The Scottish Government has been warned that it will need to raise its investment in higher education students by £60m this year to avoid asking universities to "do more with less".

This is according to a new report from the Institute for Fiscal Studies (IFS), which is preparing a series of briefings ahead of the Scottish Government's budget announcement in December.

According to the IFS report, the need for more cash in the higher education system is driven by a combination of factors, including an £18m cut to the main teaching grant – which funds places for Scottish students to attend university for free – and a recent decline in fee-paying international student numbers.

Although Scottish universities had previously reported record-high numbers of international students in 2022-2023, institutions have now felt the effects of recent changes in visa policy implemented by the previous UK Government.

Between January and October 2024, there were 16% fewer visa applications to study in the UK compared to the same period in 2023 and 14% fewer compared to 2022. 

In 2022-2023, Scottish universities reported higher education teaching resources of around £2.7 billion, with just over half of that funding coming from tuition fees charged to students from outside the EU, an increase of 30% from 2016-2017.

In addition to fluctuations in international student numbers, Scottish universities face the impacts of policy changes in England and at Holyrood. 

English universities can now charge home students £9,535 in tuition fees, a 3.1% increase from the previously longstanding £9,250 rate. 

The IFS estimated that matching those rates in Scotland could be worth £5-7m in the next academic year. 

Universities Scotland has also estimated that the sector will face £45m in added expenses due to an increase in the National Insurance employer contributions.

These factors will increase pressure on the Scottish higher education system, which the IFS report indicated is already facing significant funding challenges.

The government-funded tuition fee for Scottish students remains at £1,820 – the same cash level as 15 years ago.

According to statistics from the IFS and Scottish Funding Council, Scottish universities received roughly £7,530 in direct public funding per Scottish student last year. There has been a 22% decline since 2013-2014, with half of the fall coming since 2021.

Part of that reduction, an estimated £7m, was tied to the removal of some additional student places that were added in 2021 to meet the additional demand of incoming students who achieved SQA qualifications during the Covid-19 pandemic.

The government had committed to funding those student through their studies, but those are largely completed and the places have been removed. University representatives have suggested that, instead of removing the funding for these places entirely, the Scottish Government could redistribute it and bolster the main teaching grant.

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Earlier this year, The Herald reported on the extent of the funding crisis facing Scottish universities and highlighted the potential gap between the amount the Scottish Government pays for each student and the amount universities actually need to deliver specific degrees. 

For some courses, the estimated gap meant that universities were left to cover roughly half the costs of teaching using other sources of income, most often international tuition.

The IFS report concluded that the Scottish government will need to increase its funding to avoid further losses in student funding and add pressure on universities to "again be asked to do the same or more with less" and that additional investment of up to £60m might be necessary.

Kate Ogden, Senior Research Economist at the Institute for Fiscal Studies and author of the report, said that falling international enrollments and policy changes represent a "perfect storm" for Scottish university finances.

She added that they may also face a disadvantage compared to their cohorts in England.

"Universities in England will be grappling with the same challenges. But after a long-running freeze in fees, they will be allowed to increase tuition fees by 3.1% in the coming year, which will provide some help in addressing financial challenges.

"With tuition free for Scottish students in Scotland, if the Scottish Government wants to provide more funding to universities it will need to look to its own Budget.

"Despite a much-improved funding outlook for the coming year following the UK Budget, this could still prove challenging given the number of competing priorities facing the Scottish Finance Secretary Shona Robison."

In response to the IFS report, Higher Education Minister Graeme Dey said that Scotland's universities were shouldering the consequences of UK Government policies.

“The UK Government’s decision to increase employer National Insurance contributions is causing real alarm for sectors across the country.

"It’s therefore vital the UK Government now provides urgent clarity on whether it will fully meet the costs it is imposing on public sector employers, as well as those providing public services like universities. 

“Additionally, maintaining restrictive visa policies will negatively impact the ability of Scottish universities to attract international students, which will create devastating consequences for both the sector and our economy.

“The costs of the UK Government’s decisions should not fall on Scotland’s public sector, charities and universities.

“The Scottish Government appreciates the valuable contribution universities make to Scotland’s economy and wider society. That is why we continue to invest over £1 billion in the sector to support the delivery of excellent teaching, research and innovation.”

Claire McPherson, Universities Scotland Director, said that despite the impacts of national policy changes, there are practical steps that Scottish leaders can take to support universities.

“Scotland’s universities have been managing the consequences of declining levels of investment by the Scottish government for over a decade, while at the same time we have seen the highest number of Scottish domiciled students being accepted to study at university.

"The IFS report highlights the substantial reduction this has had on investment per Scottish student, including through last year’s cut to the main teaching grant following the removal of the so-called 'SQA places'.

“With more SQA places due to exit the system this year, the Scottish Government has an opportunity to keep the £14m associated with these places in the system and save to spend on Scottish students.

"Alongside increasing investment in the sector in real-cash terms, this would enable much-needed direct investment in education, support, and the student experience, slowing the ten-year-long decline the sector has faced.”