This article is more than 3 years old

2021 will bring reshaping, not widespread provider collapse

It will be a difficult year for higher education, but KPMG's Andrew Burn thinks the worst case scenarios of the summer will be wide of the mark.
This article is more than 3 years old

Andrew Burn is a partner at KPMG.

It’s early in the year to say for sure, but it looks like the anticipated financial hit to higher education providers has not been as deep or as widespread as some worst case scenarios envisaged at the start of Covid-19 suggested.

In a time of continued uncertainty it is right that planners and strategists continue to rethink assumptions and construct scenarios. A lot of hard work went into this process in many university offices – and we should not be surprised that it was the more extreme outputs that tended to get the headlines.

Depending where and how you get your higher education news, you will have read that any number of providers were facing likely insolvency – the numbers varied with the source. For me, it is very unlikely that we will see many universities or HE colleges go into insolvency unless there is a case-specific reason, and the wilder fringes of this rhetoric have been unhelpful to staff and students dealing with an already unsettling 2020.

Putting it simply

It is not a simple exercise for many HE providers to go into insolvency – Wonkhe has already been over the detail of corporate structure that underpins this. Unlike in English FE, there is no equivalent regime for the HE sector.

There are lots of questions about what an insolvency would achieve given there would need to be continuity of employment for most staff, there may not be bank security in place and the cost and disruption of the process may outweigh the changes that could be made to an organisation’s solvently. Those registered with the OfS would have committed to preserving the interests of students and to do that you need staff to teach and support, and places to teach and work in. Reneging on bank lending could have an impact on borrowing sector wide – something that everyone would be very keen to avoid.

Because of this, we would expect all stakeholders are likely to do everything possible to avert such situations – even if that includes making the difficult decisions that previously were not palatable such as compulsory redundancy programmes or alliances (such as working together to collectively reduce professional support services costs) or mergers. This is – in some senses – the basis of the Department for Education restructuring regime: providers unable to raise funds elsewhere, and unable to find their own cost savings, would find a lender of last resort with some pretty hands on restructuring – and an expectation that trustees or governors will be making difficult decisions to effect change.

Reshaping in action

Providers are always restructuring and refocusing. As participants in a market for higher education, responses to external pressures and changes in demand are the bread and butter of institutional management. If you’ve ever worked in a university you’ll know there are always plans and reviews – 2020 saw a lot of these brought forward.

Mitigation and preparation for the impacts of Covid-19 was, in the main, done as promptly and as well as a response to a largely unknown risk can be done. But all this cost money – providers dipped into liquidity reserves (and occasionally further) to meet unexpected costs. Some also drew down existing financial facilities for the extra cash that was needed, using revolving credit facilities and overdrafts. We saw only limited use of government lending linked to Covid-19 – this remains available as a last resort.

The requests we’ve been getting from universities suggests that current activity is focused on:

  • Assessing and developing plausible downside sensitivities when it comes to considering disclosure in the financial statements and the structure of bank facilities.
  • Positive proactive independent challenge to forecasts and strategic options reviews
  • Assisting with the development of detailed restructuring plans
  • Portfolio and professional support service reviews as organisations recognise the need for a robust assessment of academic activities making or losing money and where staffing structures may need reshaping.

In essence – universities and other providers are taking a long hard look at what they do and how viable those activities are in terms of what income is associated with them and how much is spent. It’s exactly what any business in any sector would do if cash reserves had been depleted. For universities this would mean a detailed examination of the teaching and research portfolio, and challenges to operating models in order to determine what systems and processes can be digitised and changed to reduce the level of resource needed to deliver a comparable or enhanced service. Above all this, there needs to be robust governance in place to oversee change so that every ounce of effort being put in by the organisation drives a positive outcome.

There was some discussion of mergers and collaborations over the summer – for me the latter, especially around support functions that can be brought together without loss of service quality, is more likely. Some smaller providers may also be seeking to consolidate what they do with local FE providers – very much in line with the current thrust of government policy around the UK.

The year ahead

Of course, next year will not be easy – providers will make difficult choices, and the risks associated with getting those choices wrong are great. But the predictions of mass collapse have served their purpose in focusing leadership minds on the job to be done. It is time to put away the apocalyptic tones and get on with the hard work ahead.

Leave a Reply