‘Bleak’ and ‘unsustainable’: Funding gap puts universities under significant strain

Scotland’s universities face an unsustainable and worsening funding gap, reaching a £200m deficit in 2023/24, an expert review has concluded.

Every year except one since 2016/17 has seen expenditure outstrip income across higher education institutions.

The only year which recorded a surplus was in 2021/21, when Covid-related government assistance helped bridge the gap.

The report also predicts that the situation for 2024/25 will see the deficit grow again, following a decline in international students coming to Scotland.

Author of the report Professor Anton Muscatelli said: “The picture painted in this analysis is bleak. Collectively, Scotland’s universities face an acute and growing financial crisis. The funding they receive – from both public and private sources – is not sufficient to sustain their core activities.

“The gap between income and expenditure has grown markedly since the Covid pandemic, reaching almost £200m by 2023/24. If anything, this is a conservative estimate, which underestimates the full gap, but our aim was to present figures with as robust an underpinning as possible.”

The report was put together as part of the Future Framework for the Sustainability and Success of Scotland’s Universities, a joint initiative by Universities Scotland and the Scottish Government. It is the first of several strands of work, setting out the extent of the funding problem facing higher education.

As well as highlighting the overall funding gap, today’s report quantified the gaps in teaching costs, research, and estate maintenance.

It found only 82 per cent of the cost of teaching home students was covered by public funding in 2023/24, a £288m gap.

And only 72 per cent of research costs were covered that year, with universities having to find an extra £580m from other sources.

And across Scotland, universities have a combined estate maintenance backlog of £1.1bn – a figure that is only likely to climb in future years amid efforts to decarbonise.

Universities have been managing these costs through cross-subsidy, with a particularly heavy reliance on tuition fees from international students.

Such fees now make up nearly half of teaching-related income, up from around a third in 2016/17. In 2023/24, non-publicly funded teaching generated £445m.

But recent drops in the number of overseas students coming to Scotland have put universities in an “increasingly fragile” position, the report warns.

It went on to identify rising costs, declining real-terms public funding and increasing regulatory requirements as further reasons for the strain on institutions’ finances.

And it adds that while different institutions have responded to the pressures in different ways, the problem is “systemic” and “all parts of the sector are affected by underlying structural weaknesses”.

Education secretary Mairi McAllan said the government “recognised the need” to put universities on a firmer financial footing, noting this was a problem facing institutions across the UK.

She added that UK Government decisions on student visas, Brexit, inflation, energy prices and National Insurance had all exacerbated issues.

McAllan said: “This report, which is transparent in addressing the financial pressures in the sector, establishes a shared and evidence-based understanding of the need for change.

“It is an essential first step in addressing these pressures and will help shape a constructive and forward-looking conversation about how we move forward in reforming the sector to be sustainable for the decades ahead.

“Our shared commitment remains to securing a sustainable future for Scotland’s universities while protecting the core principle of free tuition for Scottish students.”

Future reports from the Future Framework will consider the needs of the sector, how universities themselves can reform and collaborate,  and options for putting the sector on a more sustainable footing, both financially and in policy terms.

The only red line set by ministers in setting up the taskforce was that tuition will remain free to Scottish students.

Membership of the group includes the Scottish Government, Universities Scotland, representatives from individual institutions, trade unions and the National Union of Students.

Universities Scotland convener James Miller said: “The analysis is clear that the current position is not sustainable and provides a foundation for the work ahead. This is not simply an issue for universities but for Scotland as a whole. I welcome the Scottish Government’s partnership in this process and its willingness to engage with the evidence.

“Today's report is the beginning of a wider conversation, not the end of it. As we consider the options ahead, it will be important to proceed in a thoughtful and collaborative way to ensure Scotland’s universities remain sustainable, successful and able to deliver for future generations.”