Balancing the books: Scottish universities face an uncertain future after a decade of underinvestment

Sitting in the spring sunshine overlooking the manicured lawn of St Salvator’s quad – perhaps the most recognisable view of the University of St Andrews – it’s hard to see Scotland’s higher education sector as anything other than a global success story. Regularly named the country’s leading university, St Andrews has been hugely effective at attracting foreign students, particularly those from the United States, giving the Fife town a cosmopolitan feel.

But behind Scotland’s long-held reputation for academic excellence, there is another tale to tell, one of universities in a state of turmoil. St Andrews is not immune from those challenges – in December the institution said it was overhauling its financial strategy and introducing a recruitment freeze due to a “substantial increase” in its forecast deficit. However, it is just a short drive north via the Tay Bridge at the University of Dundee where the problems have been most acute. 

Earlier this year Dundee announced measures to cut more than 600 jobs – around a fifth of its workforce – in an attempt to address a £35m deficit. It has since scaled back the plans, setting out an “alternative pathway” that will see the institution look for around 300 voluntary redundancies. But the university’s principal, Shane O’Neill, has said “significant public funding” will be needed to make the plan work.

The University of Aberdeen has said it too needs to make millions in savings and will consider measures including a recruitment freeze and voluntary redundancies. At the University of Edinburgh, around 350 staff have already accepted voluntary redundancy as the institution seeks to reduce costs by £140m. The university’s principal, Peter Mathieson, has called for a debate around student funding amid a large drop in international students and the revenue they bring in fees to Scotland’s universities.

Scotland’s current higher education funding arrangements date from when the SNP came to power in 2007 and scrapped the graduate endowment, a £2,289 fee paid by those who had completed their degree. Under the current system, the Scottish Government funds Scottish students, paying universities £1,820 per student per academic year – a sum which has not changed since 2009/10. Following the introduction of higher-rate tuition fees in England and Wales, students from the rest of the UK pay up to £9,535 a year to study in Scotland, and since Britain’s exit from the EU foreign students pay as much as £35,000 annually and more to study medicine.

And yet despite the extra revenue available to universities via tuition fees in England, many institutions south of the border are also feeling the pinch. A report published earlier this month by the Office for Students, the higher education regulator in England, said income had fallen for the third year in a row amid a drop-off in the number of foreign students. It warned universities are attempting to make up the shortfall by selling off buildings, dropping courses and cutting staff.

“It does feel like things have come to a head recently but the drivers of that are longer term,” says Kate Ogden of the Institute of Fiscal Studies (IFS) think tank. “One is the decline in teaching resources we’ve seen in England and Scotland. In England, it’s a story of tuition fee freezes, and in Scotland it’s freezes or cuts to grant funding. 

“Many universities had plugged those gaps by recruiting more international students. It looks like universities were all forecasting that things were going to be alright because they were going to keep recruiting loads more UK and international students and they’ve under-recruited on both counts.” 

The IFS recently warned that Scottish universities face a “perfect storm” due to declining numbers of foreign students and higher costs such as National Insurance contributions. At the same time there has been a real-terms cut in the level of funding provided by the Scottish Government to the Scottish Funding Council, the body which allocates funding to universities. And yet there has been very little political debate about the state of university funding in Scotland other than discussions about how to safeguard jobs at institutions such as Dundee in the short term. Ahead of next year’s Holyrood election, both the SNP and Labour have said they remain committed to maintaining free tuition. 

Mary Senior, Scotland official at the University and College Union, says morale amongst higher education staff is currently at “rock bottom”. “Every major party went into the general election last year with a commitment to free tuition for Scottish domiciled students, which we welcome, but they need to put their money where their mouth is,” she says. “We’ve seen a decade of underinvestment in the sector.

“We don’t seem to be valuing higher education enough and putting the resources there to enable it to do all it needs to do. We’ve seen the teaching grant [from government] decline in real terms which is having a really challenging impact.”

While many of Scotland’s universities looked to overseas students to help offset their funding challenges, that model has become more problematic due to an interplay of complex factors including changes to UK visa requirements. Figures from from the Higher Education Statistics Agency published in March show the number of foreign students at Scottish institutions dropped by more than 10,000 last year. Although the situation is far from straightforward – while the University of Glasgow saw a 15 per cent fall, Edinburgh managed to increase its number of overseas students. 

Senior wants the UK Government to end what she calls its “hostile environment” policy for foreign students, but things appear to be moving in the opposite direction, with Prime Minister Keir Starmer recently announcing a series of measures to curb immigration. One measure is to reduce from two years to eighteen months the amount of time foreign students can remain in the country after graduating. UK ministers are also said to be considering a new tax on tuition fee income from international students which could cost Scottish institutions £85m a year. 

It’s not just universities that are facing funding challenges. Colleges are also operating amid tight financial constraints with funding falling by nearly a fifth in real terms since 2021/22. Scotland’s further education sector underwent a major reorganisation in 2012, reducing the number of institutions from 41 to 26. Since then, the figure has reduced further to 24, but last year Auditor General Stephen Boyle said colleges needed more clarity from government on what part of their role to prioritise. 

UCU members protesting at cuts at the University of Dundee | Alamy 

In response to the report, sector body Colleges Scotland warned that further education institutions are under “enormous pressure” financially, reducing their ability to carry out key functions such as giving people opportunities to gain qualifications and progress to university, and supporting industry with upskilling and retraining. Following publication of the SNP’s programme for government earlier this month, the organisation said recognition of the sector’s importance was “not enough” without a “clear and urgent reversal of the long-standing underinvestment” in further education. 

As well as maintaining free tuition and widening access to education, the programme for government – which was brought forward from September – set out a range of measures including a new national approach to skills planning and what the further education sector called a “modest” investment of £3.5m to help deliver those with skills needed to work in the care and offshore sectors. There was also funding of £700,000 for Corseford College in Johnstone, the only further education facility for young people with complex support needs which had been threatened with closure. 

In 2024, 92.7 per cent of 16 to 19-year-olds in Scotland were in education, training or employment, a slight increase on the previous year. But within that overall figure there are some large variations. For example, while the participation rate for 16-year-olds is 99.1 per cent, it falls to 85.3 per cent by the age of 19. And while the gap narrowed, there is an eight point difference in participation between those from the most affluent and most deprived areas.

Despite ongoing challenges in school education, the successes of Scotland’s universities have helped mask some of the funding issues in the sector. Amid a squeeze on the public finances, it is much easier politically to reduce funding for a higher education sector which appears outwardly wealthy than it is for the NHS or schools. Those perceptions aren’t helped by the universities themselves, with Stirling principal Sir Gerry McCormac recently receiving a 40 per cent pay rise, taking his salary to £414,000.

“It’s an own goal,” says Senior. “That makes it really hard for us to make an effective case for public funding when the salaries and perks of some of these university principals are just eye-watering. I recognise these are complex organisations to run, but those sorts of salaries are unjustifiable.” 

The performance of the country’s universities and their international reputation is something Scotland can be genuinely proud of but in the run-up to next year’s election it’s possible more will report financial difficulties. It’s unlikely that higher education will feature much on the campaign trail, especially when there’s near-consensus on tuition fees among the parties. But whoever forms the next government will likely come under increasing pressure from both universities and colleges that are being asked to do more with less.