Higher education’s financial crisis will change accountancy

Natalie Sharples and Grace Hackett received their A level results in August 2022, before studying at Oxford University and York.

During a recent conversation with a group of British school leavers, all about the life choices they were making and what was driving those choices, Professor Nick McGuigan was presented with opinions that might send shivers down the spines of university administrators.

“They said they didn’t see relevance in the university education process any more,” says McGuigan, an award-winning educator at Australia’s Monash Business School.

McGuigan is collaborating with a group of researchers in the UK to help define the future of universities. The first thing to understand is the impact of AI tools and labour shortages on perceptions of higher education.

“[Students] know they can learn things online, using AI to access knowledge. They can also go out and get jobs, and will be guaranteed practical experience while they’re employed, while they’re earning an income,” he says.

“If you think of higher education qualifications as a form of currency, graduates and employers are starting to lose faith in that currency.”

This image challenge is more bad news in a sector that is already suffering serious financial woes.

Universities have a money problem

It’s no secret that universities in the UK are struggling financially.

Universities UK funded a study by PwC that analysed the financial projections of 84 universities against a range of scenarios. That study said:

“Universities are experiencing challenges with financial sustainability due to a decreased unit of funding for students from the UK … funding per student is at its lowest level in over 25 years.”

• “Universities are also experiencing a slowdown in funding from grants, coupled with costs going up. This means they’re increasingly relying on using different income streams to cross-subsidise their teaching and research activities – especially fees from undergraduate and postgraduate international students.”
• “If the growth rate for international students were to decrease by 20 percentage points relative to university forecasts in 2024–25, 80 per cent of universities could be in deficit in 2025–26.”
• “Even if international student numbers remain the same from 2024–25, without declining, 27 per cent of institutions could be in deficit in 2025–26.”

That study was conducted immediately prior to the COVID pandemic. Now, the worst-case scenario has become a reality.

“Approximately one-third of UK universities have seen a significant drop in non-EU international student applications in 2023, nearly doubling the decline observed the previous year,” a report in Forbes said.

“This cooling interest in British educational institutions not only underscores the broader financial challenges within the sector but also reflects the changing dynamics of global education and its implications for future employment landscapes.”

The decline, the report said, threatens the financial viability of the higher education sector. 

The issue is already having a major effect on institutions. The University of Essex is taking precautionary steps to respond to a potential £13.8 million reduction in income in next year’s budget, after a 38 per cent drop in foreign postgraduate student acceptances compared with this time last year, while Forbes reported a £24 million deficit at the University of York after a 16 per cent drop in international student enrolment.

Can government funding save universities?

Times Higher Education (THE) reported in January this year that vice-chancellors of universities fear the sector is “hurtling into financial crisis”.

“Nearly half of UK vice-chancellors expect their university to be in financial deficit this year, nearly all expect some institutions to breach agreements with banks, while almost none expect government to support a provider in serious financial trouble,” the THE report said.

The tuition fee cap for domestic students has remained frozen at £9,250 since 2017, and will remain so until at least the beginning of next year. A rise in that maximum fee is difficult to justify, the THE report said.

“The fact that £9,250 is already the highest fee for any public university system in the world, according to the Organisation for Economic Cooperation and Development, makes it tough to bail out universities by further burdening graduates,” the report said.

International students paid significantly higher fees, and the steady reduction in their enrolment numbers leaves universities in a quandary.

University crisis – what’s the solution?

“This is all pretty difficult,” McGuigan says. “It’s absolutely to do with international students, who have been relied on heavily as a source of funding.”

At the same time, McGuigan points out, the problem is amplified in the current environment where costs are dramatically rising and universities remain underfunded.

“It’s about international students, but it’s also about young people, about finances and money,” he says.

“You’ve got an entire generation who can’t afford a house. They no longer see that as a real possibility. Their priorities are therefore changing, where they see other, more immediate problems affecting their lives, such as climate change.”

The urge to be engaged in meaningful work that contributes to a sustainable future presents both a challenge and an opportunity for universities, and particularly for educators in the accounting space.

“The accounting profession doesn’t market strongly enough how accountants can hold organisations accountable, to safeguard resources for the future, and to create a regenerative approach to business so we’re working together with nature, not opposing it,” McGuigan says.

“There’s still a distinction between economics and nature. You’ve got pockets of accounting doing some really good stuff, but you’ve also got a whole lot of greenwashing where they’re actually not engaging significantly in changing corporate behaviour.”

Those in accounting education, and more broadly across the higher education space, must better communicate purpose, he says.

“Young people want a purposeful job or career, with a strong connection to solving complex problems they are facing, but we’re still not marketing accounting that way.”

The shape of universities must change

To make accounting degrees, or those of any other university-led career, more attractive and relevant, universities are going to have to be more brave and less conservative, McGuigan says. They are going to have to lead change with agility and adaptability.

“We’ve realised that the lecture style of education is not where the future is,” he says. “Universities are beginning to understand and get on board with that, but the UK has been somewhat slower to accept this.

“Success will sit outside lectures, with much more human interaction. It will be more informal in nature, outside the big tower buildings of the central university campus and instead around learning hubs where industry and education connect.

“Finally, there is likely to be more intense education programmes that run for shorter periods of time. You’ll be able to stream your university education in much the same way that you stream music. The traditional model of an 18-year-old coming out of school and going to uni for three years is losing its relevance, we know that for a fact. Young people are looking for more agile solutions to their learning and continuous development.”