COVID-19: THE 21 UNIVERSITIES MOST AT RISK

The 21 universities most at risk In the second article of our series on Covid-19 and UK higher education, we identify the universities most financially at risk, and why crisis for them would be a blow to social equality.

Covid-19 will impact universities already struggling UK universities, as shown in our previous article, are facing a potential Covid-19 crisis. With the pandemic likely to reduce overseas student numbers, a resulting fall in revenues will lead to ripple effects across the sector. And while the government released plans for grant extensions and low-interest loans at the end of last month, these would lead to higher costs in the future – and some institutions already struggling may not be able to bear the additional financial burden, if they are even able to access it. The Institute for Fiscal Studies found recently that the likelihood of insolvency due to Covid-19 for higher education institutions depends more on their financial situation before the crisis, rather than on predicted losses from Covid-19.1 So which universities are particularly vulnerable?

Our analysis shows which universities are most at risk We’ve conducted our own analysis to understand which institutions are in the most vulnerable position as the Covid crisis looms. To do this, we’ve used five measures of imminent financial difficulty: net liquidity days, unrestricted reserves as a percentage of income, ratios of net assets to expenditure, external borrowing as a percentage of income, and surplus as a percentage of income.2

Figure 1 Financially vulnerable HEIs Areas of vulnerability Institution Liquidity Reserves Assets Borrowing Surplus Overall    3    3     4 Buckinghamshire New University    3    3 Edinburgh Napier University     4

1 Institute for Fiscal Studies, ‘Will universities need a bailout to survive the COVID-19 crisis?’, IFS Briefing Note BN300, 2020, https://www.ifs.org.uk/publications/14919. 2 Analysis performed using HESA finance data from 2015/16 to 2018/19. frontier economics

Areas of vulnerability Institution Liquidity Reserves Assets Borrowing Surplus Overall Glyndŵr University    3 Heriot-Watt University    3     4 University of Northampton    3    3    3 Queen Margaret University, Edinburgh    3    3 Roehampton University     4 St George’s,    3 University of     4    3 University of the West of Scotland      5 University of West London    3 Source: Frontier Economics analysis of HESA finance data. Note: HEIs have been flagged as vulnerable in a certain area if they are performing in the bottom quartile of all UK HEIs for that financial measure.

The 21 universities in the table were found to be performing consistently poorly over time relative to others3 in at least three of the five measures. Of these institutions, three – Heriot-Watt University, the University of Reading and the University of Sunderland – are also heavily dependent on overseas fees, meaning they’ll be even more likely to struggle.4

There are implications for social mobility The majority of the at-risk universities – 17 out of 21 – have a disproportionately high number of undergraduate students who previously studied at state schools or colleges.5 A number of them also offer access to a disproportionate number of students from low participation areas.6 Across the UK, less than 12% of higher education students come from such areas, but several of these less-financially stable institutions educate a much higher proportion, outperforming benchmarks set for them7 (as shown in the figure below).

3 ‘Performing poorly’ is defined as placing in the bottom quartile of institutions, when averaging HESA data over the four years from 2015/16 to 2018/19. 4 ‘Dependent on overseas fees’ is defined by the percentage of total income that comes from overseas fees, averaging HESA data across 2017/18 and 2018/19. 5 When compared to the UK average state school intake of 90%. The result holds even when controlling for the subjects of study that are offered, entry requirements and the region in which each university is located. 6 Measured using POLAR4, low participation areas are defined as middle layer super output areas (MSOAs) that are in the bottom quintile in terms of the proportion of young people who enter higher education at the age of 18 or 19. 7 Benchmarks adjust the UK average to take into account the subjects of study available at the institution, the entry requirements, and the region of domicile.

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The universities most financially at risk from Covid-19, therefore, are institutions that are actively promoting social mobility and contributing to government higher education objectives.

Figure 2 Areas most likely to see institutions fail University of Northumbria has 19% of its students coming from low participation areas, against a benchmark of 13%. Glyndŵr University had 23% of its students coming from low participation areas (POLAR4) in 2018/19, far outstripping its benchmark of 16%. The University of Sunderland has 32% of its students coming from the lowest quintile in terms of participation, while its benchmark is only 15%.

Source: Frontier Economics. Note: Travel to work areas that contain an institution in our list of 21 at-risk universities are highlighted.

Analysis of HESA data shows that students from the local area of these at-risk institutions are disproportionately likely to study in the same region, compared with the UK average. Students from the district where the Universities of Northumbria and Sunderland are located are 15 times more likely to study in that region of compared with the average student in the UK. Equally students from Swansea are 14 times more likely to study in Wales, and those from Leicester are almost 8 times more likely to study in the East Midlands. This demonstrates that catchment areas for some of these at-risk institutions may be relatively small drawing in students from the local area. The implication is that if institutions fail this could lead to gaps in local provision which in turn may lead to prospective students deciding not to pursue tertiary education at all.8

Regional ‘levelling up’ may be affected The 21 universities we’ve identified fall in 17 different travel to work areas (TTWAs), shown on the map above. While five of these are in London and the South East, the rest are spread across the UK, with the East Midlands, the North East, Scotland and Wales being home to a disproportionate number of them.9 A potential failure of these universities would be damaging to the government’s ‘levelling up’ agenda – especially given the ’s recent budget commitment to increase R&D spending outside the ‘golden triangle’ of London, Oxford and Cambridge.

8 Analysis uses HESA data for the 2018/19 academic year. 9 Disproportionate in terms of the proportion of universities in that region that are among the 21 less financially stable.

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What’s more, universities contribute substantially to their local communities – not only through education but also through employment. Universities have been shown to increase GDP per capita in “close neighbouring regions” through direct spending (employment) and spillover effects10. As the map below shows, some of the at-risk institutions are located in areas ranking among the most deprived in England – such as Bradford and Sunderland – according to the Index of Multiple Deprivation. The loss of a significant local institution would be particularly damaging for these communities.

Figure 3 Index of Multiple Deprivation ratings, overlaid with locations of at-risk universities

Source: Frontier Economics analysis. Note: Chloropleth map is based on IMD deciles, where the darker areas represent more deprived TTWAs. The IMD scores of the TTWAs are the weighted average of the LSOAs within them. The aggregated TTWA scores are then ranked and split into deciles. The red outlines depict TTWAs containing a less-financially stable university.

Government refusal to bail out leaves few alternatives As mentioned in our last article, the UK government has so far refused to offer a bail-out to the higher education sector.

10 Valero, A., Van Reene, J., (2019), The economic impact of universities: Evidence from across the globe, Economics of Education Review (68)

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Instead, it plans to offer grant extensions and low-interest loans – chiefly being rolled out in September – to cover a significant portion of the research funding gap left by the loss of overseas student fees.11 This is capped, and only applies to non-publicly funded research activity – meaning it won’t cover teaching costs. There will also be emergency loans available to universities on the brink of collapse, following a report by the IFS suggesting that 13 universities in the UK are in serious danger of insolvency.12 These loans would give the government greater control over the management of the universities in question, from the subjects they teach to how much they pay their staff. These are less than perfect solutions for universities. But without a bail-out, many may have no other option than to take out the loans on offer as emergency measures until they can once again attract international students. For the at-risk universities we’ve identified, taking these government loans may be an additional financial burden that they simply cannot afford in the long term. As a result, they may be forced to combine loans with other drastic measures suggested by the government, such as closing university campuses or merging with other institutions.13 This is if these universities are even able to access these emergency loans, as the decision is based on the restructuring plans which the institutions submit to the Higher Education Restructuring Regime Board, and the government has said that “not all providers will be prevented from exiting the market”. Should it come to pass, all of this will change the shape of the university landscape as we know it. And, perhaps most crucially of all, universities that are important sources of mobility, access and local employment may be the hardest hit of all.

11 Department for Business, Energy & Industrial Strategy, University research support package: explanatory notes, June 2020, https://www.gov.uk/government/publications/support-for-university-research-and-innovation-during- coronavirus-covid-19/university-research-support-package-explanatory-notes. 12 ‘Emergency loans for universities about to go bust’, BBC News, https://www.bbc.co.uk/news/education-53429839. 13 https://www.bbc.co.uk/news/education-53429839

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