Shared services savings may be counted in millions

Waves of cost-cutting schemes expected once VAT exemption rules are clarified. Jack Grove writes

March 7, 2013

Universities are expected to unveil a glut of new shared services schemes this summer to help cut costs in the sector, a senior funding council officer has revealed.

Steve Butcher, head of procurement at the Higher Education Funding Council for England, said he expected several universities to announce their own “cost-sharing groups” (CSGs) when rules about VAT exemption are clarified in May.

Up until 2011, universities complained that sharing services such as payroll or IT would create a fresh tax liability because - unlike individual institutions - such joint ventures were not exempted from charging VAT.

Chancellor George Osborne appeared to remove this tax barrier by making shared services VAT exempt in his Autumn Statement in November 2011, but HM Revenue & Customs guidance published in July 2012 indicated that the exemption would apply only in “very specific circumstances”.

On 26 February, addressing a conference organised by Universities UK titled Efficiency in Higher Education, Mr Butcher said the forthcoming publication of Hefce guidance on VAT exemption in May was likely to lead to the announcement of several new CSGs.

“Lots and lots of organisations will be ready to go,” he said.

He explained that there will be a “first wave” of shared services companies this summer, followed by “second and third waves”, with some institutions also seeking to enlarge the remit of existing CSGs.

Such shared services organisations can often deliver savings through economies of scale. But unions claim that any financial gains are made at the expense of staff because they create a “two-tier workforce”, with new employees not guaranteed the same pay and conditions as existing staff, who are protected by Tupe (Transfer of Undertakings, Protection of Employment) rules.

‘Huge savings’

However, Sir Ian Diamond, vice-chancellor of the University of Aberdeen, who chairs the UUK Efficiency and Modernisation Task Group, told the conference that shared services schemes could save the sector millions of pounds.

“Whether it is putting student emails in the cloud or sharing student support systems, there are huge savings that can be made,” he said.

Finding ways to deliver savings was vital because there was little prospect of the government handing out large capital funding grants, he added.

“The only way we can raise money to service loans, maintain infrastructure, have the best facilities and attract the best teachers and researchers is to have savings that enable us to have a surplus,” he said.

“We need to make clear that the savings we make are being invested immediately, or almost immediately, rather than going off to any shareholders.”

Meanwhile, Graeme Reid, head of research funding at the Department for Business, Innovation and Skills, said it was time for universities to show that they were making efficiency savings as the sector was viewed by some as “well funded” and “resistant to change”.

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