Weathering the Brexit storm: University finances in uncertain times

Back in late June, Wonkhe’s Ant Bagshaw wrote about the ‘Brexistential threats’ facing the UK higher education sector.

Fortunately, at a recent Wonkhe seminar in partnership with BUFDG, we heard that while Brexit might be “a pain in the ass,” it probably won’t result in catastrophic consequences for universities with an estimate of costs of between one and three per cent of revenue. That’s probably not enough to leave universities needing financial life support.

So what for the financial health of the UK’s universities? Well, for a start we need to see the sector as one with wide variations in financial health: we have a couple of institutions with large endowments and the healthiest credit ratings, but lower down the scale we have universities which are over-leveraged and much closer to the limits of viability. There are challenges for those institutions that are borrowing to climb the research-emphasising league tables, but which might find themselves unable to build the necessary profile and therefore ending up with high ongoing costs, and saddled with debt. Teaching-focused institutions might find themselves with more secure business models.

The spread of financial performance is a concern, particularly in areas where there are shared liabilities as with the sector’s pension schemes. Professor Nicholas Barr argues that the Universities Superannuation Scheme, which has undergone reforms recently, may no longer suit such a diverse sector. When it comes to the student loan system, he believes that it can be made more sustainable with a few tweaks such as lowering or fixing the repayment threshold, though this is politically contentious.

On one topic, there is universal agreement. The government continues to stymie education exports through an overly-restrictive student visa regime. Demand for higher education worldwide is enormous, and the UK remains a highly attractive destination. But the government – in particular the Prime Minister – refuses to risk any real or perceived relaxation of immigration rules.

One way to circumvent this problem is to consider taking the product to where the demand is. Parthenon EY’s Matthew Robb makes the case that universities should be bold in their international expansion by considering the range of delivery options overseas. That might include online and blended delivery options, and working with in-country partners.

While student visa restrictions appear to be all threat, and no opportunity, the government’s apprenticeship plans leave more scope for creativity and expansion. BPP’s William Etchell believes that universities should consider the delivery of apprenticeships as a significant new market.

When it comes to investment, universities should have clear and robust plans when borrowing. However, they should avoid a US-style “amenities arms race.” Aiming to increase student satisfaction with ‘shiny’ investments misses the point. And it’s possible to see investment in bricks and mortar as a bet against the growth of online learning.

The major threat which Brexit poses to universities is the contraction of the research base in the UK, argues Gavan Conlon of London Economics. Our best researchers will get better offers and ship off, often with the cream of doctoral students and post-doc researchers. Chipping away at the quality of UK research will lower the status of the country’s universities in international rankings and could reduce demand from overseas students. Universities should look to transnational research options which might provide some protections from ‘brain drain’.

Whilst the university sector should remain healthy and vibrant for the foreseeable future, delivery models will change – just as the ebook hasn’t replaced the paperback just yet – and universities need to be alert to the threats and opportunities around them.

Wonkhe collaborated with the British Universities Finance Directors Group (BUFDG) to hold this seminar on 16 September 2016. The speakers were: Nicholas Barr, Professor of Public Economics, LSE; Gavan Conlon, Partner, London Economics; William Etchell, Group Finance Director, BPP; Sally McGill, CFO, Durham University; Andrew Murphy, CFO, University of London; Matthew Robb, Managing Director, Parthenon EY.

Wonkhe would also like to record thanks the Courtauld Institute of Art, which hosted the event.

You can read Sally McGill’s presentation on ‘What keeps the CFO awake at night’ here.

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