Deloitte survey: more universities plan to spend despite continuing uncertainty

Out-Law News | 21 Aug 2013 | 3:54 pm | 3 min. read

An increasing number of higher education finance directors are ready to invest to maintain their competitive position despite the vast majority believing that their institution still faces above normal levels of uncertainty, according to a new survey.

Professional services firm Deloitte said that expansion, and how to fund it, was becoming a "big priority" for the finance directors from 35 higher education institutions (HEIs) it had surveyed for the first time (16-page / 947KB PDF). It plans to repeat the exercise annually and increase the number of respondents, it said.

"Capital expenditure is needed to underpin the expansion of student numbers, support research, meet the demands of the 21st century learning environment and compete in an increasingly global higher education sector," said Julie Mercer, Deloitte's head of education consulting.

"Just one of the 35 institutions we surveyed said that investment plans have been scaled down in the last year and it is telling that diversifying income streams - particularly by focusing on philanthropic income, an area relatively new to the UK sector - ranks as a strong priority," she said.

Higher education finance directors' confidence had been "dented" in recent years due to changes to the fees regime, the emergence of new higher education providers and risks to future funding streams, Mercer said. As a result, universities had been "relatively prudent" in recent years, with only 6% of those surveyed reporting that they had taken on significant levels of new financial risk in the past 12 months. However, 47% of the survey's respondents said that now was a good time to consider new investment.

"The findings certainly chime with our experience working with many ambitious and dynamic universities across the UK: there is a sense of buoyancy following a period of relative passivity (or prudence, as finance directors would see it). This is now over," said Nicola Hart, head of universities at Pinsent Masons, the law firm behind Out-Law.com.

"I think many UK universities will find themselves entering a phase of transformation as hinted at in the report. Students will be central to this: Government reforms in England designed to create a market and place students 'at the heart of the system' are starting to have an impact right across the UK. This will drive development in terms of estate improvement, curriculum flexibility and course delivery modernisation; and consequently academic staff performance and pay structures," she said.

In its report, Deloitte said that 92% of finance directors thought the level of financial uncertainty in the sector was above normal levels. It noted uncertainty in relation to future student numbers both nationally and internationally, the outcome of the ongoing Research Excellence Framework review and the fact that the results of the 2013 Spending Round were not known at the time that it carried out its research. It said that it was "perhaps surprising" that, given these findings, finance directors were considerably more optimistic about the financial prospects of their institution than they were 12 months ago.

"This may be reflective of a number of factors," Deloitte said. "Twelve months ago the sector was seeking to understand the potential impact of the increase in fee levels whilst also considering the wider fall out on recruitment of international students and the issues of HEIs suffering tier 4 license suspensions and revocation. Whilst numbers were impacted in recruitment, this was not as significant as first envisaged across much of the sector, with a number of HEIs seeking alternative models of delivery and income streams to maintain their financial position."

The three most prominent priorities reported by survey respondents were all linked to financial stability, Deloitte said. Of those surveyed, 95% said that increasing capital expenditure was "somewhat of a priority" or a "strong priority". Finance directors also prioritised increasing philanthropic income, such as alumni donations; and increasing student numbers.

Universities expert Nicola Hart of Pinsent Masons said that the drive to increase capital expenditure and alternative revenue streams, such as through issuing bonds or opening campuses overseas, was generally taking a higher priority than cutting costs. This was reflected in the Deloitte survey, which showed that concrete cost-cutting plans such as the increased use of outsourcing and offshoring were of lower priority for the majority of finance directors, she said.

"We are working with a small number of institutions so far that are really grasping this nettle, while others perhaps prefer to concentrate on expansionary ambitions," she said. "I think many institutions will find they need to address cost saving and efficiencies more radically than they are at present."

"I agree with the concern expressed by Deloitte in their implication that the 'array of priority areas' is maybe too wide to be delivered successfully and that HEIs will need to focus and probably consolidate, including by losing some of their present activities. A disciplined approach to strategic planning will be needed," she said.

Survey respondents were generally negative on the impact of government policy on international student numbers; however, Deloitte noted that responses in relation to impact across the sector as a whole were considerably more negative than responses in relation to the impact on their own institutions. Research carried out by Pinsent Masons earlier this year found that 67% of surveyed universities were more likely to establish an overseas presence as a result of Government policy on immigration and fees.