The Labour government has confirmed that a new levy on UK universities income from international students will be used to fund the reintroduction of targeted maintenance grants for disadvantaged domestic students. The announcement, made by education secretary Bridget Phillipson at the Labour Party Conference 2025, marks a major shift in how higher education funding will be distributed.
Funding Support for Home Students
The return of means-tested maintenance grants will provide additional financial help to students from low-income backgrounds, particularly those studying on courses deemed essential to the UK economy. Phillipson told the BBC that she wanted to ensure that “everyone who has the ability and ambition to go into higher education is able to succeed,” confirming that the new grants would be funded through the international student levy.
“We’ll be raising money through the international students levy,” she explained. “By investing in domestic students, especially those who don’t have so much money, we can help more young people reach their potential.”
The policy is positioned as a way to make higher education more equitable, with the government arguing that those who benefit most from studying in the UK should also contribute to widening access for British students.
A 6% Levy on International Student Income
While the precise mechanism of the levy will be clarified in the Autumn Budget, details published in the technical annex of May’s immigration white paper suggest that the government is modelling a 6% charge on universities income from international students.
This effectively introduces a tax on international student fees, a move that universities have long feared could be passed on to students in the form of higher tuition charges. The government has acknowledged this likelihood, indicating that institutions may adjust their fee structures to offset the impact of the levy.
Sector Concerns and Economic Impact
The proposed levy has sparked widespread concern across the higher education sector. Analysts and university leaders warn that it could undermine the UK’s global competitiveness as a study destination, particularly at a time when institutions are already facing severe financial strain.
A recent Public First report warned that introducing the levy could reduce international enrolments by more than 77,000 students over five years, costing the UK economy an estimated £2.2 billion and cutting 135,000 domestic university places.
With data from the Office for Students showing that 72% of universities could be in deficit by 2025/26, amounting to a combined shortfall of £1.6 billion, critics argue that the policy risks deepening an already precarious situation.
Balancing Equity and Sustainability
Supporters of the plan maintain that the levy will promote fairness in the system, ensuring that universities reliance on international fees also benefits those most in need. However, detractors warn that the approach may have unintended consequences, including reduced international demand, lower institutional income and potential cuts to academic and support services.
As the sector awaits further clarification in the Autumn Budget, the debate highlights the tension between social mobility goals and the financial sustainability of UK higher education.
If implemented as planned, the international student levy will mark one of the most significant changes to the funding landscape in a generation, reshaping how universities balance their global ambitions with their domestic responsibilities.
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