Dear Minister,
Congratulations on your appointment as Scotland’s Minister for Innovation, Technology & Tertiary Education. You took up the post at the start of student registration week, when universities were anxiously monitoring the numbers of international fee-paying students enrolled. Initial indications are that taught postgraduate courses are down on last year, which itself saw a substantial reduction compared with the previous year. Alongside this, vice chancellors have been warning for a decade about the effect on university finances of per-student funding for Scottish-domiciled undergraduates, currently at £8,162, being the lowest in the UK, falling to roughly £7,620 once English-domiciled students, who pay their own fees, are stripped out of the calculation.
On your desk you have the Pillar 1A report from the joint Universities Scotland-Scottish Government Future Framework exercise: a £200 million shortfall between what Scotland’s universities cost to run and what they receive, made up of a £288 million teaching gap, a £580 million research gap, an estates backlog above £1.1 billion, £77.2 million in RAAC remediation and at least £645 million in net-zero capital need over the next decade. The Scottish Funding Council’s assessment, published earlier this month, found ten of the seventeen universities it assessed in deficit in 2024–25, up from nine the year before, with the University of Dundee excluded because its accounts were not yet finalised; so the true picture is likely to be worse than these figures suggest.
Compared with Scottish colleges, local government or the voluntary sector, the financial position of the university sector appears relatively healthy. However, its recovery from a reduction of more than 90 per cent of its surplus in 2023-24 compared with the previous year to an adjusted surplus of £90.6 million is more than accounted for by the four ancient universities, their combined £98.3 million surplus in 2024-25 exceeded the sector total. The other institutions were collectively £7.7 million in deficit. Over the last decade the University of Glasgow grew by 44 per cent by aggressively recruiting international students. Other universities in a position to do so followed suit, using this income to cross-subsidise research and undergraduate teaching.
This letter is intended to help you to deal with the funding crisis now facing Scottish universities and colleges. It begins by outlining the reasons for the current crisis and then goes on to suggest five steps that you could take to improve the situation. This can be achieved as we detail by better aligning funding, institutional planning and accountability with national objectives and the different needs of regions and communities.
Dependency on international student fees
Non-EU fees contributed almost half of all Scottish teaching income over the last five years, up from under a third a decade ago. At the four ancient universities, the proportion averages 58 per cent. University leaders are conscious that reliance on overseas student demand for taught postgraduate courses is risky but international fees has proved an addictive revenue source that has had a narcotic effect on institutional finances. No one felt able to call a halt.
The SFC’s forecasts make continued recovery dependent on the habit continuing: international fee income is projected to rise from 26 to 28 per cent of total income by 2027–28. These ‘optimistic’ fee assumptions, aggregated from forward plans produced by university managements rather than from a sectoral market assessment exercise, fly in the face of trend data, including the numbers taking up places in universities this academic year. Many institutions are close to the cliff edge, especially those that in recent years have been unable to attract international students in the numbers needed to build up their reserves, leaving them reliant on teaching grant income. As a result, this is no longer a uniform solvency crisis affecting the sector: there is a widening divergence that requires a differentiated response.
Superficially it might appear that all universities are in the same boat. Almost without exception they are cutting costs, making staff redundant and jettisoning courses deemed to be unprofitable. But beneath the surface the pressures on the most prestigious universities arise from their expansion into the overseas markets on which they have become dependent, whereas for most other institutions it is volatility in the domestic market and very limited reserves that endangers their survival. International markets are drying up and competition is increasing worldwide. Visa regulations in the UK have tightened and Basic Compliance Assessment thresholds that took effect this June, with sanctions up to and including loss of a sponsor licence for institutions that breach them, pose a serious threat to institutional viability. None of this was unforeseeable, and none of it will be solved by waiting for international markets to recover.
Moving from institutional competition to territorial collaboration
Competitive shunting, whereby some universities expand their intakes at the expense of others in response to reductions in international student numbers, is a threat to the whole system as it spreads the loss of revenue across the sector. League tables, REF stars and other similar measures define the position of each university within a hierarchy where markers of prestige appear to be more important in determining student choices and patterns of demand than the price of the services provided. In the context of Scotland’s no tuition fees, grant-funded settlement, this market-driven performance framework with no incentives for collaboration between institutions in the same region has accentuated the difficulties Scotland’s universities now find themselves in. If the performance framework and the current system configuration with nineteen universities operating as separate entities remain unaltered, providing even a proportion of the additional resource the Pillar 1A report says is needed to maintain the ‘as is’ system runs the risk of letting the same behaviours in an unsustainable system continue for longer.
Relative to its population, Scotland has more universities than other nations with similar or higher GDP and more than other parts of the UK. Universities Scotland have launched the next phase, Pillar 2 of the Future Framework, led by Professor Dame Sally Mapstone, with ‘no red lines’ on how the sector might evolve. Its caution that mergers are the most radical and least reliable option is understandable and its focus on shared services and joint infrastructure is welcome, although the track record of these initiatives in the past has been poor. More importantly, at present it is offered up as a universities-only initiative and is silent on the potential role of colleges, the performance framework and links with regional empowerment and wider public sector reform. It can be the first stage of a wider reset. On its own, it cannot be the whole of one.
Colleges Should not be an Afterthought
The crisis in the tertiary sector is not confined to universities. 92 per cent of Scotland’s colleges are projected to be in deficit. Three consecutive years of voluntary severance have hollowed out the workforce, affecting capacity, and the additional £70 million allocated for 2026–27, while welcome, will not rectify cumulative underfunding. For the fifty percent of school leavers who don’t go to university, colleges are the main providers of education and training, including courses linked to apprenticeships. They are also deliverers of part time and adult learning and provide access routes to university education for many of those who don’t go directly from school. Rather than separate parallel exercises to look at the futures of colleges and universities, it would have been better, given the scale and interconnectedness of the problems affecting both sectors, to have created a single mechanism. Six years ago, the Cumberford-Little report called for genuinely joined-up tertiary planning. Now, more than ever it should be heeded.
What Would Actually Work
As Minister, it is within your powers to galvanise change by creating a Tertiary Commission with a wide remit, including the redesign of funding arrangements and performance architecture for the system as the precondition for durable reform, not a technical afterthought. This would complement, not compete with, Pillar 2: its work on collaboration between universities can feed into a wider process that also covers colleges, regions and the measures that shape institutional behaviour. Rather than wait for universities to deliberate amongst themselves, you should ask for proposals that dovetail with the regional empowerment and public service reform agendas your government already backs, binding universities and colleges into innovation, inclusion, economic development and skills strategies at both national and regional level where there is potential for greater co-ordination and targeting of resources.
Progress should be founded on five principles:
- comprehensiveness across the whole tertiary system;
- territorial differentiation, so that what is expected of UHI in the Highlands is not measured against what is expected of Glasgow’s universities in the West of Scotland’s post-industrial transition;
- streamline and balance accountabilities rather than replace existing metrics;
- consider the behavioural consequence, so that territorial contribution materially affects funding and outcome agreements rather than sitting in an annual return nobody reads or pays attention to; and
- create the data infrastructure necessary to make change measurable.
Expectations of institutions including the requirement to collaborate should be tied directly to funding conditions, not left as guidance.
Linking to Regional Empowerment
Regional coordination could begin now, calibrated to what different parts of Scotland can sustain. Where institutional density already exists to support them, as in Glasgow City Region and Edinburgh and South-East Scotland, this could be formalised as Regional Tertiary Collaborations, linked to Regional Economic Partnerships; lighter-touch consortia may be appropriate in Dundee and Tayside and in Aberdeen and the North-East; and mission-based agreements built around institutions like UHI, where a single federal university is itself the regional infrastructure.
There has been some movement towards greater collaboration between institutions, for example the engagement of Strathclyde and Glasgow Universities in the investment zone and innovation accelerator led by Glasgow City Region and the strategic alliance project involving Napier and Queen Margaret Universities in Edinburgh with Scotland’s Rural College (SRUC) but these are exceptions made possible by the availability of funding; mainstream funding and performance management for universities and colleges remains siloed, with each institution and sector separately accountable. With a small amount of additional funding, you could expand the SFC’s transformation programme, give it flexibility to move funding between apprenticeship types, improve the connectedness between skills development in different education tiers, encourage closer engagement with employers at regional level and require reporting against territorial contribution within existing outcome agreements, all without a single piece of legislation, before your first anniversary in post.
The steps we believe are needed to address the problems facing the tertiary education (post-16) sector in Scotland are:
- Realise the full potential of the tertiary system, by requiring the Scottish Funding Council to allocate resources in line with the varied needs of communities in different parts of Scotland, taking both growth and inclusion objectives into account.
- Align institutional planning with regional as well as national economic and skills priorities, using partnerships, consortia and mission-based agreements.
- Bring together the reforms of the university, college and apprenticeship systems, and stabilise the system by mandating the SFC to produce a coherent planfor institutions to operate within their funding allocations within two years.
- Make a proportion of future funding conditional on contribution, including measurable territorial outcomes and differentiated expectations for institutions.
- Consider costs against international benchmarks rather than solely UK equivalentsand be prepared to take steps where necessary to maintain and expand provision that serves regional and national objectives.
The Choice in Front of You
Registration week and your appointment should be catalysts for change, bridging both universities and colleges. The current model is not sustainable, even in the short term, and doesn’t deliver what Scotland needs from its tertiary sector. You have a narrow window, a genuine mandate to use it, and, unusually for higher and further education policy, cross-party acceptance that something must change. Please use it.
Yours in hope of a bolder tertiary settlement,
Des McNulty
Des McNulty is Chair of the Advisory Board at the Local Policy Innovation Partnership Hub, University of Birmingham, and a former MSP and Chair of the Scottish Parliament’s Finance Committee. This letter draws on his paper with Huw Morris, “Scottish Higher Education: Performance, Policy and Place” (October 2026) Enlighten