Insolvency experts drafted in to fight university cash crunch
Luke Barr
5 min read
Restructuring experts were first contacted by the OfS amid concerns around institutions such as Coventry University - OLI SCARFF/AFP
The university watchdog has drafted in a team of insolvency experts amid growing concerns over the financial health of Britain’s troubled higher education sector.
With a string of leading universities struggling financially, the Office for Students (OfS) has appointed turnaround specialists to monitor a watchlist of institutions across the UK.
It is understood that PwC and KPMG are among the City firms selected by the OfS as it attempts to halt a looming crisis triggered by a longstanding freeze on tuition fees and a sharp drop in international students.
It comes as the OfS prepares for “potential market exits”, which remain a threat despite the Government’s pledge to raise university tuition fees next year.
Bridget Phillipson, the Education Secretary, said earlier this month that the uplift on undergraduate degrees from £9,250 to £9,535 was essential to “restore stability to higher education”.
However, many fear this inflation-linked increase is not enough for some stricken universities, as they also face higher costs from Rachel Reeves’s decision to raise employer National Insurance rates.
A senior restructuring source said the OfS has drafted in insolvency experts to ensure “they don’t end up with a university failure and lots of students left without a course”.
They added: “I suspect anything that’s not a Russell Group university will be worried about their budgets. I don’t think the Government giving an inflationary increase in student fees will be enough.”
It is understood that the OfS has spent months contacting universities to understand the state of their finances.
The OfS said that the sector would have to take “bold and transformative action” to compensate for an estimated £3.4bn drop in income in 2025, which has largely been fuelled by a decline in international students.
It is understood that the OfS first contacted restructuring experts several months ago amid industry concerns around universities such as Coventry University and London South Bank.
The challenges facing Coventry were laid bare in its most recent annual report. Though its deficit narrowed sharply to £2.4m in the year to August 2023 from £32.9m the previous year, the university warned that its debt pile was becoming unmanageable as a result of an unexpected drop in income.
Faced with the prospect of breaching the financial terms attached to its borrowings, Coventry – which has more than 30,000 students at campuses in Coventry, London, Poland and Scarborough – had been forced to draw up a comprehensive cost-cutting plan, it revealed.
About £100m of cost savings would be needed over the next two years, it said, including £40m in the 2024 financial year, with a further £55m expected over the following 12-month period.
The university said a 28pc spike in overheads to £45.9m had exacerbated the financial squeeze, with the largest component coming from an increase in the commission it paid agents overseeing the recruitment of overseas students. Nearly £55m was forked out on recruitment fees in 2023 alone.
It also spent £2.2m more on travel, £1.1m more on marketing, and an extra £2.6m on property maintenance, while rent increased by £2.6m, utility bills by £3m and software costs by £2.9m.
Bad debt costs relating to late tuition fee payments jumped by £6.4m.
A source close to the university insisted that Coventry remained in a strong financial position and is not at risk of collapse.
Meanwhile, the accounts of South Bank University show a similarly troubling picture, as it swung from a £1.5m surplus in 2022 to a £16.4m deficit in 2023.
Though the university posted a slight rise in income from £199.1m to £201.9m, expenditure spiralled to £218.4m from £197.6m. It borrowed a further £8m to fund investment at the same time as the level of unpaid tuition fees leapt by £14.1m to £41.2m.
Despite an admission that the university “did not meet its overall financial target”, David Phoenix, the vice chancellor, was awarded a £10,000 bonus, taking his overall pay for the year to £322,000 from £305,000 in 2022.
Budget challenges ‘no secret’
Simon Stibbons, a restructuring expert at Kroll, said: “It is no secret that higher education institutions are facing severe budgetary challenges over the next 12 to 18 months.
“The recent announcement around fee increases will not be sufficient to address these issues and there are likely to be more severe challenges for the sector over the coming months.”
A spokesman for London South Bank said: “London South Bank University has a robust financial plan: underlined by a strong asset base. Whilst the higher education sector continues to face external challenges, we have exceeded our planned student numbers and are performing above our budget target.”
A spokesman for the OfS added: “The financial sustainability of the higher education sector continues to be a priority for the OfS and we set out the challenges facing the sector in our recent report.
“Engagement with institutions is a routine part of our work – we work with individual institutions to understand their financial position and their plans to respond to, and address, financial risks.
“We do not comment on any ongoing regulatory activity with individual universities and our work with any particular institution cannot be viewed as an indication of its financial position.”
The Government was contacted for comment. Coventry declined to comment.
