Page last updated 24 October 2014
Overall, the sector expects income to rise by 3 per cent in 2013-14, but projected rises in expenditure will cause operating surpluses to fall from £943 million in 2012-13 (3.9 per cent of income) to £769 million in 2013-14 (3.0 per cent of income) in cash terms.
The projections indicate that the sector will be financially stable during the remainder of the forecast period (2014-15 to 2016-17), although these are reliant on institutions achieving their student recruitment targets and incurring no further reductions in government funding. Across the sector there is a wide variation in the projected financial performance of institutions.
Overall, increasing levels of income from home, European Union (EU) and international students are projected, with teaching-related income – which includes public funding and tuition fees – expected to rise from £13.5 billion in 2012-13 to £15.6 billion in 2016-17 (real terms). This is driven by an increase in student numbers.
Student number projections submitted by institutions to support financial forecasts indicate that the sector remains cautious about home and EU recruitment in 2014-15, with marginal increases projected in full-time undergraduate student numbers. Greater increases are expected in 2015-16 and 2016-17, reflecting the removal of the student number control from 2015-16 (although institutional projections vary a great deal).
The sector expects overseas fee income to rise from £3 billion in 2012-13 to £4.2 billion in 2016-17. However, if the slowdown in the growth of international full-time undergraduate entrants experienced in 2012-13 continues, there is a risk that the sector will be unable to deliver this level of growth.
The sector is planning to invest over £15.2 billion in infrastructure projects during the next four years.
Forecasts show that much higher proportions of capital investment are funded by internal cash and borrowing than have been seen in the past.
Cash holdings (cash and current investments) are projected to fall from £7.4 billion at 31 July 2013 to £5.5 billion by the end of 2016-17. At the same time, borrowing is expected to rise from £6.2 billion at 31 July 2013 to £8.3 billion by the end of 2016-17.
With reduced levels of publicly funded capital grants, institutions will need to generate higher surpluses in the longer term to sustain the necessary investment in infrastructure and student services to respond to increasing domestic and overseas competition.
Based on the financial forecasts, no institutions are presently close to the risk of insolvency.
Strong liquidity is particularly important since the current level of uncertainty in the sector over future government funding, home and EU student recruitment (following the removal of the student number control), and overseas student recruitment could result in more volatile forecasts and widening differences in financial performance between institutions.