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UK Universities may be financially unsustainable

The financial sustainability of UK universities has been cast into doubt by a recent report predicting a 4% budget deficit in the current academic year. Sector forecasts for the years ahead are looking increasingly bleak, raising fears of research cutbacks, increased student:teacher ratios, and “a risk that the quality, innovativeness and international standing of UK higher education could fall.”

The report, commissioned by the Joint Negotiating Committee for Higher Education Staff, found that UK universities are predicting an average funding surplus of 1.6% for the current academic year. Once these figures are adjusted by standard accounting practice to reflect the real cost of assets, a deficit of 4% is forecasted. It was recognised that these projections are likely to be revised for the worse as the economic downturn continues.

In consequence, few universities are setting aside money for the future. Many will operate this year at around cost – with just enough cash to cover their working expenses. This leaves institutions vulnerable to future economic turbulence, and is likely to reduce their ability to invest in new developments. Universities as a whole are not saving enough money to assure a “sustainable future,” the report claimed.

Research budgets made a significant contribution to the financial shortfall. The research deficit of £2bn represents over a third of departments’ £5.9bn income. The discrepancy was partially blamed on bodies that fund research effectively ‘underpaying’ departments – providing below cost funding for commissioned projects. It was also acknowledged that some universities are simply undertaking more research than they can afford.

Staffing costs were observed to have risen at a faster rate than university grants. This follows a three year pay deal agreed in 2006, which, being linked to the RPI inflation measure, has proved more expensive than anticipated.

A portent for future financial prospects came in the recognition of improving higher education sectors overseas. Countries such as India, Singapore and China are seeing their universities mature and become competitive with those in the UK. This is expected to lead to a drop in the number of overseas students attending UK institutions, and consequently fewer students paying the higher tuition fees which make a major contribution to university finances.

The worrying financial prospects for universities will add to the ongoing debate regarding the international standing of UK higher education. A Universities UK spokesman said, “If the UK is to remain one of the world’s leading providers of higher education, it must continue to invest in its universities. As the latest OECD figures show, many countries are now catching up or indeed have overtaken the UK in terms of investment in higher education.”

Investment in higher education has, however, been increasing – rising by 24% in real terms since 1997. But the growing numbers of students attending university appear to have absorbed some of this investment. Higher education minister David Lammy stated that, “Our universities and colleges are more important to the future of our country than ever before,” and pointed out that investment will continue to rise until 2010.

It appears that spending reviews and further investment will be required if the UK’s universities are to avoid a difficult period of financial instability. With a cash-strapped government and ailing economy, it seems likely that, in the short term at least, universities will be forced to economise.

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