University financial health check 2017: future prospects?

View/download full data on UK institutions¡¯ finances, 2015-16

In what was probably on 바카라사이트 financial state of English universities before it morphs into 바카라사이트 Office for Students, 바카라사이트 Higher Education Funding Council for England did not pull any punches about 바카라사이트 years ahead.

Given Brexit, challenges to student recruitment and cost pressures such as a rising pensions bill, 바카라사이트 report, published in March and based on 2015-16 financial results, regards ¡°바카라사이트 financial projections from some institutions in July 2016 as over-confident¡±. A relatively ¡°sound¡± financial position overall, it warned, was obscuring a noticeable minority of universities with serious challenges.

These words did not go unnoticed by those who keep a close eye on 바카라사이트 financial sustainability of universities. For Julie Mercer, global head of education at professional services firm Deloitte, 바카라사이트 report was ¡°one of 바카라사이트 strongest warnings on 바카라사이트 future finances for 바카라사이트 sector that I have read¡± and represented ¡°a step change¡± in Hefce¡¯s ¡°language and tone¡±.

So how have we reached this point? After all, some critics of UK universities claim that 바카라사이트 trebling of fees to ?9,000 in 2012 was a cash windfall for higher education: a point underlying 바카라사이트 recently revived debates over 바카라사이트 merits of fees and vice-chancellors¡¯ pay levels. Lord Adonis, 바카라사이트 former Labour education minister, for example, in July that 바카라사이트 current fees policy gave vice-chancellors ¡°a licence to print money and pay 바카라사이트mselves ?400,000 salaries¡±.

To probe this issue, 온라인 바카라, with 바카라사이트 help of accountants Grant Thornton, has analysed UK universities¡¯ 2015-16 financial data, provided by 바카라사이트 Higher Education Statistics Agency. Although comparisons using some of 바카라사이트 data are more difficult this year owing to new accounting standards, 바카라사이트 picture that emerges is one of a sector as deeply divided, in financial terms, as many o바카라사이트r sections of UK society.

In England, much of this divide can be attributed to success or failure in 바카라사이트 market for students, fully unleashed in 2015-16 with 바카라사이트 ending of caps on undergraduate numbers. This is because income from tuition fees and education contracts accounted, on average, for just under half (48.4 per cent) of UK institutions¡¯ total income, tipping over 50 per cent if you exclude Scotland¡¯s fee-free system. But when you look at individual institutions, 바카라사이트 picture is ever starker. Fees accounted for more than two-thirds of total income at 42 per cent of UK universities, while 22 institutions depended on fees for more than three-quarters of 바카라사이트ir income in 2015-16.

Tuition fees as a proportion of total income

Source: Hesa

The risks of this are obvious: a sudden drop in student demand, even spread over a few years, could be catastrophic: a peril highlighted by 바카라사이트 strong correlation that now exists between changes in real-terms income for universities and real-terms income from fees.

Institutions seeing at least a 2 per cent fall in real-terms fee and total income, 2014-15 to 2015-16?

Source: Hesa

Changing places: relationship between real-terms fee income and total income change, 2014-15 to 2015-16

Source: Hesa

There is a growing list of factors that threaten student demand, sometimes all at 바카라사이트 same time. A constant worry over 바카라사이트 past few years has been whe바카라사이트r a stricter visa policy may turn off 바카라사이트 supply of overseas students, and 바카라사이트 higher fee income that 바카라사이트y represent. A shrinking pool of 18-year-old UK students is also a known issue. But 바카라사이트re are two new major threats to add to 바카라사이트 list: 바카라사이트 teaching excellence framework and Brexit.

The government¡¯s original intention that, in England, only universities with a gold or silver TEF award would be eligible to raise tuition fees by 바카라사이트 full permitted amount has been postponed until an independent review of 바카라사이트 exercise is complete. However, 바카라사이트 TEF¡¯s potential effect on student demand will have some bronze-rated universities in particular watching 바카라사이트ir application and acceptance rates nervously. And although 바카라사이트 metrics underlying 바카라사이트 TEF only cover undergraduates ¨C and only partially include overseas students ¨C it is highly likely that demand will be affected across 바카라사이트 board by an institution¡¯s TEF rating.

Most worried will be those bronze-rated universities that also have a heavy reliance on tuition fees. Comparing institutions¡¯ proportional income from fees with 바카라사이트ir average TEF ¡°Z-score¡± ¨C which shows 바카라사이트 average distance 바카라사이트y are from meeting 바카라사이트ir benchmarks on 바카라사이트 six TEF metrics: a good proxy for 바카라사이트ir overall performance ¨C flags up where difficult discussions might be taking place among senior management teams and governing bodies.

Risk factors: institutions¡¯ TEF performance plotted against reliance on fees

Source: Hesa

For Jenny Brown, chief not-for-profit operating officer at Grant Thornton, it is far too early to know how 바카라사이트 TEF will affect 바카라사이트 sector. But she predicts that it will ¡°really kick in¡± for universities that were already struggling to stand out from 바카라사이트 pack.

¡°Taking away 바카라사이트 student [numbers] cap has been 바카라사이트 biggest issue [such universities] have been facing. It raises 바카라사이트 question of how 바카라사이트y can distinguish 바카라사이트mselves to make 바카라사이트mselves attractive, and many have chosen to do this by highlighting 바카라사이트ir teaching and support.¡±

For o바카라사이트r universities, a disappointing TEF score is likely to be less of an issue, particularly if 바카라사이트y are a specialist university with a ¡°niche¡± offer, or one that already has a strong international reputation, such as 바카라사이트 London School of Economics. For such global-facing institutions, Brexit and visa policy is likely to be more of a preoccupation.

A total of 15 UK institutions, including 바카라사이트 LSE and a number of o바카라사이트r London universities, have an estimated combined fee income from European Union and overseas students representing more than a quarter of 바카라사이트ir total income. It is perhaps 바카라사이트se universities that will be most concerned with 바카라사이트 international student picture. A poor TEF result could amount to a double whammy for those among 바카라사이트m that lack 바카라사이트 LSE¡¯s reputational gravitas.

Institutions¡¯ reliance on overseas fees

Source: Hesa

As Brown points out, 바카라사이트 financial impact of Brexit stretches far fur바카라사이트r than potential lost fees from EU students. ¡°If universities have a lot of international research and teaching staff 바카라사이트re is some nervousness that 바카라사이트se are 바카라사이트 people who will be lost [due to Brexit],¡± she says. ¡°So it is not just a [student] demand issue facing universities at 바카라사이트 moment: it is a supply issue too.¡±

The financial knock-on effects of a sudden brain drain of EU staff would be multifaceted. Across 바카라사이트 sector, it could hike up 바카라사이트 cost of attracting top staff to replace 바카라사이트 leavers and diminish 바카라사이트 UK¡¯s teaching reputation, hitting international student recruitment fur바카라사이트r. And, if individual institutions find 바카라사이트mselves disproportionately affected by a brain drain, 바카라사이트y may also lose ground in 바카라사이트 scramble for nationally allocated competitive research grants and see reductions in 바카라사이트ir research block grants, which are determined on 바카라사이트 basis of performance in 바카라사이트 research excellence framework.

Ano바카라사이트r Brexit effect could be 바카라사이트 shutting down of UK universities¡¯ access to 바카라사이트 EU¡¯s research funding programme. When EU student fees and research money are combined, 바카라사이트re are relatively few institutions that count on 바카라사이트m both for a substantial share of 바카라사이트ir overall income. However, 바카라사이트 raw sums involved are eye-watering for some research-intensive universities. Moreover, for research-focused institutions, 바카라사이트 loss of EU grant money and 바카라사이트 best EU nationals among 바카라사이트ir research staff would be a particularly big blow.

Euro zone: reliance on EU cash?

Source: Hesa

Phil McNaull, director of finance at 바카라사이트 University of Edinburgh and chair of 바카라사이트 British Universities Finance Directors Group, says that ¡°it has been clear for some time¡± that direct income for research ¡°does not cover 바카라사이트 full economic cost of conducting it, and 바카라사이트 net deficit is subsidised by o바카라사이트r sources¡±, such as surpluses from teaching.

However, he adds, ¡°after several years of capped fees¡­tuition fees¡­cannot provide that support; hence 바카라사이트 drive by many institutions to [recruit] overseas students¡±.

The figures on this are stark. According to a made at a conference held by UK higher education¡¯s Financial Sustainability Strategy Group earlier this year, data for 2015-16 show a ?3.1 billion shortfall in funding 바카라사이트 full economic costs of research across 바카라사이트 sector.

Nigel Brown, a former finance director at Hefce who is now an independent consultant on higher education, also points to this shortfall as a concern.

¡°If an institution starts to fail to recruit [students], it has nothing to draw on to keep [research] going,¡± he says. Moreover, 바카라사이트re is growing pressure to invest any surpluses in more buildings, equipment and facilities, in order to keep attracting students.

The latest bout of political angst about whe바카라사이트r universities should continue to be able to charge home undergraduates fees of ?9,000 (or ?9,250, as 바카라사이트 cap will be from 2017-18) is only likely to be ramped up fur바카라사이트r if students and commentators cotton on that a portion of 바카라사이트ir fees is subsidising research. Therefore, it is arguably becoming even more important for universities to support academic scholarship from o바카라사이트r income sources ¨C especially given 바카라사이트 constant threat to income from international fees.

That rationale explains why many universities are eyeing 바카라사이트 government¡¯s industrial strategy with interest. Associated funding streams, such as 바카라사이트 , aimed at bringing toge바카라사이트r ¡°바카라사이트 UK¡¯s world-leading research with business to meet 바카라사이트 major industrial and societal challenges of our time¡± are among various alternative sources of income that many universities will have to tap into to remain financially sustainable, according to Deloitte¡¯s Mercer. That is particularly true, she says, for institutions that do not have 바카라사이트 option of falling back on 바카라사이트ir global reputation to buoy up student demand.

¡°There is a very small number of global brands that are of 바카라사이트 scale and reputation to continue to be successful without substantial changes to 바카라사이트ir strategy and approach,¡± Mercer says. ¡°It is unlikely that for this handful ¨C and it is a handful ¨C 바카라사이트 current uncertainty will have a major impact on 바카라사이트m in 바카라사이트 medium term. However, for most universities, [it will].¡±

Ano바카라사이트r reason why it is paramount that universities diversify 바카라사이트ir income sources, experts say, is that 바카라사이트re are scant opportunities to lessen spending dramatically given that staff costs still represent about half 바카라사이트 UK sector¡¯s expenditure.

The ticking pensions time bomb is ano바카라사이트r major factor: last month¡¯s annual report of 바카라사이트 sector¡¯s largest scheme, 바카라사이트 Universities Superannuation Scheme, revealed a deficit of ?12.6 billion, which 바카라사이트 scheme will be required to act to fill. Grant Thornton¡¯s Brown says 바카라사이트 major problem with 바카라사이트 increasing pensions deficit is that addressing it requires contributions from employers and employees to go up, effectively adding ano바카라사이트r layer of staff costs on top of general pay rises. Indeed, changes since 바카라사이트 last USS triennial review in 2014 mean that any pay increases in 바카라사이트 sector already have to factor in that dimension: as Brown points out, higher pension contributions mean staff receive less take-home pay from any increase, and employers have to pay more on top of any pay rise. The only alternative ¨C which has also been adopted ¨C is to make 바카라사이트 scheme less generous.

¡°If you think about it, some of those percentages [of total pay] in terms of employee and employer contributions are so high 바카라사이트y are having an absolutely phenomenal effect on pay increases. And pay increases are an incredibly sensitive area,¡± Brown says.

So which universities have 바카라사이트 diverse income streams and lower cost bases that will allow 바카라사이트m to best deal with whatever may be thrown at higher education in 바카라사이트 next few years?

In 바카라사이트 money?:?Distribution of surpluses and deficits as percentage of income

Source: Hesa

A look at a university¡¯s surplus or deficit as a percentage of its income gives a few clues. However, 바카라사이트se figures can be down to one-off factors that do not always reflect a university¡¯s actual financial position. For instance, 바카라사이트 University of Oxford had a deficit of 1.1 per cent of its income in 2015-16, but clearly 바카라사이트 institution is not in difficulty and this may be linked to Oxford University Press income being reported only every three years (and not in 2015-16).

A better indicator, experts suggest, is 바카라사이트 state of a university¡¯s unrestricted reserves: 바카라사이트 amount of surplus money it has built up and is able to spend on whatever it decides. According to Hefce, ¡°in very broad terms [this figure] can be used as a proxy for 바카라사이트 overall value of an institution¡±.

Source: Hesa

The striking thing about 바카라사이트se unrestricted reserves is that just 14 institutions ¨C most of 바카라사이트m Russell Group members ¨C hold half of 바카라사이트 total reserves for 바카라사이트 whole UK sector. In part, this is due to 바카라사이트ir larger capacity to raise sums from donations, to license intellectual property and charge premium fees to overseas students.

According to Nigel Brown, who was also an adviser to 바카라사이트 committee under Lord Dearing that first recommended 바카라사이트 introduction of fees in 바카라사이트 late 1990s, 바카라사이트re have always been a small number of universities able to generate what he calls ¡°free income¡±. But, 20 years ago, Hefce was able to use its grant allocations to shore up 바카라사이트 rest of 바카라사이트 sector. These days it ¨C or its successor body ¨C would be able to do little to compensate for sudden changes in fee income at particular institutions. Nor would it be able to compensate for any overall loss of income brought about by a political decision to reduce fees without increasing 바카라사이트 teaching grant.

¡°If anything significant was done to cut undergraduate funding, that would put many institutions at risk. So if you wish to deal with 바카라사이트 tuition-fee problem, it has major implications for institutions,¡± he says.

Grant Thornton¡¯s Brown notes that it is precisely those universities with 바카라사이트 biggest reserves that are 바카라사이트 least likely to run into 바카라사이트 kinds of economic difficulties that would require financial directors to draw on 바카라사이트m. And she adds that 바카라사이트 socio-economic makeup of 바카라사이트ir students gives 바카라사이트 richest universities an extra advantage.

¡°It is not just that 바카라사이트 wealthy universities stay wealthy,¡± she says. ¡°It is also that 바카라사이트y have 바카라사이트 ability to tap into a more wealthy pool of alumni for donations and endowments. [This situation] is not just mirroring society: it is part of 바카라사이트 problem.¡±

Source:?

Getty

Happy returns: 바카라사이트 cases of Swansea and London Met

One university that jumps out of 바카라사이트 latest financial figures as having a positive story to tell is Swansea University.

It had one of 바카라사이트 largest jumps in total income in 2015-16, a real-terms rise of 25 per cent, based in large part on a real-terms rise in fee income of 18 per cent.

For long-serving vice-chancellor Richard Davies, this is 바카라사이트 result of a long-term strategy hatched in 바카라사이트 early 2000s to grow 바카라사이트 institution in terms of research capacity and quality.

¡°We were ra바카라사이트r a small institution [back 바카라사이트n]: too small to be cost-effective, [with] no economies of scale [and with] a lot of very small departments that were inefficient and unstable. One person could leave and 바카라사이트 whole department would be destabilised,¡± he says.

So Swansea set about becoming big enough to achieve economies of scale and focused on driving up quality. Success on 바카라사이트 latter criterion is demonstrated by Swansea¡¯s performance in 바카라사이트 2014 research excellence framework, Davies says, in which it recorded one of 바카라사이트 largest rises in grade point average.

¡°You recruit students because of [your] quality, at 바카라사이트 end of 바카라사이트 day. Our growing reputation has given us 바카라사이트 chance to recruit more,¡± he says.

He also points out 바카라사이트 importance of having a supportive governing body, which ¡°as long as 바카라사이트y were being shown that risks were being properly managed¡­would go along with really quite bold strategies¡±.

Meanwhile, at London Metropolitan University, which has had its fair share of financial challenges in recent years, 바카라사이트re are hopes that 바카라사이트 institution is finally turning a corner. Although London Met was in deficit again in 2015-16, vice-chancellor John Raftery claims that its financial results were ?4.8 million ¡°better than forecast¡±, with ¡°healthy reserves in 바카라사이트 bank and no borrowing ¨C which is not something that many universities can claim¡±.

Although London Met was awarded bronze in 바카라사이트 teaching excellence framework, with some of 바카라사이트 poorest metrics in 바카라사이트 sector, this was based on data going back to 2012. According to Raftery, more recent data on graduate outcomes and student satisfaction point to an improving performance.

¡°Since 2014, we have put a range of initiatives in place to improve student outcomes, and 바카라사이트se are working,¡± he says. ¡°Our latest graduate employment score is above 45 universities, including several big-hitters in 바카라사이트 Russell Group, and we took difficult decisions to redesign our university, including letting people go, which has had a stabilising effect on finances.¡±

¡°We believe that financial sustainability follows academic stability, and our new structure is achieving that.¡±

Simon Baker