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HEFCE

January 2006/01 (web only)
Core funding/operations
Report on outcomes

This report is for information.

Financial forecasts and annual monitoring statements

Outcomes for 2005

This document gives financial projections for the higher education sector covering 2004-05 to 2008-09, and summarises the sector's annual monitoring statements for 2004-05.

To: Heads of HEFCE-funded higher education institutions
Heads of universities in Northern Ireland
Of interest to those responsible for: Finance, Planning, Management
Reference: 2006/01
Publication date: January 2006
Enquiries to:

Financial forecasts
HEFCE finance advisers

Annual monitoring and corporate planning statements
HEFCE higher education advisers

Table of contents and executive summary (read on-line)

Contents

  • Executive summary
  • 2005 Financial forecasts
  • 2005 Annual monitoring statements
  • List of abbreviations

Annexes

  • Annex A Income and expenditure account for the sector
  • Annex B Comparison of surplus and deficit levels to total income over the period
  • Annex C Frequency distribution of historical cost surpluses over the forecast period
  • Annex D Balance sheet for the sector
  • Annex E Comparison of the level of borrowing and net liquidity to total income over the period
  • Annex F Cash flow forecasts for the sector

Executive summary

Purpose

1.    This report gives financial projections for the higher education sector covering 2004-05 to 2008-09 and summarises the sector's annual monitoring statements for 2004-05. The outcomes are based on information provided by higher education institutions (HEIs) in July 2005.

2.    In line with our policy of reducing institutions' accountability burden, we requested significantly less information for 2005 than in previous years. We have consulted on our future plans for accountability (HEFCE 2005/41) and details of the final agreed process will be published early in 2006.

Key points

Financial forecasts

3.    The operating position for the sector, before exceptional items, is forecast to fall from a surplus of £205 million (1.5 per cent of total income) in 2003-04 to a small deficit of £41 million (0.3 per cent of total income) in 2005-06. Future years then show annual increases to £427 million (2.3 per cent) in 2008-09.

4.    Total HE student numbers (FTEs) are forecast to increase by 10.5 per cent from 2004-05 to 2008-09.

5.    Overseas (non-EU) student numbers are forecast to increase by 24.5 per cent over the period. Although the sector has previously exceeded ambitious plans in overseas growth (a 76 per cent real terms increase in overseas fee income from 1999-2000 to 2003-04) this target provides added risks to the sector. Some recent indications show growth in overseas recruitment slowing down and in some cases recruitment is reducing, so some forecasts seem optimistic.

6.    The sector's dependence on income from the Funding Councils is forecast to reduce from 37.8 per cent of total income in 2003-04 to 34.0 per cent in 2008-09. During the same period the proportion of total income coming from fees is set to increase from 25.1 per cent to 31.3 per cent.

7.    Net liquidity is forecast to fall from £2,319 million at 31 July 2004 to a low of £1,742 million at 31 July 2007. Liquidity, expressed as the number of days' expenditure cover, will fall below 50 days after 2004-05, its lowest position since 2000-01. Borrowings are forecast to increase by £1,284 million to £3,950 million by July 2008, which represents a substantial investment for the sector.

8.    Capital expenditure from 2004-05 to 2008-09 will total £9,739 million across the whole sector, of which £4,373 million will be financed by capital grants.

9.    The major risk identified by institutions remains the under-recruitment of students (both home and overseas students). Other key risks include salary increases above inflation and the management of capital programmes.

10.    While recognising that the forecasts provided are confidential, we have produced schedules for individual institutions so that they can compare their position against financial health indicators for the sector. Institutions can download their own schedules through the HEFCE extranet, https://extranet.hedata.ac.uk.

Annual monitoring

11.    Our analysis of the 2004-05 annual monitoring statements (AMSs) focused on four key areas of HEFCE strategic funding (learning and teaching, business and the community, rewarding and developing staff, and research capability). Race equality continues to be monitored as part of our obligations under the Race Relations (Amendment) Act 2000.

12.    Institutions were also asked to submit a corporate planning statement (CPS). The CPS is a general update of the institution's progress during 2004-05 against its corporate plan and strategic priorities. HEFCE regional teams have analysed the CPSs and will continue to use these in their discussions with institutions.

13.    Informal feedback on the new AMS process has been positive. Almost all institutions have adopted the Committee of University Chairmen (CUC) Governance Code of Practice (HEFCE 2004/40a). Therefore, the lighter touch process was applied to the vast majority of institutions without the need to seek further information. Most institutions assured us of their delivery and spending for 2004-05 in those areas where they receive HEFCE special initiative funding.

Action required

14.    None: this report is for information.