Formal insolvency plans spark debate over future of UK universities

Vivienne Stern, Head of Universities UK, has warned that the creation of an “emergency administration process for universities at risk of closure” might paradoxically accelerate closures rather than avert them.

While further education colleges have an insolvency framework under the Technical and Further Education Act 2017, there currently exists no such formal framework for universities.

Formal frameworks could offer protection for students and clarity for institutions

Insolvency, defined as the “inability to meet debts as they fall due”, presents a huge risk in higher education. The Office for Students forecasted nearly three-quarters (72%) of UK institutions to be in deficit by 2025-26, and warned that all universities should have an action plan in the event of a closure.

These statistics prompted the House of Commons Education Select Committee to examine university finances and discuss formal insolvency plans.

Neil Smyth, partner at legal firm Mills and Reeve, stated that there isn’t an “appetite” to put universities in an insolvency process, but formal frameworks could offer protection for students and clarity for institutions.

Macroeconomic factors in recent years have triggered financial decline for several UK universities, including some Russell Group institutions

It has been debated that an insolvency regime for universities could be modelled based on the 2017 framework for further education colleges. However, Stern expressed fears that once universities go down the formal insolvency path, there might be no way back.

She instead proposes the establishment of a “transformation fund” to help universities make significant changes in times of utmost need and prevent “disorderly exits”.

Universities and research facilities across the UK generate an annual revenue of £48 billion, largely from international student fees, and support over 1 million jobs.

Macroeconomic factors in recent years have triggered financial decline for several UK universities, including some Russell Group institutions, though the post-1992 “modern” universities have been hit the hardest.

Formal insolvency frameworks for universities remain controversial because […] many universities are essential partners of regional economies

Factors attributed to financial decline include: low tuition fees from domestic students (though the 2025 increase could offer slight relief), a large number of students opting not to study a degree, post-92 universities’ obligation to pay pension contributions, and the UK government’s tightened regulations around dependent visas.

Several universities have already reduced courses and shut down entire departments.

While Smyth argues that formal frameworks would be safety nets, Adam Leach, National Civic Impact Director, stated that “immediate economic devastation” would ensue in many regions if a university entered insolvency.

Formal insolvency frameworks for universities remain controversial because, unlike commercial entities, many universities are essential partners of regional economies.