University financial health check 2014
How are universities faring after the first full year of operating under the £9,000 fees regime?
Source: Sam Falconer
Given the sharp decline in capital funding from the state, institutions must self-fund the new buildings and facilities they need to attract students
Have former polytechnics been the biggest winners under England’s £9,000 fees system? Are universities set to embark on a borrowing spree to fund the buildings they need to attract students under the new, more competitive system?
Our annual financial health check, looking at university finances in 2012-13 using figures compiled for Times Higher Education by accountancy firm Grant Thornton, points to possible emerging trends in the first year of the new fees regime. The figures may offer some early indicators as to the financial winners and losers.
“The big theme is that surpluses have taken a small step back,” says Bob Rabone, chair of the British Universities Finance Directors Group. “And that comes after a small step back the previous year.”
Despite the introduction of £9,000 fees in England, 2012-13 saw the average surplus across the UK sector fall to 3.7 per cent of income, down from 4 per cent the previous year and 4.5 per cent the year before that. And this was despite a rise in the sector’s income in 2012-13 to £29.1 billion, up from £.7 billion the previous year, according to THE’s figures.
This shrinking financial buffer could expose some universities to damage, as some believe that the accumulation of a decent surplus is necessary in the face of future uncertainty.
Rabone, who is also chief financial officer at the University of Sheffield, thinks the fall in surpluses may have something to do with increased volatility in student numbers under the new system. A decrease in numbers will hit income before a university has a chance to reduce its costs in line with the decline. But a rise in home undergraduate numbers is likely to produce only a marginal financial benefit – given that any increase in student numbers requires more spending on teaching or accommodation.
So do the figures indicate who is set to benefit from the new fee regime? One vice-chancellor of a research-intensive university, speaking anonymously, notes high surpluses at some post-92 universities. “Many of us thought that they were the big winners of the 2012 fee deal,” he says, adding that newer universities tend to have less in the way of expensive-to-teach science and engineering subjects, “get lots of student opportunity funding” and may “pay out little” on bursaries and outreach schemes.
One criterion for examining financial health is to look at the net operating surplus (before exceptional items) as a percentage of total income. On this measure, the two best performers were small institutions: Norwich University of the Arts (18.7 per cent) and University College Birmingham (17.8 per cent).
Close behind were two larger post-92 institutions, Edge Hill University (16.0 per cent) and the University of Huddersfield (15.8 per cent), and the smaller Liverpool Institute for Performing Arts (16.0 per cent).
Arts University Bournemouth, the University of Bedfordshire, Birmingham City University, Bishop Grosseteste University, Leeds Metropolitan University, Liverpool Hope University and the University of Winchester all had surpluses of more than 10 per cent. By contrast, the London School of Economics was the only sizeable pre-92 institution to record such performance.
Meanwhile, Russell Group members the University of Exeter and the University of Birmingham recorded a small deficit (-0.7 per cent of income) and a marginal surplus (1.3 per cent of income), respectively.
John Cater has been vice-chancellor of Edge Hill in Lancashire since 1993, making him the longest-serving current head of any UK higher education institution.
He talks about not wanting to “waste the good years” by failing to build up surpluses during the £9,000 fee era, given the amount of uncertainty looming in the future.
Universities are guaranteed £9,000 fees for the next few years. “If you can’t create your reserves and resources during that period of time, it has to be a matter of concern,” he says.
When Cater looks into his crystal ball, he says his thoughts about university finances are “not very positive”. He notes that £9,000 fees will be worth about £8,200 to universities by 2016 because of the lack of inflationary increases since 2012; that there are “enormous amounts of uncertainty in teacher education”, a form of provision that is vital at Edge Hill; that the predicted demographic decline in the population of 18-year-olds in the North West “hits bottom in 2020-21”; and that there could be a new government with a new funding policy in 2015.
“Yes, I would like a war chest, I suppose,” he says. A surplus means “you are able to manage processes of change without making large numbers of staff redundant”, he adds.