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Executive summary


1.   This report provides an overview on the financial health of the higher education sector in England. The analysis covers the academic year 2010-11 financial results and 2011-12 forecasts, as submitted to HEFCE in early December 2011. The report is being published to provide universities and higher education colleges with feedback on their financial performance in 2010-11 and original estimates for 2011-12, before they submit their updated financial forecasts in June 2012 (as requested in HEFCE 2011/28). The analysis also provides other stakeholders with information about the current financial health of the sector.

Key points

2.   Higher education institutions (HEIs) in England are required to send us their annual accountability returns in December each year. These returns form a significant part of the way in which HEIs can demonstrate accountability for the public funds distributed to them. The accountability returns enable HEFCE to reassess HEIs’ overall risk assessments and to ensure that HEIs are meeting their accountability responsibilities.

3.   For this year’s process we deferred the submission of financial forecast data (relating to the academic years 2012-13 to 2014-15) and financial sustainability commentaries until 20 June 2012. The decision to defer submission was taken due to the degree of uncertainty in the sector about, among other things, student number limits, future HEFCE funding and student recruitment in the new fee regime. While it will not eliminate all of the uncertainty, deferral should enable institutions to produce more reliable forecast information in June 2012 for both HEFCE and internal use, because by then institutions will know the outcomes of the HEFCE grant letter from the Department for Business, Innovation and Skills (BIS) and will have a better indication of student demand in 2012-13. We will also have begun consulting on our future teaching methodology.

4.   In June 2011 the Public Accounts Committee (PAC) published a report 'Regulating financial sustainability in higher education'see note 1 following a PAC hearing in March 2011. One of the recommendations in the PAC report was that BIS writes to the PAC by the end of March 2012 setting out how well institutions are coping with the transition to the new funding regime. The focus of this was on the risk to the financial health of institutions. The information in this report will support the response to be made by BIS.

5.   Overall, the financial results for the sector in 2010-11 are stronger than those reported for 2009-10 (and much stronger than indicated in the sector’s forecasts for 2010-11 submitted to us in April 2011). The majority of the key sector financial indicators are the best on recordsee note 2, with the sector reporting strong surpluses, large cash balances and healthy reserve levels. These will help the sector manage the financial challenges arising from the transition to the new funding arrangements.

6.   The projected performance for the sector in 2011-12 is sound overall, and is expected to be better than the sector estimated in April 2011. This may be due to prudent forecasting earlier in the year, which is a pattern we have seen in previous years. Despite the overall soundness of the expected financial performance in 2011-12 there is clearly an implication of reductions in public funding which see projected surpluses reducing sharply.

7.   Over the past decade the sector has seen its overall financial position strengthen, but this has been on the back of significant income growth rather than cost reductions. The future is likely to be less predictable for some institutions, and they will need to respond decisively to the new funding and policy priorities. The information to be submitted to HEFCE in June 2012 will give us a strong indication of how well the sector is responding to these challenges. In the meantime the financial results and forecasts already submitted to us suggest that many institutions are beginning to see the results of their strategies to restructure their cost bases in preparation for the transition to the new funding arrangements. In fact, in 2010-11, the sector recorded a real-terms reduction in its largest expenditure category – staff costs – for the first time since 1998. This is an important development, as income is projected to fall in 2011-12.

8.   One of the key risks to future financial sustainability that was reported by institutions as part of our last annual accountability review was an unexpected fall in student recruitment and retention caused by the new fee proposals. The sector's latest financial forecasts for 2012-13 and beyond are not due to be submitted to us until June 2012. However, UCAS datasee note 3 indicate that student demand for 2012-13, at sector level, appears to still exceed the supply of places available in 2012-13, certainly for home and EU full time undergraduates. Therefore at a sector level the immediate risk of an unexpected reduction in student numbers in 2012-13 appears to be low. However due to changes in government policy on student number controls for 2012-13, some HEIs may have fewer full-time undergraduate students starting studies in 2012-13 and future years. In such cases it is worth bearing in mind that financially the impact of such reductions will be mitigated by increases in student fees. There may also be some subject effects which are not yet apparent.

9.   There continues to be a large degree of uncertainty about how the new system will operate in the medium term (i.e. 2013-14 and 2014-15) in particular with regards to the policy of controlling student numbers. There is a risk of increased volatility in the future, and we will assess the potential impact of this once we receive HEIs financial forecasts in June 2012.

10.   Based on the annual accountability returns submitted to us in December 2011 there are no institutions that are presently close to risk of insolvency. This is supported by independent going-concern opinions of institutions’ external auditors, which were received as part of this review process.

11.   We will publish an update on the financial health of the sector when we have received and analysed all HEIs' financial forecasts for the period 2012-13 to 2014-15. This will incorporate feedback to the sector on all of the annual accountability returns submitted in December 2011 and June 2012, including feedback on Transparent Approach to Costing (TRAC) returns and the quality of reporting for charity regulation purposes.

Action required

12.   No action is required: this report is for information.


  1. Public Account Committee reports can be found at:
  2. Financial information has been collected by HESA since 1994-95.
  3. UCAS data can be found at:

Date: 12 March 2012

Ref: HEFCE 2012/05

To: Heads of HEFCE-funded higher education institutions

Of interest to those
responsible for:

Audit, Estates, Finance, Governance, Management, Planning

Enquiries should be directed to:

HEFCE assurance consultants or assurance advisers

There are searchable contact details for HEFCE staff