UK universities plan to increase spending despite financial uncertainty, says Deloitte

Out-Law News | 03 Sep 2014 | 4:53 pm | 2 min. read

Finance directors at UK universities are planning to increase capital spending over the next year as competition for students increases, with 61% of that money expected to be spent on new or improved teaching facilities, according to professional services firm Deloitte.

Its survey of 48 finance directors from a cross-section of higher education (HE) institutions, representing around 37% of the sector, found that 83% were planning increased capital spending despite above normal, high or very high risks of financial uncertainty facing their university. This was considerably higher than the 43% of respondents to last year's survey who had expected their spending to increase.

"The results of our latest survey suggest there is a 'prudence paradox' affecting the higher education sector," said Deloitte's Julie Mercer. "Finance directors are wary of the financial environment and favour strong financial management over risk-taking. But at the same time, ambition and investing for growth are both needed. As such, risk-taking is a necessary strategy for universities."

"We see in our own discussions with universities that investment in teaching and research are at the forefront of their strategies. With record numbers of students heading to university following the recent A-Level results and the relaxation of controls on student numbers, there is increased competition to attract students. Meanwhile, students themselves see the quality of teaching as a key factor in choosing where they study," she said.

As well as major investment in teaching facilities, those survey respondents planning to increase their spending in the next year expected to invest 18% of that money on research facilities and 15% on student unions, sports and other facilities aimed at 'improving student experiences', Deloitte said. Only 4% of spending from institutions themselves was planned for investment in student accommodation, it said.

Finance directors said that they expected to fund their planned projects through a combination of bank borrowing, bond issuance and financial leverage. Of those surveyed, 57% forecast in increase in their bank borrowing while 51% expected a bond-issuing exercise. Respondents indicated that their access to credit was easier and cheaper. Over 70% of respondents at research-intensive universities said that increasing philanthropic income was a priority for them in the coming year, compared to 40% of respondents from teaching-led universities.

Almost three quarters of those surveyed said that they expected operating costs including staff, pensions, student support services and maintenance to increase this year, up from 69% in 2013. Over half of the respondents said that now was not a good time for them to be taking additional risks onto their balance sheets, while 36% said that they were currently less optimistic about their institution's financial prospects than they were 12 months ago.

Survey respondents were not hugely concerned about the effect on their own institutions of current government policy which classes international students as 'immigrants' for the purposes of migration figures; although 33% believed that the policy had a negative impact on the HE sector as a whole. The planned removal of the student numbers cap, which is due to take effect from 2015-16, was welcomed by 42% of respondents while 28% said that they expected it to have a negative impact on their institution.