial performance in 2022-23 was similar to the level
forecast by providers for 2022-23 in the previous year. Liquidity (measured at the end of theyear in 2023) was lower than the previous year, by a small margin. However, it is stronger
than was projected by the sector in the previous forecasts and this is evidence of the sector
adjusting to protect its cash flow in the face of financial challenges.

9.

The financial outlook has however deteriorated further since last year’s projections, with thelatest forecasts showing a further weakening of the financial position in 2023-24 with 40 per
cent of providers forecasting a deficit in 2023-24. A gradual recovery in surplus and operating
cash flow levels is projected by providers from 2024-25, but aggregate cash holdings are
expected to decline across the forecast period from £16.5 billion (equivalent to 148 days of
expenditure) in 2022-23 to £13.8 billion (102 days of expenditure) in 2026-27.

10. Overall, although financial performance is expected to be weaker than historical levels, thesector has forecast an improving outlook in the medium to long term. The sector’s
performance in aggregate does not reflect the picture for all individual providers, as financial
performance and strength vary significantly. However, the latest projections show that the
number of providers expecting to report deficits or low operating cash flow is much higher thanprojected in the past, and the financial environment remains significantly challenging.
11. The position set out above is based on providers’ forecasts and the assumptions on which
they are built and can only be relied on to the extent that those forecasts are credible. We areconcerned that at an aggregate level, the sector’s forecasts are too optimistic. In particular,
aggregated income is forecast to rise by £10 billion between 2023-24 and 2026-27. However:a.

Half of this increase arises from projected increases in tuition fee income frominternational students, with the sector forecasting an increase in EU entrants of 18 percent and non-EU entrants of 36.2 per cent between 2022-23 and 2026-27.

b.

22 per cent of this increase is from rises in UK tuition fee income, where the sector isforecasting an increase in entrants of 23.9 per cent during the same period.

12. These increases at a sector-wide level are not supported by the latest trends in student
applications from UCAS, for undergraduate applicants, and from Home Office visa application
data, which show declining numbers relative to the same point in the previous year. Reportssuggest that recruitment of international students in the 2023-24 mid-year recruitment cycle
could be in the region of 40 per cent or more below the same point in the previous year, and it
is feasible that this scale of reduction could carry over into 2024-25. These reports from thesector, are at odds with the aggregate position shown in the forecasts submitted to the OfS,
and there is a significant risk that the true financial position for the sector will be worse thanthat described above.
13. In addition as set out in more detail in paragraph 73, overall, providers appear to haveforecast a large uplift in the average tuition fee received from international students. Given theincreasing volatility in the international market, and the sensitivity in some particular countries
to price and other economic factors, there is uncertainty about whether this uplift isachievable, resulting in increased risks that the forecasts could be too optimistic.

6

14. Given the increasing volatility in student recruitment described in paragraph 12, we havemodelled a simple scenario where there are very modest increases in entrants from the UK
and a 45 per cent reduction in international entrants across the sector in 2024-25 comparedwith 2023-24, with no further growth for the rest of the forecast period. We estimate this could
represent a net reduction in income of over £4.3 billion in 2024-25 and over £8.4 billion by2026-27, compared with providers’ forecasts. This scale of impact would represent asignificant challenge for the sector to overcome and based on the latest information about
international recruitment, appears to be realistic.
15. We have modelled a range of other, more complex, scenarios to anticipate the potential
financial impact of reduced income arising from lower student recruitment than the sector has
forecast. Details of our modelling analysis are provided in paragraphs 142 to 161 andAnnex B.

7

Key risks to the financial sustainability of thesector
16. The higher education sector in England is facing a number of financial risks and challenges,
which are increasing in scale. Individual providers may be facing many of thesesimultaneously. In recent years, the sector has responded to challenges by strengthening
student recruitment, protecting its liquidity position and maintaining its strong asset base.
There will be significant variation between providers in terms of how they would be impacted if
these risks occur, and the scale of the challenge they would face in mitigating the risks. For
some providers, more significant mitigation plans may be needed to address the impact ofthese risks.

Impact of inflation on costs and the real-terms value of income from UK
undergraduates
17. The value of money changes over time with inflation. By adjusting past and future monetary
values, we can show past money at current value – in real terms. The statutory fee limit for UK
undergraduate students has remained at a cash sum of £9,250 since 2017 with no inflationary
increase. Its value today, in real terms, is much less than it was, as the prices of goods andservices have increased, with particularly high rates of inflation in recent years.
18. Our analysis suggests that the ‘real-terms value’ of income for teaching UK students (tuitionfee plus teaching grant from UK public funding, per UK student) is approximately 25 per centlower than it was in 2015-16, when adjusted for inflation over time. 3 Figure 1 illustrates this.
Inflation continues to put significant pressure on operating costs, and the financial
performance of providers is being affected.

3
At 2022-23 academic year price value. (Retail Price Index, excluding mortgage interest payments, inflation
statistics. This is a price inflation metric appropriate for the measurement of operating costs over time.)

8

Figure 1: Teaching unit of resource (fees and grant per full-time equivalent student eligiblefor UK fees), valued in real terms at 2022-23 prices

Note: Source data includes Higher Education Statistics Agency (HESA) student and finance records to 202122 and OfS annual financial return data for forecast years (from 2022-23 onwards). The real time calculation
uses inflation statistics from the Retail Price Index, excluding mortgage interest payments.

19. Over time, providers have taken action to adapt to the declining real-terms value of UK
teaching income, per UK student, to support their financial sustainability. This has included
generating efficiencies in costs, increasing scale (i.e. recruiting more UK students) andincreasing non-publicly funded activities, which typically provide a higher financial contribution(e.g. teaching more international students or other commercial activities). There are risks
associated with relying on student growth, and particularly on growth in international students,
to underpin financial sustainability.
20. If this trajectory continues, some higher education ‘activities’ (for example, some research
activity, taught courses or subject areas), as well as elements of costed activities that
contribute to the student experience, could become unviable, at least at the level that students
currently experience them. The aggregate impact of the many discrete decisions by individual
providers to reduce costs is uncertain and, over time, could reduce student choice.
Furthermore, if providers are not able to evolve and adapt successfully to the changing
financial landscape, there is a significant risk that some will become unsustainable. This could
lead to individual providers leaving the higher education market, causing disruption forstudents, and wider consequences for the regional and national contributions made by higher
education providers.

9Recruitment and reliance on further growth in student numbers
21. Recent trends in UK and international recruitment suggest that achieving providers’ student
recruitment aspirations is becoming much more challenging. This risk is discussed in moredetail in paragraphs 41 to 61.
22. Making necessary financial adjustments if forecast recruitment is not achieved is potentially avery significant challenge for providers. More than 76 per cent of the forecast growth in total
income across the sector between 2022-23 and 2026-27 is expected to be from tuition fee
income and education contracts.

Exposure to reliance on international student fee income
23. There is a reliance within the higher education system on fee income from international
students to sustain publicly funded teaching and research activities as well as other student
support activities. This is an increasingly precarious model because:a.

Factors that have previously driven successful growth in international recruitment canchange quickly, and current indications suggest that this risk is increasing, with somesignificant variations for different countries.

b.

A significant proportion of international students are from a very small number ofcountries. International student recruitment can be influenced by numerous factors,
including: political and economic circumstances in individual countries; global economics
and currency movements; and international relations and global higher educationcompetition. The UK has limited control over these factors, and this exposes higher
education in England to risk factors outside its control.

c.

Because of the higher fees that international students pay, even small changes in theflow of fee income from non-publicly funded teaching activities could have a greater
impact on the financial performance of an individual higher education provider, and on thesustainability of publicly funded teaching and research across the higher education
system. This is demonstrated in some of the stress testing scenarios in this report.

24. The international student recruitment risk is explored in more detail in paragraphs 41 to 61.
25. In reality, a significant reduction in non-UK student recruitment would be likely to affect mostparts of the sector to some extent, although there would be significant variation for different
providers, and variation within peer groups of similar providers. Some providers will be more
prepared for and insulated from this risk than others, and will have more mitigations available.
26. This scenario is also likely to prompt a market readjustment as providers take action to adjust
to the changes. Some will be able to exert more strength in recruitment and be relatively
insulated in later years, but others may lose further international students through competition.
For these providers, the financial risk is likely to be exacerbated.

Investment in facilities and carbon reduction
27. Ongoing investment in infrastructure, facilities, and equipment (the capital cycle) is necessary
for longer-term sustainability. The financial operating disruption brought about by thecoronavirus pandemic and subsequent economic downturn has required businesses of all
kinds to focus on protecting operating viability. Higher education providers have demonstrated
10this by protecting cashflow and liquidity. For many providers this has meant a reduction incapital investments when compared with previous forecasts.
28. A long period of underinvestment in facilities could result in deterioration in condition andfunctional suitability, and an accumulating future investment need. There has also been asignificant inflationary impact on the costs of capital development.
29. The sector also faces significant investment needs in meeting carbon reduction goals toachieve important net zero targets. These investments are estimated by the Association of
University Directors of Estates in 2023 at £37.1 billion. This unlikely to be affordable in thecurrent financial environment.

Cost of living
30. Continued increases in the cost of living are having an impact on many higher education
students. These issues are likely to have a bearing on the decisions prospective students
make about whether and when to enter higher education, or on the ability of existing students
to progress through their course to completion. Recent downward trends in applicants tohigher education providers are likely to be largely related to concerns about the cost of living.
31. Finance directors of providers from across the sector have reported significantly increased
demand from students for financial and mental health support, and that the cost of delivering
this support is increasing.
32. Cost of living increases also affect many staff working in higher education providers. Payroll
costs represent a significant proportion of providers’ total expenditure, and there is significant
pressure to increase pay costs to mitigate rising living costs.

Providers’ exposure to risks in combination
33. Each higher education provider will be exposed to a particular combination and scale of risks.
These are likely to include additional challenges beyond those set out in paragraphs 17 to 33,
often simultaneously.

Longer-term view and risk mitigation
34. Many higher education providers have taken, or are taking, action to manage tightening
finances, including making cost savings, rationalising courses, modules and other activities,
and making other efficiencies. However, the scale of the current financial challenges facing
the sector means there is an increasing need for further and bolder efforts to make costsavings to maintain financial sustainability into the longer term. We have set out concerns inthis report about the optimism in providers’ student recruitment forecasts, and this means it
would be prudent for many providers to consider how they would remain financiallysustainable without the growth of UK students they have projected and with significantly fewer
international students.
35. The ability of each provider to take appropriate action to mitigate the risks it faces will varydepending on its particular circumstances. We have seen providers pursue various strategies
in response to financial pressures. All providers should be assessing their own risks andconsidering where early action may be needed to ensure long-term sustainability. We have11

published an Insight brief alongside this report which contains more information for providers
about these issues. 4

Implications of the steps providers take to mitigate risks
36. Changes to a provider’s operating model can be a healthy response to financial challenge.
The sector as a whole has been in a relatively strong financial position for much of the past
decade, and has expanded its delivery to more UK and non-UK students. The financial
challenges it is facing now could be a catalyst to drive positive change and innovation. Actions
being taken by providers can result in more efficient operation, and could have benefits forstudents, including improved value for money.
37. However, some of these strategies could have a negative impact on the quality of students’
education and their wider experience. In this context, it is important that providers continue tomeet their regulatory obligations, including those relating to quality, consumer protection andaccess and participation.
38. We also expect that we might see some changes to the size and shape of the sector, forexample, through mergers and acquisitions or increase specialisation. We will continue toconsider these factors as part of our work on financial sustainability.
39. The actions individual providers take to manage financial risk could, over time, have direct andindirect implications for the provision of higher education, including:•the choice, educational experience and support available to existing and prospective
students•

the development of skills for industry and to support local and national economies•

the economic contribution that providers make to the regions in which they operate.

40. At an aggregate level, the steps providers take to address financial risks could affect the size,
shape and reputation – both national and international – of the English higher education
sector. In the longer term, sustained reductions in income to higher education providers andtheir ability to invest may have a significant impact. It will be important to recognise where thisresults in:

4•

significant rationalisation of courses that are not financially sustainable, which reduces
the breadth and depth of academic provision available to students•

consolidation of courses and providers, as well as potential market exits, which reduces
the range and diversity of providers and limits student choice•

reduction of providers’ research activities, particularly research they fund, which has an
impact on system-wide research capacity and innovation•

reduction in the extent to which providers can contribute to local and national economies.

OfS, ‘Navigating financial challenges in higher education’, Insight brief #21.

12

Student trends and recruitment
41. Annual financial return (AFR) data submitted to the OfS indicates that in 2022-23 the total
number of full-time equivalent (FTE) students studying at the 269 providers included in thisanalysis was more than 2 million. This included 851,305 FTE students who providers reported
as ‘entrants’, i.e. those on the first year of their course.
42. Course fees and education contracts amounted to £24,326 million, 54.4 per cent of the total
income for the sector. For individual providers, this can range from 0 per cent, where
subcontracted course arrangements are in place, to 100 per cent of total income. Other
income sources are set out in Table 4 and include grant income for teaching and research
activity, as well as other income generating activities.
43. While the ‘retention’ of students, i.e. students continuing from one year to the next, is
important from a financial perspective, this analysis focuses on ‘entrants’ because this is abetter indicator of the attractiveness of English higher education to prospective students and isa core driver for a significant proportion of the sector’s income. Table 1 highlights student
entrants and tuition fees, split by mode of study, for 2022-23.
Table 1: Student entrants and total tuition fees, 2022-23
Level

Student
entrants (FTE)
2022-23

Percentage of
total entrants
2022-23

Tuitionfees (allstudents)(£M) 202223

Percentage of
total income
2022-23

Undergraduate

531,72862.5%£15,557

34.8%

Postgraduate taught

300,550

35.3%£6,732

15.1%

Postgraduate research

19,027

2.2%

£707

1.6%

Data source: OfS AFR.

Student numbers over time
44. Higher Education Statistics Agency (HESA) student data submitted by providers to 2021-22,
and projected student numbers for 2022-23 using OfS annual financial return data, show
student numbers have increased significantly in the last decade. This includes an increase ofnearly 80 per cent in total non-UK students since 2012-13. Figure 2 presents the trend in UK
and non-UK student numbers between 2012-13 and 2022-23 and shows that the proportion ofinternational students relative to total students has increased over this period.

13

Figure 2: Student numbers, UK and international, 2012-13 to 2022-23

Data source: HESA student data to 2021-22. HESA student data for 2022-23 was not published at the timeof writing. The shaded area is a projection for 2022-23 based on the trends indicated in the OfS AFR.

45. The HESA student data also shows the number of students by broad subject area, with someinteresting variation, particularly since 2014-15. The growth in business and management, law
and social sciences correlate with those subject areas that are often considered lessexpensive to deliver, where there is greater demand and where less specialised facilities andequipment are required for students’ learning.

14

Figure 3: Undergraduate student numbers by broad subject of study

Data source: HESA student data.

A changing recruitment landscape
46. The sector has forecast in aggregate a 24 per cent increase in UK student entrants between
2022-23 and 2026-27. However, recent data suggests that this growth is too optimistic.
47. End of cycle UCAS data for undergraduate applicants and acceptances to English higher
education providers shows steady levels of growth since 2006. However, the 2023 cycle
shows an overall 1 per cent decline in UCAS applicants.

15

Figure 4: UCAS end of cycle applicants, 2006 to 2023

Data source: UCAS.

48. More recent data from UCAS, showing applications for the 2024-25 cycle at the January 2024
deadline, shows that the total number of UK undergraduate applicants to English providers
has decreased further by 0.9 per cent compared with the same point in the previous year’s
application cycle. This is a smaller decline than seen between January 2022 and 2023, butshows a continuing downward trend in applications, which is a concern for providers wishing
to expand recruitment.
49. In contrast to the UCAS end of cycle data for 2023-24, providers have forecast a total increaseof 6.0 per cent in UK undergraduate entrant FTE numbers in 2023-24, compared with theprevious year.
50. Applicant data from UCAS at the January 2023 deadline reported a decline of 3.1 per cent in
UK applicants to English providers compared with the previous year. In the 2022 AFR, theaggregate position forecast by the sector was an increase of 6.3 per cent between 2021-22 to
2022-23 in UK undergraduate entrants. However, actual data reported by the sector in the2023 AFR for the same period (2021-22 and 2022-23) shows a total increase of 0.1 per centin UK undergraduates. This suggests that, for the past two years, providers’ forecasts for UK
undergraduate entrants have been above actual recruitment and therefore too optimistic.
51. Table 2 shows UCAS applicants split by student domicile.

16

Table 2: UCAS applicants to English providers, January 2022 to January 2024 deadlines
January2022
deadlineapplicantsJanuary2023
deadlineapplicantsJanuary2024
deadlineapplicants

Change 202324

Percentagechange2023-24

UK

446,760

432,930

429,140-3,790-0.9%

EU18,55018,13017,360

-770

-4.2%

Non-EU

89,26093,06094,020

960

1.0%

Total

554,570

544,120

540,530-3,590-0.7%

Domicile

Data source: UCAS.

52. In 2023 the proportion of UK 18-year-olds entering higher education dropped to 35.8 per cent(from 37.5 per cent in 2022). 5 The reasons for this declining trend in participation are notclear, although they could relate to increased cost of living combined with below inflation
increases in the available maintenance loan. They could also relate to good availability of
employment or alternative training options. It also comes after a significant increase in the
UCAS application rate immediately following the effects of the coronavirus pandemic.
However, if this trend of declining entry rates of UK 18-year-olds continues, it is unlikely thatall providers will meet their forecast recruitment targets.
53. The Office for National Statistics projects an increase of over 13 per cent in the UK 18-yearold population between 2022-23 and 2026-27. If applied to the number of UK undergraduate
students entering higher education, this increase would result in an additional 53,379 students
by 2026-27. The sector has forecast an increase of 75,525 FTE (18.8 per cent) in UK full-time
undergraduate entrants between 2022-23 and 2026-27, which outstrips the projected
demographic growth. Forecast growth therefore exceeds the rate of demographic growth.
Combined with the downward trends in UCAS application rates discussed in paragraph 50,
this leads us to conclude that the sector’s forecast for UK student recruitment is unlikely to beachieved over this timeframe.
54. Figure 5 shows the change in the 18-year-old population between 2020 and 2027, alongside
the change in UK undergraduate entrants from 2022 to 2026.

5House of Commons Library, ‘Higher education student numbers’, page 23.

17

Figure 5: Annual change in full-time UK undergraduate student entrants (from provider
forecasts) compared with the estimated change in the UK 18-year-old population, 2020 to
2027

Data source: 18-year-old population data is based on Office for National Statistics estimates. UK
undergraduate full-time entrants from OfS AFR. Note: 2023 to 2027 are based on providers’ forecasts.

55. International recruitment has been a significant success story for English higher education in
the recent past, with high levels of growth being achieved. International students make asignificant contribution to higher education providers, and their fee income is a significant partof the financial model for some providers.
56. The sector has forecast that in aggregate international (EU and non-EU) student entrants will
increase by 35 per cent between 2022-23 and 2026-27. However, there are more recent
indications that international recruitment has become more challenging for providers.
57. As shown in Table 2, the number of EU UCAS applicants has decreased by 4.2 per centbetween 2023 and 2024 (-6.4 per cent between 2022 and 2024). Non-EU student applicants
via UCAS increased by 1.0 per cent between 2023 and 2024 (5.3 per cent from 2022 to2024), although this increase is at a slower rate than in previous years. It is important to notethat many EU and non-EU applicants apply without involving UCAS, so this data reflects only
a portion of applications.
58. Published Home Office data shows a trend of declining applications from prospective students
for study sponsored visas. Figure 6 shows the number of student visa applications to RussellGroup and non-Russell Group providers from 2018 to 2023.

18

Figure 6: Summary visa applications by provider type

Note: Data as at 31 December 2023, published by the Home Office 29 February 2024.

59. More recent information from the sector suggests that mid-year recruitment in 2023-24 has
been significantly lower than both historic and forecast levels, with suggestions of an average
decline in entrants of over 40 per cent compared with the previous year, and a range of moresignificant reductions for individual providers.
60. The flow of international students to English higher education providers is influenced by anumber of factors including the economic environment, currency values, geopolitical issues
and global higher education competition. Changes in immigration policy could increase
uncertainty and affect the reliability of forecasts in relation to future recruitment of international
students.
61. Fluctuations in recruitment can have a significant financial impact on providers. Data has
consistently shown that income from international student fees provides a positive financial
contribution to wider higher education activities. 6

6Data from the Transparent Approach to Costing data returned by providers to the OfS.

19

Analysis of the latest financial data from providers
62. We have analysed the data submitted by 269 registered higher education providers in
England as part of the annual financial return. Table 3 provides a summary of key financial
information for all higher education providers (excluding further education colleges).
Table 3: Summary of aggregate financial data from providers
2021-22(actual)2022-23(actual)2023-24(forecast)2024-25(forecast)

2025-26(forecast)

2026-27(forecast)

Total income£41,176M£44,703M£46,377M£49,315M£52,184M£54,621M

Surplus/(Deficit)£2,290M£1,284M£357M£1,112M£1,785M£2,116M

Surplus/(Deficit) as
a % of total income

5.6%

2.9%

0.8%

2.3%

3.4%

3.9%

Cash flow fromoperating activities£4,795M£2,907M£2,398M£3,403M£4,111M£4,680M

Cash flow fromoperating activities
as a % of total
income

11.6%

6.5%

5.2%

6.9%

7.9%

8.6%

£16,709M£16,506M£14,601M£13,761M£13,474M£13,790M

168

148

123

111

104

102

External borrowing£13,731M£13,422M£13,451M£13,338M£13,576M£13,536M

External borrowing
as a % of total
income

33.3%

30.0%

29.0%

27.0%

26.0%

24.8%

Aggregate financial
data

Net liquidity
Net liquidity days

Data source: OfS AFR.
Note: Surplus/(Deficit) is total income less total expenditure, excluding other gains or losses (frominvestments and fixed asset disposals), the share of surplus or deficit in joint ventures and associates, andchanges to pension provisions.

63. At an aggregate level, the sector reported a decline in financial operating performance andstrength in 2022-23, with a further decline expected in 2023-24. This means surplus levels,
operating cash flow and net liquidity are all decreasing. This is contrary to the projections
submitted last year, which showed that cash flow from operating activities and surplus levels
were expected to start recovering in 2023-24.
64. Although there is a wide spread of financial performance between providers, which is notreflected in the aggregate indicators, our analysis found that 60 per cent of providers are now
expecting to report weaker financial results in 2023-24 compared with their previous forecasts.
65. The latest projections also show that, for the remainder of the forecast period (2024-25 to
2026-27), providers have forecast aggregate financial performance that is weaker thanhistorical levels.

20

Financial performance
Overall income
66. In aggregate, total income increased by 8.6 per cent, from £41.2 billion in 2021-22 to £44.7
billion in 2022-23. Providers are projecting this to rise further across the forecast period, toreach £54.6 billion by 2026-27.
67. Table 4 gives a breakdown of the sources of income across the sector in the period 2021-22
to 2026-27.
Table 4: Sources of income, 2020-21 to 2025-26
Income source

Income £M2021-22(actual)2022-23(actual)2023-24(forecast)2024-25(forecast)

2025-26(forecast)

2026-27(forecast)

Course fees andeducation contracts

22,771

24,32625,921

28,03630,02631,900Funding body grants

4,041

4,530

4,314

4,276

4,236

4,248

Research grants andcontracts

5,748

6,018

6,288

6,665

7,020

7,430

Other income

7,468

8,079

8,297

8,806

9,389

9,578

Investment income

319

772

741

671

633

595

Donations andendowments

829

978

816

861

880

871

Total income

41,17644,703

46,37749,31552,18454,621

Data source: OfS AFR.

68. Providers have forecast an increase in aggregate income of £9.9 billion between 2022-23 and2026-27, with much of this growth expected to come from a rise in income from course feesand education contracts. Within this, international (EU and non-EU) tuition fee income is
projected to rise by £4,990 million and UK tuition fees income by £2,145 million.
69. The scale of these increases compared with changes in other sources of income over theforecast period is shown in Figure 7.

21

Figure 7: Breakdown of projected changes in aggregate income, 2022-23 to 2026-27

Data source: OfS AFR.

70. While aggregate projections show that providers expect total income to be 22.2 per centhigher in 2026-27 compared with 2022-23, below the aggregate level there is significant
variation in the income projections of individual providers.
71. Table 5 shows the value and percentage change in income between 2022-23 and 2026-27 for
all peer groups and the sector as a whole.
Table 5: Peer group analysis of changes in income, 2022-23 to 2026-27
Peer group

Forecast income change, 2022-23 to 2026-27£M%

Larger teaching-intensive

913

17.6%

Larger research-intensive

4,130

18.9%

Medium

2,114

20.4%

Smaller

1,150

37.2%

Specialist creative

473

33.0%

Specialist

633

33.9%

Level 4 and 5

505

53.3%

9,918

22.2%

SectorData source: OfS AFR.

22

72. As with the aggregate picture, the majority of income growth projected at a provider and peergroup level is driven by forecast increases in tuition fee income.

Tuition fee income
73. Providers have forecast an increase of 31.0 per cent (£7,135 million) in total higher education
course fee income between 2022-23 and 2026-27. Across the same period, they haveprojected a smaller increase of 16.5 per cent in FTE student numbers. Their fee income
forecasts therefore generally suggest an increase in fee level per student. Providers haveassumed minimal changes in UK fees. However, they have forecast an increase of 17.4 percent, an additional £3,400, per non-EU student fee between 2022-23 and 2026-27. This may
be ambitious given the overall context for international students that we have discussed inparagraph 60. In addition, demand in some of the countries that account for a high proportionof international students is more sensitive to economic factors, and therefore this level of fee
increase may not be attainable.
74. Table 6 displays the predicted change in total tuition fee income by student domicile between
2022-23 and 2026-27.
Table 6: Forecast change in tuition fee income by domicile, 2022-23 to 2026-27
Forecast change 2022-23
to 2026-27
Tuitionfee
incomebydomicile£K2022-23(actual)2023-24(forecast)2024-25(forecast)

2025-26(forecast)

Total£22,996£24,515£26,518£28,373£30,131£7,135

31.0%

16.5%

UK

£12,657£13,027£13,639£14,249£14,802£2,145

16.9%

14.7%

EU

£830

£911

£950

£1,021£1,088

£257

31.0%

-20.8%£9,509£10,577£11,928£13,103£14,242£4,733

49.8%

27.6%

Non-EU

Tuition Tuition
Total
fee
fee student
2026-27
income income
FTE(forecast)change change change£M%%

Data source: OfS AFR.

75. Forecasts for all peer groups show an increase in UK tuition fee income between 2022-23 and2026-27. This projected increase ranges from an average 7.8 per cent rise for larger teachingintensive providers to an average 74.3 per cent for Level 4 and 5 providers.
76. Medium and larger teaching-intensive providers have forecast a decline in EU tuition fee
income from 2022-23 to 2026-27. All other groups have forecast an increase. This is despitesome peer groups forecasting a decline in total EU student numbers over the same period.
Those forecasting an increase in EU fee income but a decline in EU student numbers will be
particularly reliant on a higher fee per EU student FTE to meet their fee income forecasts.

23

Figure 8: Forecast change in tuition fee income by domicile and peer group from 2022-23 to
2026-27

Data source: OfS AFR.

77. The sector has forecast an increase in total undergraduate tuition fee income from £15,557
million to £19,265 million between 2022-23 and 2026-27, a rise of 23.8 per cent (£3,708
million). Fee income from postgraduate taught courses is forecast to increase by 47.0 per cent(£3,162 million) to £9,894 million and for postgraduate research courses by 37.4 per cent(£0.265 million) to £972 million over the same period.
78. As a proportion of total tuition fee income, postgraduate taught fees have been forecast to
increase annually over the forecast period from 29.3 per cent of total tuition fee income in2022-23 to 32.8 per cent in 2026-27. Undergraduate fees as a proportion of total tuition fee
income are forecast to decline from 67.7 per cent to 63.9 per cent over the same period.

Student numbers
79. At an aggregate level, providers reported a decline in both UK and EU domiciled entrants, of
2.2 per cent and 6.4 per cent respectively, between 2021-22 and 2022-23. However, despite
the challenging environment in which providers are currently operating, as well as indications
from UCAS applicant data and student visa applications, they have forecast annual increasesof between 3.5 and 8.4 per cent from 2022-23 onwards for UK entrants and between 1.9 and8.7 per cent for EU entrants. For non-EU entrants, the sector reported an increase of 26.8 percent between 2021-22 and 2022-23 and has continued to estimate annual increases ofbetween 4.4 and 15.7 per cent over the forecast period.
80. Figure 9 displays the annual change in actual and forecast entrants (FTE) by domicile acrossall levels of study.

24

Figure 9: Student numbers and annual growth for all entrants (FTE) by domicile (UK, EU,
and Non-EU), 2021-22 to 2026-27

Data source: OfS AFR.

81. Providers forecast an increase of 27.9 per cent in total entrant numbers, at all levels of study
between 2022-23 to 2026-27. However, 9.3 per cent of providers (25) are forecasting adecline in total entrants over this period. This is made up of nine Level 4 and 5 providers, ninespecialist, two medium, two smaller, two specialist creative and one larger teaching-intensive.
82. Figure 10 displays the percentage change in total entrants between 2022-23 and 2026-27, byprovider and highlighted by peer group.

25

Figure 10: Forecast change in total entrant numbers (FTE) by provider, 2022-23 to 2026-27

Data source: OfS AFR.

83. 29 providers have forecast an increase in their student entrants of 100 per cent or more overthe forecast period. These are primarily providers with small numbers of students, andtherefore the increase in actual student numbers is not significant.
84. Providers have estimated that UK, EU and non-EU entrant numbers will increase by 131,071
FTE (23.9 per cent), 3,526 FTE (18.0 per cent) and 102,906 FTE (36.2 per cent) respectively
between 2022-23 and 2026-27.
85. Despite an increase in entrant numbers across all domicile groups, providers forecast total EU
student numbers to decline by 14,815 FTE (-20.8 per cent) between 2022-23 and 2026-27.
This is largely a continued impact of a very significant reduction in entrants following theremoval of UK fee status for EU students from 2021-22. Total UK and non-EU student
numbers are predicted to increase by 218,851 FTE (14.7 per cent) and 133,828 FTE (27.6 percent).
86. At an aggregate level, providers have forecast that full-time undergraduate entrants (FTE) will
increase by 21.0 per cent (103,240 FTE) between 2022-23 and 2026-27. Nearly threequarters of this increase is forecast to be from UK students. Table 7 shows full-time total
undergraduate entrants by domicile from 2022-23 to 2026-27.

26

Table 7: Full-time undergraduate entrants by domicile, 2022-23 to 2026-27
Forecast change
2022-23 to 2026-27
Full-time
undergraduate
entrants (FTE)

2022-23(actual)2023-24(forecast)2024-25(forecast)

2025-26(forecast)

2026-27(forecast)

FTE

%

Total

492,693

527,883

552,663574,357

595,933

103,24021.0%

UK

401,785

427,136445,424

460,869

477,31075,525

18.8%

EU

9,638

10,804

10,761

11,285

11,464

1,826

18.9%

Non-EU81,27089,94396,478102,203

107,159

25,88931.9%

Data source: OfS AFR.

87. The sector has forecast that postgraduate entrant numbers (FTE) will increase by 39.6 percent (126,530 FTE) between 2022-23 and 2026-27. 93.4 per cent of this growth is from thetaught postgraduate market, with all peer groups forecasting an increase.
88. Figure 11 displays the annual forecast change in taught postgraduate (PGT) entrants bydomicile grouping, from 2022-23 to 2026-27.
Figure 11: Annual percentage change in postgraduate taught entrants (FTE) by domicile
group, 2022-23 to 2026-27

Data source: OfS AFR.

89. Following an increase of 33.9 per cent in non-EU PGT entrants between 2021-22 and 202223, the sector’s forecasts are for continued increases at a declining rate through the forecast
period, from 17.7 to 4.2 per cent. UK and EU PGT entrants are expected to recover from a27

decline between 2021-22 and 2022-23 (-11.6 and -2.6 per cent respectively), to surpass 202122 PGT recruitment by 2023-24.

International student numbers
90. In 2021-22, international students came to study in the UK from 239 different countries, andtheir tuition fee income (EU and non-EU) continues to make up a large proportion of income
for the sector. In 2021-22, international fee income (EU and non-EU) accounted for 39.1 percent of total fee income and 21.6 per cent of total income. This increased to 42.5 per cent of
total fee income and 23.1 per cent of total income for the sector in 2022-23 and is predicted torise to 48.1 per cent of total fee income and 28.1 per cent of total income by 2026-27.
91. International students represented 24.6 per cent of total students studying at English providers
in 2021-22 rising to 27.1 per cent in 2022-23, based on OfS annual financial return data.
Providers have forecast that this will increase to 28.3 per cent of total students by 2026-27.
92. Table 8 highlights the top ten source countries for international students from 2020-21 and2021-22 (at all levels and studying in the UK) based on HESA student data. HESA student
data for 2022-23 has not been published at the time of writing.
Table 8: Top ten source countries for international (EU and non-EU) students, 2020-21 to
2021-22 (sorted by largest 2021-22 student numbers by headcount)
Country

2020-21(actual)2021-22(actual)Proportion of
total international
students 2020-21

Proportion of
total international
students 2021-22

China

119,902125,130

23.6%

22.3%

India

72,242

106,534

14.2%

19.0%

Nigeria

16,96033,912

3.3%

6.0%

Pakistan

10,966

18,866

2.2%

3.4%

United States

13,384

15,843

2.6%

2.8%

Hong Kong

15,02915,8283.0%

2.8%

Malaysia

9,945

10,1462.0%

1.8%

Bangladesh

5,406

10,034

1.1%

1.8%

France11,783

9,988

2.3%

1.8%

Italy

12,430

9,601

2.5%

1.7%

Data source: HESA data, including amendments approved by the OfS data amendment panel.
Note: HESA student data for 2022-23 has not published at the time of writing this publication.

93. The number of Indian, Nigerian and Pakistani students studying at English providers
increased by 34,292 students (headcount) (47.5 per cent), 16,952 students (100.0 per cent)and 7,900 students (72.0 per cent) respectively between 2020-21 and 2021-22. The numberof Chinese students increased by 5,228 headcount (4.4 per cent) over the same period.
94. There has been a similar trend in the change in total student entrants by domicile between
2020-21 and 2021-22. Indian entrants increased by 29,184 students (headcount) (66.5 percent), Nigerian entrants by 13,777 students (122.5 per cent) and Pakistani entrants by 6,032(headcount) (84.1 per cent). Chinese entrants increased by 1,595 (2.0 per cent).
28

95. Visa data published by the Home Office indicates that international student numbers
increased further in 2022-23, with a notable increase in student visa applications from India.
However, despite the increase in Indian and Nigerian entrants between 2020-21 and 2022-23,
more recent student visa data from the Home Office indicates a marked decline of 11.1 percent in visa applications from Indian students, and a decline of 25.4 per cent from Nigerian
students between the year ending December 2022 and the year ending December 2023. Visa
applications from Chinese students appear to have increased by 4.7 per cent over the same
period, although this is a smaller annual increase than has been seen historically.
96. Furthermore, as set out in paragraph 12, more recent intelligence from the sector suggeststhat there has been an even more significant decline in international students joining in the
mid-year recruitment cycle for 2023-24.

Operating cash flow performance
97. Operating cash flow fell from £4,795 million (11.6 per cent of income) in 2021-22 to £2,907
million (6.5 per cent of income) in 2022-23.
98. Below the aggregate level, performance varies considerably between providers and peergroups. The peer group variation can be seen in Table 9, which shows the average cash flowlevels for each peer group, together with a breakdown by quartile.
Table 9: Cash flow from operating activities as a percentage of total income, 2022-23
Cash flow from operating activities as a % of total income
2022-23

SectorLargerteachingintensive

Largerresearchintensive

MediumSmaller

Specialist
creative

Specialist

Level
4 and
5

Total
cash flowfromoperatingactivities
(£M)

2,907

425

1,130

823

283

120

62

65

Lower
quartile

0.6%

5.9%

3.7%

4.4%

-3.8%

0.3%

-5.7%

2.6%

Average

6.5%

8.2%

5.2%

8.0%

9.2%

8.4%

3.3%

6.8%

Upper
quartile

12.1%

14.3%

8.2%

11.6%

12.0%

15.8%

9.9%

20.7%

Data source: OfS AFR.

99. Projections show that, in aggregate, providers are expecting operating cash flow to fall further
in 2023-24, to 5.2 per cent of income, before gradually rising from 2024-25 to reach 8.6 percent of income by 2026-27.
100. This trend is repeated at a peer group level, with the exception of the specialist peer group,
which expects operating cash flow to rise in 2023-24. However, even within this group, half ofproviders are projecting operating cash flow to fall in this year.
101. The peer group trend for the period 2021-22 to 2026-27 is shown in Figure 12.

29

Figure 12: Cash flow from operating activities as a percentage of total income by peergroup, 2021-22 to 2026-27

Data source: OfS AFR.

Surplus102. Surplus levels show a provider’s ability to generate income above its costs, including the costof depreciating assets. Generating surpluses over time is important to enable a provider tomake investments in infrastructure and academic quality, as well as protecting against
financial risk. Conversely, a deficit shows the extent to which a provider’s costs exceed its
income.
103. A deficit indicator should not, on its own, be used to judge longer-term sustainability. A
business with continued, underlying deficits will not be able to cover its full costs indefinitely,
and is therefore unlikely to be sustainable in the longer term. Although an extended period ofconsecutive deficits might, on the face of it, suggest weaker underlying financial performance,
we consider supporting financial data and other contextual factors to determine whether aprovider’s financial sustainability is at increased risk.
104. Accounting treatments can often distort movements in surplus and deficit levels between
years, meaning that there are risks in using surplus levels alone to assess underlying financial
performance. Non-cash accounting adjustments relating to the Universities Superannuation
Scheme (USS) and other defined benefit pension schemes can have a significant impact on
total staff costs. This, in turn, affects surplus levels.
105. The impact of these accounting adjustments on surplus levels can distort the picture ofunderlying financial performance so, to aid comparability, we have excluded these pension
scheme accounting adjustments from total expenditure, to show the sector’s underlying
surplus levels more accurately.

30

106. The latest data returns show that, on aggregate, surplus levels fell from £2,290 million (5.6 percent of income) in 2021-22 to £1,284 million (2.9 per cent of income) in 2022-23, andproviders have forecast these to fall further in 2023-24 to £357 million, equivalent to just 0.8
per cent of income. Thereafter, the sector is expecting aggregate surplus levels to rise but tobe lower than historic levels.
107. As with other financial indicators, beneath the aggregate level, there is considerable variability
within and between peer groups. Table 10 shows the forecast average adjusted surplus levels(excluding pension provision adjustments) for all peer groups for 2022-23, alongside thepercentage of total income by quartile and average.
Table 10: Adjusted surplus as a percentage of income from providers’ forecasts, 2022-23
Surplus as a % of total income
2022-23

SectorLargerteachingintensive

Largerresearchintensive

MediumSmaller

Specialist
creative

Specialist

Level
4 and
5

Total
surplus
(£M)

1,284

93

866

104

30

77

37

77

Lower
quartile

-3.0%

-0.2%

0.6%

-3.1%

-8.5%

0.0%

-4.9%

1.3%

Average

2.9%

1.8%

4.0%

1.0%

1.0%

5.4%

2.0%

8.1%

Upper
quartile

7.7%

6.8%

5.7%

5.3%

7.5%

9.4%

4.3%

19.0%

Data source: OfS AFR.

108. Figure 13 shows the variability of surplus levels across peer group for the period 2021-22 to
2026-7. Both the medium and smaller peer groups reported surpluses of 1.0 per cent ofincome in 2022-23, and in 2023-24 the larger teaching-intensive peer group and the medium
peer group expect to report deficits of 0.3 per cent and 0.1 per cent of income respectively.

31

Figure 13: Surplus/(deficit) as a percentage of total income by peer group, 2021-22 to 202627

Data source: OfS AFR.
Note: Surplus/(Deficit) is total income less total expenditure, excluding other gains or losses (frominvestments and fixed asset disposals), the share of surplus or deficit in joint ventures and associates, andchanges to pension provisions.

109. There is also considerable variation in the surplus and deficit levels reported by individual
providers. In 2022-23, 43 providers (16 per cent of the sector) reported surpluses thatexceeded 10 per cent of income, whereas 93 providers (35 per cent of the sector) reported
deficits. Providers’ forecasts show this increasing to 108 providers (40 per cent of the sector)
in 2023-24, with 43 of these expecting to report a deficit for three consecutive years (2021-22,
2022-23 and 2023-24).
110. Figure 14 shows the number of providers by peer group forecasting three consecutive years ofdeficits (excluding pension provision adjustments).

32

Figure 14: Number of providers forecasting three-year consecutive deficits, 2023-24 to 202627

Data source: OfS AFR.

111. In aggregate, total expenditure (adjusted to exclude pension accounting adjustments)
increased by 11.7 per cent, from £38.9 billion in 2021-21 to £43.4 billion in 2022-23. Providers
have forecast this to increase further in 2023-24, by 6 per cent, reflecting further inflationarypressure on costs. Between 2024-25 and 2026-27, expenditure is forecast to rise by anaverage of 4.5per cent.
112. A breakdown expenditure by cost type for the period 2020-21 to 2026-27 is shown in Table
11.

33

Table 11: Expenditure by category, 2021-22 to 2026-27
Expenditure £M

2021-22(actual)2022-23(actual)2023-24(forecast)2024-25(forecast)

2025-26(forecast)

2026-27(forecast)Staff costs (excluding
pension adjustments)

20,672

22,537

24,29425,565

26,77928,058

Restructuring costs

105

89

84

61

27

26

15,03917,245

18,07218,802

19,655

20,352

2,585

2,791

2,815

3,054

3,202

3,314

Interest and otherfinance costs

485

756

755

720

735

728

Total expenditure(excluding pension
adjustments)

38,88643,41846,01948,20350,39952,505Pension adjustments

5,630-1,169-2,9502

73

Total expenditure

44,51642,24943,06948,20450,40652,507

Other operating
expenses
Depreciation andamortisation

Data source: OfS AFR.
Note: Aggregate interest and finance costs are low in 2021-22 as they include material fair value accounting
adjustments relating to bond liabilities that were made by a small number of providers.

113. As discussed in paragraph 104, non-cash accounting adjustments relating to pension
schemes can have a significant impact on staff costs and so we have shown these separately
in Table 11. In 2022-23, these accounting adjustments caused expenditure to fall by £1,169
million, driven by a decrease in the USS pension provision.
114. Table 11 shows that the USS pension provision is expected to decrease again in 2023-24, tocoincide with the improvement in the USS funding position, following the March 2023
valuation. However, as set out in paragraphs 134 to 141, only a small proportion of providers
have included these pension adjustments in their 2023-24 forecasts, and so the aggregate
figure will be significantly higher than that reported in Table 11.

Financial position: Strength and resilience
Cash holding
115. In aggregate, the sector’s cash holding fell 1.2 per cent, from £16.7 billion at the end of 202122 to £16.5 billion at the end of 2022-23. As a result, net liquidity days (the number of days ofaverage cash expenditure that are covered by the cash holding) decreased from 168 to 148 at
the end of 2022-23.
116. Table 12 shows net liquidity days for 2022-23 by quartile across all peer groups, with thelowest liquidity days reported in the specialist and Level 4 and 5 peer groups.

34

Table 12: Net liquidity days, 2022-23
Liquidity days
SectorLargerteachingintensive

Largerresearchintensive

Total net
liquidity(£M)

16,506

2,443

7,787

3,777

Lower
quartile

74

134

122

Average

148

185

Upper
quartile

205

227

2022-23

Specialist
creative

Specialist

Level 4
and 5

1,244

512

529

215

80

88

55

60

58

145

145

157

145

112

93

192

206

222

158

169

211

Medium Smaller

Data source: OfS AFR.

117. Cash holdings continue to vary considerably across peer groups and providers. Figure 15
shows net liquidity days at the end of 2022-23 for all providers, demonstrating this variability.
Figure 15: Net liquidity days by provider, 2022-23

Data source: OfS AFR.
Note: 13 providers reported net liquidity above 400 days and four reported negative net liquidity of below 100
days.

118. This variability can also be seen across peer groups. Figure 16 shows average net liquidity
days for each peer group for the period 2021-22 to 2026-27. This shows that all groups,
35

except for the smaller peer group, reported a drop in liquidity days in 2022-23 and all groups,
except for the Level 4 and 5 peer group, are projecting that net liquidity days will fall again in
2023-24.
119. Projections vary more widely from 2024-25, with the smaller, Level 4 and 5 and specialist peergroups forecasting that liquidity days will rise and all other peer groups forecasting a decline.
Figure 16: Net liquidity days by peer group, 2021-22 to 2026-27

Data source: OfS AFR.

120. Ten providers reported negative net liquidity days in 2022-23. In some of these cases, thiswas because of relationships with, and obligations to, parent companies in a wider groupstructure. For the remaining providers in this group, net liquidity was lower in 2023-24 becauseof short-term borrowing or other borrowing commitments (due within 12 months at the financial
year end in 2024).
121. Overall, 27 providers reported net liquidity of under 30 days in 2022-23, compared with 36 in
2021-22. In 2023-24, providers’ forecasts suggest that this number will increase to 29, with 14of these reporting net liquidity of under 30 days for three consecutive years (2021-22, 2022-23
and 2023-24).
122. Figure 17 shows the number of providers (by peer group) forecasting three consecutive years
where net liquidity is expected to be under 30 days at the financial year end.

36

Figure 17: Number of providers forecasting three consecutive years of net liquidity under 30
days, 2023-24 to 2026-27

Data source: OfS AFR.

Borrowing
123. In aggregate, gearing levels (borrowing and other financial commitments relative to total
income) fell from 33.3 per cent of income in 2021-22 to 30.0 per cent of income in 2022-23.
124. At a peer group level, the larger research-intensive group reported the highest gearing levels,at £7,577 million, equivalent to 34.7 per cent of income, and the Level 4 and 5 group reported
the lowest gearing levels, at £61 million, equivalent to 6.4 per cent of income. Table 13 shows
borrowing as a percentage of income across all peer groups in 2022-23.

37

Table 13: Borrowing as a percentage of total income, 2022-23
Borrowing as a % of total income
2022-23

SectorLargerteachingintensive

Largerresearchintensive

MediumSmallerSpecialist
creative

Specialist

Level 4
and 5

Total
borrowing(£M)

13,422

1,006

7,577

3,139

851

336

451

61

Lower
quartile

0.0%

10.4%

28.3%

16.8%

0.0%

0.0%

0.0%

0.0%

Average

30.0%

19.4%

34.7%

30.3%

27.6%

23.5%

24.1%

6.4%

Upper
quartile

33.6%

26.1%

43.7%

36.5%

21.6%

26.1%

36.8%

17.0%

Data source: OfS AFR.

125. In 2023-24, providers have forecast aggregate gearing levels to fall to 29.0 per cent ofincome, with the specialist creative peer group being the only peer group projecting a rise ingearing levels in 2023-24). However, this is because two providers forecast significant
increases in borrowing in 2023-24. Also, the increase in the gearing levels of the larger
teaching-intensive peer group in 2025-26 is caused by one provider forecasting a significant
increase in borrowing in that year.
126. Figure 18 shows the gearing levels – borrowing and other financial commitments as apercentage of total income – by peer group for the period 2021-22 to 2026-27.

38

Figure 18: Average borrowing and other financial commitments as a percentage of total
income by peer group, 2021-22 to 2026-27

Data source: OfS AFR.

Capital expenditure
127. Capital expenditure – investment in infrastructure, facilities, IT and equipment – is necessary
for a provider’s longer-term sustainability. Total capital expenditure increased from £3.4 billion
in 2021-22 to £3.9 billion in 2022-23. When compared with income, the aggregate capital
expenditure ratio increased from 8.3 per cent of income in 2021-22 to 8.8 per cent in 2022-23.
128. Table 14 shows the variation in capital investment across peer groups.
Table 14: Capital expenditure as a percentage of total income, 2022-23
Capital expenditure as a % of total income
2022-23

SectorLargerteachingintensive

Largerresearchintensive

MediumSmaller

Specialist
creative

Specialist

Level
4 and
5

Total capital
expenditure
£M

3,915

455

1,917

951

242

139

124

86

Lower
quartile

1.7%

6.0%

6.2%

5.6%

0.9%

0.9%

1.2%

0.8%

Average

8.8%

8.8%

8.8%

9.2%

7.8%

9.7%

6.6%

9.1%

Upper
quartile

9.5%

9.6%

9.6%

11.4%

10.2%

8.6%

6.2%

4.9%

Data source: OfS AFR.
39

129. While capital expenditure grew by 14 per cent in 2022-23, this was 27 per cent lower thanprojected in previous forecasts submitted by providers. This suggests that many providers
may be continuing to protect cash flow and increase liquidity in response to uncertainty andincreased financial risks.
130. A large rise in capital investment is now projected for 2023-24, with aggregate forecasts
suggesting this could rise by 46 per cent to reach £5.7 billion by the end of 2023-24(equivalent to 12 per cent of income). However, given the continued pressure on providers’finances, there is uncertainty about whether capital expenditure on this scale will be delivered
as projected in 2023-24.
131. There is a risk that delaying capital investment could result in deterioration in the condition offacilities and accommodation, increasing costs of maintenance.
132. As well as the large rise projected in 2023-24, significant capital investment of £5.3 billion(over 10 per cent of income) is also planned for 2024-25 and 2025-26, before dropping to £4.8
billion in 2026-27. Although the aggregate picture shows average capital expenditure will behigher in the forecast period (2023-24 to 2025-26), 40 per cent of providers are projecting
capital expenditure to fall in this period.
133. Figure 19 shows capital expenditure as a percentage of total income by peer group for theperiod 2021-22 to 2026-27.
Figure 19: Capital expenditure as a percentage of total income by peer group, 2021-22 to
2026-27

Data source: OfS AFR.

Pensions
134. The largest pension schemes affecting many OfS-registered providers are the USS, Local
Government Pension Schemes (LGPS) and Teachers Pension Scheme (TPS). These40

schemes are predominantly used by higher education providers that were publicly funded
during the period before the OfS existed. However, many providers, from across the sector,
contribute to a wide variety of other pension schemes.
135. Total annual cash employer pension contributions to all schemes were £3,163 million in 202223 and providers have forecast these to rise by 4 per cent to £3,289 million in 2023-24. By
2026-27, pension contributions are expected to rise to £3,704 million.
136. Our latest data shows that there were 104 OfS-registered providers contributing to the USS
scheme in 2022-23 and aggregate employer contributions to the USS scheme were £1,706
million, representing 54 per cent of total employer pension contributions paid by providers inthe sector.
137. The latest USS valuation, based on the funding position at 31 March 2023, was concluded in
December 2023. This found that the value of the scheme’s assets exceeded the value of its
liabilities. This means that the deficit recovery plan (reflecting the increased employer
contributions needed to reduce the deficit), agreed as a result of the previous valuation, is nolonger required. Instead, the employer contribution rate has decreased from 21.6 per cent to14.5 per cent (with effect from 1 January 2024).
138. Rules for pension accounting mean that, now the USS scheme is in surplus, the provision thatproviders put in place in response to the previous deficit recovery plan can be removed. This
will result in a material (non-cash) accounting adjustment in providers’ financial accounts in
2023-24.
139. Given the timing of data submissions, only a small proportion of providers contributing to the
USS scheme included these adjustments in their financial projections for 2023-24, and soaggregate pension adjustments will be significantly higher than those reported in paragraphs
111 to 114. However, as these are non-cash accounting adjustments, the underlying financial
performance and position reported in these forecasts will not change.
140. LGPS is a funded defined benefit scheme with assets held in 88 separate trustee
administered funds. There are currently 93 OfS-registered providers participating in thescheme. In 2022-23, the data shows that these providers paid £420 million in employer
pension contributions to the LGPS (13 per cent of total pension contributions).
141. TPS is the main academic scheme for post-92 universities. The latest data shows that 86
providers contributed towards the scheme, with employer contributions rising from £484
million in 2021-22 to £519 million in 2022-23. The employer contribution rate is rising by 5 percent from 23.6 per cent to 28.6 per cent from 1 April 2024 and provider forecasts for 2023-24
show the partial year impact of this rise, before taking full effect in 2024-25. By 2026-27,
forecasts show that providers expect TPS employer contributions to total £725 million, 40 per
cent higher than reported in 2022-23.

41

Potential impact of reduction in student numbers:
modelling outcomes
142. As described in paragraphs 21 to 22, many higher education providers have based theirforecasts on growth in the numbers of UK and non-UK students they will recruit. However,there are significant risks that this level of recruitment will not be achievable for all providers,given recent trends in UK and international applications (indicated through UCAS data andthrough Home Office visa applications).
143. To assess the impact of less optimistic levels of recruitment on the sector’s finances, we havemodelled a number of scenarios relating to variations in student recruitment. Financial
modelling and scenario analysis are based on multiple assumptions and are therefore
inherently unreliable, on their own, in determining risk for individual providers; but they arehelpful in giving an indication of the possible impact of a scenario at a sector level. Further
details and analysis are presented in Annex B.
144. In reality, significant variation in UK or international student recruitment will affect all parts ofthe sector to some degree, and there will be significant variation for different providers,
including within each peer group. Some providers will be more prepared for, and insulated
from, these risks than others.
145. It is also likely that any sustained significant reduction in international recruitment across thesector would prompt the market to reset. It is likely that some providers would be successful atcontinuing to recruit international students even in this context, and so may face less financial
challenge. Others, however, may see even sharper decreases in their recruitment. The ability
to take mitigating action would vary between providers, and those unable to respondeffectively could face significant risk.
146. These scenarios estimate the reduction in projected fee income that would arise from lower
numbers of students entering higher education, subtracting an assumed, direct, variable costsaving related to the provision of teaching to those students. In other words, while providers
will receive no fee income from students who do not enrol, they will not need to teach them orprovide them with other services. In the real world, the level of this cost will vary between eachprovider.
147. Within these results, no adjustments have been made to predict the mitigating actions
providers might take to manage financial challenges. The capacity of different providers tomanage such a loss of forecast income will vary significantly. This analysis therefore
represents an aggregation of the potential scale of the challenge facing providers and shows
the possible consequences for financial performance and accumulated liquidity holdings, if
mitigating actions are not taken. It is worth recognising that providers may take varied
approaches to forecasting, which may mean the potential impact shown in the models may notreflect the impact in the real world.
148. In some scenarios we have modelled a variable impact for different provider tariff groups, toanticipate how the competitive market could operate in favour of those with more selective
power in recruitment.
149. The impact of our models is demonstrated though a financial performance indicator – numberof providers in income and expenditure deficit – and a financial position indicator – low levels

42

of liquidity (less than 30 days average cash expenditure cover). For comparison with themodelled impact, the forecasts from providers show the following.
Forecast information in 2026-27•

41 providers could be reporting deficits (15 per cent of providers in this analysis)•

27 providers could report low year end liquidity (10 per cent of providers).

Scenario 1: No growth
No growth in UK or non-UK student recruitment.
150. The ‘no growth’ scenario considers a situation where both UK and non-UK student entrants at
sector level are held at 2023 levels throughout the forecast period. In this scenario, the total‘net’ reduction in annual fee income could be £3,383 million by 2026-27, a gross reduction in
forecast total income of 7.6 per cent. 7
Possible effect in 2026-27 without significant cost reduction measures•£3,383 million estimated net income reduction against forecasts, annually, by 2026-27•

176 providers could be reporting deficit (64 per cent of providers in this analysis)•

107 providers could report low year end liquidity (40 per cent of providers).

151. This emphasises the important role that growth in UK and international student recruitment
plays in the continued financial sustainability of the sector. It also highlights the scale of thechallenge that many providers could face in managing financial sustainability if their plans for
growth are not delivered in practice.

Reduction in students entering higher education
152. We have modelled three scenarios to consider different levels of reduction in UK andinternational entrants. These include variable rates of reduction for different groups ofproviders, based on tariff entry point score, on the basis that some provider types may have
more, or less, strength in competitive international recruitment market. While, in the real world,competitive strength will be different for individual providers, the model broadly assumes thathigher-tariff providers are more insulated from the risk, and therefore experience a moremodest impact than lower-tariff providers.

7
Net reduction is fee income less an assumed percentage to reflect the cost savings from reduced teachingactivity.

43

Scenario 2: Minor reduction in student numbers
An overall reduction of 11 per cent in total entrants across the sector, per year, by2026-27.
153. This scenario is based on a reduction in UK and non-UK student recruitment. Forecasts are
reduced by a small margin annually from 2024-25 compared with the base level in 2023-24.
We have applied different reductions to different provider types based on tariff score (set out
in Table 15), to assess how different providers could be affected in this scenario based on
their recruiting power. In aggregate this scenario suggests an overall reduction in entrants
of 11 per cent per year by 2026-27, compared with providers’ forecasts for the number ofentrants for the current year (2023-24).
154. In this scenario, the total net reduction in fee income could be £4,539 million by 2026-27, agross reduction in forecast total income of 10.3 per cent.
Possible effect in 2026-27 without cost reduction measures•£4,539 million estimated net income reduction against forecasts, annually, by 2026-27•

202 providers could be reporting deficits (75 per cent of providers)•

135 providers could report low year end liquidity (50 per cent of providers).

Table 15: Minor reduction – scenario parameters
Student group

High tariff

MediumtariffLow Specialist
tariffUK undergraduate entrants

No growth

-2%

-4%

-3%

UK postgraduate entrants

No growth

-2%

-4%

-3%

Non-UK undergraduate entrants

No growth

-2%

-4%

-3%

Non-UK postgraduate entrants

No growth

-2%

-4%

-3%

Scenario 3: Larger reduction in student numbers
An overall reduction of 35 per cent in total entrants across the sector, per year, by2026-27.
155. This scenario is based on a reduction in UK and non-UK recruitment by a more significant
level annually from 2024-25 compared with the base level in 2023-24. As above, we haveapplied different reductions to different groups of providers based on tariff score as set out in44

Table 16. In aggregate this scenario suggests an overall reduction in entrants of 35 percent per year by 2026-27, compared with forecast entrants for the current year (2023-24).
156. In this scenario, the total net reduction in fee income could be £9,283 million by 2026-27, agross reduction in forecast total income of 21 per cent.
Possible effect in 2026-27 without cost reduction measures•£9,283 million estimated net income reduction against forecasts, annually, by 2026-27•

239 providers could be reporting deficits (89 per cent of providers)•

200 providers could report low year end liquidity (74 per cent).

Table 16: Larger reduction – scenario parameters
Student group

High tariff

Medium tariff

Low tariff

Specialist

UK undergraduate entrants

-8%

-11%

-17%

-12%

UK postgraduate entrants

-8%

-11%

-17%

-12%

Non-UK undergraduate entrants

-12%

-17%

-20%

-15%

Non-UK postgraduate entrants

-12%

-17%

-20%

-15%

Scenario 4: Significant reduction in international student numbers
No growth in UK student recruitment and significant reduction in non-UK student
recruitment – an overall reduction of 22 per cent in total entrants across the sector,
per year, by 2026-27.
157. This scenario is based on no growth in UK entrants, with levels remaining as set out inproviders’ 2023-24 forecasts until 2026-27. In this scenario there is also no growth of non-UK
entrants in 2023-24, and a significant reduction of non-UK entrants from 2024-25 comparedwith the base level in 2023-24. We have again applied different levels of reductions to different
groups of providers by tariff score (as set out in Table 17). In aggregate this scenario issuggesting a reduction in entrants of 61 per cent per year by 2026-27, compared withmodelled international entrants, for the current year (2023-24).
158. In this scenario, the total net reduction in fee income could be £9,692 million by 2026-27, agross reduction in forecast total income of 22 per cent.
159. This scenario demonstrates the significant impact that a large reduction in international
recruitment could have on providers. In financial terms, because of the higher fees paid byinternational students, reductions in recruitment will have a more significant impact onfinancial performance. It is also well understood that international student fees make a45

financial contribution to a wide range of other higher education activities, including research,
capital development and other costed support activities.
160. The latest intelligence we are receiving from providers, as set out in paragraph 13, suggeststhat international student numbers may have reduced by over 40 per cent in the January 2024
intake, with some experiencing greater reductions. This means that a scenario of reductions ininternational recruitment of this scale is within the bounds of possible outturns for the sector
and should be seriously considered when assessing sector-wide and provider-level risk.
Possible effect in 2026-27 without cost reduction measures•£9,692 million estimated net income reduction against forecasts, annually, by 2026-27•

226 providers could be reporting deficits (84 per cent of providers)•

196 providers could report low year end liquidity (73 per cent).

Table 17: Significant international reductions – scenario parameters
Student group

High tariff

Medium tariff

Low tariff

Specialist

UK undergraduate entrants

No growth

No growth

No growth

No growth

UK postgraduate entrants

No growth

No growth

No growth

No growth

Non-UK undergraduate entrants
2023-242024-25
25-26 and thereafterNo growth
-25%
-10%

No growth
-50%
-20%

No growth
-70%
-35%

No growth
-50%
-20%

Non-UK postgraduate entrants
2023-242024-25
25-26 and thereafterNo growth
-25%
-10%

No growth
-50%
-20%

No growth
-70%
-35%

No growth
-50%
-20%

161. This modelling illustrates how sensitive the higher education income model is to variations instudent recruitment, and the scale of the challenge in maintaining financial sustainability if
student numbers stay static or decline. Even in a steady recruitment environment, there would
be an uneven exposure to recruitment risk for different providers, and we would expect thisunevenness to feature even more strongly in more challenging operating environments. Evenin Scenario 4, some providers may not see a drop off in international students, and others
would therefore see an even more significant reduction.

46

Annex A: Summary of OfS roundtable meetings
with finance directors
Roundtable meeting groups
1.

To test our understanding of the potential impact of the financial risks facing the sector, weagain sought views from higher education providers through roundtable events this year.
Seven of these were held in September 2023 and February 2024, with finance directors or
those in equivalent roles. In total, attendees from 43 providers (34 in 2022-23) joined theroundtables this year.

2.

The sessions were grouped by providers with the same or similar financial typology as shownin Table A1.

Table A1: Groupings for finance director roundtable meetings
Group Finance typology or theme

Group nameA

QI over £200m and over 70% of income
Larger research-intensive
QI over £200m and less than 70% of income Larger teaching-intensive

B

QI £100m to £200m

MediumC

Majority Level 4 and 5
QI less than £100m or unknown

Level 4 and 5
SmallerD

Specialist: creative
Specialist: otherSpecialist creative
Specialist

Summary of discussions
3.

During discussions, providers reported a material change in some of the risks we havepreviously discussed. Some risks had dissipated but most had intensified. The continuing key
risks that finance directors and providers raised with us were inflationary and cost of livingpressures, student recruitment volatility, recruitment and retention of staff, pension scheme
risk, research funding, capital and maintenance of estates, and the availability of borrowing.
Additional key themes raised were the tightening timescales for renegotiating borrowing,
reliance on international markets, the need to close courses and the potential for mergers.

4.

This summary represents the key risks articulated by providers, not necessarily the views of
the OfS. The challenges discussed vary for different types of providers.

Inflationary and cost of living pressures
5.

Providers reported that the impact of high inflation continues to put increased pressure on
their finances, as well as those of their staff and students. With much of providers’ income
coming from fixed fees, which have reduced in real terms, and rising costs of staff pay,
pensions and utilities, providers explained they faced diminishing margins, and so a reduced
ability to invest. Energy and maintenance costs are particularly challenging for those witholder, less energy-efficient buildings.

6.

The impact of cost of living increases on students has also affected providers’ income; forexample, making students more likely to commute, leaving some provider-owned
47

accommodation empty, or to spend more time on paid work, risking withdrawal as theystruggle to keep up with their academic commitments. Providers noted the strain this placeson their budgets.
7.

Providers recognised the importance of achieving efficiencies, but some suggested they havea limited ability to continue to cut costs and maintain value for money for students. Providers
not subject to a statutory fee limit have an opportunity to increase their tuition fees, but themarket is price-sensitive and it is possible to outprice students. Providers suggested thatdivesting assets is often a course of action to raise funds, but recognised that this has
limitations and needed to be carefully managed.

Student recruitment
8.

Providers have found that the volatility of student recruitment has increased and this has
made predicting future recruitment increasingly challenging. There continues to be increased
competition between providers for UK students, with lower-tariff providers sometimes losing
out. Some providers rely on income from international students, but it is recognised that thiscan be subject to geopolitical uncertainty, especially where providers rely heavily on fees fromstudents from a few countries.

9.

Many providers are keen to diversify, though this can be challenging. New student entrants
are leaving it later to decide whether to enter higher education or choose other routes. The
increase in the cost of living is having a material impact on potential students, particularly inproviders with a reliance on postgraduate students, who are often self-funded. Providers
reported that demand from students has become less predictable following the pandemic andincreases in the cost of living. Providers had previously found it easier to plan and model.

10. Providers also suggested that since the pandemic, students appear to be less prepared forthe higher education experience than previously. In some cases this was reported to be
resulting in increasing attrition rates and the need for greater ongoing pastoral support. This
support often has significant cost implications, requiring specialist trained staff resource.

Recruitment and retention of staff
11. Providers told us that it is becoming increasingly difficult to attract and retain high quality staff,
especially academic staff. Staff costs are the most significant cost to the sector and pay
inflation has been higher than providers budgeted for. Providers said staff expectations areaffected by pay increases in other sectors, and the competitive job market has made it difficult
for some providers to attract and retain staff. There is growing competition from other
employers, offering better pay and conditions, especially in large cities or conurbations. Some
providers have sought cost savings and increased flexibility by using visiting lecturers in theface of financial difficulties. Providers raised concerns about the risk that staff will leave thesector in greater numbers.

Increasing pension costs and volatility of schemes
12. Providers expressed concerns about the uncertainty of future pension scheme valuations andincreasing employer contributions associated with the revaluation of defined benefit schemes.
Providers do not have control over the prescribed contribution rates resulting from periodic
scheme valuations, or those set by government. A scheme valuation can also causesignificant shifts in the accounting provisions required, which can affect the levels of reported
surplus or deficit in those years. Although these accounting transactions do not affect cash or48

reflect the underlying financial performance of providers in that year, providers thought that
this may be misunderstood by those reading financial statements.
13. The USS position has improved following the latest valuation, and this has been helpful inimproving balance sheet strength for its members. Members of the TPS raised concerns about
the impact of increased contributions, and their limited ability to influence negotiations.

Funding
14. Providers raised concerns about very tight timescales in which to frame and submit bids forfunding. They face uncertainty about when they will receive funding and how much they will
receive, with narrow timeframes in which some funding should be spent. This affects theirability to plan investments and decide a long-term investment strategy. Providers facing lower
operating margins have found it more difficult to fund research activities. Providers suggested
that this could make it difficult to attract the necessary talent. This can also lead to loss ofHigher Education Innovation Funding, compounding this impact.

Capital, estates and sustainable investments
15. Providers recognised that buildings and infrastructure need investment. This is particularly
challenging for providers with ageing estates. Providers reported that routine maintenance isslipping because of cost pressures, causing maintenance backlogs. In parallel, maintenanceand building costs have increased. Providers reported a risk that, without investment, parts ofestates could become unfit for purpose and this could materially affect the student experience.
16. Another key area that providers identified as requiring investment is in IT, with some providers
running outdated IT systems, which are no longer supported by suppliers. There is a
widespread understanding that this is building up problems for the future and will have to beaddressed at some stage and likely at inflated costs.
17. Providers have also made decisions to delay capital investment projects and the costs ofprojects have increased after commencement. Some governors and trustees have had apreference to maintain cash reserves in response to financial pressures, rather than investingin capital projects. These factors have a knock-on effect for the ability of providers to meet net
zero targets.
18. Divesting assets to raise funds is a course of action some providers have looked to, but thisoption is not available to many, and it is recognised that this has limitations and should be
carefully managed.

Borrowing
19. Providers thought that lenders appear to be becoming more risk-averse, and the sector is not
as attractive to lenders as it once was. Borrowing is becoming more expensive because ofhigher interest rates and the perceived increased risk profile of the sector. Loan approvals aretaking longer. Providers suggested that lenders require greater assurances and are attaching
more stringent borrowing covenants when loans are agreed.

Dependence on international markets
20. With the rising cost of living, changing trends in UK applicants and declining unit of resource,
providers are seeking to mitigate constriction of the UK market by increasing numbers ofinternational students. International students attract fees well above the fixed UK rates. Thereis an understanding among providers that it is desirable to reduce dependency on any single
49

market, given geopolitical issues and possible changes in UK government policy. There is
uncertainty about how elastic the pricing for international students can be, and there is a riskof pricing students out of the market.
21. Providers reported that the volatility of currency exchange rates has had an impact onapplications. For example, the recent devaluation of the Nigerian naira was cited as having anadverse effect on recruitment. The policy of limiting visas for dependants has had a particularimpact on providers’ ability to recruit in certain international markets. Providers have also seen
the increasing costs of obtaining visas and complying with UK Visa and Immigration
requirements as a barrier to recruitment.

Student accommodation
22. Some providers in larger cities, and other places with high housing demand, have found it
more difficult to accommodate students locally, while others have an excess ofaccommodation that they are unable to fill. Residential income makes up a significant
percentage of total income for a number of providers. It was reported that significant numbersof students are choosing to continue to live at home given the increased cost of living in recent
years. This can have a detrimental impact on providers’ income and often erodes planned
surpluses, especially in smaller providers. Where there is high demand, providers noted thecost of building new accommodation has increased and recruitment volatility has madeinvestment decisions more difficult.

Artificial intelligence
23. Providers suggested that recent developments in the sophistication of Artificial Intelligence(AI) technology have made it increasingly difficult to identify its use in student work. The costof identifying AI use can be significant, and this is raising increasing concerns.

Savings and efficiency
24. Providers have said that, having already reviewed their course portfolios, it is difficult to makesignificant additional savings, and that efficiencies sought during Covid lockdowns were
implemented and costs removed from budgets. They reported that activity has been
rationalised over time, to reduce loss-making activity and accommodate rising costs. However,there is more discussion now about the need for course closures and the potential formergers, as a large proportion of providers’ cost base is fixed and cannot easily be reduced.

Course closures
25. Providers highlighted the difficulty in continuing to deliver loss-making courses and the needto consider diversification and rationalisation of courses. They suggested that this can bechallenging when considering the mission of the provider and can affect the attractiveness ofthe provider to staff and students.

Mergers and consolidations
26. Providers reported that mergers are becoming an increasing part of conversations about
financial sustainability. Discussions included the potential efficiencies if providers in close
geographical proximity could use a shared services approach, with functions such as finance,
human resources and IT being operated from a central hub. Providers also suggested thatmerger objectives could vary; focusing on diversifying provision, merging local providers or
seeking economies of scale from similar but geographically spread providers.
50Annex B: Scenario modelling – additional analysis
1.

The OfS has always used financial data from providers, as well as other information, toestimate the potential financial implications of hypothetical risk scenarios. Over time, we havedeveloped this activity to model more detailed and complex scenarios.

2.

Scenario modelling provides a valuable guide to how sensitive the sector and providers are torisk, and it can usefully articulate the scale of the financial challenge that providers might needto mitigate. However, there are significant limitations in using financial models, as they arebased on hypothetical assumptions applied to the forecast data from providers, which are
already build around a wide variety of assumption. Modelling is therefore inherently limited in
its accuracy. It does not forecast what will happen, but it does predict what could happen.

3.

Theoretical variations in student recruitment scenarios will never accurately represent what
will happen in real life at a provider level within a competitive market. Providers will compete
more actively for growth, and those with lower competitive strength will probably lose students
to those with more attractive offers. In response, providers may pursue other actions to attract
students, such as reforming or restructuring provision, or reducing their tariff entry
requirements to accept more students.

4.

We intend to build on the theoretical no growth scenario by modelling potential ways in which
the market may respond. We present some options on how we might do this to further develop
our understanding of how many providers may be more exposed to the risk of losing students
to competitors.

Variations in student recruitment
5.

This annex provides a summary of the outcome of scenarios of variations in students entering
higher education over the forecast period and the subsequent loss of fee income.

6.

Student recruitment from the UK and internationally represents a key financial driver forsustainability. Fee income represents a significant proportion of total sector income and canvary from year to year.

7.

In recent times, particular factors have underlined the importance of student recruitment tofinancial sustainability. These include in particular the fixed UK undergraduate fee cap,
uninflated since 2017-18, which has reduced significantly in real-terms value; and thesignificant and unforeseen recent increases in costs, including operating costs, capitaldevelopment costs and the cost of living for students.

8.

Providers have taken action to adapt to these factors to ensure their financial sustainability.
These actions include generating efficiencies in costs, increasing scale (i.e. more students)
and increasing non-publicly funded activities, which typically provide a higher financial
contribution (e.g. teaching more international students or other commercial activities). There
are risks associated with relying on student growth and on non-publicly funded income
streams to underpin financial sustainability.

9.

This modelling demonstrates that for many providers financial performance could besignificantly affected by an inability to expand its student base or manage a decline instudents.

51

The modelling
10. The financial forecasts from providers make assumptions about growing student numbers
over the forecast period and we believe there are significant risks that, for many providers,those aspirations are not achievable.
11. In order to test the sensitivity of provider finances to funding model risks, we have modelled arange of scenarios where providers are not able to meet their recruitment forecasts to mitigate
the impact of sustained decline in the unit of resource. By removing anticipated growth fromforecasts, we present a summary of the scale of the challenge for providers if increases in fee
income were achieved.
12. The modelling reflects a reduction in income from fees only. We have not assumed a
reduction in additional income that providers may receive from increased student numbers,
such as accommodation and catering or assumptions about changes to funding body grants,
albeit in reality these may also be reduced.
13. The models include an assumption that there will be variable, direct cost savings associatedwith this reduction in teaching activity, although it is impossible to accurately estimate thevalue of variable costs relating to each student. These will vary significantly across providers,and are likely to be stepped, with increases in students and development costs relating to new
course provision. For illustrative purposes, we have assumed that 20 per cent of the fee
income not generated by reduced student recruitment will be mitigated as variable costsaving.
14. However, the models do not make any assumption of more significant mitigation action, suchas further cost savings.
15. We have modelled the following four scenarios:a.

No growth: For each provider, all undergraduate and postgraduate entrants remain at
the level forecast for 2023-24 in its 2023 AFR data returns.

b.

Minor reduction in student numbers: All providers will see no growth in entrants
beyond 2023-24, and then a further reduction in their entrants at a relatively modest level
overall.

c.

Larger reduction in student numbers: All providers will see no growth in entrants
beyond 2023-24, and then a further reduction in their entrants, at a more significant level
than the reductions modelled in the ‘minor student’ model.

d.

Significant reduction in international student numbers: All providers will see nogrowth in UK undergraduate and postgraduate entrants beyond 2023-24. There will be no
growth in international entrants in 2023-24, followed by significant reductions in 2024-25
and smaller reductions in the years thereafter.

16. When presenting the impact on financial sustainability in this paper, we have focused on three
indicators:a.

The number of providers in deficit (adjusted for pension adjustments). This is a financial
performance measure.

b.

Operating cash flow. This is also a financial performance measure and, in a financiallysustainable organisation, should be sufficiently positive to support debt service costs and52

future investment needs. In the modelling outcomes, we have defined low operating cash
flow as below 5 per cent of income.
c.

Liquidity (coverage of average days cash expenditure) – in particular, the cumulative
impact of reduced net income generation on forecast net liquidity holdings (cash andshort-term investments) over the forecast period. In our modelling outcomes, we havedefined low liquidity as below 30 days of annual expenditure as at the year end.

17. Table B1 show a summary of the modelling outcomes for the four scenarios modelled.
Table B1: Summary of modelling outcomesNo growth model2022-23(actual)2023-242024-25(forecast) (estimate)2025-26(estimate)2026-27(estimate)-£965-£2,100-£3,383

Net income impact £M
Number of providers witha deficit

93

108

133

162

176

Number of providers withlow operating cash flow

116

124

132

153

179

Number of providers low
liquidity

27

29

48

78

107

Minor reduction model2022-23(actual)2023-242024-25(forecast) (estimate)2025-26(estimate)2026-27(estimate)-£1,235-£2,777-£4,539

Net income impact £M
Number of providers witha deficit

93

108

146

189

202

Number of providers withlow operating cash flow

116

124

148

186

219

Number of providers low
liquidity

27

29

50

89

135

Larger reduction model2022-23(actual)2023-242024-25(forecast) (estimate)2025-26(estimate)2026-27(estimate)-£2,359-£5,537-£9,283

Net income impact £M
Number of providers witha deficit

93

108

188

222

239

Number of providers withlow operating cash flow

116

124

187

239

248

Number of providers low
liquidity

27

29

56

139

200

53

Significant international
reduction model2022-23(actual)

Net income impact £M

2023-242024-25(estimate) (estimate)2025-26(estimate)2026-27(estimate)-£1,128-£4,244-£7,172-£9,692

Number of providers witha deficit

93

147

197

220

226

Number of providers withlow operating cash flow

116

151

209

228

237

Number of providers low
liquidity

27

38

92

159

196

Model 1: No growth
18. The underpinning hypothetical assumption here is that, for each provider, all undergraduate
and postgraduate entrants remain at the level forecast for 2023-24 in its 2023 AFR data
returns.
Figure B1: Number of providers reporting deficits and low operating cashflow, comparisonof forecast and modelled data, no growth scenario

54

Figure B2: Number of providers reporting low liquidity and operating cashflow, comparisonof forecast and modelled data, no growth scenario

Table B2: Number of providers with deficits, modelled per ‘no growth’ parameters
Forecast
2024-25

Modelled
2024-25

Forecast
2025-26

Modelled
2025-26

Forecast
2026-27

Modelled
2026-27

Larger teaching-intensive

5

9

3

9

1

12

Larger research-intensive

4

9

2

11

2

13

Medium

13

26

11

33

7

37

Smaller

19

35

13

45

11

47

Specialist creative

9

22

11

25

4

25

Specialist

21

25

12

28

11

30

Level 4 and 5

3

7

5

11

5

12

Total

74

133

57

162

41

176

21%

60%

15%

65%

13%

64%

% of sector

55

Table B3: Number of providers with net cash flow from operating activities as a percentage
of total income below 5 per cent, Modelled per ‘no growth’ parameters
Forecast
2024-25

Modelled
2024-25

Forecast
2025-26

Modelled
2025-26

Forecast
2026-27

Modelled
2026-27

Larger teaching-intensive

3

8

2

9

1

12

Larger research-intensive

5

6

4

6

2

9

Medium

5

15

2

19

4

28

Smaller

22

39

23

45

20

51

Specialist creative

14

22

11

27

10

31

Specialist

26

33

26

34

22

35

Level 4 and 5

5

9

7

13

5

13

Total

80

132

75

153

64

179

30%

49%

28%

57%

24%

67%

% of sector

Table B4: Number of providers with liquidity days below 30 days, modelled per ‘no growth’parameters
Forecast
2024-25

Modelled
2024-25

Forecast
2025-26

Modelled
2025-26

Forecast
2026-27

Modelled
2026-27

Larger teaching-intensive

1

1

1

3

1

6

Larger research-intensive

1

1

4

5

2

8

Medium

4

5

3

9

4

17

Smaller

12

19

11

25

11

35

Specialist creative

5

8

3

12

3

15

Specialist

5

8

3

14

4

17

Level 4 and 5

3

6

3

10

2

9

Total

31

48

28

78

27

107

12%

18%

10%

29%

10%

40%

% of sector

Model 2: Minor reduction in student numbers
19. The hypothetical assumption here is that providers will see no growth in entrants beyond
2023-24, and then a further reduction in their entrants at a relatively modest level overall. The
scale of reduction is varied, depending on the tariff score of each provider, on the assumptionthat providers are more or less susceptible to reductions depending on their overall
recruitment selectivity.

56

Figure B3: Number of providers reporting deficits and low operating cashflow, comparisonof forecast and modelled data, minor reduction scenario

Figure B4: Number of providers reporting low liquidity and operating cashflow, comparisonof forecast and modelled data, minor reduction scenario

57

Table B5: Number of providers with deficits, modelled per ‘minor reduction’ parameters
Forecast
2024-25

Modelled
2024-25

Forecast
2025-26

Modelled
2025-26

Forecast
2026-27

Modelled
2026-27

Larger teaching-intensive

5

10

3

12

1

14

Larger research-intensive

4

9

2

13

2

15

Medium

13

29

11

40

7

41

Smaller

19

38

13

50

11

52

Specialist creative

9

24

11

28

4

31

Specialist

21

28

12

35

11

36

Level 4 and 5

3

8

5

11

5

13

Total

74

146

57

189

41

202

21%

54%

15%

70%

13%

75%

% of sector

Table B6: Number of providers with net cash flow from operating activities as a percentage
of total income below 5 per cent, modelled per ‘minor reduction’ parameters
Forecast
2024-25

Modelled
2024-25

Forecast
2025-26

Modelled
2025-26

Forecast
2026-27

Modelled
2026-27

Larger teaching-intensive

3

11

2

12

1

12

Larger research-intensive

5

6

4

8

2

16

Medium

5

19

2

30

4

40

Smaller

22

43

23

54

20

58

Specialist creative

14

23

11

28

10

34

Specialist

26

35

26

41

22

43

Level 4 and 5

5

11

7

13

5

16

Total

80

148

75

186

64

219

30%

55%

28%

69%

24%

81%

% of sector

58

Table B7: Number of providers with liquidity days below 30 days, modelled per ‘minor
reduction’ parameters
Forecast
2024-25

Modelled
2024-25

Forecast
2025-26

Modelled
2025-26

Forecast
2026-27

Modelled
2026-27

Larger teaching-intensive

1

2

1

4

1

10

Larger research-intensive

1

1

4

5

2

10

Medium

4

6

3

12

4

25

Smaller

12

19

11

27

11

39

Specialist creative

5

8

3

16

3

19

Specialist

5

8

3

15

4

23

Level 4 and 5

3

6

3

10

2

9

Total

31

50

28

89

27

135

12%

19%

10%

33%

10%

50%

% of sector

Model 3: Larger reduction in student numbers
20. The hypothetical assumption here is similar to Model 2, but with a more significant assumed
reduction in entrants.
Figure B5: Number of providers reporting deficits and low operating cashflow, comparisonof forecast and modelled data, larger reduction scenario

59

Figure B6: Number of providers reporting low liquidity and operating cashflow, comparisonof forecast and modelled data, larger reduction scenario

Table B8: Number of providers with deficits, modelled per ‘larger reduction’ parameters
Forecast
2024-25

Modelled
2024-25

Forecast
2025-26

Modelled
2025-26

Forecast
2026-27

Modelled
2026-27

Larger teaching-intensive

5

13

3

14

1

14

Larger research-intensive

4

14

2

20

2

20

Medium

13

39

11

43

7

43

Smaller

19

51

13

58

11

62

Specialist creative

9

27

11

31

4

35

Specialist

21

34

12

40

11

45

Level 4 and 5

3

10

5

16

5

20

Total

74

188

57

222

41

239

28%

70%

21%

83%

15%

89%

% of sector

60

Table B9: Number of providers with net cash flow from operating activities as a percentage
of total income below 5 per cent, modelled per ‘larger reduction’ parameters
Forecast
2024-25

Modelled
2024-25

Forecast
2025-26

Modelled
2025-26

Forecast
2026-27

Modelled
2026-27

Larger teaching-intensive

3

14

2

14

1

14

Larger research-intensive

5

13

4

21

2

21

Medium

5

29

2

43

4

43

Smaller

22

53

23

61

20

65

Specialist creative

14

27

11

34

10

35

Specialist

26

38

26

46

22

46

Level 4 and 5

5

13

7

20

5

24

Total

80

187

75

239

64

248

30%

70%

28%

89%

24%

92%

% of sector

Table B10: Number of providers with liquidity days below 30 days, modelled per ‘larger
reduction’ parameters
Forecast
2024-25

Modelled
2024-25

Forecast
2025-26

Modelled
2025-26

Forecast
2026-27

Modelled
2026-27

Larger teaching-intensive

1

2

1

9

1

11

Larger research-intensive

1

2

4

9

2

14

Medium

4

7

3

27

4

42

Smaller

12

20

11

42

11

57

Specialist creative

5

9

3

19

3

27

Specialist

5

9

3

23

4

35

Level 4 and 5

3

7

3

10

2

14

Total

31

56

28

139

27

200

12%

21%

10%

52%

10%

74%

% of sector

Model 4: Significant reduction in international student numbers
21. The hypothetical assumption here is that there will be no growth in UK entrants, with levels
remaining as per 2023-24 forecasts until 2026-27. International entrants will remain at 202223 levels in 2023-24, and then will reduce by a significant level annually from 2024-25. Entrant
reductions are applied, on an increasing scale depending on tariff score strength.

61

Figure B7: Number of providers reporting deficits and low operating cashflow, comparisonof forecast and modelled data, significant international reduction scenario

Figure B8: Number of providers reporting low liquidity and operating cashflow, comparisonof forecast and modelled data, significant international reduction scenario

62

Table B11: Number of providers with deficits, modelled per ‘significant international
reduction’ parameters
Forecast
2024-25

Modelled
2024-25

Forecast
2025-26

Modelled
2025-26

Forecast
2026-27

Modelled
2026-27

Larger teaching-intensive

5

14

3

14

1

14

Larger research-intensive

4

20

2

20

2

20

Medium

13

39

11

43

7

43

Smaller

19

49

13

55

11

57

Specialist creative

9

29

11

34

4

35

Specialist

21

35

12

38

11

40

Level 4 and 5

3

11

5

16

5

17

Total

74

197

57

220

41

226

28%

73%

21%

82%

15%

84%

% of sector

Table B12: Number of providers with net cash flow from operating activities as a percentage
of total income below 5 per cent, modelled per ‘significant international reduction’parameters
Forecast
2024-25

Modelled
2024-25

Forecast
2025-26

Modelled
2025-26

Forecast
2026-27

Modelled
2026-27

Larger teaching-intensive

3

14

2

14

1

14

Larger research-intensive

5

20

4

21

2

21

Medium

5

37

2

42

4

43

Smaller

22

51

23

56

20

62

Specialist creative

14

32

11

34

10

35

Specialist

26

40

26

43

22

43

Level 4 and 5

5

15

7

18

5

19

Total

80

209

75

228

64

237

30%

78%

28%

85%

24%

88%

% of sector

63

Table B13: Number of providers with liquidity days below 30 days, per ‘significant
international reduction’ parameters
Forecast
2024-25

Modelled
2024-25

Forecast
2025-26

Modelled
2025-26

Forecast
2026-27

Modelled
2026-27

Larger teaching-intensive

1

6

1

9

1

11

Larger research-intensive

1

4

4

15

2

19

Medium

4

15

3

31

4

38

Smaller

12

31

11

45

11

55

Specialist creative

5

15

3

22

3

28

Specialist

5

12

3

23

4

31

Level 4 and 5

3

9

3

14

2

14

Total

31

92

28

159

27

196

12%

34%

10%

59%

10%

73%

% of sector

64Annex C: How we regulate financial sustainability
1.

The OfS monitors and assesses the financial viability and sustainability of registered higher
education providers. In addition to the sector-wide analysis set out in this report, we assess
financial risk for individual providers. These assessments are informed by the data thatproviders submit to us and take account of the particular circumstances of an individual
provider, its exposure to risk, its capacity to respond to financial challenges, and otheravailable information. In line with our risk-based approach, we undertake a more detailed
assessment where a provider’s exposure to financial risk appears to be increased.

2.

As well as reviewing each provider’s financial position, we use the financial data we receive tomodel how certain risks could affect providers’ sustainability. We use the information collected
through the annual financial return, information in reportable events submitted by providers,
information submitted by third parties through our notifications process, and other intelligenceto support our analysis. Where we identify that a provider is experiencing financial difficulties,
we work with it to understand and assess the extent of the issues.

3.

For the universities and colleges that are performing well and are at low risk of experiencing
financial difficulties, the regulatory burden in this area remains appropriate for the low
likelihood of financial failure. Where our assessment identifies concerns about an individual
provider, we are likely to increase our engagement and monitoring activity. We have publishedinformation and case studies that show the approach we have taken for particular providers
that were at risk of exiting or did exit the market. 8

Annual financial return and other data sources
4.

The AFR is the primary source of financial data from all providers, except further educationcolleges, whose financial sustainability is overseen by the Education and Skills Funding
Agency. The data contained in the AFR consists of two years’ historical audited data,
including the most recently completed year, plus forecasts for five years into the future. It
covers data on income, expenditure, cashflows, balance sheet strength and other details on
students and fees and borrowing.

5.

We have reviewed the data specification for the AFR, to ensure it remains fit for purpose andappropriately balances the burden on providers with collecting the data required around key
risks, and to facilitate our duties to monitor the financial sustainability of providers.

6.

In addition to quantitative data, the AFR requires providers to submit important qualitative
evidence, including the most recent signed and audited financial statements, a qualitative
financial commentary document, and the annual management letters from auditors to thosecharged with governance in providers.

7.

We also draw on other information to support our understanding of sector and provider
finances. This includes:

8•

data and information on recruitment and student numbers (UCAS data and HESA student
data)

•

Home Office data on study sponsored visa applications, by country of origin

See OfS, ‘Financial sustainability and market exit cases’.

65•other econometric data, including inflation, interest rates, population estimates, etc.

•

notifications of reportable events from providers to the OfS.

Engaging with the sector and other stakeholders
8.

Our engagement with the higher education sector, particularly with finance leaders, provides
valuable insight that helps inform our understanding and assessment of sector finances andthe challenges that different providers face. We have continued to hold rich roundtablediscussions with finance directors from a wide range of provider types. We have summarised
those discussions in Annex A.

9.

As a risk-based regulator, we have a higher degree of engagement with providers that show
increased levels of exposure to financial risks.

10. We have also continued to maintain regular engagement with sector bodies, banks, auditors,
other funders and government departments.

Modelling and stress testing
11. We have modelled various scenarios that test how certain financial challenges might impact
the finances of individual providers, the sector and of peer groups in aggregate. These focus
on significant financial challenges, including scenarios where providers are unable to meet theambitious, and at an aggregate level unrealistic, growth projections they have forecast. These
scenarios show that, if providers fail to meet their growth targets or do not see any growth intheir student numbers, a significant number would fall into deficit unless they can find ways tosignificantly reduce their costs.
12. We have also modelled scenarios that explore the impact of continued inflationary pressure
on different kinds of operating costs.
13. We have provided a summary of the impact of some of these scenarios in Annex B.

66

Annex D: Notes on the data
1.

The report draws on financial data, including forecast data, submitted by 269 higher education
providers. Throughout the report we refer to ‘higher education providers’, ‘providers’,‘universities and colleges’, and ‘the sector’ as shorthand for this group.

2.

This report does not include analysis of further education colleges registered with the OfS.
Registered further education colleges must also comply with the OfS’s regulatory
requirements, including the condition of registration relating to financial viability andsustainability. Their financial data is, however, submitted directly to the Education and Skills
Funding Agency.

3.

The data for 2021-22 and 2022-23 reflects providers’ last two years of audited financial
statements (i.e., the data for these years is historical and has been assured by anindependent auditor), except for a small number of providers (25) that have not yet submitted
their final data for 2022-23. This is mainly because either they have financial years ending in
the last three months of the calendar year, or the OfS has agreed an extension to the deadline
for submission. In these cases, this analysis uses forecast data for 2022-23, submitted to the
OfS in the AFR, in place of audited data. Because of the timing of the data submissions, noforecast data for 2027-28 is available for these providers. As a result, the data presented inthis report covers only a six-year period and includes data for the period 2021-22 to 2026-27.

4.

For most providers (167), the financial year reflects the period from 1 August to 31 July.

5.

The data is presented as an aggregate view of providers’ financial records and forecasts, forthe sector overall and for seven ‘finance typology’ peer groups.

6.

The ‘finance typology’ peer groupings are based on the amount and type of income received
by providers, as well the level and subject areas predominantly studied by their students. The
methodology and the data sources used to assign providers to these groups is set out in ourpaper published in November 2022. 9 This is the first-time financial data analysis has beenpresented in this way.

7.

The ‘financial typology’ groups providers on the basis of the resources available to them. The
factors used in defining these peer groups are:

8.

9

a.

Proportion of higher education student FTE at Level 4 or 5.

b.

Specialist indicators (i.e. the proportion of provision across one or two subject areas).

c.

Qualifying income (QI) – (i.e. public grant funding from the OfS, any fee income fromtaught awards (exclusive of VAT) and any fee income from research awards (exclusive ofVAT)).

d.

Proportion of total income from QI.

Figure D1 describes how each ‘finance typology’ peer group is derived.

See OfS, ‘Provider typologies 2022: Methodology for grouping OfS-registered providers’.

67

Figure D1: Finance typology flow diagram

9.

Analysis and charts will use the following naming conventions described in Table D1 for easeof reference and the number of providers in each group.

Table D1: Peer group naming conventions used throughout report
Description

Name for peer groupCount ofprovidersSpecialist: creative

Specialist creative

40

Specialist: otherSpecialist

50

QI over £200m and over 70% of income

Larger teaching-intensive

14

QI over £200m and less than 70% of income

Larger research-intensive

21

QI £100m to £200m

Medium43

QI less than £100m or unknown

Smaller

71

Majority Level 4 and 5

Level 4 and 530

68Annex E: Aggregate financial data
See separate Excel file, available at www.officeforstudents.org.uk/publications/financialsustainability-of-higher-education-providers-in-england-2024/.

69© The Office for Students copyright 2024
This publication is available under the Open Government Licence 3.0 except where it indicates thatthe copyright for images or text is owned elsewhere.
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