Page last updated at 01:45 GMT, Wednesday, 10 December 2008

Universities 'may face deficit'

By Hannah Richardson
BBC News education reporter

Lecture
The report said student teacher ratios had increased

Serious concerns have been raised about the future financial sustainability of the UK's universities.

The higher education sector overall is predicting a 4% "real terms" deficit - partly due to a 2bn shortfall in research funding and high staff costs.

Some universities have surpluses, but many are not setting aside enough for future challenges, a report by university employers and unions said.

UK universities' global standing could be damaged as a result, it added.

According to the Joint Negotiating Committee for Higher Education Staffs Review of Higher Education Finance and Pay Data, universities in the UK are predicting an average surplus of 1.6% for the end of the financial year.

There is a risk that the quality, innovativeness and international standing of UK higher education could fall
Joint Negotiating Committee for Higher Education Staff report

But once these are adjusted to reflect the "real economic cost" of their assets, through an accountancy costing system known as Trac, a deficit of about 4% is more likely for 2008-9.

The Trac system is accepted by government and university managers to give a more appropriate indicator of financial health.

The report found universities in general held very low levels of cash - just enough to cover their working costs.

And that the number of days of net liquidity for the sector had reduced to 52 days for 2009-10, from 68 days in 2005-6.

This meant universities were not setting enough money aside to assure a "sustainable future", the report said.

Overseas students

The report also notes that HEIs will inevitably revise their projections in the light of more recent economic developments and the uncertainties these bring.

Part of the underlying problem was that universities' research budgets face an overall deficit of 2bn - a third of their 5.9bn income.

This was partly due to the bodies that fund research; charities, industry, the EU and government departments, providing below cost funding, the report claimed.

If the UK is to remain one of the world's leading providers of higher education, it must continue to invest in its universities
Universities UK

But it also warned that many universities did more research than they could fund.

The report also said universities faced new financial challenges and risks which were weakening their ability to innovate and advance as fast as competitors.

And the very countries that the UK takes most of its non-EU overseas students from, India, China, Singapore and Malaysia have seen huge growth in their own universities.

"There is a concern that as the universities in these countries become more mature and attractive, the UK may lose a significant source of students and income, and this could damage the financial position of a significant number of UK institutions."

The report added: "Institutions are doing what they can to manage this, but there is a risk that the quality, innovativeness and international standing of UK higher education could fall with potentially damaging impacts on the national economy and reputation."

'Pensions deficit'

The report also noted that staffing costs, following the 13% three-year pay deal agreed in 2006, had risen at a faster rate than universities' grants.

Also, because the deal was linked to the retail price index that grew to 15.9%.

But these extra costs have been managed so far by the extra income from variable tuition fees.

The report said also warned of potentially serious risk of pension deficits.

And things were likely to get worse in the light of the economic downturn, the report for university employers said.

The report from the Joint Negotiating Committee for Higher Education Staff was commissioned after the university lecturers pay dispute of 2006 which saw thousands of students' work go unmarked.

It aimed to lift the lid on university finances and avoid troubled pay negotiations in the future by agreeing new ways of working.

A Universities UK spokesman said institutions were operating at below the recommended levels of surplus and would be looking for sustainable university funding in the next spending review.

He added: "As the latest OECD figures show, many countries are now catching up or indeed have overtaken the UK in terms of investment in higher education.

"If the UK is to remain one of the world's leading providers of higher education, it must continue to invest in its universities.

"Improved financial stability, along with strong management and leadership, will ensure a healthy higher education sector that benefits everyone."

Higher education minister David Lammy said: "Our universities and colleges are more important to the future of our country than ever before which is why public funding for higher education has risen in real terms by 24% since 1997 and it will have increased by over 30% by 2010-11.

"This year alone we have committed to spending more than seven billion pounds on universities to ensure that students continue to receive top quality education."



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