HEFCE issues warning on university finances

10 Nov 16

The financial sustainability of higher education is uncertain, according to the government’s university funding body.

The Higher Education Funding Council for England said its analysis of the latest financial forecasts submitted by higher education institutions showed some could prove unsustainable by 2018-19 due to inadequate surpluses, declining cash levels and increased borrowing.

Although the Financial health of the higher education sector: 2015-16 to 2018-19 forecasts report stated the sector was in a sound position overall, it was particularly concerned by institutions that projected high levels of growth in home, EU and international student numbers “in an environment which may make this increasingly difficult to achieve”.

The forecasts predate last June’s referendum on the UK’s European union membership.

Financial forecasts to 2018-19 showed a widening gap between the lowest and highest-performing institutions.

Surpluses were projected at 2.3-4.3% of total income, which HEFCE called “relatively small margins in which to operate, particularly in an uncertain external context”.

Student number projections showed predicted growth of 10.3% among home and EU students and a 26% increase in fee income from international students, to £4.8bn by 2018-19.

HEFCE warned the sector might find these goals hard to reach due to a declining cohort of 18-year-olds, uncertainty about EU students’ long-term eligibility for loans and grants and potential changes to student immigration rules.

“These challenges, taken together, could have a significant impact on the sector’s financial projections, even if the currently weaker pound assists in the recruitment of international students in the short term,” HEFCE said.

Universities and colleges expect to invest £17.8bn in infrastructure over the next four years, 51% more than the previous four-year average.

However, within this total though nearly a quarter intended to cut their infrastructure spend, even though across the whole sector £3.6bn still needed to be spent to bring non-residential buildings to a sound condition.

HEFCE said the sector’s trend of falling liquidity and increased borrowing had continued with borrowing expected to exceed liquidity levels by £3.9bn at July 2019.

It described this as “not sustainable in the long term”.

Increased pensions liabilities would also affect the sector’s financial performance.

HEFCE chief executive Madeleine Atkins said: “The latest financial forecasts highlight several worrying trends as the sector looks towards 2018-19.

“Across the sector we are seeing greater variation in financial performance, with increasing divergence across the key financial indicators.”

She said higher education made a significant contribution to the economy and it would be crucial to ensure its long-term financial sustainability.

Meanwhile, HEFCE has allocated £4.5m to universities and colleges to create 5,200 degree apprenticeship places on courses starting in September 2017.

It describes degree apprenticeships as “a real job where the employer invests in training and the employee receives a first degree during the course of the apprenticeship”.

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