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University finances in England on a tightrope, HEFCE warns

Universities in England face an increasingly difficult financial balancing act, with institutions in danger of suffering an £860 million shortfall against their costs, a new report warns.

The latest review of the financial health of the HE sector from the Higher Education Funding Council for England says that while finances overall are sound, the gap between the lowest and highest-performing universities and colleges continues to grow.

HEFCE’s report shows that in 2014-15, the sector reported operating surpluses of £1.6 billion (5.8 per cent of its income), which were £608 million higher than the level reported for 2013-14 (3.9 per cent of income).

However, these surpluses were boosted by a one-off injection of ‘exceptional income’ derived from the Research and Development Expenditure Credit scheme (RDEC). Without this, operating surpluses would have been £1.2 billion, and the sector would have incurred a shortfall of £2.8 billion from the level needed to recover the full economic costs of its research activities, and a shortfall of £860 million over all its activities.

HEFCE repeated a warning it made last year that this position, along with a fall in cash levels and a rise in borrowing, adds up to an unsustainable financial future.

“In the medium to long term, institutions will need to generate larger surpluses to make progress towards covering the full economic costs of their activities and thus securing their long-term sustainability,” it said.

Surpluses in 2014-15 were also boosted by a growth in fee income from international students, which at £3.6 billion was £267 million higher than that reported in the previous year.

But HEFCE added that the student number trend is less encouraging, with 2 per cent fewer international students studying at English higher education institutions than projected in July 2015. The latest student data also shows a 2 per cent drop in new international entrant numbers in 2015-16.

Sector borrowing rose to £7.8 billion at the end of July 2015 (a rise of 16 per cent over the year) to help fund a 9 per cent increase in capital spending. Universities also used £1.1 billion from their own reserves to pay for new campus buildings and other developments.

Institutions are due to send their next set of financial forecasts for the period up to July 2019 in the summer, and HEFCE plans to publish a further report focusing on the future health and sustainability of the higher education sector once these have been assessed.

Professor Madeleine Atkins, HEFCE’s Chief Executive, said:

“We are paying close attention to the increased variability of financial performance across the sector. It is clear that many institutions need to invest in new facilities, to support a high-quality experience for students and to respond to growing competition from overseas. This will require higher surpluses, and a drive to maintain increased efficiencies, to ensure long-term financial sustainability.

“While the sector has benefited from increased fee income generated from overseas students, it needs to be alert to the risk of underachieving against its ambitions for overseas recruitment. The latest data may be evidence of this risk materialising.”

pogonici / 123RF
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