Many English universities to report deficits despite rise in tuition fees

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More than two in five universities in England will fail to balance their books next year despite an inflation-linked rise in tuition fees, the sector regulator has warned.

About 114 of England’s 276 higher education institutions, or 41 per cent, are expected to report a deficit in 2026-27, according to analysis published by the Office for Students on Thursday. This number is higher than the sector’s forecast of only 64 in May.

Nearly 45 per cent of universities are set to report a deficit this year, against the backdrop of long-term funding pressure and fluctuations in student employment.

The regulator’s findings come weeks after Education Secretary Bridget Phillipson pledged to permanently link domestic undergraduate tuition fees to inflation in order to help stabilize universities’ finances.

In its latest financial sustainability update, the Office of Financial Services said that while the fee increases would help offset “some of the income shortfalls caused by staffing challenges”, they were “not sufficient to fully address” the sector’s financial pressures.

The watchdog – whose president last month called on vice chancellors to strengthen governance in order to avoid insolvencies – urged institutions to “critically assess the level of optimism embedded” in their forecasts.

The OfS analysis did not take into account the impact of the proposed levy on tuition fees paid by international students, which the government wants to go towards funding maintenance grants for disadvantaged home students.

But it estimated that the levy – set at 6 per cent – would cost “in the region of £760 million or £780 million” a year if it were imposed in 2027 or 2028, offsetting the tuition fee increase, which is expected to boost annual income by up to £439 million.

Philippa Bickford, director of regulation at the Office of Education Services, said the sector had “become more realistic and prudent”, but some universities continued to rely on “unrealistic expectations of growth”.

She added: “We do not expect many universities to close in the short term. But some institutions need to take drastic measures.”

The OfS report also raised concerns about the cash crunch in parts of the sector: 71 providers are expected to have fewer than 30 days’ liquidity in 2026-27, up from 39 institutions estimated in May.

The watchdog said liquidity levels were particularly vulnerable to student recruitment trends, adding that growth in enrollments remained below “overly optimistic” provider figures despite the recent recovery.

Large, research-intensive universities have increased their undergraduate student numbers in the UK in recent years in response to declining international demand from markets such as China. But increased competition for local students has left smaller and specialist providers facing “more difficult circumstances”, the OES said.

Nick Hillman, director of the Higher Education policy Institute, a think-tank, said that despite pressure from policymakers to adapt, universities had to take into account the upfront costs related to layoffs and restructuring.

He added that the proposed international student tax was a big reason why “things continue to get worse.”

In response to the OfS report, Universities UK, a lobby group, said ministers “have been vocal about the importance of universities to economic growth… but an international student tax will hinder, not help, their ability to create a brighter future for the country.”

The Ministry of Education said: “This government inherited a university sector facing serious financial challenges, with tuition fees frozen for seven years.”

“We have taken action to put the sector on a secure financial footing, including raising the annual tuition fee cap and refocusing the Office for Students on supporting universities to meet the challenges of the future.”