Financial health of the higher education sector 2011-12 to 2014-15 forecasts

The projected financial performance of the higher education sector in 2011-12 is not as strong as the results for 2010-11, but is significantly better than forecast by institutions in December 2011.

Sector income is now expected to be £370 million higher than predicted in the December 2011 forecasts. With additional expenditure savings, this results in operating surpluses of £719 million compared to the earlier forecast of £270 million.

Income and recruitment

The overall financial results projected by the sector in the forecast period (2012-13 to 2014-15) are sound overall though this is heavily dependent on the sector achieving its student recruitment targets.

In 2012-13 forecasts show the first major fall in public grant funding, which is countered by a significant increase in fee income from home and EU students.

This pattern is expected to continue in the remainder of the forecast period. Continued growth in fee income from international students is also forecast in this period.

Figures are 2009-10 to 2010-11 actual and 2011-12 to 2014-15 forecast

Information we have received from UCAS and higher education institutions indicates that student demand is lower in 2012-13 than forecast by the sector, with some institutions experiencing pressures on student recruitment.

This increases the risk that financial performance for these institutions will be poorer than forecast. We currently do not know whether the reduction in enrolments is a one-off or permanent. This will be carefully monitored over the coming year.

There is also a risk that the new UK Border Agency visa rules, together with the widely reported revocation of the London Metropolitan university Tier 4 licence could lead to a decline in overseas applications not reflected in institutional forecasts.

Capital investment

The sector continues to project significant levels of capital investment throughout the forecast period. To achieve this, institutions are expecting to finance much higher proportions of capital investment by internal cash than has been seen in the past.

In the short term this is affordable due to the cash reserves held by the sector. But some institutions will need to generate increased levels of surplus in order to sustain this level of investment and maintain their long-term sustainability.

Figures are 2009-10 to 2010-11 actual and 2011-12 to 2014-15 forecast

Financial risk

Based on the financial forecasts no institutions are presently close to the risk of insolvency.

The independent opinions of institutions’ external auditors and the projected continuation of positive cash in-flows and healthy cash-backed reserves both suggest there is no risk of insolvency for the foreseeable future.

Strong liquidity is necessary for institutions to efficiently manage the potential increased volatility and unpredictability of the new funding system and the increasing competition from international higher education institutions.

Uncertainties over future student recruitment, both home and overseas, and over how the new funding system will operate in the medium term (2013-14 and 2014-15) could result in increased volatility of forecasts and financial performance than has been seen in the past.