Critical currency

As HEFCE grants continue to dwindle, universities are compelled to resourcefully locate new income streams. Damon Jones reports…

Recent analysis depicts HE’s fiscal fortunes as delicately poised. According to HEFCE’s 2014 report, English institutions are forecast to enjoy a 4.2% rise in total income of £1,018m in 2013/14, but “without making significant surpluses”. Despite higher tuition fees boosting coffers, little is held in their reserves. Successive reductions in government grants, set to continue in 2015/16, have caused severe ramifications for teaching income, which is now increasingly dependent on tuition fees and, particularly, lucrative overseas students, creating both opportunities and new vulnerabilities in the marketplace.

Around 40% of 2012/2013 university income derived from tuition fees in 2012/2013, according to the Higher Education Statistics Agency (HESA), with 12.1% of these paid by non EU visitors. Coupled with a reduction in grants awarded by other funding bodies, educators are exposed to the caprice of HE’s emergent ‘market forces’ like never before – leaving them scrambling to define and exploit new and dependable sources of cash. Sounding a cautionary note, HEFCE reckons that “operating on such fine margins means that even small changes on income could have a material impact on the sector’s performance,” – causing major financial woes for the less solvent.

“By far the most significant change has been how most teaching funds are now provided: from an annual grant provided by HEFCE to students’ fees paid up-front as loans by government,” summarises Nolan Smith, HEFCE’s Head of Finance and Investment. “Universities are finding ways to diversify their income streams, to reduce their reliance on public funding. For example, the sector has seen income from non-EU students more than double in real terms over the last decade, which has been possible due to the excellent reputation UK higher education holds internationally. Also, across the sector, we have seen numerous initiatives to improve operations.”

Despite fears surrounding the stability of tuition fees as revenue streams, Smith notes that application numbers have continued to rise, although he warns that reductions in number controls could increase competition between institutions, leading to potential volatility. “Universities and colleges have a diverse range of income streams,” he says. “All institutions need to ensure that they remain financially sustainable and they will monitor the risks associated with all areas of their business.” Many have taken steps to address concerns over potential dependencies, for example, by providing various provisions to international students, such as working with partners or offering transnational courses.

“The landscape has become even more competitive – whether we’re looking at the recruitment of students here and abroad, or applying for limited funding from research councils, charities and foundations,” agrees Graeme Byrne, Director of Development at the University of East Anglia (UEA). Offsetting perceived instability and exploring new opportunities “means attracting income from a broader range of income streams, to include philanthropy and enterprise,” he says.

Multiple funding sources are regularly accessed to fund landmark projects which, in terms of their myriad backers, have been compared by some commentators to Hollywood blockbusters. The University of Dundee’s Discovery Centre, which opened in October 2014, is a prime example. Recipient of a Wellcome-Wolfson biomedical science award, matched University funding, and £12m from the UK Research Partnership Investment fund, the development was also sponsored by 15 other organisations and charitable trusts – not to mention donations from the public and alumni.

Philanthropy of this kind – primarily driven by former graduates – is proving to be increasingly important for universities keen to offset reductions elsewhere. The UEA’s own planned science development, the Bob Champion Research and Education Building, which will examine relationships between diet and disease, has already received £2.3m in pledges, according to Byrne. “Philanthropy has begun to play a more elevated role,” he reports. “Having invested in a Development Office in 2008/09, the amount raised through charitable giving and donations has increased from under £1m per annum to more than £5m per annum. At a time when funding is tight, philanthropic support is enabling the University to embark on projects it otherwise might not. To achieve this growth, we’ve focused on a small number of themes where UEA is world-leading, and poised to make an impact.” Their ultimate aim, he says, is to create a culture of philanthropy at the University, especially amongst the current student body, where giving back is considered a norm.

HEFCE’s own assessments corroborate this sense of optimism, with a 2011 document speaking of “philanthropic acceleration and excitement” which “changes higher education”. According to the body, a potential £2bn of additional funding could become available from 640,000 donors by 2022, assuming an alumni participation rate of 5%. London South Bank University (LSBU) is one of the institutions attempting to capitalise on these projected revenues. “Engagement is key. Donors do not support projects if they are not thoroughly engaged in them,” advises Michael Simmons, the institution’s Director of Strategic Stakeholder Engagement. “That means understanding and believing in the value of the impact a project will have. And major gifts are made to major projects – you can’t ask for a large gift to a small project. However, smaller scale giving programmes are also valuable, as they provide steady income for programmes such as scholarships and build relationships with donors.” Maintaining contact with some 80,000 alumni has proven important for LSBU’s fundraising efforts, which have helped to contribute towards a £2m refurbishment of its National Bakery School.

The most recent Ross-CASE report, published in May 2014, provides a clearer picture of giving across the sector during the 2012/2013 academic year. Amongst its findings was that charitable cash income received by all universities had risen from £535m in 2011/12 to a record high of £660m in 2012/2013. ‘New funds secured’ – new single cash gifts and the full value of new pledges – fell by £81m overall, but this was offset by median incomes rising, partly due to large awards and other universities increasing the funds they secured. This result in part seems to have been prompted by greater moves to stimulate engagement – with an additional 44 fundraising staff having joined the sector in 2012/13. Donor numbers correspondingly rose to 223,000, with the pool of addressable alumni swelling from 9.3 million, up from 8.5 million.  

However, dependence on giving does have its limitations. Charity is seldom costless – with £80m invested by universities in their fundraising activities, primarily on staffing costs. At LSBU, giving is regarded as a source of top-up income, rather than an independent stream. “The purpose of fundraising is to enhance what other forms of funding are able to provide,” emphasises Simmons. Ross-CASE’s own measures also possess certain drawbacks which, Simmons believes, do not fully reveal the full scale of charitable support across the sector – interactions which possess significant value, although they are rather harder to quantify. “There are other types of support which are very important – alumni and other supporters mentoring and speaking to students, offering work placements and recruiting students,” he says. “Sadly, the Ross-CASE survey does not reflect this kind of giving, which does a disservice both to the providers of this kind of support and the development offices which work hard to secure it.” Giving across the sector is also imbalanced, with the Russell Group making up 72% of contactable alumni making gifts in 2012/2013.

“The Russell Group recruit, on average, students from wealthier backgrounds. Until there are real improvements in social mobility in the UK, it is inevitable that those institutions will therefore, on average, have wealthier graduates capable of making larger donations” argues Simmons. “Those institutions also receive the majority of government research funding. That investment, and its resulting impacts inevitably attract donors with an interest in those fields, whether or not they are alumni.”  

Critics also allege that HEFCE cash particularly benefits these institutions, most notably those sited in the ‘golden triangle’ of London, Oxford and Cambridge. Research funding awarded to universities by the organisation is based on the results of the latest Research Excellence Framework (REF) data, which seeks to quantitatively determine the ‘quality’ and ‘impact’ of academics’ research work. However, according to Liz Morrish, Subject Leader in Linguistics at Nottingham Trent University, its findings will invariably privilege certain areas of science and technology disciplines, which distorts its findings. The REF, she says, “is not representative of the research going on in British universities. A lot of people carrying out research are not entered in the REF, because it doesn’t happen to fall into a particular area of strength.” Therefore, she argues, certain areas – notably the arts and humanities – could be left behind, as universities and individuals focus on risk averse projects which could boost their standings in league tables.   

“There is a lot of talk around ‘impact’ and ‘value for money,’ and a questioning of the value of humanities degrees,” comments Morrish. “This is ironic, because if you look at the cabinet and shadow cabinet, more than 80% of them probably have arts and humanities degrees. It seems to be that these subjects are for the elite and privileged, but not for anybody else”.

The ‘value for money’ of the REF itself has also been hotly contested, with Derek Sayer, Professor of Cultural History at Lancaster University, claiming that its overall cost to universities is around £200m; far higher than official estimates of £60m. UK research is already suffering due to the influence of the metrics-based regime, says Morrish, particularly in the arts, where business, consultancy and charitable donations are less likely sources of income – to the detriment of ‘blue sky’ thinking. If HE culture becomes configured entirely around these financial priorities, argues Morrish, it could seriously erode the UK’s international standing, by denigrating the excellence which occurs throughout the sector. It could also prompt a recruitment crisis, due to a waning throughput of postgraduates, who would typically staff key academic posts in the future.  

With a general election approaching, the main parties – perhaps haunted by the spectre of the Liberal Democrats’ infamous backtracking over tuition fees – have remained conspicuously silent on the thorny topic of HE funding. Despite noises from Labour suggesting a cap on tuition fees at £6k, and the possible introduction of a graduate tax, these have yet to be enshrined in a formal manifesto. Coalition Home Secretary Theresa May’s recent proposals – apparently quashed – to send home overseas graduates have caused further consternation, leaving HE’s future prospects suspended in the balance. “VCs are terrified that there will be a freeze on fees, as the gravy days won’t last for very long as revenues become soaked up by institutional changes and improvements,” comments Morrish. Just how the next government configures the funding regime, and universities’ own capacities to autonomously generate income, could both prove crucial to securing HE’s long-term solvency.


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