Moody’s: Universities and TfL most vulnerable to Brexit risk among public sector entities
Brexit would have an adverse impact on the UK public sector, with universities and Transport for London (TfL) facing greater downside risks through potential loss of EU funding and lower own-source revenues, says Moody’s Public Sector Europe in a report published today.
Moody’s report, entitled “”Brexit” would have negative impact on UK public sector issuers” is available on www.moodys.com. Moody’s subscribers can access this report via the link provided at the end of this press release. The rating agency’s report is an update to the markets and does not constitute a rating action.
“If the UK were to exit the EU, public sector entities in the UK could be affected through lower EU funding or lower central government spending transfers. At the same time, revenues could face pressure from lower economic growth and any immigration curbs. All public sector entities are vulnerable, but to varying degrees,” says Jennifer Wong, a Vice President — Senior Analyst at Moody’s.
A UK vote to leave the EU would create heightened uncertainty, which would lead to slower economic growth in the UK over the medium term. Since the UK central government is a major funding source for the subsovereign sector, a downturn in the UK’s economic growth could affect subsovereign budgets through both lower government transfers and weaker own-source revenues.
For local authorities and TfL, own-source revenues could be affected by slower growth in business rates income. Universities could face lower investment income, and, if unemployment were to rise, higher arrears and lower rental income could weigh on Housing Associations (HAs).
Moody’s expects that the UK government and other sources would make up some of universities’ lost EU funding in the event of an exit, but the loss is unlikely to be compensated in full.
Moreover, the rating agency projects that fewer EU students would choose to study in the UK in the event of Brexit. Those that did, would be charged higher international student fees instead of domestic fees. Stricter immigration policies could also damage UK universities’ global reputation and ability to attract international students.
TfL would be adversely affected by a slowing economy. If population growth were to be slower than anticipated, this would negatively affect ridership growth and farebox revenues.
The operator could also be affected by a slowdown in business rates collections due to a Brexit-induced decline in economic growth. This is because TfL’s capital programme will be funded through retained business rates in the London area from 2017-18.
In contrast, local authorities and HAs would be less directly affected. Some of the lost funding could be replaced, at least partly, by the UK government or other sources in case of an exit. Pressure on local authority revenues in the event of Brexit may be partly offset by reduced demand for services if immigration slows.