Universities' finances in 'fragile' state, says HSBC

June 6, 2003

Many UK universities are undercapitalised and near the limit of their ability to borrow, say economists at HSBC bank.

Universities are threatened by the planned expansion of further education colleges at sub-degree level, which will blur distinctions between the sectors and increase competition at local level, an HSBC report says.

Higher education is entering another era of expansion and radical reform, but financial performance in the sector is "already fragile", HSBC warns.

The bank foresees "losers as well as winners" emerging from a background of "tight finances and stiff competition between institutions".

HSBC notes: "Further education colleges already provide more than a tenth of higher education courses and are likely to make a growing contribution, as much of the planned expansion will take place at sub-degree level."

The study by HSBC's Business Economics Unit appears in the bank's economic journal, Taking the Pulse. It says some universities "are reaching the limit of their ability to take on new debt". Key problems to be tackled include an £18 billion "backlog" in teaching and research facilities and "uncompetitive salaries" that mean that "universities are struggling to attract top-flight academics".

The study's authors believe universities will be forced to specialise and to merge with other educational institutions. Rising competition for new students will be accentuated by the introduction of variable tuition fees in 2006. In the climate of thin operating margins, more than two-thirds of institutions cite under-recruitment of UK students as the main threat to financial stability.

"Those institutions with a low surplus to income or those with minimum general funds in relation to expenditure are among the most vulnerable to a drop in the level of student intake. A key ratio is the number of applications to places, which is often an early warning sign," the study says.

Figures from the Higher Education Statistics Agency last month showed higher education as a whole to be back in the black, with a surplus of £64.3 million. The financial health of individual universities, however, varied significantly.

Diana Warwick, chief executive of Universities UK, said: "We remain very concerned about the financial problems facing the sector and the impact that this is having and will continue to have on the operations and management of our universities."

Taking the Pulse: Higher Education is available free. Write quoting Stock No 96336-3 to Customer Information Centre, HSBC Bank plc, FREEPOST NWW 1502, Manchester M45 9AZ.

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