Universities expand in cautious market

Majority (83%) of finance directors say they will increase capital expenditure in the next year, according to Deloitte’s annual survey

Despite wariness about the financial and regulatory environment, universities are set to unleash investment in teaching and student facilities as competition for student numbers increases, according to a survey by Deloitte, the business advisory firm.

Deloitte’s annual survey of higher education finance directors gauged the views of 48 finance directors of UK universities, representing over one-third of the UK higher education sector.

The research found that 36% of finance directors are less optimistic about the financial prospects of their university than 12 months ago.

It also highlighted that 89% said there is an above normal, high or very high level of financial uncertainty facing their university and 57% say now is not a good time to be taking risks onto their balance sheets.

Almost three-quarters (74%) expect operating costs – such as staff, pensions, student support services and maintenance – to increase, up from 69% in 2013.

However, 83% of finance directors say they will increase capital expenditure in the next year, up from 43% in 2013’s survey. Finance directors say that 61% of capital spending will focus on teaching facilities, 18% on research facilities and 15% on improving students’ experiences, such as student unions and sports facilities. Only 4% will be focused on student accommodation.

To fund this spending, universities are looking for additional finance. Almost half (45%) of finance directors say they expect a moderate increase in their need for credit in the next 12 months, while 13% say there will be a significant increase in credit. Finance directors did, however, report that credit was both easily available and at a lower cost, with 57% forecasting an increase in bank borrowing, 51% plan to increase bond issuance and 63% see increases in financial leverage. 

Almost three-quarters (72%) of research-intensive universities said that increasing philanthropic income was a priority, compared to 40% for teaching-led universities.  

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

On the removal of the cap on AAB/ABB students, which takes effect from 2015/16, 42% said this will have a positive impact on their institution while 28% said it will have a negative impact. 

Julie Mercer, head of education consulting at Deloitte said:“The results of our latest survey suggest 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. But, at the same time, ambition and investing for growth are both needed. As such, risk taking is a necessary strategy for universities.

“We see in our own discussions with universities that investment in teaching and research are at the forefront of their strategies. 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. Meanwhile, students themselves see the quality of teaching as a key factor in choosing where they study.”

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