Planning financial futures

Financial and market security has become a priority for VCs, says Ian Matthias. So how do they plan for their universities’ economic futures in a climate of uncertainty?

Over the past decade, we have monitored how university leaders have responded to the unpredictable business of UK higher education and how disruption has influenced their strategic priorities. Earlier in 2019 we released the results of our 10th annual survey of vice-chancellors. In marked contrast to previous years, when institutional strategies were openly aligned to the prevailing sector-wide policy priorities, vice-chancellors are now firmly focusing on protecting the financial and market security of their own institutions, reflecting the radically changed environment from benign government support to open-market self-reliance.

Winners and losers

Vice-chancellors’ worries about money reflect the fact that the assured funding of English universities has largely been withdrawn, threatening the sustainability of higher education provision across the sector. Since 2012, English universities have had to rely on income from student tuition fees to subsidise a host of activities that were formerly supported with specific government grants. These range from property developments to widening participation, all in addition to the education and teaching that the fees pay for.

For a while this switch has worked, mainly because the £9,000 fee cap initially represented a significant increase in per-student funding. However, that period of false prosperity is now a fading memory for most institutions. The falling real value of capped tuition fees has been further eroded by rising operating costs (e.g. pensions, student services), increased regulatory conditions and flatlining student demand which has resulted in many institutions experiencing their toughest ever recruitment cycle.

Some Russell Group universities will look very different in 2030 [when compared to today] 

Additionally, all signals are that this squeeze on income will become even tighter over the coming years and that the fee cap might even be cut, at least for some courses. Although we now have a target to grow overseas student numbers to 600,000 by 2030, much work is also needed to ensure the UK remains a destination of choice for lucrative international students.

While most university analytical teams have been busy scenario-modelling and identifying optimum programme and student combinations, a number will find themselves struggling to make their economic sums add up. Vice-chancellors are worried that a continuation of these pressures will produce a higher education sector that is polarised by financial winners and losers, in which the gains of some institutions are at the direct expense of others. 

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Back to basics

Even though many universities are facing significant financial difficulties, the proportion of vice-chancellors who think that institutional failure is ‘highly likely’ is lower than ever before (just 9%). They believe instead that the local economic and social implications of complete university closures will be politically unacceptable. Instead we will see managed combinations of mergers, takeovers and rationalisation of their programme offers. We expect this to take time and be complex to manage, not least because of the need to ‘teach out’ courses and the lack of agility across the sector. Vice-chancellors expect this period of restructuring to be underpinned by ‘back to basics’ strategies and action to improve institutional resilience.

We will continue to see a regular drumbeat of staff severance scheme announcements in the news, and institutions will increasingly look to introduce novel – for higher education – ways to reduce operating costs through, for example, sharing back office operations with other universities. Vice-chancellors also expect to see further concentration of research funding to promote a small elite of prestigious institutions, making it harder for others to sustain viable research capabilities. Some Russell Group universities will look very different in 2030 when compared to today.

Part of the success of the UK higher education sector has been its ability to respond to disruption

However, there was a clear view that there will be an important leadership role for universities in a post-Brexit UK. Vice-chancellors report the sector will be vital in establishing industrial competitiveness, regional and civic regeneration and, crucially, international connectivity.

HE still a good business

Part of the success of the UK higher education sector has been its ability to respond to disruption. So, while the outlook is challenging, most vice-chancellors remain optimistic that they will find a way through. They do, however, recognise their future success will depend on an ability to constantly reinvent themselves. Universities which are able to move at pace, keep costs under control and remain relevant to the skills, knowledge and research needs of students and employers will succeed, and those that fail to change will struggle, and may not survive at all. 

Ian Matthias is a higher education expert at PA Consulting, the global innovation and transformation consultancy

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