Top universities face cash crisis

June 27, 2003

The UK's leading universities could be casualties of a financial "black hole" as they await the income from top-up fees.

Eric Thomas, vice-chancellor of Bristol University, has predicted that recurrent teaching funds will be more than absorbed by a number of huge "cost pressures" that could leave universities with a funding shortfall of up to 15 per cent. His warning comes as signs of financial difficulties emerged at Durham and Cambridge universities.

Professor Thomas said universities could face a struggle to survive the next three years until the income from top-up fees of up to £3,000 a year comes on stream.

He said financial pressures included the pay award, which is usually 1 per cent above inflation, with salary drift and promotions adding 1 to 1.5 per cent more to wage costs. Higher pension payments could push costs up by 2.5 per cent, and pay restructuring could add between 1 and 3 per cent to the bill, he said.

Professor Thomas said that other potential risks on the horizon were the increased costs of managing expanded estates, the potential reform of the Universities Superannuation Scheme (which operates the main pension scheme), and the possibility that the chancellor may again increase national insurance.

Bristol is one of a minority of universities with a surplus, but other institutions have more immediate financial worries.

Durham, which projects a £4.5 million deficit in 2006-07, has begun restructuring to try to save up to £9 million.

There were protests on Tuesday as Durham's senate voted in favour of plans to phase out "unpopular" academic subjects and to focus on core areas, a move that will mean the loss of more than 40 jobs. The university has said that it will take every step to avoid compulsory redundancies.

The restructuring has been devised "to prevent an unacceptable financial situation developing and to create capacity for investment". A university report to the senate says: "We need to focus our strengths across a narrower range of activityI at present, Durham is spreading itself too thinly."

Durham has been hit hard by the latest teaching allocation, which left it dependent on a funding council financial safety net.

The university reported to its senate that Durham had become over-dependent on public funding for teaching. This had caused a "significant negative impact".

Subjects to be dropped are East Asia studies, linguistics and European studies. As a result, some 200 student places will be lost, transferred instead to high-demand courses. Students currently on targeted programmes and those beginning in October will be able to finish their studies.

At Cambridge, council figures just released show that the university's deficit, now £8.2 million, has more than doubled over the past year although its debt is almost a third less than the council had first predicted.

The savings on the predicted deficit came from additional fee income, increased cost recovery on research overheads, reductions in property running costs and savings on stipends and wages.

To try to reverse the financial position and to try to break even in 2006 for the first time since 2000, the university is introducing an accounting model that will transfer budgeting to departments. It will also raise overseas students' fees by 2 per cent above inflation.

But council member Ross Anderson claimed that the severity of the university's money worries was not being fully presented to staff.

Dr Anderson refused to put his name to the university's latest assessment of its financial position, which he dismissed as a whitewash: "If we go on as we are, we will still be losing more than £10 million a year by 2006-07."

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