More than half of higher education providers report deficit – Hesa

The Office for Students warns universities “with concerns about their financial viability or sustainability” to contact them immediately

Sixty-one per cent of higher education providers reported a deficit in 2018/19, according to new data published by the Higher Education Statistics Agency (Hesa).

The data for last year appears to show more universities in deficit than in surplus for the first time since records began. Of the 194 higher education providers to submit data to Hesa’s annual finance record, 75 were in surplus while 119 were in deficit.

It is a big increase on the previous year’s figures, which showed that 47 of 165 reporting higher education providers ­– or 28.5% – recorded a deficit at the end of 2017/18.

The figure is substantially higher than that reported in 2015/16. Of the 162 institutions which provider data to Hesa then, just 24 – or 14.8% – were in deficit.

This year’s finance record is the first to include privately funded providers.

In a statement announcing the data’s release, Hesa said many more higher education providers were in deficit “due to a significant pension accounting adjustment (a non-cash expense) in this year following the 2017 valuation of the Universities Superannuation Scheme (USS).

“This expense is not a typical annual operating expense for these providers and therefore not reflective of their underlying financial operating performance in 2018-19,” the statistics agency said. However, many of the universities that have reported deficits are not contributors to the USS.

Overall, collective revenue in the sector grew to £40.8 billion in 2018/19, compared with £38.6bn in the previous year—although the more recent data includes alternative providers.

Total expenditure, however, topped £44bn – up from up from £37.3bn in the previous year.

Deficits increase across the sector

The provider with the largest deficit as a proportion of its total income was the New College of the Humanities. The private university, owned by Northeastern University and founded by AC Grayling in 2011, had a deficit of 140% of its total income, the Hesa figures suggest.

The public universities with the largest deficits are the University of Wales (65%), Birkbeck, University of London (28%), Aston University (26%), Aberystwyth University (26%) and the University of Stirling (25%).

University Business approached the above providers for comment.

“Clearly university finances are a complex issue, and to use one isolated statistic gives a false impression of New College of the Humanities’ financial position,” said Martin Smith, executive dean at New College of the Humanities.

“We cite the two exhaustive financial stability tests required by the OfS for Approved Fee Cap status and our TDAP application, both of which the College recently passed with flying colours, combined with the fact that we are owned by a large and established US institution.”

A spokesperson for the University of Wales said the institution “is currently in the process of integration with another university and reducing its activity as part of the integration.

“This reduction in activity has led to one-off accounting charges within the 2018/19 financial statements which has amplified the accounting deficit position. The university is expecting to deliver a break-even cash position for the 2019/20 financial year.”

A spokesperson from Aberystwyth University said: “In February this year, we published our latest financial statements which showed a deficit in the operating position of £2.3m. The statements feature a number of non-cash accounting items required by Accounting Standards, but which do not contribute to the university’s underlying operating position.

“It also showed Aberystwyth University to be on track to deliver a small operating surplus in 2019/20, demonstrating a successful focus on the financial sustainability of our institution.

“As with higher education institutions through our sector throughout the world, we are monitoring the effects of the current global COVID19 outbreak and continue to discuss its implications with both sectoral partners and government”.

A University of Stirling spokesperson said: “The 2018/19 position is exceptionally impacted by an increase in pension movements, totalling £29 million. These are future commitments to pay down the deficit, not current expenditure.

“Setting aside these pension movements, to allow like for like comparability, the underlying operating position for 2018/19 was a £3.3 million deficit, with a prior year comparable deficit of £2.7 million. This reflects the true operating performance of the university.”

An Aston University spokesperson said: “The deficit occurred as a result of technical accounting adjustments. Without these adjustments, the university delivered an underlying operating surplus of £1.6 million.”

A spokesperson for Birkbeck said the university first reported an underlying deficit two years ago and have implemented a recovery plan.

“The national USS pension scheme, over which the College has no direct influence, increased by £20.5m in the year and was the single largest contributor to the 28% ‘loss’. A large part of this will be reversed by a revaluation of the scheme in 2018,” Birkbeck added.

In total, 13 providers – including the universities of Kent, Reading, Keele and King’s College London – reported deficits above 20% of their income. In comparison, only two institutions reported deficits above this level in 2017/18.

Many universities have reported a steep increase in staffing costs. At the five public universities with the highest deficits, staffing costs account for 75% of all expenditure.

Some larger Russell Group universities dropped into deficit in 2018/19, and recorded large increases in staffing costs. UCL staffing costs increased from 50.01% of total income in 2017/18 to 70.3% in 2018/19. King’s College London staffing costs increased from 56% of total income in 2017/18 to 75.3% in 2018/19.

Revenue from tuition fees

Universities rely on different income sources.

Oxford and Cambridge universities, for example, derived just 14% of income from tuition fees, and Imperial less than a third (29%). The universities of Bedfordshire, Sheffield Hallam, Sunderland, De Montford and Nottingham Trent, however, derived over 80% of their income from students’ tuition.

The data shows that over half of the overall income of institutions in England and Wales comes from tuition fees – a drop in domestic student numbers this year could adversely impact universities that rely on their fees to balance the books.

The sector made just under £7bn in revenue – or about 17% of total revenue – from the tuition fees of international students. However, there are only 48 universities that receive 20% or more of all their income from non-UK students.

The London School of Economics, Coventry University and City, University of London derived more than a third of total revenue from international students.

A drop in international student recruitment this year because of coronavirus could impact those higher education providers whose revenues are substantially boosted by overseas recruitment.

How has the Office for Students responded?

Nicola Dandridge, chief executive of the Office for Students (OfS), said: “This data shows that the underlying financial position of most higher education providers is sound.

“Clearly responding to coronavirus is a huge challenge for all providers and could have a significant impact on the financial health of the sector. One of our key priorities during the pandemic is to support the financial sustainability of the sector. Providers with concerns about their financial viability or sustainability should contact us at the earliest opportunity.”

Since it was founded in 2018, the OfS has repeatedly said it would not bail out English institutions that are failing – but a recent letter sent to higher education providers suggests the regulator might change tack because of the impact of coronavirus.

In the letter sent on 17 March, Susan Lapworth, OfS director of competition and registration, said that the regulator has set “three key objectives for the coming months, which reflect how we will intend to respond to the impact of Covid-19”.

Ms Lapworth told university chiefs her team would be “working with providers to develop practical ways to maintain teaching quality and standards, enable adequate exams and assessment and support financial sustainability”.

The OfS has already suspended its normal regulatory regime to minimise to “avoid placing any unnecessary burdens” on institutions, Ms Lapworth added.

An OfS report on financial sustainability published in April 2019 warned: “Providers face increased cost pressures, not least following recent valuations of large multi-employer pension schemes and more general inflationary pressure on costs.

“In light of the uncertainties and challenges they face in the foreseeable future, providers will need to re-assess their financial assumptions and forecasts and ensure that adequate contingency measures are in place to navigate an uncertain environment and ensure financial viability and sustainability.”

Read more: Coronavirus: only 49% of students happy with online learning, says Hepi poll

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