Tuesday, 12 June 2007. A Discussion was held in the Council Room. Deputy Vice-Chancellor Lord Wilson of Tillyorn was presiding, with the Senior Proctor, the Junior Proctor, two Pro-Proctors, the Registrary, and five other persons present.
The following Report was discussed:
Report of the Council, dated 29 May 2007, on the financial position of the Chest, recommending allocations for 2007-08 (p. 709)
Professor A. C. MINSON:
Deputy Vice-Chancellor, the Chest now contributes just under 50% of the University's budget, but provides the means by which the University can determine broad academic priorities, and is the funder of last resort for long-term commitments.
The Allocations Report this year records a set-back in the Chest position in the current year, and in the next two years, due to reduced expectations of indirect cost recovery following the introduction of full Economic Costing (fEC) of research grants. Last year's Report estimated that fEC would impact cumulatively over a three-year period from 2006-07 to 2008-09 by which time cost recovery rates would achieve a new steady state. In retrospect this was an optimistic forecast; Research Council fEC grants have been awarded at a slower rate than anticipated and, therefore, significant income will not begin to flow until the latter part of the current academic year. Indirect cost recovery is now expected to reach its higher steady-state level in 2009-10 and, in consequence, previous estimates of Chest income from this source are reduced by about £9m in each year from 2006-07 to 2008-09. The Chest out-turn for 2006-07 is therefore predicted to be a deficit of some £9m, rather than close to balance. It should be noted, however, that the University (little u) as a whole is expected to be in balance at the end of the year. Schools and Institutions have, for the most part, contained costs effectively and will retain savings for future investment and to provide flexibility in future years.
The reduction in predicted Chest income in 2007-08 has inevitably resulted in the need to control expenditure next year. The planning round returns received in December 2006 proposed levels of expenditure that would have resulted in a Chest deficit of some £19m. Work has been done with Schools and Institutions, including central services, to reduce their allocations, and allocations to some administered funds, so as to achieve an acceptable Chest budget. For the same reason the details of allocations from 2008-09 onwards are not shown in the appendix to the Report. The expenditure proposed for these years in the planning round returns is not affordable and discussions are currently in progress with all Institutions to reduce their expenditure aspirations. Current calculations, allowing for only very modest allocations to support capital expenditure and strategic initiatives, indicate that Chest expenditure beyond 2007-08 can rise at no more than 4% annually, only slightly above inflation, unless additional income can be identified.
Predictions of future income are uncertain. As noted above, indirect cost recovery should reach a new higher level by 2009-10 but the absolute figure is a best estimate. The impact of the 2008 RAE and a new formula for teaching funding are unknown but it would be most unwise to suppose that the Higher Education 'cake' will grow beyond current estimates or that Cambridge will receive a larger slice. On current predictions we should be able to achieve balanced operating budgets but this will not suffice, given the demands for additional expenditure.
The cost of living in Cambridge has risen substantially during the last decade and, although average pay rates have also risen above inflation recently, recruitment and retention of our best staff will require further real increases. Each 1% increase adds about £2m to the pay bill. Research funding agencies are increasingly targeting funds at large interdisciplinary initiatives - energy, climate, conservation, etc. - and we need to invest strategically if we are to compete. Our estate is in very good overall condition by comparison with the HE sector but there are, nevertheless, many demands for capital expenditure. In particular, two central sites, the Old Press site and the New Museums site, are in relatively poor condition and require plans for coherent redevelopment and relocation of activities that cannot be achieved by an opportunistic approach dependent on external funding. If a sound business case can be made, then the University could consider financing these redevelopments by borrowing.
I see no bold strategy that will change the financial picture dramatically. Nevertheless we are not helpless. Where spare capacity exists we must make use of it and ensure that the Resource Allocation Model provides the necessary incentives. The 800th Campaign is delivering funds but it is the task of Schools and Institutions to use these funds effectively - to support what we already do or, where the funds support new high priority activity, to consider reducing other lower priority activity. We should aim to improve our investment performance, and a new Investment Office has been established for this purpose. Our teaching is of very high quality, and rightly so, but there must be a limit to the number of options and papers offered to a static number of undergraduates: how much teaching can we afford to do? Our lecture theatres and practical classrooms are under-used. Do we need them all? They are virtually unused for 30 weeks of the year. Could we make more effective use of them?
Two further specific issues arise from this year's Report. The first concerns the data on staff statistics in Appendix 1(B), which indicate that the number of academic-related staff in the University has increased by nearly 50% since 2001-02 while the number of established academic staff has remained static and research staff numbers have increased by about 17%. In their present form these data are not easy to interpret and it is important that we try to understand where and why this growth in academic-related staff has occurred. The Planning and Resources Committee and the Council have requested further analysis and I hope that next year's Report can provide the data in a more meaningful form.
The second issue concerns the presentation of financial projections in Table 1. It is important to recognize that the 'Chest column' represents an allocation of funds not all of which will necessarily be spent in year, and some of which may appear as non-Chest reserves in subsequent years. The non-Chest column shows predictions of income and expenditure. Summing the two columns confuses allocation with expenditure. In future years it is proposed to show the Chest Allocation column as at present and to show separately an overall income and expenditure estimate for the University.
Professor G. R. EVANS (read by Dr D. R. DE LACEY):
Mr Deputy Vice-Chancellor, first, do grand plans necessarily lead where intended? Full Economic Costing is evidently not 'delivering' the anticipated benefits, at least not yet. This is partly the fault of the Research Councils, it seems, but within the University, too, there are three years to go before we get the thing in balance:
'12. The University now has more experience of the operation of the new-style grants, and this year's revised forecasts show a delayed profile of increased indirect cost recovery, reaching previously predicted levels only in 2009-10.'
Similarly, the HERA and pay-and-grading exercise, far from saving money, is manifestly proving expensive:
'34. There will be further as yet unquantified costs arising from harmonization of conditions of service. The 2008 actuarial valuation of the Universities Superannuation Scheme (USS) may lead to adverse changes in pension costs, a matter which remains of concern to the Council.'
I wonder whether Cambridge might not take the lead in pointing out to HEFCE that some of its time-consuming policy-shifts are also expensive and therefore a waste of the public money it disburses to HEIs.
Secondly, the difference in the breeding-rates of academic and academic-related staff.
'8. Trends in staff numbers (Appendix 1(B)) indicate that the number of established academic staff has remained stable over the past five years while the number of academic-related staff has increased by nearly 50%. The Council and the Planning and Resources Committee have requested further analysis of these data.'
Concern on this point has been raised again and again in this house and by the Board of Scrutiny. 'A more detailed analysis of these trends will be undertaken.' Will the result be published?
I ask not only because there are problems going directly to the cost of all these staff but also because it potentially affects the balance of the votes in the Regent House. The green paper on governance we are not being invited to Discuss raises the question of making adjustments to the criteria for membership of the Regent House. But if there has been an increase in the academic-related category of nearly 50% over the last five years, office-holders who already have automatic membership of the Regent House, I begin to want to see a table setting out the proportions of academic voters against the academic-related ones.
Could we also have the figures for trends in other categories of staff? Have the assistant staff been breeding as much, or less freely than the academic-related? If it should prove (Computer Officers aside) that there are more chiefs and fewer injuns in the Unified Administrative Service, I think the Regent House ought to be told.
Thirdly and finally, the 800th Campaign. It has apparently 'raised the endowment funds of the University' only by about £125m so far, though the anniversary year is almost upon us. But predictably, the money is coming in with labels round its neck. 'Important new academic activity' tends to take the form of Chairs and Centres with donors' names attached. I am not sure how it is known that this will advance the University's 'competitive position' or why it is thought that this is the most important thing to aim for. The republic of learning used to be a place for sharing knowledge not for cut-throat institutional competition, surely?
My fear is that even if the fund-raising achieves its objective quantitatively speaking, which now looks far from certain, the endowments route is potentially capable of distorting the University's activities. Members of the Regent House have no proactive control over the negotiation of terms, merely a chance to approve one of the flood of new Professorships suddenly discovered to be just what was needed.
Dr D. R. DE LACEY:
Deputy Vice-Chancellor, I frankly acknowledge that I find accountancy very hard to understand, and it may be that I have mis-read this Report; but if so the fault cannot be all mine. If only our accounts could be presented in the same way two years running it would be so much easier to get one's mind round them.
Two years ago we were told 'in the 800th Campaign there will be increased emphasis on generating donations for general purposes or in substitution of existing expenditure, which should make a significant, beneficial impact on the University's finances' and that the projected annual sum of £1.5m was 'pessimistic' (Reporter, 2004-05, pp. 699-709). In last year's Report the projection had dropped to £0.6m and this year it has disappeared without trace (unless it is included in the General income from donations at a total of only £0.5m). If this means the Campaign is in deep trouble should we not be told?
And my failure to handle these figures is nothing compared to that of those who produce them. Last year we had to revise the 2007-08 projection from a surplus of £6.6m to one of only £2m. It is now a deficit of £1.4m, despite, presumably, the late arrival of the £8.4m research grants (see Appendix 2) which make this year's figures such an embarrassment. Do we need a new Accountant?
I still do not understand the QEF. My initial reaction, given that there is no mention of it in the Report, was pleasure that at least it has not been further raided to cloak our embarrassment. Or has it? Last year we were told it stood at a fairly whopping £27m deficit. In this year's figures it stands at a deficit of £35.4m with no word of explanation. This supposed Fund appears to have become nothing more than a cypher - and a slightly inaccurate one at that - for our overall debt. If that is so could we please rename it in future Reports?
I realize I also cannot understand money. The University has a deficit of £9.5m. But unlike pure numbers, negative pounds have no real existence. So what does this figure represent? I can see only two possibilities: a bank overdraft, which I believe is not the case, or £9.5m of actual money belonging to the Faculties and held in reserve for them. In this year at least two Faculties have faced educational chaos attempting to cut down on courses, in Indic Studies and Portuguese. Is this deficit the cause? A casual look at this Report and its Appendices could give the impression, if I may be permitted the phrase, that this is a mere academic exercise for the Regents to rubber-stamp. On the contrary, it is a very real academic exercise, and the academic implications should be clearly spelled out for us.
Administrative staff numbers continue their inexorable rise: Faculty administrators up 25%, UAS staff up 7% in last year alone. Can we afford to be so well run? The figures suggest not. And indeed as I hear academic colleagues in my Faculties groaning under their own administrative load, I wonder what our army of administrators is actually achieving for us. I trust that the 'further analysis' of staff data may provide an answer: may we know the timescale for this, please? And if the Report's claim that 'A preliminary analysis shows that additional computer officers account for approximately half the increase' proves justified, can there be an explanation of why there is a separate entry for 'Computer' staff showing a rise from 121 to only 147 over these past five years?
Dr S. J. COWLEY:
As I understand it, the reason why the QEF deficit has increased from about £27m to about £35m is because, as Professor Minson has explained, there is an increased deficit in 2006-07. As I also understand it, although the QEF deficit has unfortunately gone up by £9m, I am assured that the reserves of the University as a whole have increased. I hope that answers some of Dr de Lacey's points. As a member of the Resource Management Committee, might I assure him that the University is taking seriously the allocation deficit and is working to try to ensure that the University is in surplus.