We’ve been hearing a lot about the parlous state of finances for UK universities and the Times Higher Education had another run around the issue with a “red alert” that the Open University has posted a £25m operating deficit. In the same piece Coventry University is reported as having a £2.4m deficit but “does not consider this to be material uncertainty that would cast doubt on the group’s ability to continue as a going concern”. The next university quoted is the University of Wolverhampton whose deficit has improved to £11.9m from £27.8m the year before which seems to rather undermine the point.
With university financial statements coming thick and fast a quick review suggests that the picture is significantly muddied by accounting for pension changes. However, there is also a growing acknowledgement that several have been travelling far too hopefully on predicting student number growth. The big unknown for the future is international student recruitment but one would think that there has been fair warning of declining numbers in the coming year or two.
As it happens the Open University seems a strange example to choose because it is almost wholly a distance learning university and unlike any other UK institution. What their plight might say about the distance learning market during a cost-of-living crisis and encroachment by new operators is for another day. But for now a quick review of just a few, more traditional institutions suggests that planning well and adjusting to market condition is vital, that diversity of income is a bonus, that travelling hopefully is not recommended and that the university pension scheme will remain a headache. There is even a small insight into how the pathway market might have treated them and their commercial partners last year.
University of East Anglia
Anyone looking at the situation for UEA this time last year was probably contemplating the story lines of Deep Impact and Armageddon converging on Norwich. It’s not clear if the new VC, Professor David Maguire has aspirations to Bruce Willis style asteroid drilling and detonation but the Annual Report and Financial statements 2022/23 is quickly to the point by noting that the accumulated years of multiple deficits came from “the root cause being a decline in planned student fee income without commensurate reduction in costs.” Maybe Professor Maguire is more aligned with Wilkins Micawber who told us in David Copperfield, “Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty-pound ought and six, result misery.”
The university had an undrawn £100m line of credit with NatWest Bank at the end of the financial year and “remains confident that it has in place adequate funding to support the operational and development plans, and to provide a reserve for managing financial risks.” The proposed cost saving of £30.1m was achieved without compulsory staff redundancies (although one should not underestimate the anxiety and upset felt by many members of staff) and there is “a pathway to breakeven in 2025/26”. It all sounds reasonably upbeat and may be a reflection of what all institutions could do if they assessed potential risks effectively and acted more decisively to get ahead of the potential problems.
While the university has been mending its finances the joint venture with INTO has continued to present difficulties. During the year “..the University has provided cash to INTO to the amount of £1.7m to support its operations” which is additional to the £3.5m CBIL scheme loan from the COVID period. There seems to be some way to go before the problems there are unravelled.
University of Exeter
A tone of realism infuses the University of Exeter annual report and financial statement 2022/23 with a recognition of the challenges but apparent acceptance that “we must..continue to identify ways to increase efficiency and financial sustainability”. A decline in new student entrants from 13,013 to 11,185 is presented as a “planned return to more normal levels of Home Undergraduate entry, following two extraordinary years affected by the reaction to the Covid pandemic’s impact on exams.” An operating surplus for the year of £29m is about level with the year before.
International student fee income increased by nearly £22m to £135.8m while Home and EU student fees fell by just over £10.7m but funding body grants and research grants were up by over £25m. Perhaps surprisingly the number of research staff was down 16 and while academic staff numbers rose by 161 the number of professional service staff rose by 179. It’s worth noting that the number of staff listed as being paid over £100,000 (and excluding employers pension contribution) has increased year on year from 187 to 222 with 31 in the £130-140k bracket compared to 12 the year before.
The role of INTO Exeter in the University of Exeter’s finances is relatively limited but the accounts show that the university’s share of operating surplus went down £150k to £840k which might suggest that the joint venture was less productive in the year.
University of Stirling
Looking north of the border the University of Stirling sounds bullish but there might be some question marks around the direction in which the finances are travelling. The underlying operating surplus is down from £15.4m to £8.7m, net debt is up £7.4m to £27.8m and net liquidity days are down from 233 to 180. Research income growth was virtually static and the tuition fee income was driven by a 23.7% increase in, largely postgraduate, international students (which presumably contributed significantly to income from residences etc). Basically, home/EU tuition fees were down over £4m and non-EU fees were up nearly £9m which may be a vulnerability if UK visa issues reduce recruitment significantly. The Vice-Chancellor’s salary (excluding benefits and pension contributions) went up from £295k to £363k.
The joint-venture with INTO looks to have had a better year with income up just over £500k and the pre-tax loss for the year down to £305k while the net liabilities have grown by just over £250k. Over the longer term, the joint-venture has struggled to return to levels of enrolment achieved in 2018 while debt to 50% owner INTO University Partnerships (IUP) has grown. The University of Stirling created a company called UoS Education Limited whose primary purpose £3.8m of joint-venture trading debt to the university was converted into a loan facility of £4m.
University Pension Scheme
The impact of the USS Pension Scheme and the impact of revaluation is a key theme throughout the university accounts reviewed for this blog and in the financial statements of other institutions. The scheme is a running sore for the sector and it is difficult to believe that it can survive in its current form over the long term. The recent turnaround in the scheme’s value is almost wholly due to changing financial market conditions. While it is usually better to be lucky than good, Dame Kate Barker, chair of the USS Trustee Board made the point that “it is not possible to predict with any certainty where long-term interest rates, asset values and expected investment returns will be at future valuations (in three or six years’ time).”
The arguments are for experts to make but if there is a genuine crisis coming to UK university finances it seems likely that there will have to be further consideration of the scheme in much the same way as most UK private schemes have changed. The Pension Protection Fund indicates that 90% of defined benefit schemes do not accept new members and 53% have stopped offering the scheme to anyone. In the context of public sector schemes a recent commentator in the Financial Times suggested that “..a pension — however generous — can’t be spent today, and the government should allow all public sector workers to choose higher pay, in exchange for a lower DB pension in retirement.” Probably unpopular but possibly worth thinking about.