Government bailout or universities face risk of insolvency

Around a dozen universities could be at risk of insolvency without a government bailout amid the Covid-19 crisis, a new analysis suggests.

Research by the Institute for Fiscal Studies (IFS) suggests that the British institutions at greatest risk may need a targeted bailout costing £140 million, or debt restructuring, to keep them “afloat” in the future.

An estimated 13 universities across the UK – which educate approximately 130,000 students – could end up with negative reserves by 2024 as a result of the pandemic, the analysis warns.

These institutions “may not be viable in the long run” if they are left without financial support, it adds.

The IFS report predicts that universities that were already in a weak financial position before the crisis hit, which tend to be less prestigious institutions, are more likely to face insolvency.

It estimates that long-run losses across the UK higher education sector could come in anywhere between £3 and £19 billion – or between 7.5% and nearly half of the sector’s overall income in one year.

The largest losses are likely to stem from falls in international student enrolments this year and increases in the deficits of university-sponsored pension schemes, the report says.

Universities are also expected to face lockdown-related losses of income from student accommodation and conference and catering operations, as well as financial losses on long-term investments.

The IFS research, funded by the Nuffield Foundation, concludes: “For around a dozen universities, insolvency is likely to become a very real prospect without a government bailout.”

It adds that the government response “will be critical in determining the future of these institutions.”

“Insolvency of a university could cause significant disruption to students’ education, potentially leaving them unable to complete their degrees,” the paper warns.

The briefing explores a series of options that the government could take – including letting institutions become insolvent to “set a precedent” and show that it will not reward universities with the least resilient finances.

It adds that a “very tightly targeted bailout” of around £140m would help to avoid insolvencies at the worstaffected universities.

The researchers also warn that a more widespread bailout package could cost billions of pounds without providing much support to the struggling institutions most at risk of going under.

Ben Waltmann, a research economist at IFS, said: “With around £45bn in reserves and an annual surplus of around £2bn before the crisis, the university sector as a whole should be able to cope with substantial Covid-related losses.

“However, some universities were already in a weak financial position before the crisis hit. For around a dozen of these institutions, insolvency is likely to become a very real prospect without a government bailout.”

A National Union of Students (NUS) spokesperson said: “The coronavirus crisis has exposed many of the flaws inherent in running our education like a market. When funding is so unstable, it’s no wonder that our universities and the jobs of thousands of academic and support staff are now at risk.

“We are of course especially concerned about the risk to students that this instability poses. You can’t assess the risk to universities without thinking of the risks to students – both to their education and their wellbeing.”

Jo Grady, general secretary of the University and College Union (UCU), said: “We need a comprehensive support package that protects jobs, preserves our academic capacity and guarantees all universities’ survival.”

The... crisis has exposed many of the flaws inherent in running our education like a market. NATIONAL UNION OF STUDENTS