January 2004/04
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| To: | Heads of HEFCE-funded higher education institutions Heads of universities in Northern Ireland |
| Of interest to those responsible for: | Finance, Planning, Management |
| Reference: | 2004/04 |
| Publication date: | January 2004 |
| Enquiries to: |
Annual monitoring and corporate planning statements Financial forecasts |
Executive summary (read on-line)
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Executive summary
Purpose
1. This report summarises the higher education sector's annual reporting statements for 2002-03, and gives financial projections for the sector covering 2002-03 to 2006-07. It is based on information provided by higher education institutions (HEIs) in July 2003.
Key points
Annual monitoring and corporate planning statements
2. Our analysis of the 2002-03 annual monitoring statements (AMSs) focused on four key areas of HEFCE strategic funding: widening participation, learning and teaching, business and the community, and rewarding and developing staff. Race equality monitoring was introduced for the first time this year, and will continue as part of our obligations under the Race Relations (Amendment) Act 2000.
3. In 2003, institutions were asked to submit a corporate planning statement (CPS) for the first time. The CPS is a general update of the institution's progress during 2002-03 against its corporate plan and strategic priorities.
4. Our analysis of the 2002-03 AMSs and CPSs shows that nearly all institutions are making good progress with their plans in each of the areas of strategic special funding, and against their own strategic priorities.
5. Where the AMS indicates that an HEI has fallen behind with its plans, we will investigate the matter further to determine what action is appropriate. In extreme cases we may re-profile funds or take back funding.
6. We are continuing to develop the AMS framework, seeking to identify the minimum range of information that we need for monitoring, and collecting as much of it as possible through the AMS.
Financial forecasts
7. The operating position for the sector overall is forecast to remain relatively constant throughout the forecast period, with surpluses equivalent to 0.5 per cent of total income.
8. Generally the forecasts appear to have been prepared on broadly reasonable assumptions, although for some institutions these may be challenging or unduly optimistic.
9. Universities and colleges are forecasting to keep income and expenditure in balance, but this is at a cost of, among other things, reducing staff:student ratios. Income from research grants and contracts is forecast to increase by around 6 per cent per annum. Growth in fee income from overseas students is expected to continue, with a rise of 39 per cent over the forecast period.
10. Staff costs are forecast to increase above the rate of general inflation, while staff numbers increase by only 3.6 per cent over the period, which is considerably below the increase in student numbers. The sector may be exposed to risk that actual pay inflation (including additional pension costs) may be higher than forecast in the later periods.
11. Institutions face a wide range of financial risks, which need to be managed. Those most often identified by institutions are:
- Under-recruitment of UK and EU students, or failure to achieve recruitment targets.
- Failure to achieve overseas recruitment targets.
- Increases in salaries above inflation.
- Failure to manage the delivery and funding of capital programmes.
12. Actions which institutions have identified to ensure continued financial viability include:
- Improved cost efficiency.
- Increased income generation through improved use of assets (including rationalising their estates).
- Improvements in management information and management processes.
- Growth in fee income from overseas students.
13. The financial strength of the sector is satisfactory when viewed in aggregate, but a small number of HEIs are facing significant financial constraints.
14. The level of capital expenditure is forecast to be considerably higher than in previous periods, peaking during 2003-04 and then reducing significantly by 2006-07. This reflects the availability of capital grants such as from the Science Research Investment Fund and project capital.
Action required
15. None, this report is for information.