The HEPI blog was kindly authored by James Pitman, Chair of IHE and Managing Director U.K. and Ireland, Study Group
The Graduate Route has been extraordinarily powerful in driving international education value in the UK. Although all the surveys show students choose universities and courses for their reputation or fit, the opportunity to translate this into a first job in another country to strengthen English language skills as they earn is evidenced by what happens as soon as that is taken away.
The correlation between removing the Post Study Work Visa scheme on the back of statistically invalid analysis and the drop in international students choosing the UK in 2012 is irrefutable. This is strengthened by the significant international student growth linked to the re-introduction of the Graduate Route in 2021.
Why is the graduate route visa such a powerful incentive for some international students to come and study in the UK? The simplest explanation came from an agent in India, who explained:
‘An Indian student can recoup much of their investment in a UK degree over a few years of employment in the UK when it would take several decades to do the same back in India.’
International students contribute a net £100,000 to the UK economy during their degree study. A degree is required to enter the Graduate Route. Therefore, one could consider the ‘entry ticket’ for a Graduate Route visa to be a £100,000 investment in the UK – which may be worth up to £30,000 to the exchequer. From a Treasury growth perspective, international students drive employment and economic benefit in every constituency of the UK, especially in university towns and cities. I doubt the mandarins at the Treasury could think of a more cost-effective measure that seeds prosperity right across the country while building connections and loyalty that last a lifetime amongst the very group who will, in years to come, shape societies and build companies.
Oxford Economics concluded that every 10 international students supports 6 jobs, with half in Higher Education and half in the local economy. If this remains accurate, the reported loss of approximately 10,000 jobs in Higher Education last year, mainly attributed to the decline in international students, should correspond to a similar loss in local economies across the country.
And yet this is economic harm proactively driven by policy choices which raised uncertainty regarding the future of the Graduate Route. If you were thinking of making a £100,000 investment, uncertainty would not exactly be conducive to choosing to invest in the UK. As one local businessman in Sheffield put it, “If you walk past a shop window swinging a baseball bat for a couple of weeks, it doesn’t matter if you never hit it, the people inside will still get worried.” Even just the threat of future policy changes creates “a massive amount of uncertainty, and uncertainty for students is a big problem.”
Subsidising the domestic tax payer
Students on the Graduate Route, like all international students, pay the Immigration Health Surcharge (currently £776 p.a. for students and £1035 p.a. for graduates on the Graduate Route). The actual costs according to the Department of Health and Social Care in 2018 were £480 p.a. including dependants. Given the restrictions on dependants, a shift in the mix (until recent restrictions) to shorter PG courses, the prevalence of private insurance that many students have and the reality of waiting times for treatment, this is a subsidy to the NHS.
Another subsidy is less well known, but any student on the Graduate Route employed at any salary level, high or low, is actually subsiding the UK tax payer. In comparison with a domestic employee at the exact same level of remuneration, international students pay the same income tax and National Insurance, but critically, they can only access less than half of the services that those taxes pay for. International students on the Graduate Route are barred from benefiting from services provided in the areas of Education, Social Protection, and Housing, and they already subsidise the NHS, as shown above. Those four areas account for c.65% of public sector expenditure on services (PESA 2023/4). Another way of putting this is that international students employed on the Graduate Route are effectively paying income tax at double the rate of a domestic equivalent worker.
The dependants dilemma — a third way
However, the Migration Advisory Committee has argued that there is a subsidy element for international students. This seems to be based on the fact that international students could, until last year, bring unlimited numbers of dependants and that any child dependants had access to free education at the UK taxpayer’s cost. This option was then removed with a devastating knock-on impact for university finances.
However, it is instructive to note that the options considered around this issue were binary — either close the dependants route (the approach taken for any students other than for those on research-intensive PG courses) or leave the system as was. What was not considered was adapting the dependants’ visa by removing access to free childhood education but leaving the route, which would have caused far less damage to international student recruitment in 2024. Instead, removing the dependant’s route caused significant damage that disadvantaged female students and students from cultures where chaperones are required. I know the options considered, because the Home Office responded to an FOI on this matter. Let us also remember that dependants have always been (as the name implies) dependant on the international student that they accompany, not the UK tax payer.
Cost-benefit analysis
In reality, in economic terms, international graduates are more akin to tourists, having no recourse to public funds (apart from the historical significant exception of child dependants) and bringing resources into the UK to sustain themselves. However, unlike tourists, they do have to pay the Immigration Health Surcharge.
To give an indicator of the cost to the UK of restricting international students coming to study in the UK over that period, I compared the government-published data on value and growth rates of international education from 2010 to 2024 to the equivalent global international student mobility value growth rates published by Holon IQ (part of the QS Quacquarelli Symonds, group). It is only an indicator, but against the UK having been permitted by government to grow at the same growth rate as the global market (which I doubt many in the sector would have bet against), cumulative loss to GDP over that period was £66 billion, implying a cumulative loss of income to the exchequer of £23 Billion. How many hospitals, schools and roads would be in better shape today if that scale of investment had been funded by international education? What a wasted opportunity, and for what purpose?
Now, the Prime Minister tells us his priorities are security and growth. On both, international students can be a key part of a progressive policy shift. And yet it is sad to say that our new government, whilst saying the right things, has not yet done anything to undo the damage of the past. If reports are to be believed, they are even being tempted to impose even more restrictions on international students in the Immigration White Paper to be published this month, preceding the new iteration of the International Education Strategy in April.
Once again, it appears that those who are tasked with reducing immigration are acting in direct opposition to the avowed growth agenda of the Treasury, the Department of Business and Trade, the Department for Education and others and, quite frankly, considering the above, against the demonstrable interests of the UK.
Rethinking terms
I have a clear understanding of the root cause of this ambivalence towards international students, and I direct any interested readers to the HEPI blog ‘When is an Immigrant not an Immigrant’. Allpolling of the general public (most recently by Public Future) shows that they recognise international students are not immigrants, and a strong majority cannot comprehend why they are categorised in the same way. If our government is serious about growth, I urge them to separate international students from immigration immediately.
Finally, again, to demonstrate the value of international students, we should consider the increasingly dangerous situation we find ourselves in and the government’s commitment to ramp up defence spending. That incremental 0.2% GDP or £6 billion spend, announced recently, could have avoided the contentious cut in the overseas budget.
Why didn’t the Treasury consider international education instead? With no investment needed beyond the political will to enhance the UK’s international education offering, we could provide high-quality education to an additional 175,000 international students (that’s merely, on average, 1,250 per university). At current rates, this would generate around £6 billion for the exchequer from each cohort while also supporting the creation of approximately 50,000 jobs in higher education and another 50,000 jobs for hard-pressed families in local communities across the UK. Furthermore, it would significantly enhance the UK’s soft power in the long term.
Many in the international education sector believe that our ability to welcome students is, in financial terms, as near as our country can get to a golden goose, although not one that will live forever. The Graduate Route is a key golden lever in its nest. International students bring huge investments in order to access the benefits of the Graduate Route, subsidise the UK taxpayer while they are on it and can only remain in the UK after that with another category of visa.