Nearly three-quarters of English higher education providers face being in?deficit next year despite the coming rise in?tuition fees after student recruitment lagged well below expectations, the sector regulator has found.

The Office for Students (OfS) has revised its analysis of?the financial sustainability of?institutions following an?uneven recruitment round that saw many Russell Group universities hoover?up domestic students.

Overall, the number of student acceptances grew by 1.3?per cent between 2023 and 2024, an OfS report citing Ucas data says, lower than the 5.8?per cent increase that had been forecast. About 100 providers were said to have recruited fewer domestic students than planned, with 150 also falling short of international student targets.

¡°The latest information indicates that, overall, UK and non-UK student recruitment are significantly below the sector¡¯s previous expectations and, for some providers, in line with the more pessimistic scenarios modelled in our May report,¡± the OfS says.

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Having previously estimated that 40?per cent of providers faced a deficit in 2023-24, the regulator warns that this could increase to 72?per cent in 2025-26 ¡°without mitigating action¡±.

Forty per cent would have less than 30 days¡¯ liquidity, the report adds, with the sector facing a net income reduction of ?3.4?billion compared with its forecast position and a deficit of ?1.6?billion.

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The latest dire financial warnings for the English sector came after universities secured the first fee rise in eight years, with the cap on the amount paid by undergraduates yearly increasing from ?9,250 to ?9,535 from the start of the next academic year.

If all new and continuing students pay the higher fee, it will bring the sector an additional ?371?million in income, the OfS said, a figure that is likely to be lower in reality because of some providers being unable to apply it to existing students owing to the terms of their contracts.

Regardless of the final amount, the modest income increase will be wiped out by the rise in?employer national insurance payments announced in last month¡¯s budget, which the OfS says will cost the sector ?430?million a?year.

Susan Lapworth, chief executive of the OfS, said the updated analysis ¡°starkly illustrates the financial challenges that continue to face universities¡±.

She said institutions were ¡°acutely aware of these risks and are striving to address them¡± but the competitive nature of the recruitment market meant ¡°some universities will lose out and will need to update their plans¡±.

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The OfS report says that in some cases this might include ¡°working with other organisations to reduce costs or identifying potential merger partners or other structural changes¡±.

Projections of future student numbers have long been seen as optimistic across the sector but were the basis for a predicted recovery in finances in the second part of the decade.

This now appears to be severely at risk, with the OfS warning that the ¡°recovery providers were anticipating¡­could be reversed with a continuing weakening of the sector¡¯s financial position until 2026-27¡±.

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What recruitment growth there has been is uneven, the OfS points out, with increases in larger, higher-tariff providers and decreases across medium-sized, smaller and specialist institutions.

Ms Lapworth said it was these institutions that were ¡°more likely to be affected by financial challenges in the years ahead¡±, but she added that there were ¡°significant risks right across the sector¡± and that there needed to be ¡°bold and transformative action to reshape institutions for the future¡±.

Vivienne Stern, the chief executive of Universities?UK, said the report was a ¡°source of serious concern¡± that showed ¡°universities in all four nations of the UK are in an extremely difficult position¡±.

She said the government move to address the long tuition fee freeze was ¡°an extremely welcome step¡± but there needed to be ¡°work on a longer-term solution¡±.

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University and College Union general secretary Jo?Grady said the report showed that ¡°more universities than ever are at risk¡± and that the tuition fee rise would not?¡°stop the?rot¡±.

tom.williams@timeshighereducation.com