Universities alarmed as ‘bloody’ budget set to hike staff costs

Cash-strapped universities hoping for a light at the end of the tunnel in the UK’s coming budget may find they are instead hit with a series of extra costs, with research funds also at risk, as chancellor Rachel Reeves plans to fill a £40 billion “black hole”.

Many had hoped that Labour would use its first budget for 14 years on 30 October to raise tuition fees in line with inflation, take action on student maintenance and introduce a “transformation fund” to help universities adapt to financial headwinds.

While sector leaders were still pushing for movement in these areas – mindful that time is running out to make any changes that could be in place in the next academic year – it seemed far from certain that ministers had been convinced of the need to move quickly and may instead push any decisions into 2025.

Nick Hillman, director of the Higher Education Policy Institute, said it made “perfect sense” to move on fees and grants in the budget as it was “far from ideal” to wait any longer, given many sixth-formers are applying for university now and it was “only fair” for them to know what to expect. But, he said, he was “not massively hopeful”.

Vivienne Stern, chief executive of Universities UK, warned that the budget may in fact make university finances worse owing to a mooted rise in employers’ contributions to national insurance, and a potential new levy on employers’ pension contributions.

“What I know is that this is an extraordinarily bloody budget,” said Ms Stern, who added that she was “watching with some alarm” the speculation around the proposed rises, which could “unwittingly tip the balance” for some institutions close to the edge.

UUK has estimated that a 1 per cent rise in national insurance contributions will cost a medium-sized institution upwards of £1 million, with the total bill for the sector thought to be about £130 million. While pension costs are harder to model, it is feared that this proposal could add another £5 million each.

“For institutions that, in many cases, have been having to chase what is a moving target to reduce deficits, that’s probably another cost you are going to have to find from savings,” Ms Stern said.

“There are a lot of people who have been through some very, very difficult cuts, maybe still working through them, who will be looking at this and thinking, ‘This means I am going to have to go further than I thought.’ And the deeper you go, the harder it gets.”

Sir Steve West, vice-chancellor of the University of the West of England, said that for his university a 1 per cent rise in national insurance contributions would cost £360,000, adding that any further increase in costs without income uplifts would “simply lead to more cost reductions and staff losses”.

For post-92 universities, any rise in national insurance would come on top of steep recent increases in contributions to the Teachers’ Pension Scheme, and Ms Stern said the speculation “increases the urgency of government allowing institutions to offer alternative pension schemes”.

On research, sector leaders have warned the government against “tucking in” the costs of Horizon Europe association, which would in effect deliver an overall budget cut.

Mr Hillman said Labour’s promises of a long-term science and research settlement were valuable only if set “at an appropriate level”.

He warned that “dressing up” a cut as a good settlement was “something that people would quickly see through, and the result would be a lot less trust in the new administration”.

tom.williams@timeshighereducation.com