Summer intern Dimas Almaruf presents the second part of a two-part series of blogs on the economic impact of international students in the UK. Part II discusses the challenges faced by international students upon their graduation from British universities. View part I - International Students in the West Midlands: The Costs, Benefits, and Housing Implications
Introduction
International students play a crucial role in the United Kingdom’s higher education system and its overall economy. They not only contribute to the cultural diversity of universities but also make substantial financial contributions through tuition fees and various taxes. In this blog, we delve into the economic impact of international students in the UK, particularly in the West Midlands region, and explore how their presence affects employment opportunities and tax revenues.
Tuition Fee Income
One of the most significant financial contributions made by international students is through tuition fees. The data from HESA (2023) reveals some fascinating insights. Before 2020, EU students paid the same tuition fees as UK students. However, after Brexit, EU students were categorized as international students, resulting in increased fees. As a result, tuition fee income from non-EU students consistently outstrips that from EU students.
In 2021, higher education providers in the West Midlands received tuition fee contributions from non-EU students a substantial £551.9 million, while EU students’ fee contributions amounted to a comparatively modest £58.9 million. This divergence highlights the financial significance of international students to UK higher education institutions. Additionally, the impact of Brexit is evident, with income from EU students declining from £102 million in 2020 to only £58 million in 2021. This suggests that the UK’s departure from the EU may have affected the enrolment of EU students in British universities, including those in the West Midlands as implied in Figure 1. In addition to Brexit, the tuition income from non-EU students also experienced a decline of 7.9% in 2021 which is likely due to the Covid-19 pandemic. However, this decline in non-EU student’s tuition income is significantly lower than that for EU students.
Figure 1 – Tuition fees income of higher education providers in the West Midlands
Impact on Employment
The Office for National Statistics (ONS) reported a 6% decrease in job vacancies in the UK in June 2023 compared to April of the same year. This decline in job opportunities affected a wide range of industries, including manufacturing, construction, and public administration. This trend underscores the broader impact of reduced employment opportunities in the UK during that period, which had implications for international students seeking employment.
Figure 2, based on ONS data from 2021, provides insights into the employment status of international graduates in the UK. It shows that 32.6% of international graduates were employed by UK-based employers, while 57% were economically inactive due to pursuing higher education or voluntary work. This data highlights the valuable role of international students in filling employment gaps in the UK, especially through initiatives like the Graduate Route visa scheme.
Figure 2 – Employment status of international students, 2021, England and Wales
The Graduate Route visa, introduced in July 2023, allows international students to stay in the UK for employment purposes after completing their studies. This scheme has seen substantial uptake, with 98,394 individuals granted this visa, including a significant increase in applications from EU-domiciled graduates. However, challenges, such as short visa validity and limited sponsor licenses, present obstacles for international graduates seeking employment.
UK Tax Revenues from International Students
Beyond tuition fees, international students make significant contributions to the UK’s tax revenue. The UK Exchequer report in 2019 estimated these contributions, primarily from income tax, National Insurance contributions, and Value Added Tax (VAT). Graduates’ income tax contributions are substantial, with an average of approximately £36,000 per EU-domiciled graduate and £34,000 per non-EU-domiciled graduate over their first decade of employment in the UK.
Moreover, international graduates contribute through National Insurance (NI) contributions. The total estimated NI employee contributions are £716 million for EU-domiciled graduates and £1,043 million for non-EU-domiciled graduates. Additionally, NI employer contributions generated £266 million from EU-domiciled graduates and £449 million from non-EU-domiciled graduates.
VAT revenues are another source of income. The 2016/2017 cohort of international students contributed £592 million in VAT payments, with £220 million from EU-domiciled graduates and £372 million from non-EU graduates.
Table 1 – Aggregate of post-graduation tax revenues generated by international graduates in the 2016/2017 cohort
| Level of study | Average £ per graduate | Total | ||||
| EU | Non-EU | Average | EU | Non-EU | Total | |
| Other undergraduate | £99,000 | £98,000 | £98,000 | £58m | £105m | £163m |
| First degree | £97,000 | £96,000 | £97,000 | £554m | £565m | £1,119m |
| Master’s | £122,000 | £105,000 | £109,000 | £451m | £1,140m | £1,591m |
| Postgraduate research | £133,000 | £132,000 | £132,000 | £119m | £181m | £300m |
| Average | £108,000 | £104,000 | £106,000 | |||
| Total | £1,181m | £1,992m | £3,173m | |||
Source: London Economics (2019)
In total, as presented in Table 1, international students from the 2016/2017 cohort contributed an estimated £3,173 million to the UK Exchequer through income tax, NI contributions, and VAT payments during their first 10 years of employment in the UK. These figures emphasize the significant financial impact of international students on the country’s public finances.
Graduate Earnings
The Department for Education’s (DfE) Longitudinal Education Outcomes (LEO) report (2023) highlights that the median earnings of graduates in the UK have increased significantly over the years. Five years after graduation, first-degree graduates earn a median of £28,000, while postgraduate graduates earn £35,000.
The data also shows that international graduates tend to earn higher salaries than their UK counterparts. For example, non-EU international graduates earn a median of £35,400 five years after graduation. This underscores the value of international students not only to the UK’s economy but also to its workforce.
Table 2 – Graduate earnings five years post-graduation in West Midlands
| First degree | UK | EU | Non-EU |
| Graduates | 24,440 | 630 | 1,090 |
| Lower quartile | £20,100 | £20,700 | £19,300 |
| Median earnings | £27,000 | £27,400 | £29,700 |
| Upper quartile | £35,000 | £35,000 | £41,000 |
| Level 7 | |||
| Graduates | 8,670 | 385 | 2,390 |
| Lower quartile | £24,800 | £24,500 | £19,000 |
| Median earnings | £33,600 | £34,300 | £30,800 |
| Upper quartile | £42,700 | £44,500 | £41,000 |
| Level 8 | |||
| Graduates | 690 | 105 | 225 |
| Lower quartile | £31,800 | £30,600 | £34,300 |
| Median earnings | £39,100 | £36,900 | £40,500 |
| Upper quartile | £51,500 | £44,000 | £46,000 |
Source: Department for Education (2023)
Overcoming Challenges: Changes in Immigration Policy
While international students offer significant advantages to the UK, several challenges persist. Changes in immigration policies can influence the inflow of international students. Brexit has led to new visa and enrolment requirements, impacting the number of students coming from the European Union. Moreover, the competition among universities to attract international students can make finding suitable work-integrated learning opportunities, such as internships, challenging.
The government reinstated the Graduate Route visa in 2021 to allow international students to stay in the UK for up to three years after they graduate from British universities. During this period graduates can work any jobs without sponsorship from the employers. This strategy was taken by the government to increase the talent retention rate in the UK. According to the Home Office (2023), more than 66,000 graduates have been granted the Graduate Route visa since 2021 and 64% of them are graduates domiciled in China, India, and Nigeria—this resonating with the top three education exporters in the UK that have been discussed in the previous article.
However, the new Graduate Route visa is still unpopular within the employers’ community. HEPI (2023) reported that 27% of UK employers were not familiar with the visa. In addition to that, some employers expressed that they would prefer to hire local graduates since the visa is only valid for two to three years max, which is seen as not sustainable for the business.
Conclusion
International students in the UK are instrumental in driving innovation, increasing productivity, fostering cultural diversity, and enhancing community engagement, not to mention the significant economic contribution they have made to the regional and national economy. Recognising and addressing their unique needs and challenges is essential to ensure a bright future for both the students and the nation.
The international student community will continue to be a dynamic force in the UK, enriching its innovation landscape, elevating productivity, and contributing to a multicultural society. They are more than just learners; they are the architects of a brighter and more diverse future for the UK. Thus, the government needs to address obstacles that hinder international students from starting their careers in the UK. One way to solve the problem is by having extensive socialisation regarding the new Graduate Route visa to UK organisations, ensuring the business community that hiring international graduates is like taking a free trial before investing in them in the long term with the working visa sponsorship after two or three years.
This blog shares some initial findings of a new project in collaboration with the Birmingham Commonwealth Association considering the impact of international students in the West Midlands. For more information and the latest update contact Dr Matt Lyons.
This blog was written by Dimas Almaruf, Summer Intern, City-REDI / WMREDI, University of Birmingham.
Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI, WMREDI or the University of Birmingham.