TheChek News Flow

Report from Office for Students warns ‘significant changes’ needed to ‘funding model’

Universities in England face a looming funding crisis as a result of a fall in student applications, with some requiring deep cuts to avoid closure, the sector’s regulator has found.

The warning will be issued in the Office for Students’ annual report on the financial health of the sector, which will be published on Thursday morning.

The report, extracts of which have been seen by the Financial Times, finds 40 per cent of England’s universities expect to be in deficit in the 2023-24 academic year, with an “increasing number” showing low levels of cash flow. 

“An increasing number of providers will need to make significant changes to their funding model in the near future to avoid facing a material risk of closure,” the report will say.

The findings come as the higher education sector battles with Rishi Sunak’s government over plans to restrict further the number of lucrative international graduate students who come and study in the UK.

The government removed the right of overseas graduate students from bringing family members, and increased the salary threshold for skilled workers from £26,200 to £38,700, contributing to a sharp drop-off in applications.

Last week the head of the Russell Group of top-tier universities warned any further reduction in overseas recruitment would lead to a “significant destabilisation of the sector, [and] result in less spending in local communities, fewer opportunities for domestic students and less UK research”.

The OFS annual statement notes a sharp deterioration in the financial outlook for the sector compared to last year’s report, which said “overall we are not currently concerned about the short-term viability of most providers”.

The report also finds current data on student applications indicates numbers have declined this year, which it said “contrasts starkly” with earlier aggregate forecasts that there would be a 35 per cent increase in international students and a 24 per cent rise in domestic ones.

The report will say: “Data on undergraduate applications and student sponsor visa applications indicates that there has been an overall decline in student entrance this year, including a significant decline in international students.”

More than 50 UK universities are making budget and job cuts as a result of the growing financial pressures caused by the drop-off in overseas students, and a decade-long freeze in the annual £9,250 tuition fees paid by domestic students.

The Russell Group of elite institutions estimates universities are losing £2,500 a year on average per student, a figure that is set to rise to £5,000 by the end of the decade.

The OFS said it was “concerned” about the decision some universities were making in response to mounting financial risk. “Across the sector as a whole this may over time reduce student choice: in some subject areas, or in some regions, or for some types of students,” it added.

Earlier this week the government’s independent adviser on migration concluded a 14-week investigation into the UK’s visa graduate programme with the finding that it was not being abused, and should remain in place.

Still, the government has indicated it is considering further restricting the route, because it believes too many overseas students are applying to lower-ranked universities.

Professor Brian Bell, chair of the Migration Advisory Committee, told MPs there was limited “compelling evidence” that the graduate route was essential to raise the skills level of the UK’s domestic workforce, but remains vital for universities’ finances.

The department for education did not immediately reply to a request for comment.

Glencore chief backs South Africa as Anglo takeover battle rages

Gary Nagle’s praise came hours after the country’s storied miner announced it would break itself up

Glencore chief executive Gary Nagle issued a robust defence of South Africa’s mining sector as speculation continued that the Swiss commodity house could yet mount a rival bid for all or part of Anglo American.

In a rare statement of support for South Africa’s mining industry from a chief executive, Nagle praised the tax regime and said infrastructure and power problems in the country were manageable.

“If you look around the world, we have seen changes in royalties across the board — except for South Africa. They have not touched royalties and taxes,” he told a conference in Miami on Tuesday. “Yes, it has issues on infrastructure and power, but the industry can work together to deal with that.”

Nagle added that there had been “recent strong improvements” at state-owned rail operator Transnet. “We think Transnet will go to a public-private partnership and will continue to improve.”

His comments came hours after Anglo, one of South Africa’s most storied companies, announced that it would break itself up to thwart a £34bn bid by its Australian rival BHP.

Mining has long been a bedrock of the South African economy but in more recent years the sector has struggled, beset by electricity outages, crumbling infrastructure and labour disputes.

In response, several foreign mining companies have reduced or exited South African operations, and BHP’s offer — including improved terms on Monday — excludes Anglo’s iron ore and platinum businesses in the country.

BHP, which demerged its own South African operations in 2015, has said the deal structure does not reflect a negative view of the country as an investment declaration. The South African government, however, has criticised the decision to exclude the South African assets.

Glencore has extensive operations in the country and strong relations with the government. Nagle is a South African national who rose up through Glencore’s South African coal business, as is former chief executive Ivan Glasenberg, who remains the company’s biggest shareholder.

Those connections and other potential synergies between parts of Glencore and Anglo have led some investors to suggest Glencore would be a better potential buyer than BHP.

Glencore has not commented on whether it is considering an approach. It is the most naturally acquisitive of the mining majors, having been built by Glasenberg, who favoured buying existing assets over developing new mines.

Mining analysts at Berenberg on Tuesday wrote that they still expected Glencore to make a move. “We would also expect, at some point, Glencore to show its hand and likely submit its own proposal to merge with Anglo American.”

In South Africa, it is unlikely Glencore would want to acquire Anglo’s platinum operations. Glencore does not produce the metal and when it merged with Xstrata in 2013 it inherited a stake in South African platinum producer Lonmin, which it later sold.

In contrast, Anglo’s South African iron ore business, Kumba, would be attractive to Glencore, shareholders and analysts have said.

Glencore does not produce iron ore but trades about 100mn tons a year and is keen to grow.

“It’s a great business that provides value for customers,” Nagle said at the conference.

When Glencore sells iron ore to a client it can often sell them other steelmaking ingredients at the same time, like nickel, metallurgical coal and manganese, he added. “The benefit of having iron ore in the portfolio is not just from making money, but providing those customers with the commodities they need.”