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These findings are part of the summary of finances for universities and colleges published in ‘Financial health of the higher education sector: Financial results and TRAC outcomes 2014-15’ (HEFCE 2016/04).

Overall the sector reported operating surpluses of £1.6 billion (5.8 per cent of its income), which were £608 million higher than the level reported for 2013-14 (3.9 per cent of income). However, these surpluses were boosted by a one-off injection of ‘exceptional income’ derived from the Research and Development Expenditure Credit scheme (RDEC). Without this, the report estimates that operating surpluses would have been £1.2 billion (4.3 per cent of total income).

Surpluses were also boosted by a growth in fee income from international students, which at £3.6 billion was £267 million higher than that reported in 2013-14. However, the student number trend is less encouraging, with 2 per cent fewer international students studying at English higher education institutions than projected in July 2015. The latest student data also shows a 2 per cent drop in new international entrant numbers in 2015-16.

While higher surpluses were reported overall, the Transparent Approach to Costing (TRAC) data reports that, when RDEC is excluded, the sector incurred a shortfall of £2.8 billion from the level needed to recover the full economic costs of its research activities, and a shortfall of £860 million over all its activities. In the medium to long term, institutions will need to generate larger surpluses to make progress towards covering the full economic costs of their activities and thus securing their long-term sustainability.

The sector invested substantially in its capital infrastructure in 2014-15. At £3.6 billion, this investment represents an increase of 9 per cent compared with 2013-14. To fund this level of investment, the sector used £1.1 billion from its own cash reserves and borrowed an additional £1.4 billion. Sector borrowing therefore rose to £7.8 billion at the end of July 2015 (a rise of 16 per cent over the year).

Although the overall financial position is currently sound, we reported in October 2015 that the sector’s financial forecasts, as submitted to HEFCE in July 2015, projected lower surpluses, a fall in cash levels and a rise in borrowing. This signalled a trajectory that is not sustainable in the long term.

Institutions are due to send their next set of financial forecasts for the period up to July 2019 in the summer, and HEFCE plans to publish a further report focusing on the future health and sustainability of the higher education sector once these have been assessed.

Professor Madeleine Atkins, HEFCE’s Chief Executive, said:

‘We are paying close attention to the increased variability of financial performance across the sector. It is clear that many institutions need to invest in new facilities, to support a high-quality experience for students and to respond to growing international competition. This will require higher surpluses, and a drive to maintain increased efficiencies, to ensure long-term financial sustainability.

‘While the sector has benefited from increased fee income generated from overseas students, it needs to be alert to the risk of underachieving against its ambitions for overseas recruitment. The latest data may be evidence of this risk materialising.’ 

Notes

1. See the latest report on the financial health of the higher education sector
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