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The review, 'Financial health of the higher education sector: 2010-11 financial results and 2011-12 forecasts' (Note 1), shows that overall financial results for the academic year 2010-11 on a number of key indicators are good. Universities and colleges reported strong surpluses, large cash balances and robust reserve levels.

The sector's operating surplus rose to a healthy 4.6 per cent compared to 3.2 per cent in the previous year. This was partly due to continued growth in fee income from international students, which increased by 16 per cent. It was also the result of improved cost control: there is clear evidence that the sector is preparing well for the forthcoming changes. Total sector income grew by 0.5 per cent in real terms in 2010-11, to £22.9 billion, whereas total expenditure fell by 1 per cent in real terms.

Total income for the sector is forecast to reduce to £22.7 billion in 2011-12. Despite this reduction, the sector should remain in sound financial health.

The report confirms that no institutions are at risk of insolvency. This is supported by independent opinions of institutions' external auditors.

There is considerable uncertainty about how the new funding arrangements will play out over the next two or three years as the sector comes to terms with increasing international competition, reductions in capital and other grant funding, and volatility in student numbers, but the latest results suggest that the sector has the resilience it needs to cope with change.

Sir Alan Langlands, Chief Executive of HEFCE, said:

'Universities and colleges posted very good financial results in 2010-11, with sound levels of cash and reserves. In the main they have anticipated future financial challenges by reducing costs, and the outlook for 2011-12 – despite reductions in recurrent grant funding – is certainly manageable. The medium term prospects for institutions are good, given combined income from HEFCE grants and publicly funded student loans. That said, we will continue to monitor the position carefully as the aggregate effects of the new funding arrangements and other pressures on universities and colleges begin to materialise.

In future, funding for teaching will be directly influenced by the choices of students and allocated through publicly-funded tuition fee loans, whilst HEFCE funding will be targeted on high cost subjects, widening participation, small specialist institutions and strategically important and vulnerable disciplines.

We are committed to ensuring a smooth transition to the new arrangements and safeguarding excellence and diversity in learning and teaching and world class research.'

Notes

The review 'Financial health of the higher education sector: 2010-11 financial results and 2011-12 forecasts', covers financial results for the academic year 2010-11, and forecasts for 2011-12 submitted by universities and colleges in December 2011.