Deficit day looms for universities

October 24, 1997

MORE than half of the universities and higher education colleges in England will be in deficit within two years, latest funding council figures show.

By the 1999/2000 academic year, the sector expects to be Pounds million in the red with 79 institutions forecasting deficits. This compares with 46 forecasting deficits reported for last year.

Analysis of financial forecasts published this month by the Higher Education Funding Council for England shows the expected out-turn last year to be a surplus of Pounds 64 million, just 0.7 per cent of income and Pounds 157 million less than in 1994/95. By 2000 this surplus could plunge to Pounds 45 million deficit, minus 0.5 per cent of income.

The funding council recommends a surplus of at least 3 per cent of income to provide enough cash for reinvestment. Using this as a benchmark, the sector will have a shortfall of some Pounds 235 million in 1996/97, rising to Pounds 336 million by 2000/01.

These figures were compiled before the government announced an extra Pounds 129 million for higher education and renewed expansion.

But Ian Lewis, HEFCE finance head, said: "Even if all of that went towards improving the shortfall, it would show a better position but not one that generated the level of surplus the sector should be generating."

Steve Egan, HEFCE director of finance, welcomed the extra money, which limits cuts in funding for next year to about 1 per cent. But he said: "It does not address the major funding reductions imposed on institutions in previous years. In particular, it does not fully restore the severe cut in capital funding of over 30 per cent in 1996/97."

The funding council has called for the revised 1998/99 funding to become the baseline for future years, with cuts kept to just 1 per cent for the following year as well. This would require finding at least another Pounds 300 million of government money.

HEFCE says institutions are trying to limit expenditure by cutting staff costs, reducing the amount spent on maintenance and delaying purchase of equipment.

The forecasts predict that net capital expenditure and financial investment will nearly halve over the next five years. They also suggest some institutions may have over-estimated the value of some sources of income, particularly overseas students.

While the picture is almost uniformly bleak, there are clear variations between institutions.

Half of the cash balances last year were held by 13 institutions, while 22 institutions held more than half of the total borrowing. A handful are giving HEFCE serious concern.

David Triesman, general secretary of the Association of University Teachers, said: "This dramatically highlights the need for a coherent long-term strategy to solve the funding crisis. Threats to cut costs by shedding staff - even as a short-term measure - are a recipe for strife."

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