A year of deficits forecast

Nearly a third of universities predict they will be running on a "continuing deficit" next year, despite some making "optimistic" assumptions about their income, funding council chiefs have revealed.

The number of institutions forecasting operating deficits has almost doubled in two years, rising from 28 in 1997-98 to an expected 50 over 1999-2000, says a Higher Education Funding Council for England report on this year's financial forecasts for the sector.

Overall operating surpluses were almost Pounds 150 million short of the benchmark target of 3 per cent of income last year, and the shortfall this year is expected to rise to Pounds 250 million.

In 1997-98, there were 52 institutions reporting operating surpluses above 3 per cent of income, but this fell to 28 last year and just 16 forecast for subsequent years.

The report says: "The erosion in operating margins from 1997-98 reflects the pressures being felt across the sector to control expenditure and to generate the income levels necessary to support higher costs and provide for reinvestment."

The report warns that while institutions are "generally realistic" in their forecasts for income and expenditure, there are "key assumptions", such as the level of pay awards and annual rates of inflation, for which any marginal changes "would have an immediate adverse impact across many institutions".

Academic fees and research grants and contracts are being forecast to increase by an average of 6 per cent this year. The report says that while these rates of increase may be achievable for some, "others may find it more difficult, given that there are limits to the size of the available markets".