Summer cash crisis predicted

May 9, 2003

Universities will face a crisis over pay and funding this summer that will be more severe than the one now hitting schools, university employers warned this week.

"There will either be large-scale redundancies or the heat will come on pay," said Declan Leyden, assistant director of the Universities and Colleges Employers' Association.

He said the government was claiming that much of the money for schools was with local education authorities. "In the case of universities the money simply is not there. It is very serious," he said.

The settlement date for university pay is August 1, whereas schools settle on April 1. Mr Leyden said: "This has meant that schools have hit the headlines first. We are just going out to institutions now to consult on what they can afford. Informally, many have told us that they will have to make redundancies if they are to meet an above-inflation pay claim."

Last month, the three academic trade unions agreed to push for a 28 per cent pay claim over three years. They said that January's generous higher education funding settlement up until 2006 meant that the money was there and that employers' claims that it was all earmarked were wrong.

Michael Yuille, chairman of the British Universities Finance Directors Group, said: "Employers have to fund increases in five key costs before they can look at pay increases."

The 1 per cent rise in national insurance contributions, effective from April 1, will cost UK universities £75 million. The January funding settlement made no specific funding available for this.

Employer contributions to final-salary pension schemes have risen. In April, contributions to the post-1992 academic pension scheme rose from 8.35 per cent to 13.5 per cent. The Higher Education Funding Council for England has agreed to fund only 4.75 per cent of this 5.15 per cent increase.

Insurance cover has rocketed. Mr Yuille said: "Between 2001-02 and 2002-03 average premium costs increased by 54 per cent. Again, there is no extra money for this."

Universities must also fund the cost of incremental pay awards and promotions, as well as the maintenance backlog. Pay makes up 58 per cent of higher education's total spend, so these changes have a significant impact.

Mr Yuille said: "The vagaries of the funding regime mean these factors will hit different institutions to different degrees. The proportion of pay spend is likely to increase in those with larger cohorts of arts-based subjects."

Mr Leyden said: "We also have to deliver on a significant modernisation agenda - the complete reform of pay structures with additional rewards that have to be paid for. The January settlement made no additional funding for this."

Vice-chancellors have warned that the recurrent funding for teaching is inadequate and largely earmarked for special initiatives.

However, the Association of University Teachers said the vice-chancellors were overpessimistic. The union estimated that there should be £761 million in additional recurrent funding for pay.

It said: "If you look at the financial forecasts for institutions published by Hefce in January, which include the increase in national insurance and incremental pay increases, then add the impact of the July 2002 spending review, you can see the money is there."

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