The UK's International Student Levy: Another self-inflicted wound?

The recent Immigration White Paper's proposal of a 6% levy on international student fees sent shockwaves of new concern through the UK higher education sector, and for good reason. 

As covered in the Observer, new economic modelling from Public First provides empirical analysis that paints a far graver picture of the potential consequences than the government's initial forecasts. Commissioned by a consortium of universities, including the University of York, it presents a clear message.

In stark terms, our analysis shows a potential removal of £2BN economic activity from the UK within 5 years; up to 77,000 students being put off coming to the UK; with knock-on consequences for local economies. It includes an equivalent reduction of 135,000 places for UK students and/or a 1.5% reduction in university research and development, both of which will materially impact economic growth.

To be crystal clear, this isn't just about university finances. Our work illustrates the threat to domestic students, our research capability, the economic well-being of our communities, and our national capacity to deliver economic growth fuelled by university-enabled innovation.

The government's assumption (reflected in the White Paper’s technical annexe) is that universities can simply pass on this 6% levy to international students, with minimal impact on demand. This is a significant miscalculation. 

Our updated modelling suggests that a fee increase of 6.38% - necessary to cover the levy - could deter over 77,000 international students in the first five years with the potential for any kind of market recovery taking at least 10 years. And even then, only 50% is likely to be recoverable. This is a significant figure, far exceeding government predictions, which crucially, were based on data from 2016-17 and was modelling that only assessed price sensitivity for EU students – a segment whose motivations and financial considerations markedly differ from the wider international student body. 

As Jonathan Simons, author of the report, rightly points out, it is not widely understood just how much our economy is supported by international students. 

With around 40% of UK universities currently in deficit, this levy could trigger further cuts, leading to redundancies, reduced investment in research, and fewer opportunities for UK students.

Our analysis shows a conservative estimated £2.2 billion taken out of the UK economy in lost international tuition fee income alone over five years. The ripple effects, the "knock-on economic impacts," would undoubtedly be much higher given this comes on top of so much contraction that hostile policy-making has already generated. 

Consider the vibrant local economies that benefit from international student spending.

Research from earlier in the year by Public First for York showed that every man, woman and child is better off in real wage terms because of international students. In York Central constituency, that equates to every individual being better off by an average of £1900 per year than they otherwise would be. That’s the equivalent of more than three week’s wages - a big difference to many people when the average annual wage in the UK is £37,000.

Earlier work by London Economics for York also demonstrated that £161M is annually spent in our city by international students. Think of the bars, cafes, hairdressers, clothes shops, taxi firms and so on who will lose critical income if we have yet more reductions in international students coming to York. This latest work shows that the levy will cause the ten most affected constituencies in the UK to each lose an average of £40 million annually in economic activity. This is a blow that many communities, already facing economic challenges, cannot afford.

The economic fallout from such a decline needs to be set against the putative possibility that the levy would be wholly re-invested in any kind of education capacity building. The Treasury’s deep hostility to hypothecated taxation is well known - just look at the unspent apprenticeships levy receipt flowing into the Treasury every financial year, rather than being invested in new forms of education delivery. 

But beyond the immediate financial hit, there are profound implications for our domestic students. 

International student fees currently cross-subsidise places for UK students and a reduction in international numbers will inevitably lead to a reduction in domestic places. 

The report estimates a staggering 33,000 fewer places for UK students in the first year of any levy, accumulating to around 135,000 fewer places over five years. This is a direct assault on the aspirations of thousands of young people across the UK. And it will greatly dilute the competitive edge studying in a multicultural environment offers all of our students as they prepare to navigate a hugely competitive and global labour market. 

Of course, international student fees also cross-subsidise university research, and R&D and innovation capabilities will also be impacted. The projected loss of international student income over five years is equivalent to the entire increase to the defence budget announced in the 2025 Spring Statement. This highlights the scale of the potential damage to a sector that is vital for innovation, economic growth, and to the UK’s global standing. 

Does anyone really believe university-led innovation had nothing to do with the £150BN of US tech investment in the UK economy announced during the recent US President’s state visit? Jensen Huang, President and CEO of global semi-conductor giant, Nvidia, queried attitudes towards UK Higher Education in tones of wonderment: “You just don’t appreciate it. Your universities. Come on. You’re too humble,” he said.

At the University of York, we believe in the transformative power of education and the immense value that international students bring, not just to our campuses, but to our wider society and economy.

This research underscores the urgent need for a comprehensive and nuanced understanding of the true costs of such a policy. We will continue to press the case nationally with the government about the highly foreseeable adverse impacts this levy policy will have on the UK economy, our universities and our students. 

We need to strain every sinew to avoid another self-inflicted wound to a sector that is the cornerstone of our nation's prosperity and influence.