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Universities lost millions after 2 months in lockdown, survey finds

Universities are estimated to have lost more than £3 million on average in the first two months of lockdown and more than one in five are about to implement salary reductions, voluntary redundancies and layoffs, a new study shows.

Research on the financial impact of Covid-19 on universities by the Association of Heads of University Administration (AHUA) and EAB, a US tech company, revealed immediate losses of accommodation and campus activities revenue.

The survey of finance and operational leaders in about 300 institutions in the US, Canada and the UK found institutions were facing similar pressures.

Two third of the 30 UK respondents estimated losses/costs of an average of £3.1 million two months after the outbreak. The figure in the US was higher, at an average of more than £7 million dollars (£5.6 million), and was mainly made up of student refunds on accommodation and fees.

The survey results, outlined in an AHUA webinar, showed a majority of institutions on both sides of the Atlantic were already implementing cost containment tactics such as freezes on travel, hiring and discretionary spending. Some had furloughed staff. Redundancies and job cuts had not been widely implemented but were expected to become more widespread in the weeks and months to come, particularly in the autumn once it becomes clear how many fee paying students arrive on campus.

Nearly one in ten universities had started voluntary redundancy programmes and a further 23 per cent were expecting to implement them. Four per cent had laid staff off and 18 per cent anticipated the move down the line. Just over a fifth were looking at salary reductions. Some 14 per cent had cut the number of casual staff and 41 per cent expected to do so.

Gary Guadagnolo, director of research at EAB, warned, however, that “cutting to the bone” was not an effective strategy. Research by the company found that drastic job cuts in earlier recessions had led to “overcorrection” by universities.

“Universities responded to previous events with big staff cuts, particularly in admin and professional service. But most of these across-the-board cuts don’t last,” he said. “Data shows 1,300 instances of cutting labour in US universities over the last two decades, including the recession caused by the financial crash. At two thirds of institutions, labour costs grew fast enough in the three years after the recession to exceed the original trajectory. It’s tricky to generalise but a big part is institutions overcorrecting. Leaders don’t know how to cope with this drastic drop off of staff and end up paying more to add back resources to compensate.”

In the webinar, senior executives from Sheffield Hallam, Greenwich and Exeter universities outlined the strategies being put in place to save money.

Richard Calvert, Deputy Vice-Chancellor at Sheffield Hallam, said the university did not have a heavy dependence on international students and had benefitted from no longer running accommodation. It had taken actions such as freezes on travel and new hires and delayed some capital spending. Costs associated with the pandemic included an extra spend on student support, particularly for the 10 to 15 per cent of student who struggled to engage with online provision.

“We have tried to hold off on decisions that we might regret,” said Calvert. “We need to keep staff with us and we are asking a lot of academic staff over the summer in preparing for a different mode of delivery in the autumn.”

At Exeter, a temporary salary reduction has been put in place for the senior team and a freeze on professor pay and promotions has been put in place - measures that are estimated to save about £20 million. Mike Shore-Nye, Registrar at the university, said that staff furloughs and reducing the amount that line managers are allowed to spend would also save money.

Louise Watson, chief financial officer at Greenwich, said the university had experienced an immediate financial hit through halls of residence refunds and a loss of catering and events revenue. To mitigate this, discrete spending has been curtailed, with spending over £5,000 required to be signed off by the CFO and deputy vice chancellor.

Online question and answer sessions with Greenwich staff had helped give them ownership of decisions, increased transparency and provided new ideas that support finances.

“We are treating this as a temporary revenue shock and we want to avoid overcorrection, particularly given the demographic increase in 18-19 year olds in the next few years,” she said.