Moody’s says relax

Credit ratings agency rejects talk of crisis in the academy and predicts resilience in the face of funding cuts. Melanie Newman reports

April 10, 2010

Despite the warnings of impending doom, the UK’s higher education sector will prove resilient in the face of funding cuts, a leading credit ratings agency has predicted.

In its latest report on the sector, Moody’s Investors Service rejects “warnings of crisis” and suggestions that cuts will damage the academy’s long-term strength.

“Moody’s expects the UK higher education sector to remain resilient in the face of change and to keep its strength in the long term,” it says.

“Growth in global demand for tertiary education and research activities will continue to play to the strengths of the UK franchise for higher learning.”

The agency, which conducts financial research and analysis, expects the UK to remain attractive to foreign students.

Applicants from developing economies, which are recovering from the recession faster than the UK, will be “a healthy source of revenue growth”, it predicts, especially for “top-tier institutions near urban centres”.

Moody’s also rejects press reports suggesting that the sector is moving swiftly towards a market-based system similar to that in the US.

While universities are increasingly pursuing private funding sources, the rate of change to income patterns is gradual, it says.

“Because university funding in the UK and most countries other than the US is provided at the national level, and because there are far fewer high-priced private universities, we do not expect a trend to a ‘US model’ to be picked up in the same manner or with the same pace in the UK,” it adds.

The existence of the Higher Education Funding Council for England is likely to ensure a smooth evolution rather than a “sudden shock” in terms of any change, Moody’s predicts.

“Hefce’s tight regulation and oversight of the sector, as well as a historical record of strong extraordinary support for distressed institutions, offers the promise that change will be orderly,” it says.

Potential sources of non-governmental revenue growth identified in the report, published last month, include external research funding, philanthropic donations – where “significant potential remains” – and real estate.

However, an increasing reliance on private research funding will require clearly defined conflict-of-interest policies, Moody’s warns, and universities will need to focus on preserving research scientists’ ability to pursue independent academic interests.

Institutions may also need to re-evaluate how they use their property, the agency adds.

“Most universities in the US generate excess cash flow from operating student accommodation and dining facilities,” the report points out.

In contrast, many UK universities allow private companies to develop these facilities and retain most, if not all, of the income.

This week, Times Higher Education reported on plans by the private company University Partnerships Programme to run a university’s entire infrastructure, including teaching and research facilities.

UPP already provides and manages about 20,000 student rooms at 11 British universities, and tabled the plans to expand its activities in the sector following the news that capital funding for the academy will fall by 15 per cent next year.

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