Higher Education Strategic Risk Analysis Report 2025/26 14 2.3 Financial sustainability ranked joint 3rd inherent, ranked 4th residual Risk findings: Financial sustainability risks feature on all corporate risk registers in various forms. 90% of institutions in our sample this year have a defined financial sustainability risk, a similar percentage to the last three years. The relative inherent risk ranking has increased from 5th to 3rd, while the average inherent risk score has also increased. This reflects the year-on-year real terms decrease in the value of home tuition income, compounded by escalating energy, materials and staff costs, and increasingly volatile and competitive home and international recruitment markets. Although the relative ranking of the residual risk falls from 3rd to 4th, the average risk score is largely unchanged. While welcoming the uplift in tuition fees from the current academic year, and potential future inflationary increases where institutions meet quality expectations, universities are continuing to pursue a wide range of cost reduction, restructuring, and income diversification and growth activities. Inevitably, the nature of the challenge varies, with some institutions highlighting liquidity risks, whereas for others risks relate more to generating sufficient surplus for investment, or diversifying income streams to spread risk. Risk controls and mitigating actions invariably reflect institutions’ individual financial positions, but typically include: • Greater emphasis on medium and longer term financial forecasting/reforecasting, scenario modelling and stress testing, and more frequent governing body scrutiny of accounts and cashflows, reflecting lessons learned from the University of Dundee9; • Strengthened, multi-year planning and budgeting processes; • Income diversification and growth options, including new market opportunities; • More regular reviews of pensions provision and exploration of alternatives • Strengthening of treasury management, cash management and cost controls; • Strengthening or developing workforce planning with closer monitoring of staff costs, restructuring, and voluntary severance schemes; • Efficiency programmes, process re-engineering, re-prioritisation, and scaling back or delaying capital expenditure; • Market-led portfolio and curriculum review; and • Hedging energy costs, increasing energy efficiency, and driving more value from procurement and supplier management; We also note that fraud risks are now appearing on strategic risk registers with greater frequency, likely reflecting the challenging economic climate and the new duty to prevent fraud under the Economic Crime and Corporate Transparency Act (2023). This is driving stronger interest in the automation of financial controls and detection of irregularities, the development of fraud risk registers, and review of cross-organisational policies and procedures. Risk commentary and recommendations Despite increases to home tuition fees and the wide range of mitigations outlined above, at a sector level a number of factors point to increasing, rather than declining financial sustainability risks. These include international market dynamics and the international student levy, global uncertainties impacting partnerships 9https://guildhe.ac.uk/news-and-policy-insights/lessons-dundee-reportessential-checklist-senior-leadership-teams-and
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