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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 The information on this website is historical and is no longer maintained.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.

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The higher education sector is currently in a financially sound position overall. However, forecasts to 2019-20 signal a continuing trend of potentially inadequate financial performance, as well as declining liquidity levels and increased borrowing, which could threaten the sector’s investment plans over the medium to longer term.

As in previous years, the sector overall is projecting high levels of growth in the numbers of home, European Union (EU) and international students in an environment which may make this increasingly difficult to achieve.

However, the sector has a good record of prudent financial forecasting, often meeting financial performance expectations and demonstrating flexible and proactive approaches in adapting to change.

Madeleine Atkins, HEFCE Chief Executive, said

‘These forecasts continue the trends highlighted in our previous reports on the sector’s financial health and highlight a number of volatilities and uncertainties as the sector looks towards 2019-20.

‘At a sector level, the financial health can be described as sound, but at an individual institutional level we continue to see significant variation in financial performance.

‘While there may be significant uncertainty and financial challenge for the sector in the medium term, we are reassured by the way institutions appear to be responding through their scenario planning and the development of contingency plans.

‘Higher education in England makes a significant contribution to our economy and society and operates successfully on a global scale. It will be crucial to ensure its long-term sustainability. Institutions will need to continue to adapt their financial models to an ever-changing local, national and international environment.’

Financial performance

At a sector level the financial forecasts to 2019-20 show modest and reduced surplus levels relative to previous years. These demonstrate relatively small margins in which to operate and are particularly susceptible to significant changes in the financial drivers.

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

At institutional level projected financial performance varies considerably. Institutions will need to make appropriate adjustments to their financial models in the event of any changes to income, in order to maintain sustainable levels of cash flow and investment.

The implications for the sector of the UK’s withdrawal from the European Union continue to be uncertain.

Student recruitment

Student number projections indicate that the sector is predicting high levels of growth in total numbers of home and EU students (5.7 per cent over the forecast period to 2019-20).

The sector is also anticipating that fee income from international students will rise from £4 billion in 2016-17 to £5.1 billion in 2019-20, an increase of 27.5 per cent over the forecast period in real terms.

These forecasts are lower than previously forecast by the sector, and at an institutional level student recruitment projections vary significantly. However, it may still be challenging for the sector to achieve these projected levels. Individual institutions should not rely on growth ambitions for their financial sustainability.

Capital investment

The sector expects to invest significant amounts in its infrastructure over the forecast period. Spend of £19.4 billion between 2016-17 and 2019-20 represents an average annual investment of £4.8 billion, 48 per cent higher than the previous four-year average. As with other financial measures, however, there is increasing variability across the sector. For example, nearly a quarter of institutions are planning to reduce their expenditure on infrastructure over the forecast period.

The affordability of capital expenditure plans will be reliant on the accuracy of institutions’ financial models. We would expect institutions to adjust their plans in response to any adverse financial circumstances.

Cash and borrowing

The trend of falling liquidity (cash) and increasing sector borrowing is predicted to continue, although at a lower rate than previously forecast. Borrowing levels are expected to exceed liquidity levels in all forecast years, increasing to a gap of £5 billion at July 2020. However, at the end of the forecast period they are expected to stabilise.

Two further factors are likely to impact on the sector’s future financial performance. The first is the increase in pension liabilities. The triennial valuation of the sector’s largest pension scheme, the Universities Superannuation Scheme, is still in progress. Any increase in liabilities will add to the pressure on institutions to address any funding shortfalls.

The second factor is inflationary pressure across the sector’s cost base, which will need to be managed in order to maintain financial sustainability.


1. The report is at It analyses financial forecasts for the period 2016-17 to 2019-20, based on information submitted by higher education institutions to HEFCE in July 2017 (before the end of the 2016-17 year). The analysis does not cover further education or sixth-form colleges, or alternative providers of higher education.