Balancing the books on teaching costs getting harder in UK

The proportion of funding that UK universities recovered from international students fell last year, figures suggest – although it continued to far outpace the figure for home students.

Published by English regulator the Office for Students (OfS), the annual Transparent Approach to Costing (TRAC) report is an activity-based costing system that shows how much universities recover from certain economic outlays.

Recovery of costs on non-publicly funded teaching – which is primarily international students – was a 47 per cent surplus for institutions in England and Northern Ireland in 2021-22.

This was down from a peak surplus of 53 per cent the previous year – and 48 per cent in 2019-20 – marking the first fall since these figures began in 2016-17.

Meanwhile, publicly funded teaching fell to a 6 per cent deficit across the sector – the largest since these figures began – which the report said reflected increases in staff costs including pension costs and inflationary increases in other operating expenses.

Bob Rabone, former chair of the British Universities Finance Directors Group (BUFDG), said activity-based costing was a zero-sum game – when one activity goes down and another up it often moves indirect costs from one activity to another.

A fall in the number of UK students means that direct teaching costs will have shifted towards international students, meaning the rate of surplus has fallen, he said.

And an increasing proportion of international students are one-year master’s students, resulting in an increased probability of future volatility.

Overall, it meant that the total recovery of full economic costs on teaching was a 5 per cent deficit – the second largest on record, behind 2019-20.

Mr Rabone said the fall in the rate of surplus on international students was a natural consequence of the deepening overall deficit.

However, he said the bulk of the change in costs came not from staff costs, but from ‘other costs’ – including infrastructure, agents fees, recruitment and some early inflationary impacts.

Mr Rabone also warned that static home tuition fees – and consistent loss-making on publicly funded teaching – will lead to “ever harder choices about appropriate student numbers for individual subjects”.

Sarah Randall-Paley, director of finance at Lancaster University, and former BUFDG chair, said the main issue affecting 2021-22 international student recovery levels was the return to full operations post-pandemic alongside the significant inflationary pressures.

“Both of these have pushed costs up substantially ahead of the prior years and affect all the main TRAC categories.

“We might expect further erosion in 2022-23 in light of things like higher in-year pay costs too, bearing in mind that any discretionary fee levels are set some time in advance for recruitment purposes.”

With an average 77 per cent surplus, the most research-intensive institutions – those in peer group “A” – continued to earn significantly more money from overseas students than the rest.

But having fallen from an 85 per cent surplus in 2020-21, these universities saw the largest drop of all.

A Russell Group spokesperson said teaching costs were rising because of inflation, supply chain and energy costs, while there has also been increased investment in digital and student support.

“The impact of those rising costs, especially energy, is likely to be higher for lab-based subjects.

“The effects of this are being compounded by the freeze in tuition fees as university income for domestic students hasn’t increased with inflation,” they added.

Universities also incurred a 32 per cent loss on research activity, which was the largest deficit on record.

patrick.jack@timeshighereducation.com