UK budget: implications for higher education 

The Chancellor of the Exchequer, the Right Honourable Rachel Reeves, has presented the UK Government’s 2025 Budget, which has implications for universities and the higher education sector.

Among various measures on income and expenditure, the Government confirmed, as widely anticipated, that it would introduce an international student levy

This was first mentioned in an Immigration White Paper in May 2025 and has seen much comment and analysis from the sector and coverage in the media since then.  

They levy will require education providers to pay a flat fee of £925 per international student per year. This will be collected by the Office for Students. It will take effect from August 1, 2028.

The levy will fund the introduction of targeted maintenance grants for disadvantaged students.

A technical consultation has now begun, seeking views on areas of the policy including scope, calculation, and payment. This is open until February 18, 2026.

The Department for Education has published an impact analysis of the levy.

Also of note for the sector is the change to salary sacrifice arrangements for pension contributions which prompted a response from the Universities and Colleges Employers Association (UCEA) .

Views from the Higher Education sector

The Russell Group of UK research-intensive universities, of which Durham is a member, has responded to the Budget.

Dr Tim Bradshaw, Chief Executive of the Russell Group said: “Announcements earlier this week on R&D funding showed welcome acknowledgement of research-intensive universities as drivers of growth and public services. Despite this and the positive decision to uplift tuition fee caps, many financial challenges remain.  “The international student levy will have a significant impact on universities’ ability to invest in teaching, research and communities, but a flat rate fee should avoid the complexities of a percentage-based model and limit the potential for gaming the system. We will now look to work closely with government through the consultation process to avoid unintended consequences and minimise administrative burden. 
“The UK remains a fantastic study destination. Government should continue to take every opportunity to send a positive welcoming message to international students. We’re also pleased to see financial pressures being eased for some UK students through the reintroduction of maintenance grants and await more detail.”

Universities UK, which represents most of the UK’s universities including Durham, has also responded to the Budget.

Professor Malcolm Press CBE, President of Universities UK, said: “Today’s Budget rightly puts skills and innovation at the heart of the country’s future prosperity, and universities are crucial partners to both.  We welcome the reintroduction of maintenance grants for students from the most disadvantaged backgrounds. International students create educational opportunities for domestic students. They contribute to teaching, research and student support, as well as generating over £40bn for the UK economy.  We are pleased that government also recognises the importance of international students. The international student recruitment market is competitive and fees in the UK are high.  As a result of today’s announcement of a levy on international fees, universities now face the prospect of either reducing cross-subsidies that support teaching and research, and/or raising international fees still further, which has the potential to drive down international  numbers, ultimately limiting our ability to support UK students. We are encouraged that the government has responded in part to our representations regard the levy.  We now need to work with them to ensure that higher education funding is on a sustainable footing and that the levy does not result in unintended consequences for the sector. We also need to work together to ensure that the UK remains a welcoming and attractive destination of international students.”

The Universities and Colleges Employers Association (UCEA), has also responded to the Budget.

Raj Jethwa, UCEA Chief Executive said: “Following pre-Budget speculation, confirmation today of the change to salary sacrifice arrangements for pension contributions brings nothing but disappointment and more concern for UCEA member HE institutions. Earlier in the month we wrote to the Treasury urging careful consideration of the financial impact of further costs to the HE sector. Salary sacrifice is widely utilised by HE institutions and their staff for pension contributions. Capping it at £2,000 from April 2029 will add significant additional costs to HE institutions through higher NI payments. The changes will also impact employees that salary sacrifice their pension contributions. Our initial high-level estimate is that this will cost individual institutions an additional £1m to £3m a year, while increasing costs to the HE sector by over £50m. These figures do not consider the significant numbers of employees who will salary sacrifice in order to make Additional Voluntary Contributions. These numbers are understated because we have only calculated figures in respect of one pension scheme (USS) and are based on current salaries and contribution rates. There are a range of other pension arrangements across HE into which members can salary sacrifice their contributions. Across the HE sector, where ‘post-92’ universities are already reeling from increases to employer contributions to the Teachers’ Pension Scheme from 16.48% to 28.68% which cost an extra £125million a year, this cut to salary sacrifice is very disappointing.”