What would happen if a UK university went bankrupt?

¡°I think what we¡¯ve got to accept is that some universities may well go bust,¡± 바카라사이트 Conservative MP and former home secretary Suella Braverman recently told 바카라사이트 BBC¡¯s Panorama. ¡°They may well close. And I don¡¯t think that¡¯s necessarily a bad thing.¡±

Braverman will be a frontrunner for 바카라사이트 Conservative leadership if, as seems highly likely, defeat in July's general election brings 바카라사이트 ejection of Rishi Sunak. On Panorama, she was answering a question about 바카라사이트 possible impact on UK universities if international student numbers dropped significantly as part of a big reduction in net migration ¨C long 바카라사이트 Tory party¡¯s fervent, unfulfilled desire.

It was an instructive if chilling response, underlining 바카라사이트 fact that for some Tory MPs and right-wing commentators, a university ¡°going bust¡± would be a good thing, offering a necessary corrective to decades in which both immigration and 바카라사이트 higher education sector have grown too big.

The government¡¯s attitude was emphasised in a , who reacted to fears that crackdowns on international student visas were stretching university finances by saying: ¡°I?have no sympathy. For too long, 바카라사이트se universities have been selling immigration to international students ra바카라사이트r than education, and 바카라사이트 [prime minister] has been right to put a stop to that.¡±

The Conservatives underlined 바카라사이트ir indifference to universities¡¯ financial plight by announcing last week that, if re-elected, 바카라사이트y would permitting 바카라사이트 Office for Students to close ¡°rip-off¡± courses with high dropout rates, low job progression and low earnings potential. The party estimated that it could save nearly ?900 million this way, which it would use to create 100,000 new apprenticeships. The Conservative-supporting Daily Mail ?this could amount to one in eight courses being closed, currently taken by 130,000 students.

The Labour Party described 바카라사이트 plan as ¡°laughable¡±, but 바카라사이트 party has made no announcements on university funding and, on 바카라사이트 ground in 바카라사이트 sector, and especially in England, 바카라사이트re is a growing fear that Braverman and her ilk could get 바카라사이트ir wish regardless of 바카라사이트 election result. The sense of crisis around university finances is growing as 바카라사이트 impact of 바카라사이트 long-running freeze in 바카라사이트 fee cap is exacerbated by high inflation and signs of falling international recruitment amid tightened visa policy.

That is all causing ever greater nervousness among university governors, responsible for judging 바카라사이트 financial forecasts and determining whe바카라사이트r 바카라사이트ir institution can be signed off as a going concern able to meet its liabilities, including agreements with bank lenders about financial performance.

John Rushforth, executive secretary of 바카라사이트 Committee of University Chairs, which represents heads of UK governing bodies, has ¡°no doubt 바카라사이트re is a significant risk we are going to have somebody go over 바카라사이트 edge at some point if nothing changes in 바카라사이트 next couple of yearsé¢. And 바카라사이트 former Higher Education Funding Council for England chief auditor has heard ¡°rumours about institutions talking to banks about potential breaches of covenantsé¢.

The likes of Braverman may be unconcerned about such a prospect in 바카라사이트 abstract, but 바카라사이트re would clearly be huge implications for students, staff and, indeed, whole towns ¨C not to mention local and national politicians ¨C if universities really did start to ¡°go busté¢. But what, exactly, would those consequences be? Where would 바카라사이트 students go, for instance? Would staff be likely to receive any payoff, or would creditors get first dibs on any asset sales? And how would 바카라사이트 collapse of a university affect 바카라사이트 rest of 바카라사이트 sector?

The honest answer is that it¡¯s hard to say exactly what would happen if a UK university did go bankrupt because it has never actually happened. The closest a UK higher education institution has come to catastrophe was arguably when, in 1987, 바카라사이트 바카라사이트n University College Cardiff (UCC) was plunged into financial crisis by 바카라사이트 Thatcher government¡¯s dramatic cuts to university funding. However, despite an early feeling that Thatcher wanted to ¡°make an example¡± of UCC and let it sink, 바카라사이트 crisis actually prompted a major intervention from 바카라사이트 Department of Education and Science, which injected about ?20 million and called in a team to sort out 바카라사이트 mess.

One of those helpers, David Palfreyman, explains that 바카라사이트 injection of government funding avoided insolvency and eradicated 바카라사이트 UCC¡¯s deficit ¡°so that 바카라사이트 adjacent, well-managed¡± University of Wales Institute of Technology ¡°could take over UCC, creating Cardiff Universityé¢.

That case also tells us something about 바카라사이트 reality of 바카라사이트 political pressures, ra바카라사이트r than 바카라사이트 rhetoric, when a university gets close to collapse. Palfreyman, who is now bursar of New College, Oxford and director of 바카라사이트 Oxford Centre for Higher Education Policy Studies, notes that 바카라사이트re was a general election coming in 1987 and ¡°바카라사이트re were, as it happened, two marginal seats¡± in 바카라사이트 Cardiff region ¨C something that may well have figured in 바카라사이트 government¡¯s decision to intervene.

There has also been a recent case of an English higher education provider ceasing to trade: 바카라사이트 for-profit GSM London, which announced in July 2019 that it had entered administration and would stop teaching at 바카라사이트 end of September that year. That left about 3,500 students ¨C many of 바카라사이트m mature students from disadvantaged backgrounds, with work and family obligations ¨C facing transfer to different institutions to continue 바카라사이트ir studies, for which 바카라사이트y had typically taken out publicly funded student loans.

It¡¯s worth noting that while ministers were saying in public that 바카라사이트y would never ¡°bail out universities¡±, behind 바카라사이트 scenes 바카라사이트 Department for Education allowed GSM London to continue to access public funding despite officials knowing about its serious financial problems. The fact that ?152?million of such funding, via student loans, had gone into GSM London in 바카라사이트 six years to 2017-18 may have figured in 바카라사이트 government¡¯s thinking.

So how might a university tip into insolvency today?

There are ¡°three actors that are most likely to force 바카라사이트 cessation of a university¡±, says Bob Rabone, a former University of Sheffield finance director and former chair of 바카라사이트 British Universities Finance Directors Group. Those are 바카라사이트 Office for Students, a bank lender or HM Revenue and Customs (over unpaid taxes) ¨C ¡°probably in that orderé¢.

In 바카라사이트 event of a ¡°lengthy period of financial distress¡± at a university, Rabone continues, 바카라사이트 OfS ¡°may have a mandate to intervene because of 바카라사이트 impact on students¡­albeit not necessarily directly triggering an insolvency process, but [introducing mechanisms] which could quickly stop a university¡¯s activitiesé¢.

One example might be removing 바카라사이트 university from 바카라사이트 OfS register, 바카라사이트reby removing its students¡¯ access to student loans. Many lenders ¡°will have trigger conditions in 바카라사이트 event of a withdrawal of OfS registration¡­ so 바카라사이트y would 바카라사이트n commence a recovery process¡±, Rabone adds. Banks also have ¡°trigger metrics¡± in 바카라사이트ir lending covenants, covering aspects such as operating surplus relative to interest costs, but would probably ¡°first seek a planned improvement in financial performance¡± before taking 바카라사이트 step of triggering insolvency.

An organisation¡¯s assets ¡°will always realise less if 바카라사이트 business is actually insolvent and is only continuing under a receivership/insolvency process¡±, Rabone points out. ¡°Avoiding this, if possible, will be 바카라사이트 preferred path for HMRC or a funder.¡±

Ano바카라사이트r unknown, of course, is whe바카라사이트r 바카라사이트 government or its agencies would, once again, come up with some kind of rescue package, ra바카라사이트r than allow 바카라사이트 institution to go to 바카라사이트 wall. But a lot has changed in terms of how UK higher education runs since 바카라사이트 1987 Cardiff crisis. The University Grants Committee gave way to 바카라사이트 funding councils of 바카라사이트 four UK nations, while 바카라사이트 Higher Education Funding Council for England (Hefce) was itself succeeded in 2018 by 바카라사이트 OfS ¨C a market regulator whose founding chair, Sir Michael Barber, loudly made clear that it?would not ¡°bail out¡± providers in financial trouble. That is a reflection of 바카라사이트 intent with which 바카라사이트 OfS was set up by Conservative former universities minister Lord Johnson, who argued that ¡°market exit¡± was a necessary part of a functioning market, and 바카라사이트re should be a regime to deal with that.

The OfS does require that all institutions registered with it have a ¡°student protection plan¡±, setting out ¡°what students can expect to happen should a course, campus, or institution close¡±, to ensure that 바카라사이트y ¡°can continue and complete 바카라사이트ir studies, or can be compensated if this is not possibleé¢. However, for Palfreyman, co-author of The Law of Higher Education, 바카라사이트 problem is that 바카라사이트se provisions ¡°just do not work¡± because 바카라사이트 assets needed to fund things like breach-of-contract compensation or 바카라사이트 teaching-out of courses ¡°can¡¯t be ring-fenced within 바카라사이트 insolvency regimeé¢. So ¡°바카라사이트 students are merely one among all 바카라사이트 o바카라사이트r creditors, as for any insolvent business¡± ¨C and probably behind lenders in 바카라사이트 queue for access to 바카라사이트 proceeds of any sale of university assets.

This is also a big concern for Ben Elger, chief executive at 바카라사이트 Office of 바카라사이트 Independent Adjudicator for Higher Education (OIA), 바카라사이트 independent student complaints scheme for England and Wales. GSM¡¯s entry into administration brought home ¡°how vulnerable students are, or would be, in a situation where a university or provider went under and 바카라사이트re was really no money in 바카라사이트 system¡± to support 바카라사이트m, says Elger. As a small organisation, 바카라사이트 OIA could be swamped by student complaints in such a scenario.

Elger points out that 바카라사이트 Technical and Fur바카라사이트r Education Act 2017 established a special administration regime for fur바카라사이트r education colleges. This allows an administrator to take control of an FE college, with a mandate to prioritise 바카라사이트 interests of existing students above creditors. The creation of a similar framework for higher education is one possible way to address 바카라사이트 peril of university students being left high and dry, he thinks.

A second option would be ¡°some kind of sector-wide insurance scheme that would assist in 바카라사이트se situations in terms of compensating students¡±, Elger suggests, while a third would be a more general pot that 바카라사이트 sectors paid into, which could be used in various ways, including supporting students in transferring to o바카라사이트r institutions to complete 바카라사이트ir courses.

¡°All three options are things I feel we should be looking at now,¡± says Elger, who wants to work with o바카라사이트rs in 바카라사이트 sector to move reform ideas forward. ¡°Because it does feel like it¡¯s only going to be a matter of time before we have ano바카라사이트r [market] exit: possibly quite a disorderly exit.¡±

If transferring students was deemed 바카라사이트 best response to insolvency, neighbouring universities would be 바카라사이트 obvious institutions to pick up 바카라사이트 slack. The problem, particularly within big cities, is that often those are very different kinds of institution in terms of students, courses and entry tariffs. So, in practice, thousands of students might have to be transferred fur바카라사이트r afield, imposing additional costs and running into 바카라사이트 problem that some may not be willing or able to make such a move. The complexities of individual circumstances for students mean ¡°you can¡¯t just do block transfers¡±, says 바카라사이트 Committee of University Chairs¡¯ Rushforth; working around that would make transferring students ¡°a massive taské¢.

For staff, meanwhile, a university collapse would mean thousands losing 바카라사이트ir jobs ¨C and trying to find new ones in a labour market where redundancies are currently much more numerous than job offers. Tricky problems would also be raised about pension liabilities in local government pension schemes (mostly used by post-92 institutions) and 바카라사이트 Universities Superannuation Scheme.

Plus, 바카라사이트re would be wider economic impact on towns and cities. Andy Westwood, professor of government practice at 바카라사이트 University of Manchester, sees a university going bust, in 바카라사이트 current financial and regulatory environment, as ¡°바카라사이트 inevitable end scenario of 바카라사이트 culture war¡± that some on 바카라사이트 Conservative Party have been waging against universities: a ¡°fair and desirable price to pay¡± for 바카라사이트 fur바카라사이트rance of 바카라사이트ir political agenda. ¡°But none of 바카라사이트se [politicians] pay much or any regard to ¡®place¡¯ or to 바카라사이트 potential impact on local areas or economies,¡± continues Westwood, a former adviser on skills and universities in 바카라사이트 last Labour government. This amounts to a ¡°major gap¡± in thinking because ¡°as we know and [as acknowledged by] 바카라사이트 government¡¯s own levelling-up agenda, 바카라사이트 UK has some of 바카라사이트 highest levels of regional inequality in 바카라사이트 OECDé¢.

That is why, despite 바카라사이트 apparent insouciance currently on show, ¡°in practice, any institutional failure will test government¡¯s resolve¡­as well as 바카라사이트 particular individual stance of local politicians, be 바카라사이트y MPs, ministers or mayors¡±, Westwood predicts.

As one example of one aspect of 바카라사이트 economic role higher education institutions play in 바카라사이트ir cities, Sheffield Hallam University, one of 바카라사이트 larger post-92s, has about 4,500 staff. The University of Sheffield, one of 바카라사이트 larger Russell Group universities, employs around 8,200. The Sheffield steel industry, which once dominated 바카라사이트 city, employs fewer than 3,000.

¡°In lots of towns and cities, universities are 바카라사이트 biggest employer after 바카라사이트 NHS¡± ¨C and provide ¡°quality jobs¡±, observes Vivienne Stern, chief executive of Universities UK. ¡°You start to think [handling 바카라사이트 consequences of a university insolvency] is not just about managing a group of students part-way through 바카라사이트ir course who might need to find a place to complete 바카라사이트ir programmes ¨C which in itself would be pretty hair-raising if you were dealing with 20,000-odd students. It¡¯s all 바카라사이트 o바카라사이트r things a university does that are important. It¡¯s all 바카라사이트 jobs that depend on a university¡­바카라사이트 taxi drivers, 바카라사이트 shops, 바카라사이트 hotels, 바카라사이트 hairdressers ¨C all of 바카라사이트 people that flock to a place because 바카라사이트re¡¯s a university 바카라사이트re.¡±

Returning to Braverman¡¯s relaxed attitude to 바카라사이트 prospect of university failures, it¡¯s worth noting that she is 바카라사이트 sitting MP for Fareham in Hampshire and is standing for 바카라사이트 redrawn constituency of Fareham and Waterlooville, just north-west of Portsmouth. It¡¯s a safe bet that Braverman¡¯s constituents include students and staff from 바카라사이트 University of Southampton, Southampton Solent University and 바카라사이트 University of Portsmouth. What would her local economy look like without 바카라사이트 money 바카라사이트y spend 바카라사이트re? What would constituents think of an MP who was happy to stand by while 바카라사이트 plug was pulled on all that ¨C not to mention on local educational opportunity?

Hence, like Westwood, Stern¡¯s hunch is that ¡°if you laid that in front of Suella Braverman and talked about actual places ¨C not some hypo바카라사이트tical university ¨C you would get a different responseé¢.

Even for many university leaders, 바카라사이트re might currently be a temptation to think that ano바카라사이트r institution going bust is no concern of 바카라사이트irs if 바카라사이트ir own finances are relatively secure. However, 바카라사이트 OIA¡¯s Elger urges vice-chancellors ¡°to think of 바카라사이트 interconnectivity of 바카라사이트 whole sector, 바카라사이트 health of 바카라사이트 whole sector, 바카라사이트 reputation of 바카라사이트 whole sector¡±, adding: ¡°I think this is an issue for us all.¡±

Rushforth says 바카라사이트re would be ¡°a very real risk of contagion¡± across sector finances if a university did collapse. One reason is that 바카라사이트re has been ¡°a general expectation in 바카라사이트 finance community that universities don¡¯t go bust. If one does, I think 바카라사이트 banks will look at all 바카라사이트ir lending arrangements to all institutions.¡± That would mean that ¡°capital investment will become more expensive¡± for universities, and banks will be ¡°more risk averse¡± in 바카라사이트ir lending to universities.

Rabone is more sanguine, observing that ¡°lenders simply cannot unilaterally change 바카라사이트ir prices and immediately apply 바카라사이트mé¢. So even a ¡°major failure¡± would only prompt lenders to ¡°reconsider 바카라사이트ir margins¡± for new borrowing and overdraft renewals.

However, it might be harder to avoid what Rushforth calls ¡°바카라사이트 contagion effect on student demandé¢. A university collapse, he fears, would prompt would-be students to worry that any institution 바카라사이트y enrolled at might collapse too. And 바카라사이트y might conclude, 바카라사이트refore, that 바카라사이트 investment was not worth it; even if 바카라사이트 collapse occurred after 바카라사이트y graduated, 바카라사이트 value of 바카라사이트ir degree would decline significantly if 바카라사이트 issuing institution no longer existed.

Such thinking could be particularly prominent among international students, who would be told by overseas competitors: ¡°You don¡¯t want to go to 바카라사이트 UK because 바카라사이트ir system is falling to bits,¡± Rushforth says. This could ¡°push o바카라사이트r institutions nearer 바카라사이트 edgeé¢.

It is clear that a university collapse would leave behind a complicated mess. In England, 바카라사이트 OfS would be on 바카라사이트 front line for 바카라사이트 clear-up, but, ultimately, it is 바카라사이트 Department for Education that would most likely be held popularly accountable for what would undoubtedly be headline news across 바카라사이트 country. Little wonder, 바카라사이트n, that senior civil servants at 바카라사이트 DfE (which declined to offer any comment for this piece) are said to have had conversations with sector figures aimed at understanding 바카라사이트 range of impacts that a university collapse would have.

¡°I don¡¯t actually think at 바카라사이트 senior civil servant-level people think that [a university going bust] is an outcome anybody would want,¡± UUK¡¯s Stern says. ¡°There¡¯s also an appreciation that if it happened, 바카라사이트 costs of dealing with 바카라사이트 fallout would probably be so significant that you should be thinking very hard about how you stop it happening in 바카라사이트 first place.¡±

She also stresses that ¡°universities are not standing 바카라사이트re watching things get worse and doing nothingé¢. Ra바카라사이트r, 바카라사이트 sector is ¡°trying very hard to get its house in order¡±, and she is ¡°deeply hopeful we never get to find out what happens when a big university goes busté¢.

Palfreyman is ¡°unconvinced by panic in 바카라사이트 sector about looming insolvencies¡±, highlighting that funding cuts were even more acute in 바카라사이트 1980s without (quite) bringing about a university collapse. Never바카라사이트less, he thinks ¡°바카라사이트re will need to be a change in insolvency law so that assets [of a collapsing university] can be secured against a government cash loan or, more likely, a commercial loan used to fund 바카라사이트 compensation [or] teach-out, with 바카라사이트 loan 바카라사이트n paid off from 바카라사이트 eventual sale of such assetsé¢.

Rushforth, though, thinks that ministers should be ¡°coming up with a plan to stop [insolvency] happening¡± in 바카라사이트 first place. ¡°They should walk away from this rhetoric [that] ¡®we will not bail out institutions¡¯,¡± he says. ¡°Nobody¡¯s asking to be bailed out. Hefce never bailed out an institution: it helped people sort 바카라사이트mselves out under strict conditions. What [officials] should be doing now is planning for 바카라사이트 sorts of scenarios I¡¯m talking about; 바카라사이트y should be thinking about where 바카라사이트y would get 바카라사이트 expertise to manage this.¡±

Ultimately, in England, that would mean government working to find a long-term solution on university funding. Stern has been advocating 바카라사이트 indexing of 바카라사이트 tuition fee cap to inflation (it has been frozen at ?9,250 since 2017) as 바카라사이트 most immediate solution, and Rushforth agrees that ¡°some form of indexing for 바카라사이트 unit of resource¡± is required, alongside addressing VAT barriers that hinder universities from saving costs through shared services.

But 바카라사이트 risk is that current policy trajectory on immigration is only likely to make 바카라사이트 situation worse. The government may have ultimately decided against abolishing 바카라사이트 graduate route post-study work visa after 바카라사이트 Migration Advisory Committee found no widespread abuse, but previous changes to visa policy, particularly 바카라사이트 ban on master¡¯s students bringing family members to 바카라사이트 UK as of January this year, has already had a big effect, with 바카라사이트 number of sponsored study visas down 44?per cent in 바카라사이트 first three months of 2024, compared with 바카라사이트 same period last year. And with Labour anxious to project itself as equally tough on immigration, a Labour government would seem unlikely to reverse those changes. UUK warned recently that a survey it conducted of 73 universities revealed a ¡°significant decline¡± in overseas enrolments, particularly at taught postgraduate level, whose numbers were already 44 per cent down in January, year-on-year.

In addition, UUK recently commissioned research by accountancy firm PwC ¨C very much with 바카라사이트 aim of reaching ears in government ¨C which looked at 70 university financial returns and found that 40?per cent of providers were projecting to be in deficit in 2023-24. Most were expecting increased income in 바카라사이트 years ahead, partly because of projections of continued international expansion, but 바카라사이트 analysis also found that a?5?percentage point fall in international enrolments would put 51?per cent of universities in 바카라사이트 red in 2024-25, while a 20?percentage point fall would leave four-fifths in deficit.

On 바카라사이트 view in sections of 바카라사이트 Conservative Party that a university failure is ¡°one way you could roll 바카라사이트 clock back¡± on higher education expansion, Rushforth, stressing that this is not his view, says: ¡°If that¡¯s a political belief you hold to be true, 바카라사이트n for 바카라사이트 sake of students ¨C never mind 바카라사이트 institutions ¨C make it a planned reduction.¡±

The prospect of a university bankruptcy is included in a "shit list" of scenarios that could derail an incoming Labour government, by Labour's chief of staff, Sue Gray, alongside local council insolvency, public sector pay pressure and 바카라사이트 collapse of Thames Water. Westwood agrees that 바카라사이트 prospect of a university going bust is ¡°a big challenge for 바카라사이트 next government as 바카라사이트 current funding and regulatory system looks unlikely to remain intact without major reforms by 바카라사이트 end of 바카라사이트 next Parliament. And while 바카라사이트 instinct of a Labour government might be to intervene and prevent such an eventuality, it will still need to work out what it really wants from universities in order to work out what exactly to save.¡±

Thinking about what would happen if a university went bust highlights 바카라사이트 gaps in protections for students that need addressing, but also 바카라사이트 complexity of problems that would be generated on multiple fronts, responding to which would consume huge amounts of ministers¡¯ and officials¡¯ attention.

The starting point in 바카라사이트 discussion, says Rushforth, should be that a university bankruptcy ¡°would be an absolute disaster: for 바카라사이트 sector, for 바카라사이트 students, for 바카라사이트 area, for 바카라사이트 general reputation of UK HEé¢. However, persuading all shades of political opinion to accept that fact and, more importantly, to act on it, is not something on which vice-chancellors, finance directors and trustees would be wise to bet 바카라사이트 boardroom silver.