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Financial health report

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Sector surpluses

The sector reported a surplus of £1,519 million (5.2 per cent of total income), compared with £833 million (3.0 per cent) in 2014-15. At an institutional level, results range from a deficit of 7.2 per cent to a surplus of 32.1 per cent. This gap, between the lowest- and highest-performing institutions, grew by 26 per cent in 2015-16.

Although the increase in 2015-16 appears high, it should be noted that some significant transitional accounting changes were introduced as a result of FRS102, such as the increase in pension provisions for the sector’s multi-employer pension schemes that reduced sector surpluses in 2014-15. If these transitional changes were excluded, the underlying increase in 2015-16 surpluses would be much lower.

This is the surplus reported in the ‘Statement of comprehensive income’, before other gains and losses and the share of surplus or deficit in joint ventures and associates.

Capital investment

Capital investment in 2015-16 totalled £3.8 billion, an increase of 14.5 per cent compared with 2014-15. However, it should be noted that this level of investment is being driven by a small number of institutions, with 18 higher education institutions (HEIs) contributing 50 per cent of the sector’s capital expenditure total in 2015-16. A total of 53 institutions reported a decline in capital expenditure over the period.

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Liquidity and borrowing

Total sector borrowing increased by 8.8 per cent; from £8.3 billion at 31 July 2015 to £9.1 billion at 31 July 2016 (equivalent to 31.2 per cent of income). This was greater than the rise in liquidity, which was 7.7 per cent, from £8.9 billion (127 days of expenditure) to £9.6 billion (135 days) over the same period. This caused the sector’s net cash position (liquid funds less borrowing) to fall from £548 million at 31 July 2015 to £495 million at 31 July 2016.

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Student recruitment

Overseas students

In July 2016 the sector forecast an increase in overseas students (FTEs) between 2015-16 and 2016-17 of 3.1 per cent. However, early student numbers for 2016-17 show no increase in overseas undergraduate entrants compared with 2015-16 and, although only representing a small proportion of overseas applications, this pattern is echoed by UCAS application data for 2017-18 entry, which indicates that overseas applications remain at the same level as at the same point in the previous year’s cycle. This data and indicators taken together, suggest an over-confidence by the sector overall in student number forecasts.

Chinese-domiciled students continue to make up the largest proportion of the overseas student population (30.3 per cent) and student record data shows that the number of Chinese student FTEs increased further in 2015-16, from 67,802 in 2014-15 to 70,545. 

Change in overseas students between 2014 and 2015

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Recruitment and application trends

Data from the Higher Education Students Early Statistics Survey (HESES) for the 2016-17 academic year indicates a 0.6 per cent decrease in the number of undergraduate entrants (Home, EU and non-EU). However, this masks considerable variation across the sector with an average decline of 7 per cent for those 58 institutions where recruitment has reduced compared to the previous year. 2016-17 HESES data also indicates a continuing decline in part-time undergraduate entrants.

For the 2017-18 cycle, the latest UCAS application data highlights a 5 per cent decline in UK applications and a 7 per cent decline in EU applications, relative to the same measure at the same point in the previous year.

Summary

The sector has shown itself to be adaptable to a more competitive and uncertain environment but there remain some significant challenges ahead. We will receive forecasts in July 2017 for the period 2016-17 to 2019-20 but until then our view is that the sector’s financial position is currently sound overall but with increasing variability in the performance of individual HEIs.

 

Page last updated 25 April 2017