Universities challenged

Cash-strapped universities face the prospect of an 18-month funding gap, according to business advisory firm Deloitte.

The firm said that timing of various changes to the funding of universities means that there will be cash management challenges, which have not been a feature of the sector for many years.

In March, the Higher Education Funding Council for England (HEFCE) will make its annual announcement for the 2011/12 academic year, which is expected to bring grant cuts of up to 40 per cent for many Higher Education Institutions (HEIs) and the withdrawal of state funding for non-priority subjects.

Simon Adcock, partner in Deloitte’s corporate advisory team in Birmingham, said: “HEIs will face immediate financial challenges due to the significant withdrawal of financial support from the government.

“While universities will be able to ‘top-up’ revenues with additional student tuition fees, these cannot be levied until September 2012, leading to a potential funding gap. Furthermore, student numbers may also reduce as a result of increased tuition fees, creating a ‘double negative’ effect.

“HEIs need to have a clear understanding of the impact of these changes on their organisations and the levers available to rapidly mitigate any short-term funding shortfall.”

The University and College Union published a research paper in December 2010, which identified that up to a third of universities across England are at high financial risk due to government cuts.

While the extent and depth of financial distress is not yet clear, Mr Adcock warned that without careful and proactive financial management a number of HEIs may find themselves facing serious funding shortfalls and in need of a recovery plan.

“Many HEIs have enjoyed healthy cash balances in the recent past and, as a result, cash management may not have received sufficient focus,” he said.

“However, driving permanent cash flow improvement could substantially alleviate budget shortfalls, which otherwise would result in headcount and service delivery reductions.”

Mr Adcock also warned that some universities would have to merge in order to survive.

“HEIs facing budget shortfalls may already have cost reduction and cash generation plans in place but these may not be sufficient to meet the challenges of the next two years. As a result, a turnaround may be required, which could include considering merger opportunities.

“The University of Birmingham, for example, recently announced that it was teaming up with Nottingham University after both were hit by budget cuts last year. The partnership will see the universities sharing research facilities, offering jointly-awarded degree programmes to students and joint academic staff appointments.

“With the HEFCE expected to announce further cuts to funding next month, it’s likely that we will see further mergers between universities, be it through the sharing of services and facilities or the joining of two institutions to form a completely new university.”

 

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