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Survey of UK university finances, 2013

Could a Welsh institution’s success offer insights to help stragglers catch up?

The identity of the most financially effective, most ruthlessly efficient British university is clear: Swansea Metropolitan University. Its operating surplus reached a hefty 20.5 per cent of income in 2011-12. On that score, Swansea Met leaves venerable counterparts such as the University of Oxford - with its 4.4 per cent surplus - trailing behind, like Mo Farah gliding to victory in a race against wheezing, flabby members of the House of Lords.

This is stretching things, of course, as operating surplus is only one of many measures of financial strength. Nevertheless, Swansea Met’s financial performance, in its last year of independent accounting prior to its recent merger with the University of Wales Trinity Saint David, may offer some lessons for the sector.

The key is really to put as much effort into our cost base as into our income bases. It’s an approach that’s not that common in the sector

According to David Warner, the former Swansea Met vice-chancellor whose academic specialism is higher education management, the university’s long- ingrained culture of “efficiency and effectiveness” was built on a foundation of exacting cost control. Staff work to their maximum capabilities thanks to relatively high pay and job security, while senior management sets an example through pay restraint, he believes.

Warner was the lowest-paid vice-chancellor of any UK university in 2010-11, with a salary (including benefits) of £154,000. “In a culture of cost control, if I were to be one of the highest paid vice-chancellors in the UK, it would be a little bit difficult to keep such a culture,” he says.

But while Swansea Met’s surplus was healthy, the sector-wide financial picture gives a few causes for concern, to judge by figures on the UK sector’s 2011-12 finances compiled for Times Higher Education by accountancy firm Grant Thornton.

The UK sector’s income grew from £27.4 billion to £27.7 billion, but this was a fall in real terms: a below-inflation increase of about 1 per cent. The 2011-12 period was one in which the English sector saw “the beginning of the grant cuts without the opportunity to replace that income with higher fees”, notes Andrew McConnell, chair of the British Universities Finance Directors Group (BUFDG).

The sector’s collective operating surplus fell, from 4.5 per cent of income to 4 per cent. David Barnes, partner and head of education at Grant Thornton, notes that the number of institutions returning a surplus of more than 3 per cent slipped to 97, down from 109 the previous year. That still sounds reasonably comfortable, but will it prove to be enough to cope with the events ahead?

And within the sector-wide figures is a story about the richest institutions, which tend to have more students from well-off backgrounds, taking a still greater share of wealth.

Barnes sees 2011-12 as “the third of three good years. Student numbers were pretty much at maximum level and universities had had the benefit of managing their cost base better over that period.” But he also says it was “probably the last of the good years - the year following is when student [numbers] are down across the sector”.

According to the Higher Education Funding Council for England, which published its own annual report on institutional finances last month, Financial Health of the Higher Education Sector, the real-terms fall in the English sector’s income was the first such drop since records began in 1994-95.

Small pay rises: false economy?

Financial data for the sector show that universities have borne down effectively on what is by far their biggest cost: staffing.

This could be good or bad news depending on your point of view.

Staff costs grew from £14.64 billion in 2010-11 to £14.68 billion in 2011- 12, a below-inflation rise of 0.3 per cent.

No English institution had staff costs of more than 64 per cent of income, the maximum threshold recommended by the Higher Education Funding Council for England. Only two institutions in the UK went above that line - the Royal Conservatoire of Scotland and the University of Abertay Dundee - compared with four the previous year.

The small £150 flat-rate national pay rise, negotiated by the Universities and Colleges Employers Association, was the latest in a series of below- inflation deals that will have been warmly welcomed by university managers, allowing them to keep costs in check.

David Barnes, partner in the education practice at accountancy firm Grant Thornton, says universities were also probably seeing the financial benefits “of restructuring that has gone through over the past few years”.

However, Tom Davies of Grant Thornton notes that some institutions seem to have taken “more of a hit on restructuring costs” in 2011-12 than others. Breaking down institutions into quartiles by income shows that the institutions most affected are those in the £50 million to £120 million income group, he says. Universities in this middle group may have been less quick to undertake restructuring, and sought to catch up last year, he suggests.

Barnes warns that pay could be an issue in the near future: “People get unhappy about not having pay increases.”

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