Are universities plunging into financial crisis?

Sarah Shaw, Partner in our Education Practice, on academic leaders’ fears that the current financial model for Higher Education in the UK is unsustainable.

These are worrying times for those in charge of the UK’s universities. Some even feel they may soon be staring financial calamity in the face. The mood music is gloomy.

Higher Education has been hit by the double whammy of a domestic funding crisis coupled with a slump in international recruitment, a vital source of income, because of tightening immigration restrictions. Data from more than 60 UK universities points to a 33% fall in the number of study visas issued this year in comparison with the same period last year.

So, what lies around the corner? Times Higher Education recently conducted a survey of 51 Vice-Chancellors, and unfortunately the findings make for bleak reading.

Rama Thirunamachandran, Vice-Chancellor of Canterbury Christ Church University, goes so far as to say, “The current HE funding model in England is broken and there is a need for a radical rethink.” Another Vice-Chancellor, who preferred anonymity, is scathing about government’s “hostile approach” to international students as it is setting the conditions for a “perfect storm, which will undoubtedly see a number of universities fail their ‘going concern’ requirements in the near future”. A third leader, also choosing not to be named, pulls no punches: “It would appear that the government is determined to drive us out of business”. The anger and dismay are palpable.

Specifically, THE’s survey found that 73% of Vice-Chancellors expect their university to perform “slightly worse” or “significantly worse” financially this year compared with last; and 43% expect their university to record an operating deficit in the current financial year.

For a minority, the situation is even more precarious: 6% believe their university is at risk of breaching financial covenants this year, affecting their ability to remain a going concern. Were that to happen, few respondents are optimistic regarding potential government bail outs. When asked how confident they would be about government intervention to help a university in serious financial trouble, 86% of vice-chancellors declared themselves “not confident” or “not at all confident”.

Unsurprisingly, almost two-thirds (62%) expect a decline in international recruitment this year, with its negative implications for revenue, while the remaining 38% are of the opinion this will either hold steady or improve.

As for Vice-Chancellors’ opinions on the sector as a whole, look away now if you are squeamish! Almost universally (98%), they expect a worsening in financial performance. Meanwhile, 94% of respondents are convinced that some universities face the risk of breaching banking covenants.

Helen Langton, vice-chancellor of the University of Suffolk, is succinct in summing up the situation. “The sector is hurtling towards an unsustainable position financially, with more and more [institutions] fishing in the same applicant pots, be it undergraduate, postgraduate, home, international, apprenticeships, private partnerships, and so on, which has not been the case previously. I am not in favour of putting up fees for students to pay or incur loans for, but we cannot continue being so underfunded for much longer. A new model is clearly needed.”

Challenging times lie ahead and as part of their efforts to beat the financial squeeze, some institutions will look to cut staffing costs. But there is also a compelling case to be made for smart interim hires with valuable expertise, both from within the higher education sector and externally – candidates with the knowhow to improve efficiency, foster innovation and help drive the shift to new models and ways of working.

These are genuine fears and concerns which will not go away and whilst the university funding model remains as is, the best way forward is to be smart, work smart and outsmart the blockers to success. We are here to help and make that happen.