Mergers on the cards as universities face cash shortfalls

CASH-STRAPPED universities face an 18-month funding gap as cuts to grants and the withdrawal of support to non-core subjects take hold.

Simon Adcock, partner in Deloitte’s corporate advisory team in Birmingham, said the timing of various changes to the funding of universities means there will be cash management challenges for the sector for the first time in years.

Birmingham University last month announced a tie-up with Nottingham University in a bid to share resources and cut costs.
 
In March, the Higher Education Funding Council for England (HEFCE) will make its annual announcement for the 2011/12 academic year, which is expected to bring grant cuts of up to 40 per cent for many Higher Education Institutions (HEIs) and the withdrawal of state funding for non-priority subjects.
 
Mr Adcock said: “HEIs will face immediate financial challenges due to the significant withdrawal of financial support from the government.
 
“While universities will be able to ‘top-up’ revenues with additional student tuition fees, these cannot be levied until September 2012, leading to a potential funding gap.

Furthermore, student numbers may also reduce as a result of increased tuition fees, creating a ‘double negative’ effect.

“HEIs need to have a clear understanding of the impact of these changes on their organisations and the levers available to rapidly mitigate any short-term funding shortfall.”

Mr Adcock warned that some universities would have to merge in order to survive.
 
“HEIs facing budget shortfalls may already have cost reduction and cash generation plans in place but these may not be sufficient to meet the challenges of the next two years. As a result, a turnaround may be required, which could include considering merger opportunities.
 
“The University of Birmingham, for example, recently announced that it was teaming up with Nottingham University after both were hit by budget cuts last year. The partnership will see the universities sharing research facilities, offering jointly-awarded degree programmes to students and joint academic staff appointments.

“With the HEFCE expected to announce further cuts to funding next month, it’s likely that we will see further mergers between universities, be it through the sharing of services and facilities or the joining of two institutions to form a completely new university.”