Scotland’s ‘perfect storm’ without funding to cover tax hike

Scottish universities are facing a “perfect storm” following declining international student recruitment and recent hikes to national insurance contributions, it has been warned.

Universities in Scotland may be more vulnerable to rises in national insurance than English universities following a rise in tuition fees for English universities, a report by the Institute for Fiscal Studies (IFS) says.

Recent increases to national insurance contributions announced by the Westminster government could cost Scottish universities an additional £45 million a year, it says, warning: “If extra resources are not forthcoming, then Scottish universities will again be asked to do the same or more for less.”

The Scottish government, which is expected to announce its budget on 19 December, will need to increase its higher education grant funding by around £60 million to avoid real-terms cuts to per-student funding and offset the national insurance rise, the IFS calculated.

But per-student funding has declined by 22 per cent in real terms since 2013-14, with over half of this decline occurring in the last three years, following an £18 million cut in its main teaching grant this year, which provides funding for Scottish and European Union students to attend university in the country for free. 

Unlike English universities, which will be able to increase their domestic fees to £9,535 this autumn, Scottish universities have seen their domestic fees – which are paid by the government – frozen at £1,820 for 15 years.

Kate Ogden, a senior research economist at the IFS and author of the report, said the combination of declining international students and the increase in national insurance contributions creates “something of a perfect storm for Scottish universities’ finances”.

Declining international student numbers are also contributing to the funding challenges in Scotland, with the country seeing 16 per cent fewer visas granted for masters-level study in the first six months of 2024 than in the same period in 2022, and 29 per cent fewer than in 2023. The largest fall in students came from students in Nigeria (down 70 per cent), Bangladesh (69 per cent) and India (22 per cent).

Although this data does not cover the summer period when the majority of visas for students starting courses in the 2024-25 academic year are typically granted, “these early indications suggest that some Scottish universities may be particularly financially exposed”, the IFS says.

Around a quarter of teaching resources at several universities came from fee income from full-time, non-EU postgraduate students, with such income amounting to 40 per cent teaching revenue at the University of Glasgow.

Ms Ogden said: “With tuition free for Scottish students in Scotland, if the Scottish government wants to provide more funding to universities it will need to look to its own budget. Despite a much-improved funding outlook for the coming year following the UK budget, this could still prove challenging given the number of competing priorities facing the Scottish finance secretary Shona Robison.”

juliette.rowsell@timeshighereducation.com