A study conducted by the Institute for Fiscal Studies (IFS) announced this week that at least 13 universities across the UK face “a very real prospect of insolvency” amid the COVID-19 crisis unless there is urgent government intervention.

The IFS have recommended a targeted government bailout as the most feasible and cost-effective solution to protect jobs, preserve academic capacity and ultimately keep these institutions afloat.

But what does this mean for the wider higher education sector?

A significant threat to the UK higher education sector

In general, institutions with a large number of international students have experienced the biggest fall in income throughout the COVID-19 crisis – these tend to be high ranking universities or postgraduate-only institutions for example. Whilst student figures may recover by admitting a higher number of UK students, many universities are constrained by recently introduced student number caps, which may prevent them from recouping the necessary funding.

Other confounding factors include:

  • The level of financial reserves in place prior to the crisis
  • Volume of net assets
  • Depreciating long-term investments
  • Increasing deficits associated with university-sponsored pension schemes

Much more vulnerable are those that entered the crisis already on the back-foot.

Taking action: Facilitating the prevention of financial distress

When it comes to insolvency regimes, trustees, directors, or governors – in the case of higher education – are held accountable, which is crucial in protecting creditors and maintaining the integrity of the institution. Good financial management is therefore essential.

In recent years, the Government have worked alongside Insolvency professionals to devise a co-ordinated approach to help financial institutions and their governors, supporting effective decision making and improving financial resilience, introducing the further education insolvency guidance in 2017. The framework includes:

  • Implementing a preventative function to identify financial pressures sooner and intervene accordingly
  • Reducing the risk of insolvency through good financial management
  • Reducing the risk of liability to governors
  • Financial duties and obligations of governors in relation to the financial wellbeing of an institution

Here at Smith Cooper, we work alongside trustees and governors of several local and national higher education institutions, providing candid, proactive commercial advice to assure long-term resilience, helping the board of directors or governors to make informed decisions and implement necessary, time critical measures.

Insolvency really is a last resort, and we strive to avoid formal insolvency at all costs, conducting independent business reviews, reviewing cash and working capital options and implementing procedures to identify issues early in the decline curve, and is something which we pride ourselves on.

If you seek any further advice, please do not hesitate to get in touch with our expert team. We have extensive experience supporting educational institutions and are here to help you navigate the complexities associated with the sector.