Universities' income falls as Hefce warns of further hit

The English higher education sector last year saw its first real-terms cut in income since records began almost 20 years ago, while institutional finances will take a further hit this year because of the fall in student numbers under higher fees.

March 15, 2013

Those are among the findings of the Higher Education Funding Council for England’s annual overview, Financial health of the higher education sector, which covers 2011-12 university accounts and forecasts for 2012-13 - the first year of £9,000 fees.

The release of the figures comes amid negotiations between the Treasury and the Department for Business Innovation and Skills on the level of cuts to be made in the 2015-16 spending review, with some in government suggesting universities are perceived as being “awash with cash”.

The sector’s income rose to £23.3 billion in 2011-12, a below inflation rise of 1.5 per cent on the previous year. Hefce’s accompanying press statement describes this as “the first real-terms reduction in total income” since records for the sector were first collected in 1994-95.

The overall operating surplus was 4.2 per cent of income, or £974 million, down from 4.6 per cent in 2010-11. But based on institutions’ estimates, the sector’s operating surplus is projected to shrink in 2012-13 to just 1.6 per cent of total income, or £381 million.

Hefce says in the report: “The projected financial results for 2012-13 indicate that the sector will remain in sound financial health overall, although the reductions in public teaching grant funding, shortfalls in student recruitment and projected increases in expenditure will cause surpluses to reduce sharply.”

Sir Alan Langlands, Hefce chief executive, says in the press statement: “Universities and colleges took a responsible approach to financial stewardship in the year before the new funding arrangements for higher education were introduced, reducing costs while maintaining excellence in learning, teaching and research.”

But he adds: “It is important to recognise that past performance does not guarantee future success, and recent talk of universities being ‘awash with cash’ is ill-informed.”

Hefce says in the report that the 2011-12 financial results are “sound overall…but not as strong as the results reported for 2010-11”.

It suggests the sector “made good efficiency savings during the year. The most significant of these savings related to staff costs, which fell in real terms for a second consecutive year in 2011-12”.

Given the reduction in public capital funding, institutions are now funding more capital investment from internal cash reserves or other sources, Hefce says.

“Some institutions will need to increase surpluses in future years above current levels to ensure that the quality of the infrastructure in the higher education sector does not deteriorate, which would harm its long-term sustainability,” it adds.

john.morgan@tsleducation.com

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Reader's comments (2)

We should be thankful, under the avalance of bad publicity for universities, that HEFCE state: "Based on the revised financial forecasts for 2012-13, no institutions are close to the risk of insolvency. This is supported by independent institutional audits and the sector’s own projected continuation of positive cash in-flows and healthy cash-backed reserves." Not a hugely ringing endorsement of the state of things, but it could be worse.
I have been tellinh the 'Heavies' of HEFCE and their compliant VCs that they all need to go and work in Maragaret Thatcher's old grocer's shop for a good lesson in basic economics. There, they will learn that if they triple the price of cabbages, they will not necessarily triple their income. In fact their income may shrivel to zero if there are nearby competitors or much cheaper substitutes! Apparently the complicated idea of price elasticity of demand has still not caught on in the land which gave the world Lord Maynard Keynes. Maybe Milton Keynes is all we aspire to nowadays... Lord help us!!!

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