Budget national insurance hike ‘costs universities £372 million’

Employers will have to pay higher taxes next year, Rachel Reeves has announced, heaping further costs on cash-strapped UK universities.

Outlining her first budget in the House of Commons, the chancellor confirmed a 1.2 percentage point rise in employer national insurance contributions, taking the total paid to 15 per cent.

The threshold at which employers start paying national insurance will also be lowered from £9,100 to £5,000.

Universities had raised fears that such a move would add millions to their annual pay bills and may result in further cuts and redundancies.

Modelling by mission group Universities UK estimated that a 1 per cent rise would cost the sector £130 million and Ms Reeves has gone further still.

Raj Jethwa, the chief executive of the Universities and Colleges Employers Association (Ucea), put the cost at £372 million, once the impact of raising the threshold was factored in. 

He said this “amplifies the significant funding challenges facing HE institutions”, with many left with “difficult decisions on how they can balance their budgets”.

Pleas for exemptions for universities – already battling a funding crisis caused by the long tuition fee freeze and stalling enrolments – appeared to have fallen on deaf ears, with protections only extending to small businesses.

Ms Reeves’ budget included £40 billion in tax rises as part of efforts to plug what she said was a £22 billion “black hole” in the public finances left by the last government.

Further education will receive £300 million in more funding but there was no mention of higher education or universities in Ms Reeves’ more than hour-long speech.

Jo Grady, the general secretary of the University and College Union, said the budget offered “thin gruel for those working in universities”.

“Employer national insurance rises will hit the sector hard when higher education is already on its knees,” she said.

“Universities are crying out for increased public funding to secure their future as Britain’s last world-leading sector, yet the chancellor failed to deliver. There will be no decade of national renewal if the government’s approach to universities continues to be one of de facto disinvestment.”

On research and development, Ms Reeves said the government was “protecting record funding...to harness the full potential of the UK science base”.

Times Higher Education understands that while the costs of associating to Horizon Europe were being added to the budget of the Department of Science, Innovation and Technology (DSIT) – as was feared by the sector ahead of the speech – the money available for research was also being increased, some way towards easing concerns that there will be a knock-on impact.

DSIT’s funding settlement for 2025-26 includes a budget of £13.9 billion to invest in research and development, an increase on the £12.5 billion it had for 2024-25. The Horizon association costs have previously been estimated at £1 billion.

Ms Reeves told the Commons that the government would “protect government investment in research and development with more than £20 billion worth of funding”, including £6.1 billion “to protect core research funding”.

Plans to create a targeted “missions fund” were also confirmed, with £25 million being made available to support research projects that align with Labour’s priorities for government. 

The budget also committed to delivering the new Lifelong Learning Entitlement (LLE) but revised the launch date again to January 2027.

But Diana Beech, chief executive of London Higher – which represents universities in the capital – said Ms Reeves’ failure to even mention universities in the speech “raises concern that the higher education sector has failed to achieve cut-through at a time when its own financial stability is hanging by a thread”.

“Instead of taking measures to put our universities on a more stable footing, the chancellor’s pledges have only destabilised our higher education sector further by adding millions of pounds on to institutional balance sheets through planned rises in employers’ national insurance contributions,” Dr Beech said.

Ms Reeves’ investment in further education to deliver skills for young people was the “clearest signal yet that universities and higher education institutions are still not viewed by this government through the lens of providing direct and immediate value to the economy”, Dr Beech added.

Rosalind Gill, head of policy and engagement at the National Centre for Universities and Business, said further investment in research and development was a “positive step forward” but cautioned that the budget may have “significant unintended consequences for the sustainability of the UK’s world-leading university system” due to the tax changes.

“Only through more sustainable funding can universities focus on their public mission rather than financial survival. We implore the government to recognise this, before it’s too late,” Ms Gill added.

tom.williams@timeshighereducation.com