The deteriorating financial outlook for UK universities

The financial outlook for UK universities is deteriorating, driven by domestic policy shifts, volatile international student demand patterns, real-terms declines in public funding, inflationary pressures and broader economic uncertainty. Across much of the sector, revenue compression and rising costs are now outpacing the legacy benefits of favourable domestic demographics and previously robust overseas demand. The result is widespread operating deficits and liquidity strain, pushing universities into repeated redundancy rounds, academic retrenchment and, in some cases, mergers or international partnerships to stabilise finances and boost overseas student recruitment.

Regulatory warnings have sharpened. In December 2024, the Office for Students (OfS) warned that sector finances had drifted toward the pessimistic end of its modelling scenarios, increasing “the risk of sudden market exit of a large provider”. Recent data illustrates the scale of the deterioration. In May 2025, the OfS reported that around 45% of English higher-education providers were forecasting a deficit for 2024-25, up from 30% a year earlier, while the share projecting low net operating cash flow rose from 27% to 48%. Under a no-mitigation scenario, the regulator anticipates sector-wide net-income losses approaching £3bn by 2027-28, with around 167 institutions in deficit. At the same time, English universities carried £13.3bn of debt in 2024, while £10.4bn of sector cash reserves were concentrated in a small group of institutions. This bifurcation leaves a long tail of providers with limited liquidity and little capacity to absorb operational, policy or market shocks. Mid-tier and financially weaker universities will face the sharpest squeeze.

Structural revenue pressures and rising costs

Universities continue to face deep structural revenue challenges. In England, domestic tuition fees have been frozen since 2017, which has widened the gap between falling revenues and rising costs. In November 2024, domestic fees increased by £285 to £9,535 per annum. But in real terms, this uplift provided marginal relief against the cumulative impact of seven years of higher employment costs (e.g., wages, pensions, National Insurance contributions), as well as energy, estates maintenance, and digital infrastructure spend. Per-student funding for domestic undergraduate students has fallen by 18% in real terms since 2012/13, according to the Institute for Fiscal Studies (IFS).

Consequently, UK universities’ reliance on international student fees to support their financial viability has grown over recent years. In 2022-23, these fees generated around £11.8bn, representing around 23% of sector income, which is concentrated among the biggest universities, according to HESA. This revenue cross-subsidises domestic funding, as real-terms domestic funding declines. However, international student demand has become much less predictable. Post-pandemic shifts and Brexit reduced EU enrolments, increased dependence on non-EU markets, and recent Home Office restrictions on dependants and post-study work have driven sharp falls in applications from India, China and Nigeria. These pressures have produced widespread recruitment shortfalls for 2024-25. The OfS warns that universities’ financial plans, which assume 24% tuition-fee income growth by 2027-28 (based on 26% domestic growth and 19.5% international growth), are “overly optimistic”. The regulator warns that income recovery could stall or reverse if conditions deteriorate further.

Costs are rising just as revenues soften. Staff pay, pension contributions, National Insurance, energy bills and debt servicing costs remain the dominant pressures, while estates expenditure – including maintenance and repairs, health and safety compliance, insurance and facilities management – continues to escalate. Digital infrastructure spending is another major line item, driven by cybersecurity requirements, cloud migration and the technology demands of blended learning and research.

These pressures are now feeding into the lending environment. Banks are increasingly requiring at-risk universities to produce turnaround plans, tighten cash management and demonstrate credible paths to covenant compliance. In some cases, lenders have taken security over campus assets as a condition of refinancing, while new lending appetite to the sector has narrowed significantly. This diminished confidence is also affecting student accommodation underwriting and refinancing, with lenders scrutinising counterparties more closely, shortening loan maturities and pricing in the risk of enrolment volatility.

Distress signals across the sector

Financial stress over the past year has been widespread, affecting research-intensive and regionally significant universities as well as small and mid-tier institutions. Several systemic patterns are emerging. This analysis is based on a live record of redundancies and restructures across the UK higher-education sector by Queen Mary University of London.

1. Deficits are escalating in scale and spreading across institution types.
The University of Edinburgh is working through a £140m deficit – around 10% of income – driven by rising staff costs, utilities, pensions and declining real-terms funding. Cardiff reported a £31.2m deficit, proposing up to 400 academic redundancies and multiple school restructures. Similar pressures are reported across a handful of top-tier universities, indicating that deficits are no longer confined to weaker institutions.

2. Governance failures and internal mismanagement are amplifying distress.
In November 2024, Dundee University reported a £30m deficit, which masked a complex situation that illustrates how external pressures can be amplified by financial mismanagement. A sharper-than-expected collapse in international recruitment, combined with inflation, rising costs and long-term underfunding, drove cash reserves down from £70m to £30m in two years. The Gillies Review found “clear failings in financial monitoring, management and governance”, including weak controls, poor investment decisions and inadequate cash-flow oversight. The university required £22m in emergency support from the Scottish Funding Council and £40m from the Scottish Government, alongside over 400 redundancies, academic and research restructuring, asset disposals and capital spending cuts. Staff strikes continued in November in protest at the recovery plan.

3. Mass redundancies and repeated restructuring cycles are widespread.
Universities are increasingly relying on workforce reductions as the primary cost-control lever. Bradford is seeking to remove 200 posts, while Edinburgh Napier and the University of the West of Scotland are consulting on 70-75 redundancies. Many universities have launched successive voluntary severance rounds that have been followed by compulsory redundancies when savings fall short. This trend also extends into top-tier research-intensive institutions, which illustrates that cost-control measures are now sector-wide.

4. Course and departmental closures are rationalising academic provision.
Across universities, humanities, languages, PGCE, creative arts and parts of STEM (science, technology, engineering and mathematics) courses are being withdrawn and reduced. Chemistry departments have closed at Hull and remain under threat at Reading, while Coventry has closed modern languages and plans to end English-language teaching entirely by 2027. Elsewhere, Kingston has closed its philosophy department.

5. Subsidiary employment models are proliferating.
A growing number of universities are moving staff from university contracts onto new subsidiary companies with inferior pensions and employment terms. This shift allows universities to move staff onto cheaper contracts outside national union-negotiated pay and conditions, including transferring them from defined-benefit pension schemes into lower-cost defined-contribution plans, reducing union bargaining power and giving institutions greater control over restructuring.

6. Sector consolidation is underway.
In August 2024, City, University of London and St George’s, University of London merged to create City St George’s, University of London. The merger aims to strengthen financial resilience by pooling infrastructure, realise cost savings, expand research capacity and improve competitive positioning. In September 2025, the University of Kent and the University of Greenwich completed their merger to form the London and South East University Group, the UK’s first regional ‘super-university’. Kent’s £31m deficit, weakening international recruitment and limited remaining avenues for cost reduction were central drivers. The new structure consolidates administrative and support functions while preserving separate degree brands.

Across the sector, these two mergers are considered early templates for further financially driven consolidation – particularly among institutions facing sustained deficits, recruitment volatility, constrained borrowing capacity and geographic proximity that makes integration operationally feasible.

Conclusion
The UK university sector is absorbing structural shifts in demand trends and funding realities. For many institutions, independent advice is vital to the formulation and execution of a comprehensive mitigation strategy. BTG Advisory works with universities to assess underlying financial resilience, review cost structures, develop turnaround strategies and support stakeholders through complex restructurings, asset disposals, refinancings and mergers. Do not hesitate to contact our team for a confidential discussion.