Universities and Scotland Contents

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3Finances of Scottish universities

Introduction to the funding model

Free tuition policy

14.There are large variances in public sector higher education spending across the UK. In 2018–19, £272 was spent per head in Scotland, the highest in the UK, compared to around £40 per head in some English regions, and as low as £19 per head in the East of England.22 In terms of international comparators, Mary Senior from the University and College Union Scotland told us that the UK spends 0.47% of GDP on tertiary education; Germany and France spend over twice that; and Norway spends more than three times that amount.23

15.Higher public sector spending on higher education in Scotland compared to the rest of the UK is predominately a consequence of the Scottish Government policy of free tuition for Scottish students (and until recently EU students). Scotland is the only country in the UK that offers fee-free university tuition. This is a policy which has support across the political spectrum in Scotland, with the Scottish National Party, Conservatives, Labour, Liberal Democrats and Scottish Greens all backing it.24 Debates continue however about the impact this policy has on students and Scottish universities.25 The Secretary of State for Scotland, Rt Hon Alister Jack MP, told us that:

In order to meet the costs of this policy, the Scottish Government provides £213 million in funding (approx. £1,800 per student per academic year for a degree programme) with a cap on places to control costs. In England, UK and EU students are personally liable to pay up to £9,250 per academic year for a degree programme. While income from undergraduate students only represents part of the funding picture, this difference in approach between Scotland and England clearly contributes to the budgetary pressures that institutions in Scotland face.26

16.As noted by Audit Scotland, the ability of universities in other parts of the UK to charge higher fees allows them to generate increased income, which can be invested in maintaining or improving what they can offer to prospective students and researchers.27

Unofficial ‘cap’ on Scottish student numbers

17.Although there is no formal cap on the number of Scottish students who can study at Scottish universities, in order to budget effectively, the Scottish Government predefines the funding it provides to Scottish universities each year to cover the cost of tuition for Scottish students. This has the result of creating an unofficial cap on the number of Scottish students who can study at Scottish universities each year. According to the Scottish Government:

Each institution is allocated a number of full time equivalent funded places via the Scottish Funding Council for eligible Scottish domiciled [ … ] students on full-time undergraduate courses. The total number of funded places in Scottish universities [was] over 128,200 in 2019–20. International students and those from other parts of the UK [ … ] are not eligible to access the funded places which have been protected for Scottish [ … ] students. To enable flexibility in student recruitment, the Scottish Funding Council allows universities to recruit up to 10% above the number of funded places available. In addition to this, universities are able to offer as many places to [students from other parts of the UK] and international students as they wish.28

18.As students pay for their own tuition in other parts of the UK, a similar cap does not exist elsewhere (other than for a temporary period during the covid-19 pandemic).29 It was reported in 2020 that, for the previous academic year, the unofficial ‘cap’ had led to only 55% of university applications from Scottish students being offered a place at Scottish universities, compared to 74% of English students at Scottish universities,30 raising questions about impact the free tuition policy has on widening access for Scottish students.

Scottish university income sources

19.There are six main income sources for Scotland’s universities:

• Tuition fees;
• Funding grants;
• Research grants;
• Investment income;
• Donations and endowments; and
• Other income (including commercial)31

20.Audit Scotland’s 2019 report found that tuition fees were the single largest source of university income in 2017–18.32 This has remained the case in subsequent years.33 The chart below, which relates to 2017–18 (from Audit Scotland’s 2019 report), shows that over half of that tuition fee income came from international (non-EU) students.

Income profile for the university sector in 2017–1834

21.Scottish Funding Council (SFC) grants made up the second highest income source in 2017–18. This has also remained the case in subsequent years.35 Karen Watt, Chief Executive of the Scottish Funding Council, told us that although Scottish Funding Council funding represents about 30% of the whole sector’s total income, reliance on their funding varies very much below the surface.36 To illustrate this point she informed us that:

[ … ] the University of the Highlands and Islands [ … ] relies quite heavily on [SFC] funding—69% of its funds come from the Scottish Funding Council—whereas the University of St Andrews has a very low reliance, at 15% of total funds.37

22.Audit Scotland found that although Scottish Government funding to the SFC for universities increased by 0.1% in cash terms from £1.116 billion in 2014–15 to £1.117 billion in 2017–18, this equated to a real terms reduction of 5%.38 Taken together with a 7% reduction between 2010–11 and 2014–15, this represented a real terms reduction in Scottish Government funding of 12% over seven years.39 Alastair Sim, Director of Universities Scotland, told us that with teaching funded at about 90% of the actual cost of provision for Scottish students, and with research projects typically funded at 80% or under of the cost of doing the project, universities are entirely reliant on entrepreneurial activity, principally international activity, to fill that gap and enable universities to do those things at the core of supporting the common good and the charitable mission.40 In the view of Professor James Conroy, University of Glasgow:

It is unsustainable to have fee levels where they are at the moment. To put it in perspective, in a previous incarnation I was dean of the faculty of education, where we got at the time £8,400 roughly per capita. It is £2,000 less today, and that is something like 12 years later. The present levels of funding are unsustainable to maintain a world-class university system.41

23.Although total income for the sector as a whole increased by 3% between 2014 and 2018, total income reduced at nine universities, including five modern universities, over that period.42 The chart below (from Audit Scotland’s 2019 report) demonstrates the different levels of reliance universities in Scotland have on different income streams. This means that changes in the value of revenue streams, for example fluctuations in international student applications, or changes in the value of SFC funding, have much larger implications for some Scottish universities than others.

Income profile for Scottish universities in 2017–1843

Covid-19: university finances before, during and looking ahead

Finances pre-pandemic

24.Just as there are large disparities in the importance of different incomes streams to Scottish universities, the same disparities exist—and have existed for a long time—in the financial health of institutions. Audit Scotland noted pre-pandemic that:

While the sector overall is in good financial health, this masks significant variation across universities, and many sector-level indicators are disproportionately affected by the financial results of three of the four ancient universities. At an aggregate sector level, the operating position has remained broadly stable [between 2014 and 2018], but six universities reported deficits every year. Between 2014–15 and 2017–18, the underlying position for the sector improved, but the position was worse for six universities [of 18].44

25.Audit Scotland also highlighted that six of Scotland’s universities had reported deficits every year since 2014–15; more than half of all Scottish universities were in deficit in 2017–18; and that the position was worse in 2018 than in 2014–15 for most modern and chartered universities.45 They found that this was due to various factors including sustained reductions in SFC funding (outlined further in paragraph 22), increased contributions to pension schemes (up to £23 million extra per year), the effects of EU withdrawal and major estate maintenance requirements.46 Audit Scotland found that, in July 2018, universities estimated that the total value of outstanding estate maintenance requirements was equivalent to 25% of annual income across the sector.47

The Scottish university estate is large and diverse. There are 1,856 buildings throughout Scotland, in 146 locations. [ … ] 6% of the estate was built before 1840 and 24% between 1840 and 1959. The value of the estate is just over £5 billion, with Edinburgh having 33% (£1.7 billion) of the total value.48

26.They also found that ‘ancient’ universities were generally better placed to withstand these pressures, because of their ability to generate income from other sources and the balances in their reserves, but they faced strong competition from other universities in the UK and the rest of the world.49

Financial impact of the pandemic

27.In the early months of the covid-19 pandemic there was a great deal of concern around the financial impact it would have on university finances. Concern was not only confined to the universities already struggling and with deficits and low levels of reserves pre-pandemic, but was also for the traditionally more financially secure ‘ancient’ universities, due to their reliance on overseas students. Whilst a fall in international student tuition fee income would have a significant effect longer term, Universities Scotland identified that refunds given to students leaving university-owned accommodation in March 2020 was the most immediate cause of financial pressure.50 Although the outlook now looks stronger (as outlined in paragraph 32), a deficit of between £450 million and £500 million was initially expected for the higher education sector in Scotland in 2020–21.51

Financial interventions made by the UK and Scottish Governments in response to the pandemic

28.The covid-19 pandemic affected the higher education sector in Scotland to such an extent that a number of interventions were required by both the UK and Scottish Governments in 2020 and 2021. These are detailed in the table below (up to and including April 2021).

Date of announcement	Intervention made by	Detail of intervention
April 2020	UK Government	A UK-wide (but not higher education-specific) Coronavirus Job Retention Scheme. The scheme enabled any employer in the UK to seek a grant to cover 80% of the salary of retained (but furloughed) workers up to a total of £2,500 per person per month.52
April 2020	Scottish Government	£5 million emergency financial support for students facing hardship as a result of the pandemic. £2.2 million of this was allocated to the Higher Education Discretionary Fund and made available to colleges and universities.53
May 2020	UK Government	A support package for universities and students which included: – Temporary student numbers controls – An additional 10,000 student places at the discretion of the UK Government (with 5,000 of those ring-fenced for nursing, midwifery or allied health courses) – £100 million of funding brought forward for research – £2.6 billion of tuition fee payments brought forward The package did not include any additional funding but brought forward some existing income streams and gave additional flexibility as to how some funding could be used.54
May 2020	Scottish Government	£75 million of one-off funding for Scottish university research to cope with issues raised by the pandemic.55
27 June 2020	UK Government	A support package for universities and university research which included: – Around £280 million of funding for universities and research organisations impacted by coronavirus for grant extensions – Low-interest loans with long pay-back periods, supplemented by a small amount of government grants56
On 6 July 2020 the Institute for Fiscal Studies released a report—covered by media outlets including BBC News57 and The Herald58—saying that “for around a dozen [UK] universities, insolvency is likely to become a very real prospect without a Government bailout.”59
9 July 2020	Scottish Government	A support package which included: – £10 million for estate maintenance – Expanded criteria and flexibility relating to £60 million of Financial Transactions – £75 million to protect university research – £5 million additional student support resources – £11 million brought forward early to address student hardship – £5 million to help offset the costs of equipment for learners in need of extra support60
16 July 2020	UK Government	A Higher Education Restructuring Scheme was launched in England to provide last resort support to institutions facing financial failure due to the pandemic. The UK Government informed the Committee that they wrote to the Deputy First Minister and Cabinet Secretary for Education offering to include Scottish institutions in the scheme, however the Scottish Government declined to participate.61 The Times reported that this was because “it would gift Westminster too much control over Scottish education”.62
14 August 2020	Scottish Government	£5 million fund to tackle digital exclusion among disadvantaged students at universities and colleagues.63 The funding was made available to institutions to help bridge the “digital divide” by providing additional support for disadvantaged students.64 By the end of 2020, Scottish universities had spent £1,738,044 of the £2,370,000 allocated, with £618,420 remaining. This had been used to buy 5,505 laptops (and some connectivity equipment), supporting 2,113 students.65
5 September 2020	UK Government	£7.2 million for 20 research projects across the UK, including the universities of Edinburgh and Strathclyde, to help provide developing countries with sustainable solutions to respond to covid-19 and future pandemics.66
6 November 2020	Scottish Government	£1.32 million to improve wellbeing. Students in Scotland would have access to more support to help deal with the mental health impacts of the pandemic.67
11 December 2020	Scottish Government	£750,000 to assist with more welfare advice on campuses.68
23 December 2020	Scottish Government	£5 million to “help those facing hardship” as a result of covid-19.69 Students could apply to their college or university’s Discretionary Fund (which comes from the Student Awards Agency for Scotland and the Scottish Funding Council) for help if they are struggling to meet accommodation and other costs.70
26 January 2021	Scottish Government	£20 million for students experiencing hardship as a result of covid-19 and £10 million for universities and colleges for income lost in providing rent rebates.71
16 February 2021	Scottish Government	£60 million for Scottish universities and colleagues to assist with covid-19: £40 million for colleges and universities to protect jobs and help students, and £20 million for research and knowledge exchange.72
24 March 2020	Scottish Government	£64.7 million for universities in financial year 2020–21 to help colleges and universities maintain research activity, protect jobs and help students. For example, assisting with: - Reduced income, including from commercial contracts and residencies, affecting research funding and putting jobs at risk - Additional costs, such as adjustments to campuses and facilities to allow for social distancing - General weakening of their financial sustainability73

29.In terms of the impact of the UK Government interventions, and collaboration between the two Governments, we were told by Karen Watt, Chief Executive of the Scottish Funding Council, that:

My understanding—and we are collecting data on this—is that there has been a fairly low take-up on the [UK Government] loan schemes, but much more on the [UK-wide] job retention scheme. [ … ] We were part of the UK research sustainability taskforce. We were involved in UKRI’s costed grant extensions, which were very important to make sure that we were keeping some of the staff costs in universities stable.74

30.We heard however from Professor Rebecca Lunn, University of Strathclyde, that each university had taken a different line on whether to furlough staff because the information coming out of UK Government departments and UKRI was “completely different for months”.75 She said that universities “were left in a complete lottery of trying to make a risk-based judgment on which was the better thing to do as universities, and each university [had] done something different”.76 In her view the communication around the Coronavirus Job Retention Scheme was “unbelievably unclear”77 and it would have been “better if the Treasury and UKRI had had a conversation and come to an agreement about what advice to give to universities” as “they did eventually, but it took the best part of five months”.78 Professor Katherine Smith, University of Strathclyde, made similar points to us about the effectiveness of UK Government communications in relation to covid-19 interventions, telling us that:

There has been a lot of unclear communication about who can apply or not and when it is best to apply and so on. For me, a key issue has been around communication and apparent shifts in the position of what you can and cannot do.79

31.Another criticism we heard of UK Government/UKRI support packages, including from Professor Chris Pearce, University of Glasgow,80 Professor Rebecca Lunn, University of Strathclyde81 and Mary Senior, University and College Union Scotland,82 was that they were too prescriptive and too tied to strict criteria, and that, given the circumstances, a more flexible approach would have been appropriate.

Finances now and looking ahead

32.By 17 February 2021 the forecast operating deficit for the higher education sector in academic year 2020–21 had improved significantly and was estimated to be around £50 million83 (compared to the £450–500 million expected in July 202084). The Times reported that an unanticipated influx of fee-paying international students has given a “lifeline” to Scottish universities.85

33.Universities Scotland argue however that level of public funding invested in teaching and research in Scotland’s universities has been unsustainable for a number of years, that and the pandemic has further exposed and exacerbated this financial vulnerability.86 Likewise, Iain Stewart MP, Minister for Scotland, told us that “there were deep concerns, even before the covid crisis hit, that a lot of universities had deficits” and that the “long-term funding will have to be addressed”.87

34.The ongoing effects of the covid-19 pandemic will have financial implications for the foreseeable future,88 with Minister Lochhead, Scottish Government, recognising that there was “more to be done”89 to support universities. The Scottish Funding Council has identified some of the main continuing financial pressures facing Scottish universities:

• The fall in stock markets and pressures on the local and global economy leading to significant drops in regular donations and income from endowments.
• Commercial income reductions from residence income, catering and sport.
• Research activities affected by closures.
• Additional costs from IT and support costs to support online teaching, and assessment and feedback, along with contract costs associated with the suspension of work on campus redevelopment programmes.90

35.The Scottish Parliament research service, SPICe, has noted that whilst the Scottish Budget, announced on 28 January 2021, did not deliver the £200 million funding increase called for by the sector, the capital budget increased by £4.5 million, the resource budget increased by £25 million and universities would share (along with colleges) £60 million in funding announced in the budget update statement.91

36.Following the UK Budget on 3 March 2021, the Scottish Government made the announcement on 24 March 2021 that teaching funding would increase by 8.1% to £1,112.4 million, which would fund “additional places created following increased applications from school leavers.”92 Responding to this announcement, Universities Scotland said:

Universities welcome the increased resources allocated today by the Scottish Funding Council. The additional funding for 2020/21 is recognition of the work universities have done to support students through the pandemic. As we look beyond the pandemic, the additional funding for 2021/22 will help to support the crucial role of higher education in building an education-led recovery, with a strong focus on meeting increased demand for a university education.93

37.It is not yet clear the extent to which this additional funding—along with positive indicators regarding sustained international student numbers—will support Scottish universities as they recover from the pandemic, especially those already facing difficulties and deficits pre-pandemic. However, Minister Lochhead outlined that the Scottish Government will “make every effort to make sure that no university goes insolvent” as a result of the pandemic.94

38.In mid-2020 insolvency was a very real prospect facing a number of universities in Scotland. Both the UK and Scottish Governments should be congratulated on their efforts and significant financial investments into Scottish universities in response to the pandemic. It is quite possible that without that support, some institutions may not have survived. We also welcome the commitment made by the Scottish Government that it will make every effort to ensure that no university becomes insolvent as a result of the pandemic.

International student fees

39.Universities Scotland have noted that a strong component of Scottish universities’ internationalisation strategy has been their drive to increase the number of international students: each year more than 58,000 international students from 180 countries (including from the EU) study in Scotland.95 In 2018, this made up about a quarter of the total student population.96 The RSE Young Academy of Scotland informed us that, as a result, Scotland has a high proportion of international students relative to other OECD countries, with the net economic impact of international students for Scotland estimated to be £1.94bn in 2016.97

40.According to NUS Scotland, some international students are paying £20,000 a year to study at Scottish universities.98 Audit Scotland found that in 2016–17, on average, Scottish universities recovered 138.2% of the full cost of non-publicly-funded teaching, mainly by teaching non-EU students.99 Income from international (non-EU) student tuition fees made up 16% of total income across the entire university sector in 2017–18100 and the Scottish Funding Council expects that to increase to 18% in 2019–20.101

41.The Scottish Parliament has identified that 57% of all tuition fee income received by Scottish universities was derived from international (non-EU) students in 2018–19:

Tuition fee income by domicile in 2018–19102

Level of reliance on international student fees

42.The Scottish Funding Council says it is clear that universities in Scotland “need” international students as a source of income in order to remain financially sustainable and to support other areas of their operation.103 Throughout our inquiry we have heard similar messages from our witnesses. In the view of Professor Rebecca Lunn, Head of the Centre for Ground Engineering and Energy Geosciences, University of Strathclyde, cross-subsidy of teaching from international fees “leaves us in rather a vulnerable position”.104 Matt Crilly, President of NUS Scotland told us that institutions “should not be relying on a marketised system of exorbitant tuition fees from international students”.105

43.Professor James Conroy, Dean for Global Engagement (Europe) and Vice Principal Emeritus at the University of Glasgow told us that “we are increasingly dependent on international student fee income not just to plug the gap, but to create the facilities, the capital spend that maintains our infrastructure.”106 He went on to say that “we are cross-subsidising everything at the moment from our international student base, which has been a mark of our great success and our international reputation, but it does carry problems”107 and “we cannot expect [international students] in the long term to fund our universities’ development, and certainly not on their own”.108

44.Rebecca Hackett, Office of the Secretary of State for Scotland, told us that the level of reliance Scottish universities have on international student fees varies from university to university but that a loss of international fees has a “big impact” on some Scottish universities in particular.109 This disparity is clearly visible in the table above (paragraph 23), which identifies the income streams of each of Scotland’s universities.

45.Richard Lochhead MSP, Minister for Further Education, Higher Education and Science, Scottish Government, recommended that:

We now have to look at whether [Scotland’s universities] are sustainable going forward, and whether we are overdependent on international students. I do not think that means being less attractive to international students or having fewer international students coming to Scotland, but I think there is a challenge in terms of the overall financial model.110

46.Rt Hon Alister Jack MP, Secretary of State for Scotland, also recognised the reliance of Scottish universities on international students:

Scotland’s education sector should, in the first instance, exist to support Scottish and [rest of the UK] domiciled students and the long-term contribution that they will make to economic growth. The sector still has much to do on widening access, yet is effectively selling places on the international market in order to sustain itself. International participation will always be welcome, however we need to get the balance right. For example, we need to be sure that when budgets are tight, capacity that could be used to address issues such as widening access in order to support ‘levelling up’ is not offered instead to the highest international bidder.111

Impact of the covid-19 pandemic on international student numbers

47.In early 2020 there were major fears that international students would stay away from UK universities due to the pandemic. In July 2020 there were forecasts that 12% to 61% of Chinese students (who make up the biggest single contingent of overseas students) could cancel their places at UK universities for the following academic year.112 Universities Scotland calculated that a 50% drop in Scottish universities’ intake of international (non-EU) students in would have resulted in Scottish universities losing £435m in 2020–21, and that there would be a multi-year effect.113

48.Universities Scotland made the point of the pandemic has “exposed just how dependent the Scottish higher education sector now is on international student fee income to subsidise publicly-funded activities of teaching undergraduate Scottish [ … ] students and to underpin publicly funded research.”114 In their view this problem had arisen due to “many years of cuts in SFC funding.”115 The SFC has itself noted the risk of international students staying away.116

49.The current picture regarding international student numbers looks much more encouraging than it did in mid-2020. UCAS data117 from 18 February 2021 shows that applications to Scottish universities for the next academic year by non-EU international students has—despite many expectations in 2020—increased by 27% (to 6,100), which is the highest increase in non-EU international student applications across all four UK nations.118 Commenting on these statistics, Alastair Sim, Director of Universities Scotland, said:

Application data at this point in the cycle gives an indication about the demand for higher education, and it looks assuring for Scottish universities. Students clearly see a value at studying in Scotland from across the world all the way to our most deprived areas. We are taking nothing for granted as applications don’t necessarily transfer into acceptances especially when there is a great deal of volatility regarding students and the pandemic.119

50.Although international students do not seem to be staying away from Scotland like many had feared, commenters have noted that the pandemic has demonstrated just how vulnerable the current model is.120 Richard Lochhead MSP told us that “it has been a bit of a wake-up call for the institutions”.121 Whereas usually the SFC are most concerned about income of Scotland’s modern universities, the pandemic caused a situation where some of the “larger, more established institutions are much more challenged about their business model and about some of those exposures on international and commercial fees”.122 Dr Stuart Fancey, Director of Research and Innovation, Scottish Funding Council, told us that even before the pandemic the SFC “were having conversations in the higher education community about the overdependence of certain universities on particular markets” and that covid-19 brought home “exactly how quickly that can turn into a real challenge”.123

Impact of UK immigration policies on international student numbers

51.A further potential risk to international student numbers in Scotland is, as identified by the RSE Young Academy of Scotland, the impact of—and the perception abroad of—UK immigration policies. They view this risk as having already materialised, and give the example of Indian students, where the UK saw a 58% drop in numbers between 2010–11 and 2016–17.124 The RSE Young Academy of Scotland argue that:

With a wide range of destinations available on the international education market, Scotland and [ … ] [universities in other parts of the UK] face competition by providers in Australia, Canada, the United States, as well as EU countries developing teaching and research provision with English as the main delivery language. With culture and lifestyle key aspects identified as attractors for international students, it is essential that policies do not damage aspects of life in the UK that are a selling point for applicants. The long-term effect of brand damage cannot be overstated, since 22% of prospective students consider their destination of choice for international study at least 2-years in advance.125

UK Government immigration policies are discussed further in Chapter 4 (regarding students) and Chapter 5 (regarding academic/research staff).

52.Public sector funding for higher education in Scotland has reduced by 12% in real terms in seven years. In addition, despite the policy of free tuition for Scottish students, and a cap on Scottish student numbers, only 90% of the costs of teaching Scottish students at Scottish universities are covered by the Scottish Government. We recognise that this leaves a 10% gap in funding that must be filled via alternative means. The main way Scottish universities fill this gap is through international students, who account for more than 16% of all income across Scottish universities, a large proportion of which comes from Chinese students. As we have seen with large fluctuations in the number of Indian students studying in the UK and the implications of the pandemic, international student numbers are potentially volatile and can be influenced by a number of internal and external factors. The Scottish Government and Scottish universities should work with the UK Government and universities in other parts of the UK to seek out examples of best practice in diversifying income streams away from potentially volatile international student fees. In doing so great care should be taken to ensure that core focus on education and research is not lost in favour of commercialised corporate ventures.

EU student fees

Pre- and post-Brexit policies on EU student fees

53.Under EU rules on freedom of movement, European students studying in another EU member state had to be given the same access to higher education as local students. This meant that when the UK was part of the European Union, EU students had the same right to free tuition in Scotland as Scottish students did. Figures from the Student Awards Agency Scotland (SAAS) show that 15,310 full-time EU students received funding in academic year 2018–19 while studying at a Scottish university.126

54.Following the UK’s exit from the EU, and the end of the UK-EU Transition Period, 2020–21 will be the last academic year in which EU students will be eligible to apply to have their tuition fees paid for by the SAAS.127 From 2021–22 Scottish universities will be able to charge EU students international student rates,128 which can be up to £20,000 per year.129 EU students wishing to study in Scotland will also need to apply for a student visa before they arrive in the UK. The application costs £348 and the Immigration Health Surcharge (which grants access to the NHS) costs £470 (for student visa holders).130

EU student numbers from 2021–22

55.Despite the fact that the SAAS will still usually cover the cost of EU student tuition fees in Scotland for 2020–21, they have already seen a 15% fall in the number of placed university applicants from EU students for that academic year (compared to the same point in the cycle in 2019).131

56.For 2021–22, as EU students will now need to pay international student fees and immigration costs, Scottish universities were expecting in December 2020 an 80% drop in EU student numbers.132 However, UCAS data from 18 February 2021 shows that applications to Scottish universities by EU students for 2021–22 dropped by 40% (6,900 fewer applications), which is a similar to the rate of fall in England and Wales,133 and is much lower than the 80% fall many anticipated. Commenting on these statistics, Alastair Sim, Director of Universities Scotland, said:

The drop in EU student numbers is not as dramatic as many feared although we don’t know how this will impact individual universities and courses.134

Implications for Scottish university finances

57.Not only are the international student rates that EU students will now be paying to Scottish universities higher than the amount Scottish universities currently receive for EU students from SAAS, but they are also higher than the rates students from other parts of the UK pay to study in Scotland. The exact rate varies by course and institution but, according to Professor Katherine Smith, will often be four to five times the rate it was previously.135 In addition to the international student fee income Scottish universities will now receive from EU students, Minister Lochhead has confirmed that the estimated £19 million of public funding that would have funded new EU entrants in 2021–22 will stay in the sector to fund places for additional Scottish students.136 This announcement has been broadly welcomed by the university sector.137

Non-financial benefits of EU students

58.Throughout our inquiry we also heard about the non-financial benefits EU students provide to Scottish universities, including that:

• EU students enrich campuses by “creating multinational, multicultural learning environments”, which is of “tremendous benefit to our home students in Scotland”.138
• A significant number of EU students apply for vital science, technology, engineering and mathematics (STEM) subjects139 and subject areas that are very hard to recruit to from within the local Scottish ecosystem.140
• EU students stay in Scotland after their studies far more than other international students do.141

Sustaining EU student numbers post-Brexit

59.In the view of Mary Senior, University and College Union Scotland, things like a “hostile environment and [ … ] draconian immigration system” all impact on the ability of Scottish universities to attract EU students.142 Universities UK believes the UK Government must “act now” or risk losing European students “for years to come”.143 It says that:

The UK Government has predicted a decline in EU student numbers of roughly 20% as a result of the change to a points-based [immigration] system, although this estimate was calculated before the impact of the pandemic. Other estimates signal an even greater potential loss in overseas talent.144

60.Universities UK has outlined the steps they believe the UK Government should take in order to help stabilise EU/European Economic Area (EEA) student demand. These include:

• “Improving and extending the Study UK campaign into key markets in Europe by coordinating existing campaigns currently in European markets and increasing investment in Study UK to £20 million a year.”
• “Providing targeted financial support for EU students such as through an expanded or newly developed EU scholarship offer.”145

61.Minister Lochhead told us that the Scottish Government are looking at how they can maintain a European presence on Scottish campuses and have given a commitment to look at the idea of extra scholarships targeted at European countries.146

62.EU students paying international student rates can provide a new and potentially lucrative income stream for Scottish universities, though this new income stream may face the same risks posed to fees from international students. Although applications from EU students have dropped by about 40% for 2021–22 (that year being the first year that EU students will pay the new rates), this is a lower drop than many in the sector had feared, and Scottish universities will now receive four to five times more income per EU student than was previously the case. That said, it is important that, following Brexit, Scotland is still able to attract the brightest and best from the EU. This is not only because EU students tend to gravitate towards vital STEM subjects (which can otherwise be difficult to recruit for), but also because EU students are more likely to stay on in Scottish academia/research once they graduate than other international students. These students can play a key role in our economic recovery following the pandemic. The UK Government should launch a new or expanded scholarship scheme to encourage the most talented EU students to study in the UK and Scotland. This would help heal UK-EU divides following Brexit, assist in combating falling EU student numbers in Scotland and provide a new pathway to attract and retain the brightest and best from the EU. In addition, the UK Government should increase funding to Study UK in order to increase their capacity to target EU students who may be hesitant to study in the UK.