The next government faces “unpalatable” choices between raising tuition fees, making direct grants or capping student numbers to rescue universities in England from their financial black hole, the Institute for Fiscal Studies has warned. The thinktank said universities that relied on teaching UK students for the bulk of their income were most vulnerable, calculating that undergraduate tuition fees would now be £12,000 if they had kept pace with inflation, rather than the £9,250 rate frozen since 2016. Josh Hillman of the Nuffield Foundation, which funded the report, said: “The incoming government faces an unpalatable legacy that parties have not confronted in their manifestos. “Higher education funding needs a drastic overhaul, it is just a question of who pays for it – graduates or taxpayers. It seems this unpopular message is one that no one wants to deliver ahead of a general election.” A report by the Office for Students, the sector’s regulator in England, forecast that four out of five institutions would be in the red by 2027 in a “reasonable worst-case” scenario. More than 50 have announced job cuts and course closures this year. The IFS said the obvious solutions would be raising tuition fees for undergraduates from 2025, and allowing them to increase at the rate of inflation. The next government could limit fee rises by increasing the teaching grant subsidy paid directly to universities. The report also notes a third option – included in the Conservative manifesto but ruled out by Labour – of limiting the number of students going to university. But the IFS said maintaining current subsidies would mean stopping about one in four future school-leavers who wanted to go into higher education. Labour’s manifesto states that higher education is “in crisis” but does not explain what steps it would take. Kate Ogden, a senior research economist at the IFS, said while university finances had been buoyed by higher enrolments and increased international student fees, the sector’s good luck was starting to run out. “The reality of frozen fees for domestic undergraduates is now starting to bite, just as tighter restrictions on dependent visas and uncertainty about the direction of immigration policy are hampering international student recruitment,” she said. “If it wants to avoid further cuts to teaching resources, a new government will have to choose between asking more from students through higher tuition fees, or committing itself to increasing teaching grants.” Vivienne Stern, the chief executive of the Universities UK group, said the erosion of student funding could not continue without damaging universities’ role as educators and employers. Stern said protecting tuition fees from inflation, improving maintenance support for students and sending “an unequivocal message” of welcome to international students should be the next government’s priorities. “University leaders share a responsibility with government to ensure we do not oversee the slow decline of one of the UK’s great assets. We all need to act to ensure a stronger, better university sector which meets the needs of the country in a decade’s time,” Stern said.