Taxing international students 'will damage UK's university cities'

Think tank says some universities on verge of collapse - with knock-on effects for local economies

The Centre for Cities report found universities account for more than a third of high-skilled knowledge jobs in cities such as Oxford. Getty Images

Plans to toughen the rules on international students coming to the UK risk not only the income of universities, but also the prosperity of the cities where they are based, a report has warned.

The report by the Centre for Cities think tank says changes to higher education policy will not be felt evenly across Britain.

“Many universities may be small in national terms, but they are central to their local economies, particularly outside the UK’s strongest cities,” it said. “National reforms that weaken the sector risk cutting across the government’s ambitions for delivering growth everywhere.”

Many universities face long-term funding challenges. Domestic undergraduate tuition fees have been effectively frozen for a decade. Domestic student numbers peaked in 2021/22, with further declines projected due to increased student living costs and longer-term demographic shifts.

As a result, universities have increasingly relied on income from international students, who pay significantly higher fees than UK students, to balance the books. They make up a quarter of university income, up from 5 per cent in 1995.

Universities brought in an estimated £24 billion to the UK economy from abroad in 2022, through fees and student spending on goods and services.

However, the UK government is considering restricting foreign student’s dependants entering the country, shortening the graduate visa period and introducing a tax on the fees of international students.

The think tank adds that “less-than-supportive rhetoric from politicians” about foreign students in the UK has left higher education institutions unsure about the future.

The report, titled Town and gown: the role of universities in city economies, examined universities' impact on their home cities.

Universities are the top international exporting sector for cities including Exeter, Dundee, Leicester and Nottingham. They are among the largest high-skilled “knowledge” sector employers in many parts of the UK, according to the report's analysis.

It also found:

• Local universities are larger exporters than legal services in Cardiff and metal manufacturing in Sheffield
• Universities account for more than a third of high-skilled knowledge jobs in Oxford, Coventry and Cambridge and a large share of these jobs in Stoke, Sunderland and Hull
• Between 2012 and 2024 universities also generated nearly 2,000 spin-out firms, which commercialise academic innovations
• London, Oxford and Cambridge combined account for 40 per cent of these spin-out firms

The report also said universities have played a crucial role in city centre regeneration by attracting people to live in those areas, focusing economic activity in one place.

The two universities in Oxford account for one in six jobs in the city – more than the computing, scientific and consulting sectors combined.

An aerial view of Cardiff Universit. Getty Images

The report said the government should consider how new restrictions “could affect economic activity and high-skilled jobs in large cities and towns outside the greater south-east in particular, given their ambitions for growth in all parts of the country”.

Andrew Carter, chief executive of Centre for Cities, said: “Universities are significant economic assets that are distributed across the country, including in places that have relatively little private sector high-skilled employment or international exports.

“But many UK universities are under financial strain, raising questions about their future.”

The report warned almost half of universities could be in deficit this year. “There are concerns, if not expectations, that some institutions are at risk of collapse,” it said.

It said the role of universities as international exporters shows how national policies to curb international student places will have a different impact depending on how reliant a city is on its university.

It said: “Any changes will be felt widely across the country but particularly in cities with struggling economies where universities are one of the most important exporting industries, such as Leicester, Plymouth and Hull.

“National policy should recognise the value of universities to their city’s export economies, alongside an understanding of how universities came to play this role when thinking about the future of the sector.”