UK universities strong enough to handle budget stress

While universities in the United Kingdom face significant budget cuts and potential increases in student fees, the sector's credit strengths are likely to sustain the vast majority of institutions, Moody's Investors Service said in a new report.
"In the face of a halting economy and multi-year national budget deficits, headlines are raising alarm that funding cuts will damage the university sector's longstanding strength and impair a globally competitive economy in the long term," said Moody's Vice President, Roger Goodman.
Despite government funding challenges, said Goodman, the UK higher education sector is likely to remain resilient in the face of change and to keep its strength over the long term. Growth in global demand for tertiary education and research activities will continue to play to the strengths of the UK franchise for higher learning.
"The need for change will force consideration of new options, some already well marked," said Goodman. "The UK university sector may evolve over time utilizing locally developed solutions to funding challenges, and also drawing from the experience of countries in a similar predicament and from those that have already gone through watersheds in government funding."
While recessionary government budgets will not spare universities, which are often targeted for cuts due to perceived inefficiencies and alternative revenue options, institutions of higher learning will increasingly pursue other funding sources, observed Goodman, who believes most institutions will emerge with more diverse sources of revenue for operations and capital, and more efficient operating methods.
"There appears to be building momentum for fee increases," said Goodman.
"While we expect higher tuition and fees will not necessarily lead to falling enrolment, even moderate increases in tuition levels and other revenues combined with falling government funding, could drive substantial changes in the revenue mix of UK universities."
The Moody's report predicts that change will not proceed without continuing government control and oversight, and that the rate of change in the UK will be gradual, not sudden or shocking. The rating agency does not expect a trend to a "US model" to be picked up in the same manner or with the same pace given that university funding in the UK is provided at the national level and there are far fewer high-priced private universities.