Category: University Strategy

  • Some finance recommendations for activists

    Some finance recommendations for activists

    I have seen some confusions recently on twitter regarding university finances. Here are four recommendations:

    1. Avoid using sector aggregate figures to make your arguments
      The sector is very uneven both in terms of size of institutions and in financial performance, make sure you are familiar with your institution and how it fits into the sector.
    2. Avoid using figures for “reserves” when you mean cash
      In accounting terms, “reserves” does not mean cash. Cash is included in reserves but that is because reserves names the excess of assets over liabilities: that the institution owns more than it owes. If it didn’t have reserves it would be insolvent. But its assets include buildings and land, which can dominate the reserves figure.
      It is a confusion that crops up regularly and is often associated with right-wing arguments about the sector being “awash with cash”. If you want to talk about cash, use the figures for cash – but bear in mind that it is good management to hold significant levels of cash or other liquid assets to manage the day-to-day running of the organisation. Universities are large and have large outgoings!
    3. Revolving Credit Facilities (RCFs) are like overdrafts …
      If you have one, you aren’t necessarily planning to use it.
      It provides extra headroom or is there for an emergency. Universities might simply be using it in their “liquidity” calculations to assure OfS that they have sufficient resources to cover 30 days of expenditure – falling below that level is a “reportable event” – and never intend to use it.
      That your institution negotiated one, but haven’t used it, is not per se a sign of bad management.
    4. Avoid confusing one-off costs with recurrent costs
      There is a clear difference between spending £1million on a one-off purchase and an annual outgoing of £1million.
      Your management may not always present the difference between such items in a very clear way, particularly when they have a certain narrative they wish to present or when they need to hit targets or covenants.
      One to be wary of is “vacancy savings”. Are these higher because of a recruitment freeze? Are these one-offs or recurrent savings? Technically, the former; they would only become recurrent savings, if the posts are made redundant.
      A management highlighting a certain level of vacancy savings may want to convey discipline to governors or lenders, but it can mask issues of sustainability: it isn’t a way to address persistent deficits. If there is an underlying deficit of, say, £2million, you shouldn’t be confident because they covered that through a recruitment freeze this year. And that’s solely from the numbers perspective: before you consider the implications for workload …

    There are a few resources on this site for thinking about university finances. There is also a blog and recorded seminar for UCU on getting started with university accounts and “challenging the financial narrative”.

    If you want more help, please get in touch.

    I have worked with more than 40 UCU branches over the last few years to help with negotiations. Get in touch for details.

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  • Markets and Suppliers: HE and Energy

    Markets and Suppliers: HE and Energy

    David Watson once wrote that the answer to the question as to whether universities were in the private or the public sector was “yes”.

    He suggested that universities most resembled BAE Systems: a private company with a host of public contracts. Back in 2011, the Coalition white paper on HE opened by trumpeting “Higher education is a successful public-private partnership: Government funding and institutional autonomy.”

    It was always the aim of second round of public sector reform (“Privatisation 2.0”) to create an education market that could be regulated like public utilities in the UK. And so the recent spate of collapses amongst energy “suppliers” prompted me to think about Watson’s comments through the lens of bankruptcy.

    The measures taken by the regulator, Ofgem, reminded me that the government has pledged to take a similar approach to university “failure”.

    Last summer’s announcement from the Department for Education of an HE “Restructuring Regime” (HERR) was badged as a Covid-related, “last resort” and outlined general principles covering possible government support pre-bankruptcy.

    Consistent with earlier statements regarding its approach to the orderly exit of “unviable institutions”, the opening sections of the HERR made things clear:

    §4 The Regime does not represent a taxpayer-funded bail-out of the individual organisations which make up the higher education sector. It is not a guarantee that no organisation will fail – though current students would be supported to complete their studies, either at that institution or another.

    Providers approaching DfE for support will be considered on a case-by-case basis, to ensure that there is a sound economic case for government intervention, with loans to support restructuring coming from public funds as a last resort.

    A precedent here can be seen in the “Task Force” established in 2012 when the government rescinded London Metropolitan’s right to sponsor international students.

    There, a “clearing house” was even established to distribute around 2000 affected students to alternative courses at different providers.

    HERR made the priorities clear for its case by case consideration of whether to lend to an institution that had exhausted all other options and ‘would otherwise exit the market’:

    • the interests of students;
    • value for money;
    • maintenance of a strong science base;
    • alignment with regional economies;
    • support for “high quality courses aligned with economic and societal needs”.

    Elaborating on the last of those, the 2020 document unsurprisingly picked out “STEM, nursing and teaching”. In sum, an institution in difficulties would be required to show that:

    (i) it had a plan for future sustainability;

    and (ii) that its collapse ‘would cause significant harm to the national or local economy or society’.

    Alongside those points, it is worth recognising that it will be easier for the government to be sanguine about the disappearance of smaller institutions in areas that are otherwise well covered by universities (e.g. London).

    Those that would be offered help will still find the “Regime” a deeply unpleasant experience: they mean it when the write about a “last resort”.

    A bankrupt university will prove a bigger problem than an energy provider. But it is clear that the government will aim along those lines, such that a university bankruptcy will not be like a local authority issuing a “section 114”.

    One should therefore reject any idea that financial deficits do not matter for universities.

    Like private companies they face cash constraints. They can support an excess of expenditure over income so long as the cash outflow can be absorbed by cash reserves. When the latter are exhausted and debts cannot be settled as they fall due, then the institution will fall over without outside support.

    Popular critiques of austerity and theories about governments and money might have misled people here.

    Governments are not like households, but universities are, insofar as they need to generate more income than they spend.

    As Watson noted, his answer about BAE Systems would make a lot of people uncomfortable. It’s even more discomforting to think that the government might view universities more like Igloo, Symbio, Enstroga et. al..

    UPDATE – 7th October

    By coincidence, DfE has just announced the closure of the “Regime” to “new applicants” with a deadline of 31 December 2021. They aim to move all applications “to a conclusion” by July 2022.
    This decision reflects the fact that HERR was a pandemic measure, but, as I outlined above, the process and criteria set out there do give some indications as to how the department and regulatory bodies will approach bankruptcies in general.

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