As part of our Budget blog post series, our Policy Delivery Director Mark Hilton outlines what plans for a new levy on international students could mean for the capital
When Rachel Reeves stands up to deliver her Autumn Budget on Wednesday, she’ll be doing so in a city which will be fundamental to achievement of the Government’s growth mission.
The capital accounts for over a fifth of all economic activity across the UK, supporting multibillion pound supply chains around the country and making a sizeable net contribution to the Treasury.
And yet London, an engine of growth for the whole UK, is set to take a significant hit from planned policy decisions over the coming months.
These include adjustments to the business rates system, which could see high growth firms in the capital shouldering an even more outsized share of the tax burden, as well the ongoing absence of VAT-free shopping for international visitors, an incentive that remains in place in competitor cities like Rome, Paris and Milan.
Also on this list of proposed growth blockers is a plan to introduce a new 6% levy on fees paid by international students to universities.
Higher education is one of the UK’s world-leading export sectors, bringing in over £32bn of revenue in 2022, and many of our top universities are based here in the capital.
The Government recognises as much. Only last month, the Prime Minister was celebrating the economic contribution of universities on a visit to India alongside several prominent Vice Chancellors. The Number 10 announcement to accompany the trip highlighted how “our great British universities are admired all over the world for their teaching excellence, high-quality research and commitment to innovation.”
Imposing a new higher education levy would put that sizeable economic contribution at risk. Figures from Public First indicate that the move could reduce economic activity by £1.8bn, with London losing out on £480 million worth of output.
And the constituency set to be worst affected by the change? The Prime Minister’s very own seat of Holborn and St Pancras, expected to face a £72 million loss.
Plans for the levy were set out in the Government’s immigration white paper over the summer. Whilst Ministers are absolutely right to address legitimate immigration challenges, international students shouldn’t be the focus of their efforts, especially as they seek to get the economy firing on all cylinders again.
The Government is also right to stress the importance of domestic upskilling, but must recognise that international students are fundamental to the success of the institutions which make that upskilling possible.
International students contribute to growth in many ways: they support cultural exchange at our globally renowned universities; they fill skills gaps in rapidly growing industries, bringing new perspectives to workplaces; they start their own companies, creating opportunities for others; and they extend the UK’s soft power when they return home.
For the Higher Education sector itself, the levy would make an already extremely precarious financial situation even worse. Our universities make an enormous economic contribution but years of freezes to domestic tuition fees have left many of them stretched, though Ministers have now rightly stated that fees will rise in line with inflation.
The Government has in recent weeks announced that funds generated from the new levy would facilitate maintenance grants for those from disadvantaged backgrounds seeking to access Higher Education.
Though the return of these grants is welcome, universities are already dependent on revenues from overseas students to subsidise domestic peers and support research programmes.
Adding to the financial strain placed on universities whilst sending a message to the world that international student numbers are being curbed would fundamentally reduce the UK’s appeal as a study destination.
Figures published in September show international applications to study in the UK over August were down 18% on 2023 following recent changes to visa rules. A new levy risks accelerating this trend – deterring the international intakes on which universities rely, with world-leading research programmes a likely casualty.
As global competitors pull up the drawbridge to international talent, the UK currently has an opportunity to cement its reputation as the world leader in Higher Education. This week is the Chancellor’s opportunity to seize it.