06/06/2013 11:59 BST

Universities To Come Under 'Significant Financial Pressure', Warns Report

Universities will face significant financial pressures over the next few years following sweeping changes to funding and higher tuition fees, according to a new report.

It reveals that, despite institutions planning for changes, the Government's overhaul has had a major impact on higher education which could affect the UK's skilled workforce and economic growth in the future.

The study, by vice-chancellors' group Universities UK (UUK), examined the impact of the Government's higher education reforms on the sector.

It says that in 2012 - the first year of the fee hike - England's universities recruited around 28,000 fewer students than expected, the report says.

The drop in recruitment - which was about 9% lower than anticipated - came amid a fall in the number of 18-year-olds, changes in the numbers of students deferring their degree places and concerns by universities that they would face financial penalties for under or over-recruiting students, it argues.

The study also found a drop in postgraduate students and "significant" falls in 2012/13 in the numbers of new entrants to UK universities from countries such as India, Pakistan and Nigeria.

In his foreword to the report, Professor Eric Thomas, UUK president and vice-chancellor of Bristol University, says: "From 2011 to the present day and beyond, the UK's universities are experiencing unprecedented changes in the policy environment, in the funding of higher education and in the recruitment of international students."

This is occurring against a backdrop of a "volatile" economic situation and changes in the population, he says.

"All of this has implications for the funding and financial sustainability of our universities."

Under major Government reforms to higher education fees have tripled, with universities now allowed to charge up to £9,000 a year. There have also been changes to admissions, which last autumn allowed institutions to admit as many students with at least two A grades and a B at A-level as they liked. This autumn that will be lowered to students with ABB.

The report concludes: "There are significant financial pressures on the sector in the medium term."

Many institutions are already charging £9,000 a year for their degree courses, and will need to increase their student numbers in order to increase revenue, it says.

Some may need to invest in capital, at time when funding is constrained, to make sure they have enough room to expand their numbers in the future, it adds.

Universities have built up surpluses, and used this to fund capital expenditure, the report says, but there is "significant doubt" that this is enough to compensate for cuts to capital grants.

It says that failure to invest in this area could mean a return to underinvestment in capital, which would be a "significant step back" for the sector and would be detrimental to the UK's ability to provide a world-class teaching and research environment.

The report also says that a survey of vice-chancellors has revealed a "mixed picture" for international student recruitment in 2012/13.

It comes amid reforms to student immigration, which have affected student entry requirements, their entitlements during their studies, and their options after they graduate.

Universities are reporting significant falls in new entrants from specific countries, including India, the report says.

And while the total number of international students (those outside the EU) rose in 2011/12, the number of new entrants dropped, it adds.

UUK warns that the failure for student numbers to grow at the same rate as in 2010/11 means that the UK has already missed out on millions of pounds.

It also says that the proportion of universities meeting their international recruitment targets fell by 7% between 2011/12 and 2012/13.

Prof Thomas said: "The UK's universities have demonstrated their readiness to embrace change by modifying their financial strategies to prepare for uncertain times ahead.

"However, this report finds that institutions face a number of challenges in the short to medium term in funding capital expenditure.

"There is also evidence to suggest that the sector is significantly constrained in terms of its ability to expand in a sustainable manner in the medium term.

"This has long-term implications for the UK's skilled workforce, productivity and economic growth."