Mounting challenges in the UK university sector are threatening the nation’s economy.
In 2024, these institutions supported 1.2 million jobs, and universities also provided £80 billion (€92.41bn) of gross value added (GVA) to the national output.
Universities in London and the South East recorded the highest absolute contributions, amounting to more than £25bn of GVA.
Meanwhile, regions like the North East and Wales are more reliant on university-related economic activities, although the sector in these areas contributes less to the national output.
There is an increasing risk that universities can’t keep propping up regional economies as they face severe financial pressure, leaving low-productivity regions vulnerable.
In their report, Oxford Economics quantified the current economic impact of 166 universities in the country.
“Although London and the South East enjoy the largest absolute benefits, their diversified and high-income economies mean that they are less directly reliant on the university sector for economic output,” economist David Schmutz said.
“By contrast, the North East and Wales are much more dependent, with the economic footprint of universities accounting for 6.0% and 4.9% of total GVA, respectively, compared to 3.5% for the UK as a whole,” he added.
Universities in the UK have a funding problem
Financial pressure in the sector primarily stems from a freeze in tuition fees for domestic students since 2012, resulting in a significant decrease in real-terms revenue.
Due to the mounting restrictions on student visas, universities are also having more trouble attracting international students, who pay a much higher fee. Domestic students pay a maximum of £9,535 per year for undergraduate degrees (€11,021), while fees are uncapped for overseas students and can reach around £38,000 (€43,900).
This loss of revenue is coupled with a serious research funding deficit. According to Oxford Economics, the gap between the cost of doing research and the amount of funding universities get to do it amounts to £5.3bn (€6.12bn).
Schmutz also highlighted the fragile situation of universities founded post-1992, which are particularly dependent on international students and tend to be more reliant on tuition fee income compared to older institutions. The long-established universities tend to receive more research funding and can benefit from larger financial endowments to secure their balance sheets.
The lack of overall funding results in increased competition among the UK universities to attract more domestic students.
This is crucial for regions like the North East and Wales that rely more heavily on the relatively high-wage, high-productivity university jobs and their economic multiplier effects. That includes international students’ spending, as well as spending by university and supply chain employees.
A decline in the university sector could severely affect employment and local services in these regions, and increase regional inequality in the country, warned the report.
“In a university-reliant local authority economy, a university going bankrupt would have a substantial negative impact that would reverberate through the whole area. It is therefore difficult to overstate the value of universities to the UK’s economic model, both at the national and the local levels.”
Preparing for the future needs of the labour market
The report suggests that a close collaboration between universities and other participants of the economy, mostly businesses, could improve the future prospects of the sector.
If these institutions are working hand in hand with local governments and businesses, as well as focusing on their growth plans, they could better align their courses with local skills gaps and research needs.
“Our forecasts show that the greatest need of the UK labour market in the next 10 years will be in the human health and social care sector, as well as the highly skilled professional, scientific and services sector,” said Oxford Economics.
The analysts also suggest improving the provision of apprenticeships, “which are lacking in the UK compared to in other economies”.