University finance heads want to spend despite uncertainty

Universities are set to increase investment in their estates despite growing financial uncertainty, a new survey shows

September 1, 2014

Some 83 per cent of finance directors polled by the consultancy firm Deloitte said that they plan to increase capital expenditure in the next year, with 61 per cent of spending to be focused on teaching facilities.

The extra spending would be financed through increases in philanthropic income, bank borrowing and financial leverage, says the second annual Deloitte Higher Education Finance Directors Survey, published on 1 September.

But 89 per cent of directors say that there are higher than normal levels of financial uncertainty facing their own institution, according to the poll of 48 university finance heads.

Some 36 per cent of finance directors say that they are less optimistic about the financial prospects of their university than 12 months ago and 57 per cent say now is not a good time to be taking risks on to their balance sheets.

About three quarters of directors (74 per cent) also say that they expect operating costs – such as from staff, pensions, student support services and maintenance – to increase, up from 69 per cent in 2013.

Julie Mercer, head of education consulting at Deloitte, said that the results indicate that there is a “prudence paradox” affecting the higher education sector.

“Finance directors are wary of the financial environment and favour strong financial management over risk-taking,” she said.

“But, at the same time, ambition and investing for growth are both needed. As such, risk taking is a necessary strategy for universities.”

Investment in teaching and research remained at the forefront of universities’ strategies as institutions sought to capitalise on strong demand for places from students, Ms Mercer added.

“With record numbers of students heading to university following the recent A-level results and the relaxation of controls on student numbers, there is increased competition to attract students,” she said.

According to the survey, finance directors say that 61 per cent of capital spending will focus on teaching facilities, 18 per cent on research facilities and 15 per cent on improving students’ experiences, such as student unions and sports facilities.

Only 4 per cent will be focused on student accommodation, reflecting how many universities have effectively handed over this role to the private sector.

To fund this spending, universities are looking for additional finance, the survey states.

Some 45 per cent of finance directors say that they expect a moderate increase in their need for credit in the next 12 months, while 13 per cent say that there will be a significant increase in credit.

Deloitte’s survey also found that 33 per cent of university finance directors believe that government policy on international students has a negative impact on the higher education sector. However, only 5 per cent were concerned about the effect on their institution.

On the abolition of student number controls in 2015-16, some 42 per cent said that it will have a positive impact on their institution while 28 per cent said that it will have a negative impact.

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