Download the full report here.

“The challenges facing the UK university funding model are manifold,” said Brian Marly, senior analyst in Scope’s sovereign and public sector team. “A long-standing freeze on domestic undergraduate tuition fees has made many providers dependent on overseas students, a key vulnerability in an environment of heightened uncertainty around international student recruitment.”

The financial performance of UK universities deteriorated markedly last year. The aggregate accounting surplus of the sector as a share of income halved in 2022/23 relative to the previous year, according to the Higher Education Statistics Agency, and 27% of providers were in deficit. The Office for Students, England’s HE regulator, reported that the aggregate cash flows of English universities as a share of total income similarly halved over the same period and that 40% of English HE providers are expected to be in deficit.

Figure 1: Accounting surplus of English universities
GBP bn (LHS), Share of total income, % (RHS)



Note: Surplus/(Deficit) defined as total income less total expenditure, excluding other gains or losses (from investments and fixed asset disposals), the share of surplus or deficit in joint ventures and associates, and changes to pension provisions. Forecasts reflect figures submitted by HE providers to the Office for Students (OFS).
Source: OFS, Scope Ratings

“These headwinds are weighing on universities’ financial performance and liquidity buffers at a time when they should be investing to maintain ageing estates and meet decarbonisation targets. Sustained pressure on the credit quality of select individual educational providers warrants close monitoring and presents an important challenge for the new UK government (rated AA/Stable),” Marly added.

Many higher education institutions are implementing measures to strengthen their financial viability, mainly cost reductions and streamlining their course offerings.

“Despite these efforts, the magnitude of the current financial challenges means that more extensive and bolder cost-saving measures are needed,” Marly said. “Transforming cost structures and optimising income sources with higher margins to support tuition and research will become increasingly crucial for maintaining financial viability.”

Opportunities to reduce costs do exist, such as improving back-office efficiencies through shared-services or automation but such changes are likely to require significant initial investments. Consolidation is also expected to continue in the sector as are other types of arrangements such as jointly-run schools, shared academic staff over specific programmes or combined back-office functions.

The latest forecasts submitted by English HE providers show 35% growth in international student recruitment between 2022/23 and 2026/27 compared to a 24% increase in home student numbers.

“This clearly indicates a further increase in the reliance of the sector on overseas tuition fees, which are uncapped. However, it stands in sharp contrast to near-term international demand, which is declining, adding concern to the sector’s credit outlook,” Marly cautioned.

In addition to operating cost pressures, UK HE providers face important capital expenditure needs. Many providers require significant investment in their estates to upgrade outdated buildings and meet net-zero targets. Around GBP 6.6bn of investment may be needed to decarbonise all HE built environments.

“As many capital works were postponed during Covid to safeguard liquidity, providers must now compensate for this phase of under-investment in a context of elevated maintenance and financing costs and of narrowing operating margins,” Marly noted.

Stay up to date with Scope’s ratings and research by signing up to our newsletters across credit, ESG and funds. Click here to register.