UK universities face rising deficits as levy looms
Faced with years of frozen tuition, volatile international recruitment and falling public funding, the Office for Students (OfS) has said almost 25 English institutions could be at risk of closure within the year, as the number of UK universities facing shortfalls continues to grow.
Addressing a November 2025 parliamentary hearing on the threat of insolvencies across the sector, OfS CEO Susan Lapworth explained roughly 50 providers – out of 285 assessed by OfS – were in the regulator’s top two risk categories and could face potential closure within the next three years.
“I’m going to stress that the risk assessment is us being conservative to make sure we are on the front foot,” said Lapworth: “We are not saying that we are expecting any of those to exit in a disorderly way imminently,” she emphasised, adding she was most worried about smaller institutions.
Last week, analysis by Times Higher Education revealed almost a third of UK universities have reported deficits this year – the highest being Coventry University, which saw a pre-tax deficit just shy of £60 million.
In a statement, the university said a major cause of the deficit was due to significantly higher-than-expected student recruitment in 2024/25 – the cost of which was burdened last year, and the fruits of which will be borne in 2025/26. It said it was “firmly on course” to break even this financial year.
According to universities’ 2024/25 annual reports, a further six institutions saw deficits upwards of £20m last year, including Queen’s University Belfast (£22.8m), University of Sussex (£22.7m), University of Derby (£22.6m), De Montfort University (£22.6m) University of East Anglia (UEA) (£22.3m), and Ulster University (£20.2).
However, stakeholders have warned of new financial strains including rising costs and the government’s forthcoming tax on international student income – forecast to cost the sector £330m annually.
“Historic underfunding and new financial pressures like the international student levy continue to put the sector’s stability at risk. Long-term sustainability still requires greater certainty,” Russell Group director of policy Hollie Chandler told The PIE News.
“Government must now bring forward the primary legislation required to guarantee automatic, inflation-linked uplifts for high-quality providers from 2028/29, delivering the long-term funding guarantee the sector has been promised.”
We urge the government to listen to universities and rethink this new tax, before it chokes economic growth
Universities UK
According to OfS modelling, 45% of English institutions risk facing deficits this academic year, with the regulator warning some needed to “take radical action” to avoid closure.
The government’s announcement of inflation-linked increases for domestic tuition fees from next year is set to improve the situation, with initial predictions forecasting a modest decline in sector deficits to 41%, though this did not include the impact of the international student levy.
The controversial tax, coming into force in August 2028, has changed the picture dramatically, with a Universities UK spokesperson urging the government to listen to the sector and rethink the levy, “before it chokes economic growth”.
As it stands, the tax would only apply to English universities, as Wales ruled out enforcing the levy last year. The Scottish government originally rejected the idea, though reports suggest it could be introduced after this year’s parliamentary elections.
Universities respond to deficits
A UEA spokesperson told The PIE the university’s financial results were in line with expected 2024/25 forecasts as the year presented “significant financial and operational challenges” for both UEA and the sector at large.
They said the outlook for this year had “stabilised significantly” with student numbers exceeding initial projections, adding that the ongoing refurbishment of the Ladsun Wall research and teaching space was a valuable marketing tool for future students and a “source of genuine excitement”.
Queen’s University Belfast said UK-wide challenges were exacerbated by Northern Ireland’s unique funding model whereby the executive limits the number of places and funding available to local students, known as the maximum student numbers cap.
Queen’s said it continued to call for a long-term, sustainable funding model and a review of the cap, and that it had made “difficult decisions” including implementing a voluntary redundancy scheme to address the deficit. It reiterated its value to the UK economy, contributing over £3.35bn each year.
DMU further emphasised the “very challenging circumstances being felt across the sector”, and said its deficit last year was partly due to substantial one-off investments including opening two new campuses in Dubai and London, which would “maintain and grow the financial strength of our institution” in the future.
Conducting a nation-wide analysis of sector finances, AI education consultant Justin O’Brien deemed just 14 universities to be financially stable.
While acknowledging he had set the bar for stability “uncomfortably high”, O’Brien said most institutions were in deep water because they had been, “for all intents and purposes, regulated to fail”.
Chandler said years of frozen tuition fees had caused the value of the undergraduate fee fall by 26% since 2017. Meanwhile, government research grants and high-cost subject funds have declined by 16% and 19% respectively in the past eight years, with institutions widely using the income from international student fees to plug the gaps.
“These are exacerbated by external factors like rising costs and volatile international recruitment patterns,” added Chandler, calling for a period of policy stability to continue welcoming global talent to UK universities.
Home Office data reveals international student recruitment has returned to year-on-year growth after a notable 14% decline in 2024, though the number of visas issued remains significantly lower than in 2023.
“Nobody should be under any illusion that the challenges that have gripped the sector in recent years have evaporated,” said Philippa Pickford, director of regulation at OfS.
What’s more, in a notable shift from its 2019 iteration, the UK’s newly released international education strategy no longer contains explicit international recruitment targets, as the government strives to reduce overall net migration to the UK.
With the return to pre-pandemic recruitment looking unlikely, stakeholders have warned against the over reliance on growing international student populations in an increasingly unpredictable market, particularly on students coming from a single country.
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