No room on this cushion

I am writing in response to your recent article suggesting that universities could suffer in the next spending round (“Hungry Treasury eyes universities ‘awash with cash’”, News, 7 March).

As at 31 July 2012 (a snapshot in time), the sector held £8.1 billion in liquid funds, representing 3.9 months of expenditure. This is hardly an excessive buffer against the volatility and unpredictability of the new higher education economy, or the adverse cash flows arising from funding in England being transferred to the Student Loans Company (the latter alone now requires us to hold two months’ cash before receiving tuition fee income).

However, more significantly, the figures do not take account of the sector’s borrowings, which stood at £6.1 billion (representing 21.8 per cent of income). Our net cash position was therefore £2 billion, which represents less than one month’s expenditure - a much smaller cushion.

The higher education sector consistently spends more than 10 per cent of its annual income on capital expenditure and expects the figure to be more than £3 billion in 2012-13. Given that capital grants are now largely a thing of the past, unless surpluses increase to finance these investment plans, either the cash holding will quickly diminish or sector debt will rise significantly.

The sector’s overall financial position masks considerable diversity, but above all shows how responsive institutions need to be to the changing and challenging conditions they face if they are to be sustainable.

Andrew McConnell
Chair
British Universities Finance Directors Group