Is 2026 the year that Britain’s universities go bankrupt?

When the dominoes started to fall in local government, it surprised absolutely no-one in the sector. It is the nature of government that the impact of cuts is felt slowly. As local government cuts were first slashed, in the early years of the coalition, there was genuine fat and waste to trim.

After that, services were cut – libraries closed, children’s services were cut, and the kind of benefits local government likes to offer its populations were lost, as essentials were prioritised. For a time, further cuts could be handled by selling off assets, outsourcing workers, and other such means. But eventually, a council runs out of options – and once one has given up, it gives the others licence to do the same. Gradually, then suddenly.

History appears to be repeating itself in the UK’s university sector, with the government and media seemingly determined not to actually notice. The UK’s universities have been unable to raise fees for more than a decade, struggled to secure more research funding, and have found it ever more difficult to recruit profitable international students as successive governments crack down on immigration.

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As they have done so, they have been largely badmouthed by governments who usually fall over themselves to praise sectors that bring money into the country. The UK’s universities are the best in the world outside the USA, and attract students from across the world – who then pay rent, spend money here, and sometimes provide skilled labour too. 

The reintroduction of the Erasmus scheme will come as some relief to UK universities – which traditionally welcome more European students than they lose to the continent. But the fee income from such students is relatively modest (and charged at the same rate as home students) when compared with those from China or India. In any case, as the scheme does not resume until 2027, it will come far too late to address any immediate crises.

In dozens of towns across the UK, the university is the largest employer. Manchester’s universities are bigger businesses (by some margin) than its football teams. University research is crucial to several of the UK’s other leading business sectors – feeding into medical research, biosciences, law and finance. Despite this, universities are ignored at best and actively denigrated at worst.

The result is that they are in a widespread and largely ignored financial crisis. The official verdict of the sector’s regulator, the Office for Students, notes “the third consecutive annual decline in the sector’s finances”, adding that “key financial performance and strength indicators reduced this year”. Making it worse, “student recruitment was significantly below previous forecasts…partly because of challenging international student recruitment”.

The narrative on foreign students is often that they are somehow taking spaces that otherwise might go to Brits. The reality is the opposite: universities use the profit from overseas students, who pay much higher fees, to cross-subsidise UK places. Fewer overseas students means fewer home students, too – if the university manages to stay afloat at all.

Why worry about any of this over Christmas? For most of us, the answer is that we needn’t, for now – but for many working in the university sector, this could be a nervous Christmas indeed, as rumours in the sector are that January could be a bitter one indeed.

Most of us think of the university year as matching the school year, with students enrolling in autumn and graduating in summer, and for most students that’s still the case. However, many universities also enrol students in January – and this January intake is much more heavily made up of foreign students (often on graduate courses).

These students provide vital revenue at a time of year when universities’ coffers are otherwise at their lowest point in the year, with around one in five having only a few weeks (or even days) of working capital. If revenues from overseas students fall short again, as it has the last few years, some universities might fail entirely.

University leaders had hoped Labour would be alert to the long-running financial crisis facing universities, and would step up to tackle it. The new government has at least allowed fees to rise slightly, but any breathing room this offered has been offset by yet more crackdowns on immigration – including rules on student and graduate visas.

Last month, Lords minister Jacqui Smith prompted some alarm in the sector when she gave evidence to parliament and suggested universities could simply continue to teach students if they were insolvent – something widely believed to be illegal. The fear was that Smith, nominally the minister who would have to handle such a crisis, hasn’t yet learned the basics of what it means.

There has not yet been any widespread wave of university bankruptcies, just as there had been no councils going bankrupt in 2018. Perhaps the sector will stagger through this January, too. 

But increasingly, senior leaders, unions, and others believe it’s a matter of “when not if” universities start to fall, with almost no way to know what would happen – or how the government would react – to an unprecedented crisis of this sort. For some, it could be an anxious Christmas indeed.