TL;DR Summary

In 2022-2023, 33.22% of UK universities ran at a deficit, while 66.78% posted a surplus. The key differentiator? Stronger and more diversified income streams. Surplus institutions generated an average of £223M, nearly three times the income of deficit universities (£75.1M), thanks to tuition fees, research grants, and international student contributions. However, both groups relied heavily on tuition fees, with surplus universities balancing their revenue mix more effectively. Despite higher staffing and operational costs, surplus universities maintained financial stability through better income management.

1. Introduction

This post analyses the financial health of higher education institutions in the 2022-2023 academic year using data from the Higher Education Statistics Agency (HESA). Understanding the financial dynamics within this sector is crucial for institutional leaders, policymakers, and stakeholders to make informed decisions about funding, strategic planning, and sustainability – And, for us lowly marketers to understand the pressures and drivers around university promotions.

2. Income Sources and Distribution

In the 2022-2023 academic year, of 298 higher education institutions analysed, 199 (66.78%) operated with a financial surplus, while 99 (33.22%) operated at a deficit.

Surplus institutions reported an average total income of £223.0 million, almost three times the average income of £75.1 million for deficit institutions. This significant disparity underscores the impact of income diversity and effective financial management in achieving a surplus.

Tuition Fees and Education Contracts

Surplus institutions earned an average of £106.8 million from tuition fees and education contracts, compared to £46.3 million for deficit institutions. Both surplus and deficit institutions rely heavily on tuition fees, with these sources accounting for 47.88% and 61.61% of their total income, respectively. This heavy dependence indicates that fluctuations in student numbers or tuition fee levels could significantly impact financial stability.

Funding Body Grants

Funding body grants are a vital income stream, contributing an average of 12.26% of total income for surplus institutions and 10.33% for deficit institutions. Surplus institutions received an average of £27.3 million in grants, compared to £7.8 million for those in deficit; surplus institutions benefit more from these grants, which may reflect their ability to align with funding criteria or leverage additional support.

Research Grants and Contracts

Surplus institutions secured an average of £34.2 million from research grants, significantly higher than the £5.4 million received by deficit institutions. Research grants accounted for 15.36% of total income for surplus institutions, compared to only 7.13% for those in deficit. This disparity highlights the role of research excellence and funding capabilities in achieving financial health.

Donations and Endowments

Both surplus and deficit institutions receive a similar proportion of their income from donations and endowments, although at a lower rate than previously indicated (around 2.28% for surplus and 0.87% for deficit institutions). However, surplus institutions received significantly higher average amounts (£5.1 million) than deficit institutions (£0.7 million), suggesting more effective fundraising strategies or larger endowment bases.

Investment Income

Investment income plays a minimal role in overall financial health, contributing 1.82% for surplus and 1.41% for deficit institutions. Despite the low percentages, surplus institutions earned an average of £4.0 million from investments, compared to £1.1 million for deficit institutions, reflecting their capacity to generate higher returns.

3. Expenditure Patterns

Higher Costs, Higher Income

Surplus institutions not only have higher incomes but also face higher costs. These institutions spent significantly more on staff and operating expenses, which are critical for supporting more extensive operations and providing quality services.

Staffing Costs

Staff costs are significant for both groups, accounting for 50.43% of total expenditure in surplus institutions and 52.32% in deficit institutions. Surplus institutions spent an average of £104.0 million on staffing, compared to £41.1 million for deficit institutions; this suggests that surplus institutions have more staff or offer higher salaries, supported by their more substantial income streams.

Operating Expenses

Operating expenses accounted for 41.09% of the budget for surplus institutions and 37.83% for deficit ones. Surplus institutions spent an average of £84.7 million on operating costs, while deficit institutions spent £29.7 million. The higher absolute and proportional operating expenses in surplus institutions indicate more extensive operations, yet their robust income offsets these costs.

Finance Costs

Finance costs were relatively low for both groups, making up 1.76% of total expenditure for surplus institutions and 2.05% for deficit ones. Despite higher finance costs in absolute terms (£3.6 million for surplus vs £1.6 million for deficit), surplus institutions manage these costs effectively, likely using borrowing to fund growth and expansion.

Restructuring Costs

Restructuring costs were minimal, accounting for 0.16% of expenditure in surplus institutions and 0.69% in deficit institutions. Surplus institutions averaged £0.33 million in restructuring costs, compared to £0.54 million for deficit institutions, indicating that restructuring activities did not significantly impact financial outcomes in this period.

4. Tuition Fee Income of UK HE Institutions

In the 2022-2023 academic year, UK higher education institutions derived significant income from various tuition fee categories, including Home, Rest of the UK, EU, and Non-EU students. While some institutions showed a balanced income distribution across these categories, others heavily relied on fees from international students. Let’s explore the income patterns:

Total UK Fees

Combining Home and ‘Rest of UK’ fees offers a broader perspective on domestic income. Total UK fees (Home + Rest of UK) amounted to an average of £46.97 million, making up 54.20% of the total tuition fees. This dominance of domestic income underscores the importance of maintaining a strong local presence for financial health, with over half of the tuition income derived from UK students.

Home Fees Vs the Rest of the UK

Out of 28 universities that provided a breakdown of Home Nation and ‘Rest of the UK’ fees, the average revenue from tuition fees was £47.571 million; this breaks down to 24.84% for Home fees, 19.39% for the Rest of UK fees, and a combined total of 44.23% of the overall tuition fees.

Total EU Fees

EU fees continue contributing to many universities’ financial structure despite the evolving post-Brexit landscape. On average, institutions reported EU fee revenues of £3.13 million, representing approximately 3.61% of total tuition income. Although EU fees generally constitute a smaller percentage of income, they remain an essential aspect of internationalisation strategies for some institutions.

Total UK and EU Fees

When UK and EU fees are combined, the average combined total from UK and EU fees was £50.10 million, accounting for about 57.81% of the total tuition income. This figure underscores the importance of sustaining strong recruitment efforts within the UK and EU to ensure steady revenue streams.

Total Non-EU Fees

Non-EU international students have become a significant revenue source for many UK institutions. On average, universities generated £36.56 million from ‘Non-EU’ students, accounting for 42.19% of the total tuition income. This reliance on international student fees highlights the importance of maintaining a global presence to attract these students.

5. Comparison of Tuition Fee Income Sources Between Surplus and Deficit Universities

By combining data from the Higher Education Statistics Agency (HESE) on Income & Expenditure with Tuition Fee datasets, we can identify patterns in how surplus and deficit universities generate revenue from domestic (UK), EU, and non-EU students.

Total UK Fees (Home + Rest of UK)

Surplus universities derive 52.47% of their tuition income from UK students, compared to 62.22% for deficit universities, indicating a heavier reliance on domestic fees among deficit institutions. This greater dependence suggests that deficit universities may have a less diversified income base, making them more vulnerable to fluctuations in domestic student numbers or changes in UK tuition fee policies. The average of 54.20% shows that, while domestic students are an essential revenue source across the sector, surplus universities balanced this income more effectively with other sources.

Total EU Fees

Surplus universities receive 3.76% of their tuition income from EU students, slightly more than the 2.91% for deficit universities. Although EU fees make up a small portion of overall tuition income for both groups, surplus universities’ ability to attract a marginally higher percentage of EU students may indicate stronger recruitment efforts or more appealing offerings despite post-Brexit changes. The overall average of 3.61% highlights that reliance on EU students is generally limited across the sector, likely due to challenges arising from changes in fees and visa regulations following Brexit.

Total Non-EU Fees

Surplus universities generate 43.77% of their tuition income from non-EU students, compared to only 34.87% for deficit universities, highlighting their greater success in attracting international students from outside the EU. This significant difference is crucial because non-EU students historically pay higher tuition fees, substantially boosting revenue. The higher reliance on non-EU fees in surplus universities indicates a more diversified and potentially stable income stream, making these institutions less vulnerable to domestic or EU market fluctuations.

6. Conclusion and Implications

The financial landscape of UK higher education institutions is heavily influenced by the sources and diversity of their revenue streams. If current revenue patterns remain the same, institutions that diversify their income through tuition fees, research grants, and funding body support will maintain a healthier financial status. However, those heavily reliant on specific revenue sources, mainly domestic and international tuition fees, may face significant challenges.

In the scenario of a drop in the number of international students, surplus institutions, which currently benefit from a higher percentage of their income from non-EU student fees, could substantially impact their overall revenue. This decline would particularly affect institutions focused on attracting international students to bolster their financial stability. As international students typically pay higher fees, a reduction in this demographic could lead to tighter budgets, reduced surpluses, and even potential deficits, compelling universities to explore alternative revenue streams or implement cost-cutting measures.

Similarly, a drop in domestic student numbers would disproportionately affect deficit institutions, which rely heavily on UK students’ income. This dependence makes them more vulnerable to fluctuations in domestic enrolments or changes in government policies regarding tuition fees. A decrease in domestic students could exacerbate financial instability, pushing more institutions into deficit and possibly necessitating restructuring, staff reductions, or cuts in operational spending.