Only most research-intensive UK universities ‘cover full costs’

New analysis on the full economic costs of research and teaching by ‘peer group’ raises concerns about long-term sustainability of some institutions

August 1, 2018
Rich and poor

Only the most research-intensive universities in the UK tend to “break even” and recover the full costs of all their research and teaching activity, new figures have suggested.

According to data released for the first time by the Office for Students, such institutions make the biggest surpluses from teaching international students and lose the least money from conducting research.  

The figures come from a “peer group” analysis of data from the Transparent Approach to Costing (Trac) exercise, which attempts to estimate the “full economic costs” of research, teaching and other university activity.

Full economic cost is based on dividing up direct expenditure such as on staff and buildings according to each activity and also making an adjustment that reflects the hidden costs of keeping universities financially sustainable into the future.

Data from individual universities in the analysis were split into different groups according to the share of their overall income that comes from research but also other factors such as whether they had a medical school.

According to the analysis, peer group “A” – which contains most members of the Russell Group but also some other research-intensive institutions – made a surplus of more than 60 per cent on average from non-publicly funded teaching, which mainly covers overseas students, compared with the full economic costs.

Such universities also did not lose as much money from research – which a sector-wide analysis published a few weeks ago showed was underfunded to the tune of almost £4 billion in 2016-17 – as others.

For instance, the average university in peer group A recovered 77 per cent of its full economic research costs.

However, universities in other peer groups tended to recover less of their research costs. In groups D and E – mainly made up of modern teaching-focused institutions – the average recovery of research costs falls below 40 per cent.

The data also indicate that universities in peer group A tended to make massive surpluses on “other” activity classed as “non-commercial” – which includes money from donations and endowments. In 2016-17, the average peer group A university made a surplus in this area more than 13 times higher than its costs.

Meanwhile, the analysis shows that for publicly funded teaching – primarily covering UK and other European Union students who can take on government loans – most peer groups in effect break even.

Taking all activity together, the OfS data suggest that, on average, only universities in peer group A manage to recover all their full economic costs.

Nick Hillman, director of the Higher Education Policy Institute, said the peer group analysis was “fascinating” and “rings true, given the challenges faced by the sector in the past few years”.

“There are consequences for the long-term health of the sector as a whole if only the older and more prestigious universities are able to cover their costs,” he said, adding that the issues needed to be taken on board by the government and the Augar review of post-18 education funding.

Alan Palmer, head of policy and research at the MillionPlus group, which represents modern universities, said that the “very high selectivity” in research funding towards older universities “clearly contributes to lower levels of income” in more teaching-focused institutions.

“However, continued investment in research by hugely important for their applied research work with industry, [smaller businesses] and public sector organisations, and the use that applied research has in relation to teaching and other forms of knowledge exchange,” he said.

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