New in post John Healey has delivered his first budget as chancellor that has changed the rules of the game on Graduate route visas, outlined next steps on devolution funding, and provided breathing space for everyone but students.
It was never going to be the banner budget for the sector that some were hoping for – though the travails of the sector are known and understood by ministers and officials the prevailing economic weather means that the opportunity and the money to make radical policy changes on expensive things like the student loan system is limited-to-nonexistent.
That said, there’s always a few unexpected surprises – so we’ve taken the opportunity to round up everything we have spotted so far.
Two years for you
If your university is “highly compliant” with visa rules, and your graduates tend to achieve strong labour market outcomes, your international students will enjoy two years of graduate visa – while their peers elsewhere will get just 18 months.
That’s the most eye-catching announcement in a budget that makes a number of moves to rebalance immigration policy towards measures that increase the earnings, profits, (and tax!) generated by those coming to the UK to work and study. Occupation-specific salary requirements for skilled worker visas have been slashed (from the median salary to the 25 per centile), visa curtailment has been extended to six months for the highest skilled workers (who may well be looking to work in higher education), and new entrant discounts have been standardised.
Universities may also be looking to bring in workers using the High Potential Individual Visa – eligibility has been extended to the top 150 global institutions. But, in a budget that confirmed the international student levy (and outlined just how much it would cost), good news on the graduate visa may help the most compliant universities continue to attract international students in the face of rising costs.
The “compliance” bar refers to the new “basic compliance assessment” rules, which went live at the start of June this year. At that point new targets for visa refusals (now less than 5 per cent), enrolment rates (at least 95 per cent) and course completion (at least 85 per cent, rising to 90 per cent next June). And alongside these thresholds UKVI unveiled a new set of red-amber-green ratings for compliance, with “highly compliant” looking likely to refer to the “green” ratings.
So if your provider has a student visa refusal rate of less than 4 per cent, an enrolment rate greater than or equal to 96 per cent, and a completion rate (eventually, it doesn’t count for the first rating) of greater than and equal to 92 per cent. Red is already slated to lead to serious consequences (including a reduction of visa allocations by at least 10 per cent, with repeat offenders having their licence revoked), while amber freezes allocations and triggers a stern talking to from UKVI. Eventually these ratings will be published – sometime in the summer of 2027 is our best guess – at which point it will be clear who gets prizes and who gets pain.
What effectively amounts to a concentration of international student recruitment among a smaller number of providers will also have to contend with the international student fee levy. The Department for Education (DfE) has updated its modelling of “Demand determinants and elasticities for English higher education”: a fairly dense piece of econometric modelling done by Alma Economics that concludes that demand from international students is “relatively inelastic”.
There’s a number of possible answers to this question, and most of them fall between a long run price elasticity of -0.30 and -0.75. A 10 per cent increase in the price of higher education would lead to between a 3 and 7 per cent decrease in demand: DfE plumps for -0.42 for non-EU postgraduates, and -0.32 for non-EU undergraduates.
The big variation is by what they call provider tier and we might refer to as the Complete University Guide league table. Given a 10 per cent fee rise, the top quartile would see (overall) a 0.7 per cent reduction in demand, with successive quartiles looking at -3.6 per cent, -5 per cent, and – 11.2 per cent at the bottom end.
And DfE finds that a 10 per cent increase in fees might mean an increase in the “supply” of HE (the number of places on offer) by between 4 and 10 per cent – not a statistically significant change but a notable effect, and as with all of these these is based on historic data and subject to estimation uncertainty.
Public accounts nerds will be thrilled to get further details about September’s bombshell announcement about the Green Book discount rates – we get confirmation that the overall rate drops to 3 per cent a year where projects are estimated to have an impact within 30 years, based on a 2 per cent “risk free” rate plus a 1 per cent adjustment for systemic risk. Forward rates also fall – for standard projects between 31 and 75 per cent are discounted by 2.5 per cent, and beyond 76 years by 2.25 per cent. DK insists that this move, which effectively makes it cheaper for the government to fund things that will have benefits that are realised in years to come than the current state of affairs, will become relevant for higher education in future.
Devolution becomes real
“Growth in every postcode” is a snappy political line, appearing no less than 13 times in the budget.
The problem with the UK is that the most sustained growth over the past decade has been highly concentrated in only a few postcodes mainly in London, the South East, and Manchester. The chancellor’s tool for growth is devolution. Rewiring the state, the big plan to hand out more power to more places will not be available until before the end of the year. Until then, the breathing space budget has breathed a bit of life into Burnham’s devolution plan.
In The fiscal devolution roadmap, the chancellor has set out how the “biggest fiscal devolution in a generation,” will work with a promise to call time on “[…]central government thinking it knows best and giving control to those who do: local leaders with skin in the game.” The proposals within this paper are radical in their ambitions for local government. It promises nothing short of entirely upending the current model of local government funding
Mayoral strategic authorities (MSAs) will in future be largely funded through assigned and local taxation, giving them the certainty and autonomy to drive transformational investment in their regions. Grant will only need to be used on an exceptional basis, where there is a clear policy rationale for this.
Today, universities bind themselves to ideas of local growth out of a civic commitment to their place. Tomorrow, they should continue doing that but may do so with the knowledge that the creation of new jobs, higher wages, and business opportunities will flow back into their local area.
Keep the tax
The most far-reaching proposal is that MSAs will retain a portion of income tax raised in their area. From April 2028 a baseline of income tax will be set based on current collection rates. A portion of growth in income tax over that rate, currently proposed at 20 per cent, will be retained with the MSA. A decline against the baseline will see a decline in funding. The government has promised there will be a minimum floor and mechanisms to ensure disparities between areas do not grow too quickly.
This is an entire upending of how the UK’s current fiscal framework works. For MSA there is now a massive incentive for them to retain the highest paid workers, many of which will be graduates, as it has a direct relationship to how much money they retain locally. Perhaps the Office for Students could regulate how much local added value graduates bring to an area. For the first time, the value of a graduate is not its direct contribution to the treasury but their relative value compared to other salaries in an area.
The major shift here is that it moves graduate retention to not only a question of skills in an area but one of genuine revenue creation. The ability to retain people that can command higher wages can bring more income, which can then be spent on attracting business, which can then attract more high paying jobs. The key to growth isn’t just business attraction but in keeping highly paid workers in a place.
The roadmap also includes a promise that MSAs will receive 20 per cent of local business rates by 2027 and 100 per cent by the end of the decade. This establishes an incentive for MSAs to grow their business base as a direct contributor to investment in local services. In addition to retaining income tax there is a world of discussion with universities on creating new businesses, retaining graduates to work in them, and growing the economy. The roadmap also promises future announcements on retaining increases in local land values as a result of public investment.
Universities suddenly have a clear path toward being economic contributors to their places. Grow businesses, grow wages, and encourage investment, and places will become wealthier. It is the framework they have been asking for, and an opportunity not to be missed if they are to prove how they can make the country wealthier and more resilient.
Breathing space for everyone but students
Because the chancellor’s “breathing space” is targeted – by council tax band, energy bill, and benefit entitlement – it helps almost everywhere students aren’t, and there’s no maintenance top-up or hardship money to catch them.
The £100 Household Energy Payment goes to band A to D homes in England. When it delivered £150 in 2022, students were eligible in theory and mostly missed it in practice. Exempt houses pay no council tax, so no direct debit to pay into – councils had to find an occupant and get them to apply, for one payment per house.
Room-by-room lets were out because the landlord is liable, halls were out altogether, and councils told student houses they could claim when they couldn’t. The design looks the same, and the discretionary pot is smaller, £100m against £144m. VAT off electricity and the end of gas standing charges help billpayers, which in halls and bills-included lets means the landlord. Energy debt relief is for people on means-tested benefits, which most students can’t claim – why the Warm Home Discount has never reached them. A cost of living package, just not for students.
Two things do help. The £2 bus fare cap in England outside London runs through 2027, and given how many now live at home and commute it probably helps more students than anything else. The National Living Wage rises 3.9 per cent to £13.21 in April, which matters to the two-thirds in term-time work. But the 18 to 20 rate rises by the same 3.9 per cent, to £11.27, so after two years of bigger rises for younger workers the single adult rate Labour promised has stalled £1.94 an hour short – most undergraduates are on the wrong side of it. Either way the gap between what a job pays and what the loan does widens.
Maintenance rose 2.71 per cent this year, the OBR’s forecast then for inflation in early 2027. It now expects 4.30 per cent – the forecast-uprating trap that never corrects itself. Since 2016–17 the maximum has slipped about £1,990 behind inflation, before a means test frozen at £25,000 since 2008 does its work.
Against Augar’s benchmark of the minimum wage for 37.5 hours over 30 weeks it’s £3,500 short, and after April the maximum loan buys fewer than 28 hours a week of the work students are doing anyway.
A Young Entrepreneurs Allowance will fund founders’ living costs because success too often goes to “those with access to family support” – the parental contributions argument, accepted for everyone but students. None of it shows in the distributional analysis, which still counts fee loans as income and can’t see halls, as in 2021.
Half the headroom
The Plan 2 repayment threshold freeze at £29,385 until April 2030 isn’t in the speech or the Red Book’s text – a footnote, and a line in the recosting of last year’s measures – £7,130m in 2026-27 against £5.9bn a year ago, with the annual take reaching £495m by 2029-30.
Why? Inflation. The higher RPI goes, the further an unfrozen threshold would have risen, so holding it takes more from graduates and adds more to the loan book’s value – the same lever every chancellor since Osborne has reached for. It stays pulled because worse terms book a one-off gain now, while kinder terms book the whole loss now though the cash would trickle out over thirty years – the two jars problem.
Reversing it would cost nearly a third of the £24bn debt rule margin it scores against, and almost half the £15bn stability rule margin, itself half what chancellors usually leave. Healey spent some of last year’s headroom on the Middle East shock, and was never going to spend the rest on graduates.
The headroom also rests on assumptions about students. Franchise registration is scored as saving up to £225m a year on the explicit basis that providers leave and their students don’t enrol elsewhere – the £2bn a year lent there was always the target. The LLE and maintenance grants are recosted at almost nothing while the levy funding them is booked at up to £0.5bn, so somebody thinks grants are free.
Doing nothing also gets more rewarding – interest receipts are now about £3bn a year higher from 2027-28, partly from “higher inflation increasing accrued interest on student loans”, as was obvious when Reeves defended the freeze in March. The 6 per cent interest cap, costed at £230m, ends next August, with the top Plan 2 rate heading back towards 7.5 per cent.