London Economics Report

Impact of the Covid-19 pandemic on university finances 2020

The Covid-19 pandemic has had an almost unimaginable impact on the United Kingdom. There are numerous families that have had their lives shattered, and the health and social impacts of the pandemic are likely to persist long into the future. The economic impact of the pandemic will also be significant, with millions of businesses and households across the country thrown into financial hardship, many of whom will fail to ever recover. Initial estimates of the economic impact of the pandemic are worse than anything the UK has ever experienced – and deteriorating steadily.

Reflecting the erosion of economic sentiment, as new economic forecasts are produced, even week old forecasts are now being badged as unrealistically optimistic. Although the current lockdown is entirely necessary, the longer it persists, the deeper and more irreversible the economic damage, and the longer until recovery occurs.
For the higher education (HE) sector, the pandemic will have immense financial consequences.

Universities have already suffered very significant revenue losses in respect of accommodation, conferences, and events activity. Optimistically, assuming that some face-to-face or widespread online provision will be possible in September 20202, the prospect of a significant proportion of domestic and international students deferring their decision to undertake a higher education qualification means that every university’s core income streams will be severely jeopardised. There is also a compounding timing risk that essentially reduces the potential upside of any return to ‘business as usual’. Specifically, because the decision to undertake higher education takes place well
in advance of actual enrolment, even if there is complete certainty in respect of the nature of HE provision in the coming weeks – or even months – this will be too late for many students.

In this report, we consider the impact of the pandemic on the finances of a selection of universities across the United Kingdom. First, we combine the most recently produced UK and global economic growth forecasts with existing research on the determinants of HE student demand to identify the potential effect of the predicted economic recession on domestic and international enrolment rates.

Second, we consider the most recent evidence on the impact of the pandemic on the decision of students to defer their decision to enrol in UK higher education (under the assumption that some form of either face-to-face or online provision will be available in autumn 2020). While the analysis assumes relatively optimistic outcomes for higher education institutions (HEIs), in reality, the potential financial impacts may be much worse than those presented here unless there is significant government intervention to support universities through this crisis.

In terms of core measures considered, in addition to the number of first-year enrolments, we identify the financial impact on UK higher education institutions. In particular, we focus on the decline in tuition fee and public teaching grant income associated with first-year enrolments, and in consequence, the extent to which universities are in surplus or deficit based on their day-to-day operations (i.e. focusing on institutions net cash inflow from operating activities). In economic terms, the latter measure assesses the extent to which universities are covering their variable or
operating costs (and in the absence of financial reserves or alternative revenue sources might be considered the minimum requirement for medium term commercial viability).

Finally, unless the UK government underwrites their financial losses, assuming that institutions cut their expenditures to match the decline in income, we also assess the impact on job losses across the HE sector, as well as the consequential direct, indirect and induced economic impact across the wider UK economy” (LE, 2020)