Higher Education Funding Council England (HEFCE)
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Cautious outlook for financial health of the higher education sector
The projected performance for the higher education sector in England for the period to 2015-16 is sound overall. However, this projection assumes that higher education institutions will achieve their student recruitment targets, and that there will be no further reductions in government funding.
These findings are part of the summary of finances for universities and colleges in a new HEFCE publication, ‘Financial health of the higher education sector: 2012-13 to 2015-16 forecasts’.
Recent information from UCAS and higher education institutions (HEIs) indicates that full-time student demand in 2013-14 is higher than in the previous year, and that most institutions are likely to reach or exceed their targets. This provides some confidence that the increase in tuition fees has not permanently reduced demand from these students. However, HEFCE will continue to monitor this situation closely.
Forecasts for the next few years reflect the significant reduction in HEFCE teaching grant funding, balanced by a significant increase in student fee income. Overall income is expected to rise from £23.3 billion in 2011-12 to £27.4 billion in 2015-16. However, the sector is projecting increases in expenditure, and many institutions are planning to invest substantial sums in their capital programmes to make improvements to their estates. These investments, partly financed by increased borrowings, are projected to increase significantly in 2013-14 and to remain at a high level for the remainder of the forecast period – an indication of the sector’s confidence which has been underpinned by government commitments around future capital funding made in the July spending review announcement.
The sector continues to project an increase in students from outside the European Economic Area, although the forecasts are less optimistic than in previous years (including a marginal decline in numbers in 2012-13). Overseas students are a significant source of income for many HEIs, and for the economy more generally, and HEFCE will continue to track developments in this area.
In terms of short-term viability, the forecasts show that the sector’s surpluses are sound overall, with operating surpluses projected to range between £494 million and £1,024 million in the forecast period. However, this is against a background of an increasingly competitive environment and reductions in public capital funding. To finance future capital investment and maintain their long-term sustainability, some institutions will need to increase their surpluses beyond current levels. If surpluses do not increase, there is a risk to the quality of higher education infrastructure, which will harm the long-term sustainability of the sector.
The financial forecasts suggest that no institution is currently at risk of insolvency. This is supported by independent going-concern opinions from institutions’ external auditors and by the projected continuation of positive cash in-flows and healthy cash-backed reserves. Strong liquidity is necessary for HEIs efficiently to manage the potential for increased volatility and unpredictability within the new funding system, and the increasing competition from international higher education providers.
Steve Egan, HEFCE’s Interim Chief Executive, said:
‘Universities and colleges are, on average, projecting sound financial results to 2015-16. However, there is a wide variation in the projected financial performance of institutions and there continue to be risks that need careful monitoring and mitigation if institutions are to be sustainable in the long-term. These include the need to invest in new facilities to support a high-quality experience for students.
‘The June 2013 spending review confirmed continued investment in higher education, and this has informed institutional forecasts. Any fall in this level of investment could have a material impact on the financial health of the sector.
‘HEFCE will continue to monitor the financial position closely as part of our commitment to supporting students and the sector in adapting to the new higher education funding regime.’