Scottish Government - Institute for Fiscal Studies (IFS): Scottish Universities and Students under pressure

Shona Robison, the Scottish finance minister, delivered her first budget, laying out spending plans for 2024-2025. Despite some positives in the Scottish economy, such as better than expected tax revenue collection and additional funding from the UK government, the wider backdrop is one of higher than expected inflation in 2024 and a downgrading by the Office for Budget Responsibility of UK GDP levels over 2024 to 2026. Documents published by the Scottish executive include the budget report and various annexes and tables. This news alert focuses on elements in the budget that relate to higher education. The IFS report provides some context to the budget announcements and looks at the challenges facing the HE sector in Scotland.

The main Budget document can be found here

The IFS paper can be found here

At-a-glance:

• Investment of over £2.4 billion in the “colleges, universities and skills system” was the headline education figure in the budget, which includes funding to protect free tuition and widen access (budget report p67)
• Higher education student support rises from £925 million in 2022-24 to nearly £1.5 billion in 2024-25 (budget report p69)
• Students will see their loan entitlement increase by £2,400 next academic year, taking the maximum living cost support from £9,000 to £11,400 (post-graduate to £13,900) (IFS)
• Students with household incomes below £34,000 will continue to be entitled to non-repayable bursaries of between £500 and £2,000 per year (IFS)
• Total funding to the Scottish Funding Council (SFC) will decrease from £2.01 billion in 2023-24 to £1.9 billion in 2024-25, around the 2022-23 level (budget report p69)
• Higher education capital funding, which includes funding for research, will increase by nearly 5 per cent in 2024-25 to £357 million (Scottish Budget level 4 tables)
• Scottish universities received direct public funding of £7,610 for each Scottish student this academic year, around 19 per cent less in real terms than in 2013–14 (IFS)
• Per-student funding to Scottish universities is £2,020 (21 per cent) lower than the resources available for an English university teaching an England-domiciled undergraduate in 2023–24 (IFS)
• The SFC allocates each university a number of ‘funded places’. They are able to recruit up to 10 per cent above this cap, receiving only around a quarter of the average per-student funding for the extra, and then face financial penalties for recruitment beyond this (IFS)
• At the margin, Scottish universities receive much more funding for teaching an additional UK or international student than an additional Scottish student, giving them a financial incentive to expand provision, but not for Scottish students (IFS)

Implications for governance:

The budget for 2024-25 reaffirmed the commitment to free tuition fees for Scottish students studying in Scotland – a model that the IFS argues is becoming increasingly difficult to sustain given the financial pressures facing the Scottish Government as well as Scottish universities and students.

Despite these pressures, student support has been increased, allowing Scottish students north of the border to borrow more. The move, which will bring the amount of support available more in line with their English counterparts, will be welcomed by universities which are acutely aware of the difficulties students face with rises in the cost of living.

A higher student support package will also aid progress towards the widening participation target set by the Scottish government that one in five entrants should be from the 20 per cent most deprived communities by 2030. The continued availability of means-tested bursaries of up to £2,000 will also help.

The IFS report outlines a yet-to-be-announced increase in the graduate loan repayment threshold in Scotland, in contrast to the situation in England where it will continue to be frozen through the next financial year at £27,295 (the same level as in 2021–22). The threshold for Scottish graduates is increased each April in line with the Retail Prices Index (RPI) in the year to the previous March. This implies a 13.5 per cent increase in April 2024, from £27,660 to £31,395, which would see graduates earning above the new threshold repaying £336 less per year.

Governors in England could be forgiven for looking with some envy at free tuition fees, the availability of grants for the poorest and rising repayment threshold plans north of the border, but they are also acutely aware of the negative consequences of the model that their counterparts in Scotland face.

Scottish universities received £7,610 for each Scottish student this academic year, around 19 per cent less in real terms than in 2013–14 and significantly lower than the £9,250 in tuition fees going to institutions south of the border. Free tuition comes with a numbers cap, restraining expansion of home students.

Against this backdrop, governors will need to be particularly vigilant in their efforts to assure financial sustainability and managing reputational risk while keeping a close eye on issues around the balance between recruitment of Scottish, RUK, and international students.

The boost to student support in the budget will undoubtedly benefit Scottish students. However, as the IFS report points out, the most pressing problem for Scottish universities is providing additional resources for teaching, which is needed to arrest the decline in per-student funding, or to fund more places for Scottish students, neither of which were part of the budget.

Universities Scotland’s key asks in the run up to the budget were increased funding per student to support teaching, learning and wider student need and more resources across SFC’s research and innovation grants and capital funding to meet sector estates challenges including RAAC. An increase of 4.8 per cent in the capital allocation will be available in 2024-25. Beyond that, the financial outlook that Scottish university governors face will be at least as challenging as it has been in recent times.