About a dozen universities could be at risk of insolvency because of the coronavirus pandemic, with a potential drop in the number of students and mounting pension liabilities leaving the sector facing an unprecedented financial crisis.
With losses across higher education totalling anywhere between £3bn and £19bn, or between 7.5 per cent and half of overall annual income, some institutions may be unable to survive without a targeted government bailout, according to research by the Institute for Fiscal Studies think-tank.
The hit is expected to be unevenly distributed, with less prestigious institutions that have lower cash reserves most likely to face insolvency, the analysis found. More established, research-intensive institutions with large pension liabilities and many international students risk the greatest losses but are likely to have relatively healthy overall finances.
Based on a central estimate of losses of £11bn for the sector, the IFS said 13 institutions could end up with negative reserves and need a bailout in order to survive.
“With around £45bn in reserves and an annual surplus of around £2bn before the crisis, the university sector as a whole should be able to cope with substantial Covid-related losses,” said Ben Waltmann, research economist at the IFS.
“However, some universities were already in a weak financial position before the crisis hit. For around a dozen of these institutions, insolvency is likely to become a very real prospect without a government bailout,” he added.
The warning comes a week after the government announced a rescue package for the sector, including £280m of funding towards research costs, and access to long-term low-interest loans worth up to 80 per cent of income lost by international students.
According to the IFS, sector-wide funding would be unlikely to save the most at-risk institutions, but a targeted bailout of just £140m could save universities facing possible insolvency.
Universities would be unlikely to “claw back” losses through cost savings without making significant redundancies, the think-tank warned.
Jo Grady, president of the University and College Union, said the report highlighted the need for a comprehensive government bailout that would protect jobs and ensure teaching quality.
“The government has to now step in and guarantee lost funding for universities so they can weather this crisis and lead our recovery on the other side,” she said.
Universities UK, which represents the higher education sector, said universities had been working with the government on a “package of positive interventions” but warned that some disruption was not out of the question.
“Any student or their parents should be reassured that the failure of a university is rare, but course closures and occasionally campus closures are something many universities will have experience in managing, and all registered universities have student protection plans in place for this scenario,” said Alistair Jarvis, UUK chief executive.
However, Nick Hillman, the director of the Higher Education Policy Institute think-tank, said the IFS estimates should be taken with a “lorry load of salt”.
“Unless there is a major second wave of Covid-19, the IFS’s ‘central’ estimate for the short-term financial losses would be better labelled ‘pessimistic’ and their ‘pessimistic’ estimate would be better labelled ‘extreme’,” he said.
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