Competition for students poses university FDs with tough choices on investment

DESPITE wariness about the financial and regulatory environment, universities are set to unleash investment in teaching and student facilities as competition for student numbers increases, according to a new survey.

Deloitte’s annual survey of higher education finance directors gauged the views of 48 finance directors of UK universities, representing over one-third of the UK higher education sector.
 
Of these, 36% of FDs said they were less optimistic about the financial prospects of their university than 12 months ago, while 89% said there is an above normal, high or very high level of financial uncertainty facing their university. Well over half (57%) said now was a good not a good time to be taking risks onto their balance sheets.

Almost three quarters (74%) expect operating costs – such as staff, pensions, student support services and maintenance – to increase, up from 69% in 2013.
 
However, 83% of FDs said they would increase capital expenditure in the next year, up from 43% in 2013’s survey. The FDs say that 61% of capital spending will focus on teaching facilities, 18% on research facilities and 15% on improving students’ experiences, such as student unions and sports facilities. Only 4% will be focused on student accommodation.
 
To fund this spending, universities are looking for additional finance, with 45% of FDs saying they expect a moderate increase in their need for credit in the next 12 months. Against this, 13% said there would be a significant increase in credit. The directors did, however, report that credit was both easily available and at a lower cost.
 
More than half (57%) forecast an increase in bank borrowing, while 51% plan to increase bond issuance and 63% see increases in financial leverage. Almost three quarters (72%) of research-intensive universities said that increasing philanthropic income was a priority, compared to 40% for teaching-led universities.  
 
Deloitte’s survey also found that 33% of university FDs believed that government policy on international students had a negative impact on the higher education sector. However, only 5% were concerned about the effect on their institution.
 
On the removal of the cap on AAB/ABB students, which takes effect from 2015/16, 42% of FDs said this would have a positive impact on their institution while 28% said it would have a negative impact.
 
David Hall, Partner (Education) at Deloitte in the Midlands said: “The results of our latest survey suggest there is a ‘prudence paradox’ affecting the higher education sector.
 
“FDs 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.”