Unimaginable consequences

Dr Gavan Conlon
Partner, London Economics

Ms Maike Halterbeck
Associate Director, London Economics

down £2.47bn in income

For the higher education (HE) sector, the Covid-19 pandemic will have unimaginable financial consequences. Having suffered extensive revenue losses in respect of accommodation, conferences, and events activity in the 2019-20 academic year, the sector was already facing severe challenges. Assuming that some face-to-face and online provision will be possible in September 2020, the prospect of a significant proportion of domestic and international students deferring their decision to enrol in higher education means that every university’s core income streams will be severely jeopardised.

down 232,000 new studentsIn the recent report we undertook for the University and College Union we looked at the potential impact of the pandemic on 125 universities across the United Kingdom. We considered the potential effect of the economic recession on domestic and international first-year enrolments, as well as the impact of the pandemic on the decision of students to defer their decision to enrol in UK higher education. Since the initial analysis, the UCU has commissioned an additional analysis of deferral rates – and the prognosis is not encouraging.

What were the main findings?

down 30,280 university jobsBased on a domestic deferral rate of 14% and an international student deferral rate of 47%, the analysis for the UCU estimated that – conservatively – there would a loss of approximately 232,000 first-year students (a 24% decline). This corresponds to approximately 1,800 students per institution.

down £6.15bn total economic impactIn terms of universities’ financial positions, the analysis estimated that university income (from tuition fees and teaching grants) would decline by approximately £2.47 billion in 2020-21 (a 7% decline). This equates to approximately £20 million per institution (but up to £100 million in some cases).

Assuming that expenditure needs to be reduced in line with the expected decline in income, the analysis estimated that employment would need to be reduced by approximately 30,280. This corresponds to an average of 240 staff per institution, but up to 1,000 in some larger institutions.

down 63,000 jobsUniversities do not operate in a bubble. They play a critical role in local and national economic growth, and wider social and cultural developments. Expenditure by higher education institutions and their staff ripples through the economy, and many institutions are the largest employer in their locality. The impact of the pandemic on university income and employment is expected to result in a total loss of 63,000 jobs across the UK, and a £6.15 billion loss of total economic output across UK.

Is this analysis realistic?

Actually, the impact of the pandemic is likely to be a lot worse. Our analysis did not look at continuing students or ancillary income, and we were relatively conservative in respect of assumed deferrals. Many institutions and regulators across the Devolved Administrations are modelling much more extreme deferral rates, the most recent evidence from the UCU suggests a 17% deferral rate among domestic first-year students), and recent British Council survey data results in an estimated 50% deferral rate amongst postgraduate international students.

Our analysis also did not consider the many one-off costs that might have been incurred by higher education institutions having to restructure learning delivery – or the additional costs associated with reconfiguring campuses for the Autumn term. These costs are not trivial.

deferral rate by 1pp equals 'loss' of one universityWill deferral rates return to normal as we approach September?

Maybe, maybe not. The main factor that should concern universities is time. Students, especially international students, are already making their decisions for Autumn 2020. Domestic students are deciding whether to sign up for accommodation contracts now. So, the ‘wait and see’ approach that might exist in other sectors of the economy does not exist to anywhere near the same extent in higher education. While expected deferral rates might decline the closer we get to September (and there is some very initial evidence that this is occurring amongst international undergraduate students), but what happens if they increase?

If the deferral rate increases by 1 percentage point – for new and continuing students (both domestic and international) – we estimate that this would result in a loss of an additional 21,000 students, and £175 million of income, across HE institutions. That is the equivalent of one (slightly bigger than) average sized university.

No time for complacency.

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