Shared-service savings could mitigate £2.9bn funding cut

Joining forces to finance services could yield total near to budget reduction. Simon Baker writes

December 23, 2010

Senior university managers' "lack of enthusiasm" is conspiring to block the path to shared services among institutions that could yield as much as £2.7 billion in savings for the higher education sector each year, according to a new report.

The study from Policy Exchange, a right-leaning think tank, suggests that as much as 30 per cent could be shaved off UK universities' annual £9 billion bill for goods and services via joint partnerships.

But cost savings of that magnitude - almost as great as the government's £2.9 billion cut to the higher education budget - could be achieved only if universities were able to find a way around the requirement to pay VAT on shared or outsourced operations.

The report, Higher Education in the Age of Austerity: Shared Services, Outsourcing and Entrepreneurship, says the VAT issue is still a key obstacle to the wider use of shared services in the higher education sector.

It contends that the government should either adopt measures used in the NHS to exempt contracted-out services from VAT, or implement a European Union directive that would allow universities to set up partnerships without facing extra tax bills.

Alternatively, it could be possible to avoid the need for legislative change by moving in-house functions such as finance, human resources and student records into separate companies run by the private sector, but still majority owned by the university.

This joint venture model, which has been advocated by private firms such as University Partnerships Programme, the campus infrastructure specialists, would allow a new company to be registered in the same VAT group as its parent university.

However, for outsourcing and shared services schemes to work, institutions must overcome suspicions about the private sector and a cultural aversion to institutions working together, Policy Exchange argues.

"The VAT issue aside, the chief obstacle to usage of shared services within UK higher education is a lack of enthusiasm among senior managers," the report says.

"British universities are among the most autonomous in the world and are rightly protective of their independence, but this can lead to reluctance among managers to establish major partnerships with other institutions which may entail the loss of a degree of control over services."

The study highlights a number of "successful and productive" shared arrangements, including The Bloomsbury Colleges consortium, a voluntary collaboration between specialist colleges at the University of London, but it adds that there is scope for much more.

It also identifies substantial potential savings for the sector in the way it uses IT, citing the £250,000-a-year clawback achieved by University College London by using Microsoft's free email service.

Universities are also advised to build on their successes in creating spin-off companies and offering successful in-house operations to outside customers.

The report cites the example of a bus service owned by the University of Hertfordshire that evolved from a student-only carrier to an established local company serving the wider community.

Alex Massey, the report's author, said: "With students facing higher levels of debt, it really is time for universities to start taking efficiency and value for money seriously.

"There is no reason why activities such as accommodation, IT systems, catering, administration and other non-core services should always be provided in-house, and far too many institutions replicate functions that could be carried out on a shared basis."

simon.baker@tsleducation.com.

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