A Study in Economics: The Financial Pressures Facing UK Universities

UK universities are under mounting financial pressure; in 2024, the Office for Students (OfS) warned that 72% of universities in England could be operating at a deficit by the 2025-26 academic year. While institutions such as Durham University and Newcastle University are already being forced to reduce their workforce by the hundreds, Cardiff University is also discontinuing certain degree programmes, particularly nursing, music, and modern languages.

In this article, we will analyse the root causes of these challenges, including the declining student population, rising infrastructure costs, and the inability of tuition fees to keep pace with inflation – all of which pose long-term threats to the entire academic ecosystem.

We Don’t Need No Education: Why the Student Population is Declining

Despite decades of steady growth, the UK is now experiencing an unprecedented decline in university enrolments. Where initial projections anticipated that applications could surpass one million by 2030, more recent predictions suggest a potential drop of around 7% between 2030 and 2035, and up to 20% by 2040. This decrease is particularly visible among three key groups:

• Gender imbalance: Despite a higher birthrate, there is a significant deficit of male students compared to their female counterparts.

• Underprivileged students: While access had improved over the past two decades for those from underprivileged backgrounds to attend university, progress has since stalled in the past few years.

• International students: UK universities are also experiencing a sudden downturn in the numbers of international students by 40-50%, a major revenue loss.

Tuition fees alone aren’t to blame; adjusted for inflation, the £9,000 fee of 2012 will only be worth £5,800 in real terms by 2025. Alongside the price of enrolling, cultural factors also have a hand in deterring applications. Political figures and media rhetoric have questioned the value of certain degrees, undermining public confidence in higher education.

Furthermore, several of the most prestigious universities are lowering their entry requirements and widening their pool, and in doing so reducing the number of students to other universities.

This severe decrease in student numbers has the potential to cause a worst-case reduction in net annual income for universities by £9.7bn. This means that up to 176 institutions could be in deficit if there is no growth in either domestic or international students.

Another Brick in the Wall: The Impact of Infrastructural Costs

Expecting continued growth, many universities have already invested heavily into building and infrastructural projects. An article published in 2021 revealed that the debt burden pressurising the UK’s 20 largest universities had increased from £6.3bn to £9.5bn (50%) since 2016. This debt will only grow if, as the current statistics anticipate as likely, these new facilities will not reach the capacity to make them profitable.

An added burden is the discovery of Reinforced Autoclaved Aerated Concrete (RAAC) in at least fifteen universities (as of 2023). RAAC is a lightweight alternative to regular concrete used commonly between the 1950s and 1990s; with a lifespan of only 30 years and vulnerability to moisture, RAAC has proven structurally unsound, and could cost up to £1m per building to replace.

Tuition Fees-ible? The Problem of Inflation

As the most substantial source of university income, tuition fees are uniquely vulnerable to inflation. Having been capped at £9,250 since 2017, universities are one of the only industries whose primary source of income has not matched the otherwise steep incline in the rate of inflation, and are now worth just £5,925. The cumulative financial impact of the freeze comes to a loss of around £6bn in real terms since the freeze, with the pace of loss only accelerating each year.

Even with a modest rise to £9,535 in the 2025-26 academic year, this increase of 3.1% will not close the gap. Fee caps, though political motivated to protect accessibility, may be unsustainable without alternative funding mechanisms. Without reform, universities could lose a further £17bn over four years.

Back to the Mortarboard: Manoeuvring Financial Strain

Universities are urged to respond proactively to these challenges. Leo Hannah of TechnologyOne emphasises the criticality of technology in getting the most out of a university’s budget, arguing that higher education entities must prioritise long-term forecasting and streamlined and comprehensive data to make robust, informed decisions. 

Peter Mandelson suggested linking tuition fees to inflation, as a ‘stabilising move ahead of further much-needed reform both to improve university finances and make the loans system fairer for individuals’. On the other hand, Universities UK highlight the need for internal reform, encouraging universities to ‘increase efforts to widen access, improve the efficiency of their operations, support economic growth, enhance their local and civic roles, and improve outcomes for students.’

Professor Susan Lea, former Vice Chancellor or Hull, emphasises purposeful leadership and culture change: ‘Leadership is primarily about social change on two levels: social change within the university to maximise delivery of an institution’s strategy and academic mission […] and social change beyond the university through, among other things, educating the next generation’.

How Cambridge MC Can Help

At Cambridge Management Consulting, we help universities respond to financial pressures with clarity and confidence. Our Public Sector & Education team combines deep sector experience with hands-on expertise in cost reduction, efficiency, and financial sustainability. We work with leadership teams to identify and unlock savings, streamline operations, and ensure funding it directed where it delivers the most value.

Our proven cost reduction service focuses on actionable insights, fast delivery, and long-term value – typically identifying savings of 10-20% across non-pay spend, procurement, and process improvement. Combined with our digital and culture transformation support, we can help your institution stay financially resilient and future-ready. Learn more about how Cambridge MC can support the Education Sector here.