Everything you ever wanted to know about TRAC

The Transparent Approach to Costing (TRAC) exercise provides an answer to a very specific set of questions about institutional finances.

The starting point is familiar: the audited consolidated financial statements of a university. These are the figures submitted to funding councils and published on institutional websites five months and change after the end of a financial year – for most providers where the year ends at the end of August this is late December or early January.

A lot of things happen to these statements – they are used by regulators to produce the “financial stability” releases (which draw in the implications of provider recruitment predictions, and are increasingly deployed alongside smaller “in year collections.”) After further processing and the production of derived data fields (such as the Key Financial Indicators) they form the HESA open data provider finance release, usually shared with a patiently waiting public in late spring.

But, in the summer (and uncharacteristically late this year), these same figures also form the basis of the TRAC report. The TRAC process adds in two further pieces of information: a calculated margin for sustainability and investment (MSI), and the application of cost drivers to allocate costs to specific activities and academic departments.

The hole

In higher education policy, we increasingly find ourselves talking about value. The various quality assurance regimes and processes help us understand one end of this definition, but the amount of activity (much less the amount of benefit) for a given quanta of public spending is. We have no way of knowing what £9,790 “buys” for a year of undergraduate English literature teaching at provider A compared to provider B (or English at provider A compared to Sociology at provider A), or how much it actually costs to educate an undergraduate for a year in any subject area at either of those places.

Any serious discussion about value for public spending needs to be informed by information like this – the absence of a reliable metric forces us to rely on more nebulous ideas like “esteem” or “selectivity” which are only really a step away from the “general vibe” of the place. Mash in England’s quality assurance system, which is predicated largely on output metrics linked more closely to the socioeconomic background of students to anything a provider may be doing, and we have a policy direction to focus more attention and funding where higher education provision is providing the most value without anything to say other than waving at salaries and “graduate jobs”.

In this context TRAC is a monster that is yet to awaken. It explicitly deals with what universities spend on public-funded teaching, and on how far what the government provides goes to meet these costs. But, in general, the process is so poorly understood and the data so jealously guarded that it has thus far been of hypothetical use only.

What questions can TRAC currently answer?

Given that institutions rise and fall on their overall financial position – in essence, do they have enough money to cover costs – we only really need the consolidated accounts as a basis for understanding financial health at a provider level or a whole sector level. Some of the more interesting ways we might do this are demonstrated in the HESA KFIs, most notably the “net liquidity days” often used by regulators in assessing financial health. But really, we only need two numbers: how much money you are spending, and how much you have to spend.

But there is a lot we can’t tell from this simplistic analysis. We don’t know which things a university does are making a loss, and which are making the profit that subsidises that loss. Without bringing in data for other years, we can’t know how the university has historically managed these income and expenditure discrepancies. And we can’t say anything about the medium- or long-term sustainability of a provider: as well as covering immediate costs is it able to remain viable into the future.

For these reasons, way back in 1999, the four funding councils invented TRAC. It’s an agreed methodology specifically aimed at answering questions like these – and has been adapted and updated over the years to meet emerging user needs and improve data quality. It adds two important data points to our existing pool of financial resources.

MSI

The first is the “full economic cost” of operating, via the addition of the MSI. All kinds of enterprises allocate funds for the upkeep of assets and capacities. In the main provider balance sheets focus on in-year spending – immediate needs – and do not factor in longer term costs of maintaining an estate, updating equipment, or investing in new activity. All kinds of businesses have to do those things in order to stay solvent and competitive. Universities are no exception.

The way MSI is calculated for TRAC is very tightly defined – in order that we can be sure the figures are comparable across the sector, and in order that we know that there is no “padding” being added that would change our understanding. There’s even a change in this year of data, which separates out MSI relating to student residences.

The recipe is as follows:

• If your provider owns or has a financial interest in student residences perform the steps below for residence spending only, and for all other spending. If it does not, just calculate it for total spending. This is new for this year.
• Start with calculating adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA – specifically the agreed HE formulation of this standard accounting measure) for three years of actual data and three years of forecast data.
• Divide this six year total by the adjusted income for the current year – that’s your MSI.
• Allocate to TRAC activities (see below) based on allocated expenditure. The Other (student residences) measure, where needed, is done separately. No MSI is allocated to other (non-commercial) activity.
• Add the MSI to the expenditure, and subtract income linked to that activity.

MSI cops for a lot of criticism specifically because of how high level this is. It can fairly be argued that institutions are well aware of current and future “full cost”, and should report these instead of an approximation. However, the approximation means that every institution is calculating full cost (on top of in-year spending) in the same way, and that it is based both on past performance and projections.

Activities

All expenditure made by a provider is mapped within TRAC to activities. There are three core activities: teaching, research, and other – a fourth activity, “support” is used in the calculation but then mapped to core activities.

• Teaching covers staff time used for teaching related activities (anything from lecturing, to marking, to supervision, and even outreach activities.
• Research covers staff time used for research related activities (be that in the lab, in the library, or in practice) including project management, attendance at conferences, production of outputs, and training and supervising postgraduate research students – however this is funded.
• Other is everything else a university does, whether or not it makes money.
• Support isn’t a core activity, but collects together activity (for example administration, student support, registry functions) that supports the three core activities, and is allocated to the core activities accordingly.

If you are familiar with the way TRAC is presented, you’ll immediately be wondering about the way these activities are split further:

• Teaching: publicly funded (anything covered, at least in part, by public funds – other than PGR)
• Teaching: non-publicly funded (short courses, commercial teaching, teaching overseas)
• Research (split into eight research sponsor types)
• Other (academic departments)
• Other (income generating) (anything that does or potentially could generate external income, other than…)
• Other (student residences)
• Other (clinical services) (services provided to the NHS)
• Other (non commercial) (stuff like investment income, and endowments or donations)

How these splits happen with staff costs is probably the most visible facet of TRAC if you are an academic – the time allocation survey. If your provider has a workload planning or allocation model you may well be blissfully unaware of this, but the rest of the sector needs to complete an in year time allocation for every member of staff (on a representative three year cycle), or via a sampling methodology.

The test here is that the data is credible. It is never going to be exactly accurate – and the effort to make it more accurate than it needs to be is the source of much of the burden associated with data collection. For instance, it refers only to staff time managed by the institution, not all of the work you do as an academic outside of that. And the proportions of your contracted work assigned to each bucket are the only thing the model needs.

That’s not to say providers don’t use this data for other purposes – and with financial pressures set to continue an eye over what a provider is paying people to do is essential – but the individual allocations never leave your employer: the regulators are only interested in an aggregate position.

I should also note here that the TRAC methodology also allocates estates utilisation to these activity groups (except where a provider claims dispensation on the grounds of a rolling five-year average of research income at £3m or less. In general, dispensation allows providers with low research income to be less robust in their activity data collection.

Outputs

TRAC is theoretically used to inform the allocation of additional teaching funding for high-cost subjects, in practice the arm of TRAC (TRAC-T) used to inform this was removed in 2023 and there are no plans to reintroduce it. It is still used in the calculation of full economic costs for research projects, and some argue that a clear methodology for calculating full economic costs is useful for strategic purposes within institutions.

The only time we see TRAC data published is in a data series managed by the Office for Students. Even by OfS standards it is a curious publication, shorn of nearly all analysis (unless that you think “a trend of full economic costs significantly exceeding income” constitutes analysis.

In a nutshell, the sector recovered 95.5 per cent of costs (representing a deficit of £2,146m) in 2024-25, a very small change (from 95.8 per cent, and a £1,985m deficit) over the previous year. Sector income increased by 2 per cent, while expenditure increased by 2.2 per cent.

There’s cost recovery data for each activity category. As usual, non-publically funded teaching, and other (non-commercial) costs run at a profit while everything else runs at a loss.

From an institutional financial management perspective the news is a reduction in aggregate MSI by £114m. This shows a lower level of required surplus to meet the full economic costs of activities: and represents a modest reduction in the cost of borrowing, the release of some USS pension provisions, and – most notably – actions taken by providers to manage financial pressure alongside more bullish assumptions around recruitment.

The untold story

TRAC is the only available means of comparing costs between institutions – for example the full economic cost of teaching a student in a given subject area will vary quite substantially from provider to provider. As valuable as this information might be, we never get to see it made public – the closest we have ever got is a report underpinning the Augar review put together by KPMG which was based on a small sample of providers rather than using full TRAC data.

The closest we get is data by institutional category (there’s an annex (4.1b) to the TRAC guidance that tells you which group your provider is in):

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• Group A: Institutions with a medical school that get 20 per cent or more of their total income from research (pretty much the Russell Group)
• Group B: Other institutions with research income constituting 15 per cent or more of all income (largely the big, research intensive, traditional universities that sit outside of the Russell Group).
• Group C: Research income between 5 and 15 per cent of all income (larger and research focused post-92 providers with some pre-92s mixed in)
• Group D: Research income less than 5 per cent of a total income greater than £150m (Other big post-92 providers)
• Group E: Research income less than 5 per cent of a total income less than £150m (the rest of the traditional universities, plus some specialist providers)
• Group F: Specialist music and arts institutions

Again, at this resolution there is very little to be said. Teaching-focused providers tend to be better at recovering the cost of teaching, research-focused providers tend to be better at recovering the cost of research.

The frustration is that there is so much more value in this data that could be unlocked. While recognising that it can only ever be indicative if it is to be comparable, even a selective provider level release could help the sector identify and benchmark best practices and inform funding councils in allocating increasingly scarce funds where they can have most benefit.