Sector Pounds 800m in red

December 5, 1997

NEW figures released today by vice chancellors reveal that universities face a shortfall of almost Pounds 800 million over the next two years. The figures coincide with a Higher Education Funding Council for England analysis of universities' own forecasts which reveals that more than half the sector will be in the red by 2000.

The forecasts also disclose that most of the financial wealth of the sector is concentrated in a small number of universities. Half of the cash balance is held by just 13 institutions. Conversely, more than 50 per cent of borrowing is held by only 22 universities.

HEFCE said the universities' forecasts showed a "step change decline" in the operating position of the sector after 1994/95. The 1997 forecasts confirm that this decline is expected to continue for the foreseeable future. The number of universities forecasting a deficit by 1999/2000 is 79 compared with 46 in 1995/96.

Capital expenditure and financial investment will almost halve over the forecast period to 2000/01 due to a lack of cash flow from operations and the need to service existing borrowing.

The HEFCE said institutions were trying to keep spending down by cutting academic and support staff costs, reducing the amount spent on maintenance and delaying the purchase or replacement of equipment. "The forecasts also show that some institutions have over-estimated the value of some future sources of income," HEFCE said. Some had predicted a doubling or even trebling of fee income, for example. Shortfalls in student recruitment were also a serious financial problem for some institutions.

Until 1995/96 investment income substantially exceeded the interest costs of borrowing, according to HEFCE.

Diana Warwick, chief executive of the Committee of Vice Chancellors and Principals, said: "We want a guarantee in the Teaching and Higher Education Bill that cash raised by tuition fees goes back in to higher education."

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