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HEFCE closed at the end of March 2018. The information on this website is historical and is no longer maintained.

Many of HEFCE's functions will be continued by the Office for Students, the new regulator of higher education in England, and Research England, the new council within UK Research and Innovation.

The HEFCE domain - - will continue to function until September 2018. At this point we will close the site entirely and all its information will only be available from the National Web Archive.


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The report ‘Financial health of the higher education sector: 2015-16 to 2018-19 forecasts’ [Note 1] shows that the sector is currently in a financially sound position overall. However, forecasts to 2018-19 signal trends of potentially inadequate surpluses, declining cash levels and an increase in borrowing that, unless addressed, will not be sustainable in the longer term.

Of particular concern is that universities and colleges are projecting high levels of growth in the numbers of home, EU and international students in an environment which may make this increasingly difficult to achieve.

Financial performance

The financial forecasts to 2018-19 show increasing variation in the projected financial performance of individual institutions, and a widening gap between the lowest- and highest-performing institutions on these measures.

Sector-level surpluses are projected to be between 2.3 per cent and 4.3 per cent of total income in the forecast period. These are relatively small margins in which to operate, particularly in an uncertain external context.

These forecasts are predicated on significant growth in home, EU and international student recruitment, and on sustained levels of government and EU funding.

They were made prior to the UK’s referendum on its membership of the European Union and therefore do not reflect the potential impacts of the UK’s exit from the EU.

Student recruitment

Student number projections to support financial forecasts indicate that the sector is predicting high levels of growth in total numbers of home and EU students (10.3 per cent over the forecast period).

The sector is also anticipating that fee income from international students will rise from £3.6 billion in 2014-15 to £4.8 billion in 2018-19, a real-terms increase of 26 per cent over the forecast period.

However, it may be challenging for the sector to achieve these levels of growth:

  • The cohort of 18-year-old home students will continue to decline during this period.
  • Although the Government has very helpfully confirmed that EU students applying for entry to an English university or college in 2017-18 will continue to be eligible for student loans and grants for the duration of their course, numbers of EU students may be affected beyond this point.
  • There are indications that the sector may not have achieved the expected growth in international student numbers and fee income it previously forecast for 2015-16. Increasing competition from other countries and potential changes to UK student immigration rules also suggest that international student projections may be difficult to achieve.

These challenges, taken together, could have a significant impact on the sector’s financial projections, even if the currently weaker pound assists in the recruitment of international students in the short term.

Capital investment

The sector expects to invest over £17.8 billion in infrastructure projects over the next four years. This represents an average annual investment of £4.5 billion, 51 per cent higher than the previous four-year average.

As with other financial measures, however, there is increasing variability across the sector with regard to capital investment. For example, nearly a quarter of institutions are planning actually to reduce their expenditure on infrastructure over the forecast period.

Investment in infrastructure is particularly important given that in July 2015 the sector estimated that it still needed to invest £3.6 billion in its non-residential estate to upgrade it to a sound ‘baseline’ condition.

Cash and borrowing

The trend of falling liquidity (cash) and increasing sector borrowing continues. For the first time, borrowing levels are expected to exceed liquidity levels in 2015-16, increasing to a gap of £3.9 billion at July 2019. If not addressed, this trend is not sustainable in the long term.

Two further factors are likely to impact on the sector’s future financial performance. The first is the increase in pension liabilities. The latest estimated valuation of the sector’s largest pension scheme, the Universities Superannuation Scheme, indicates a significant worsening of the deficit. The same is true of other schemes including Local Government Pension Schemes. These increasing liabilities will add to the pressure on institutions to address any funding shortfalls. Second, as well as dealing with potential constraints on income, the sector may well face inflationary pressures on costs.

Madeleine Atkins, HEFCE Chief Executive, said:

‘The latest financial forecasts highlight several worrying trends as the sector looks towards 2018-19.

‘Across the sector we are seeing greater variation in financial performance, with increasing divergence across the key financial indicators.

‘These forecasts come at a time of increasing uncertainty for higher education. The impact on the sector of the UK’s exit from the EU is as yet unknown, and sustaining and increasing international student recruitment, on which universities are increasingly reliant, will present considerable challenges over the next few years.

‘Higher education in England has a global reputation for excellence, and makes a significant contribution to our economy and society. It will be crucial to ensure its long-term financial sustainability.’


1. ‘Financial health of the higher education sector: 2015-16 to 2018-19 forecasts’ (HEFCE 2016/34) is at It analyses financial forecasts for the period 2015-16 to 2018-19, based on information submitted by higher education institutions to HEFCE in July 2016. The analysis does not cover further education or sixth form colleges, or alternative providers of higher education.