International Student Levy

The UK’s universities are a national asset and a powerful engine for driving economic growth across the country. This sentiment is shared by the UK public – CaSE research has found that a majority (69%) think that the universities in the UK are some of the best in the world, with the same proportion of people regarding this as an important strength for the country. Universities have also been recognised by the UK Government as important partners in delivery of the UK’s Modern Industrial Strategy.

In the Budget, the Government confirmed it is introducing a new levy on higher education providers’ income from international students, as stated earlier this year. The Government says that income raised by the Levy will be reinvested into higher education and skills, including to fund maintenance grants for disadvantaged students studying priority courses, with further details set out in due course. The Levy will be at a rate of £925 per student per year of study, starting in the academic year 2028-29. All providers will be given an allowance for the first 220 international students per year, for whom they will not pay the charge.

The Institute for Fiscal Studies have recently reported that across universities in England, the average tuition fee income per international student per year was around £19,000 in 2023/24, but this ranged from more than £30,000 to less than £10,000 per student per year across higher education providers. The fixed levy of £925 per student per year represents a 4.9% levy on this average fee income of £19,000, ranging from 3.1% of £30,000 to 9.3% of £10,000.

CaSE is concerned about the impact of the international student levy on the research sector. At a time when many universities, a crucial part of our research system, are already under financial pressure, the impacts of this tax will be unpredictable and could be damaging. Our recent report with Universities UK (UUK) and the Association of Research Managers and Administrators (ARMA) showed that R&D activity in UK universities is already being eroded due to sustained financial pressures. Some 79% of UUK’s March 2025 survey respondents reported they would consider reducing academic research activity in the future (up from 34% who said the same in 2024), and 83% are considering cutting other research or R&D activity (up from 23% in 2024).

Reduced income for universities through this new levy will mean that even less is available to invest in world-leading research teams, in high-cost research facilities, and in work to underpin local communities and economic growth – a Government priority restated by Liz Kendall only a few days ago. The Levy could have a substantial impact on the financial viability of research in the higher education sector, which would make delivery of the Government’s wider economic growth and opportunity ambitions much more difficult.

R&D investment

The Budget reiterated the Government’s earlier Spending Review commitment to invest over £22 billion per year in R&D by 2029‑30. Supporting UK R&D is an essential way to generate growth in the economy, ensure excellence in UK universities and research institutes, stimulate private sector innovation, and improve lives and livelihoods across the UK. It is therefore positive that the R&D budget is being protected in tough fiscal circumstances. The Budget outlined several measures relating to the Government’s R&D priorities.

Curiosity driven research

CaSE is pleased to see that UKRI’s investment in core quality-related (QR) block grant and Higher Education Innovation Funding (HEIF) in England will be protected in real terms over the Spending Review period, a cumulative cash increase of over £425 million. Protecting the real terms value of QR funding will allow institutions to respond strategically to emerging challenges and sustain research excellence across disciplines. However, while this is a positive step, increasing QR in line with inflation will not reverse the steady erosion in the real terms value of QR we have seen over the last decade.

Strategic Government priorities

The Budget emphasised the role of the Industrial Strategy in shaping the Government’s decisions. It stated that investment in public R&D will be focused on government priorities, with UK Research and Innovation (UKRI) directing £9 billion over four years towards the eight growth-driving sectors (IS-8) sectors, including £4.5 billion for innovative UK companies in those sectors, in line with the announcements on Monday 24 November (although there are some inconsistencies in what investment the various numbers announced cover).

 Specific measures announced in the Budget include:

• Innovate UK will launch a new Growth Catalyst programme worth £130 million, offering grants and tailored support to frontier companies that have already attracted investment.
• UKRI’s £500 million R&D Missions Accelerator programme will launch challenges to drive economic benefit from the UK’s cultural assets and to cut construction costs for public infrastructure by 10%. This was announced in the allocations to departments made in the Spending Review in June.

Business R&D

Reiterating the ambition of the Industrial Strategy to support business investment in the UK, the Budget featured several measures to support the environment for businesses to start, scale, and stay in the UK. Measures announced included:

• Leveraging procurement budgets to drive innovation with each department appointing a senior “Procurement Innovation Champion”, responsible for defining and delivering its innovation priorities through procurement.
• The Government will pilot a targeted advance assurance service from spring 2026, enabling small and medium-sized enterprises to gain clarity on aspects of their R&D tax relief claims before submitting to HMRC.
• The Government is increasing the Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) limits to allow investors to follow-on as companies grow beyond the start-up phase. This is welcome and something that CaSE called for in our report Backing Business R&D. Increasing these limits will help ensure that these schemes, which are designed to encourage investment in higher-risk, early-stage innovative businesses, remain relevant to the current investment landscape.

International talent

The Budget restated the Government’s ambition to attract international talent in support of the UK’s Industrial Strategy. It reiterates the ambition stated in the 2025 Immigration White Paper to reform the high-skill visa system to support this.

It also reiterated the new Immigration Rules, which introduce reforms to visas, including updates to the Global Talent visa to make it simpler and easier for top science and design talent to access the visa and to expand the list of eligible prizes. It also mentions the new Global Talent Taskforce which will also help attract leading professionals in priority sectors and provide tailored support for relocation.

While CaSE welcomes measures to make the UK more attractive for international talent, current visa and immigration policy still poses large barriers for the R&D sector. In particular, high visa costs including the Immigration Health Surcharge, continue to pose a significant barrier for individuals.