Crisis accountants are being deployed by the higher education watchdog to help universities that are in some cases just “weeks” from potential collapse.
The Office for Students (OfS) has been conducting “reassurance conversations” with universities to assess their financial liquidity before assigning accountants to the most at-risk institutions, The i Paper understands.
It is understood that a three-year contract has been awarded to leading accountants including the big four – Deloitte, Ernst & Young, PwC, and KPMG – after applications closed on 9 September.
The £4m tender requests a “framework of suppliers” to safeguard students throughout any “financial adjustments or transition, including potential market exits”.
Nick Hillman, director of the Higher Education Policy Institute (HEPI), said that “some universities are worried about their short-term future; weeks rather than months or years”.
A university going bust would leave serious questions about what happens to students, whether tuition fees are refunded, whether foreign student visas would be valid and what the consequences would be for alumni degrees.
“It is urgent,” Hillman said. “That’s why those tenders are out there and why the OfS has been told to focus on financial sustainability and the exclusion of pretty much everything else.”
On 2 December, the OfS announced it would be temporarily closing its register to new providers so staff could prioritise “severe pressures” facing existing higher education institutions.
It comes after OfS modelling revealed last month that 72 per cent of higher education providers could be in deficit by 2025-26, with 40 per cent already in the red by the end of 2023-24.
Universities already in deficit include the University of Kent, Coventry University and London South Bank University. There is no suggestion that any of these institutions are those described by Hillman as close to collapse.
An OfS spokesperson also said that the watchdog did “not recognise a description of any university being on the brink of collapse”.
However, industry experts have warned that the rise in tuition fees from September 2025 – to more than £9,500 – designed to help cash-strapped universities will be “snaffled back” by the increase in employers’ national insurance contributions announced in the Budget.
A source at a university in deficit said the Office for Students has been ringing around every university in England in what it calls “reassurance conversations”.
“The first question they ask is how much liquidity have you got?” they said, adding that the regulator is also asking what steps are being taken to ensure the money does not “run out”.
“If you’ve got a uni with 30 days liquidity and a university with 600 days liquidity, then I suggest they probably are two different conversations,” the source said.
Jonathan Simons, a former Downing Street education official under both Labour and the Conservatives, said the OfS contract is intended to “understand how financially vulnerable certain institutions might be and therefore give a better understanding of the risk to the university and the students”.
Asked whether this is a clear sign that at least one university is close to failing, he said: “Yes, I can’t think of a better way to put it.”
Simons – who now is a partner at Public First, a policy consultancy – published a report in July that called on the OfS to “take a more proactive approach managing and forecasting financial risk” to ensure students are protected.
The report stated that the current regulatory regime does not protect students from an institution having a “disorderly exit” from the market and that Student Protection Plans have “no force in insolvency law”.
Simons described the OfS contract with accountancy firms as the “biggest and the most focused time” that the regulator has “brought external resources to bear” since it was formed with the Higher Education and Research Act 2017. The act was introduced to increase competition and student choice in the higher education sector, transforming it into a market.
It is currently university accounts season, meaning institutions are having their accounts signed off by auditors and the OfS is “triangulating lots of financial data points”, said Simons.
“The OfS and the Government are getting a real sense, institution by institution, of what the auditors are saying, how financially robust providers are and how many [universities] auditors might have some concerns about,” he said.
“At the moment, the projections are that this is a pretty systemic issue. Once you dig beneath the surface, the accountants are likely to be pinpointed towards ones that are in particular issue.”
Ewart Keep, emeritus professor in the Department of Education at Oxford University, said that some universities are getting into “such serious difficulties that ceasing to operate might be a possibility”.
He said the Government and the OfS have a “dilemma” of whether to bail out a university in the case of financial collapse.
“There is a moral hazard problem that if you bail institutions out that haven’t managed their affairs very well, then you’re sending a very dangerous signal to everyone else in the system that there aren’t any consequences if you mess up,” Keep said.
But Hillman, HEPI’s director, said allowing a university to fail would have serious implications for the local economy, students and alumni who fear a degree from a bankrupt institution would lose its value.
“The reality is, the Government has to [step in],” he said. “There are institutions that are too big to fail.”
Universities UK said the OfS deployment of accountancy firms “demonstrates the scale of challenges facing the sector”, adding that institutions have been “making tough decisions” to teach with tightening budgets for “quite some time”.
But the membership organisation added: “Universities are exceptionally experienced at managing complex financial decisions like these, with an aim to continue to provide world-class teaching and research.”
The University of Kent said it is “working to a fully costed plan to return to surplus in the years ahead, underpinned by a full refinancing arrangement agreed earlier this year”.
London South Bank University has acknowledged a projected deficit for 2024/25 but stated that it is “below many others reported in the sector”.
The university said it has a “robust financial plan” to return to surplus, underpinned by a strong asset base and £50m in liquidity, with improvements already under way.
A Coventry University Group spokesperson said their liquidity remains “significantly above regulatory thresholds” despite the sector’s funding crisis.
They said the university has “strong reserves and assets” which enable reforms to address challenges like Brexit, frozen tuition fees, and a 40 per cent drop in international student recruitment in early 2024.
“We are continuing to diversify and pursue targeted sustainable growth,” the university added.
The director of regulation at the Office for Students, Philippa Pickford, denied that the contracts are an indication of providers being in financial difficulty.
“Those contracts are about expanding our expertise so that we’ve got capacity and capability to be able to really understand what’s happening at institutions and kind of what their plans are,” she said.
An OfS spokesperson said: “Engagement with institutions is a routine part of our work – we work with individual institutions to understand their financial position and their plans to respond to, and address, financial risks.
“Our tender, which was published over the summer, will help increase the OfS’s capacity to understand long-term financial issues. It is not designed with imminent risk of institutional failure in mind.”
