Reports

Report of the Council on the future development of the West Cambridge site

The Council begs leave to report to the University as follows:

Introduction

1. In this Report the Council is seeking approval in principle for submission of a town planning application for the West Cambridge site, which includes extensive scope to provide additional academic and commercial research opportunities for the University.

2. West Cambridge, to the south of Madingley Road, is already a focus for academic and commercial research and academic-commercial collaboration. Following a report to the Planning and Resources Committee in March 2014, work has been undertaken on a new master plan for the site to realize the full potential of West Cambridge as a globally significant location for academic and commercial research. This work is overseen by the West Cambridge Site Development Board, which reports to the Planning and Resources Committee and the West and North West Cambridge Estates Syndicate.

The vision

3. The vision for West Cambridge is to:

•provide more flexible, efficient space for University use and deliver shared facilities which transform the quality of the environment for site users;

•support the commercialization of knowledge through entrepreneurship and collaboration with industry;

•include measures to enhance the quality and sense of place and significant improvements to sustainable transport. The proposals will enhance connections within the University and across the wider Cambridge sub-region and beyond, maintaining both the University’s and Cambridge’s globally competitive position; and

•create a high quality, well connected research environment embodying high standards in environmental sustainability, helping to attract and retain the best academic and commercial research teams in Cambridge.

Development to date

4. West Cambridge is already home to a number of major academic research occupiers including the Cavendish Laboratory, the Whittle Laboratory, and the Department of Veterinary Medicine. Commercial research and research institute occupiers to the western side of the site include Schlumberger, Aveva, and the British Antarctic Survey.

5. Development at West Cambridge has been rather piecemeal over a long period since the 1960s. This piecemeal approach has:

•restricted collaboration between academic departments and between academic users and commercial research occupiers;

•led to an inconsistent approach to design, so the site today lacks a clear character or sense of place, with relatively low density development and large areas of car parking;

•led to a reliance on access by private car, with relatively poor public transport access; and

•made it difficult to provide social facilities (shops, cafes, restaurants) for users on the site.

6. A planning permission granted in 1999 provides the current framework for the development of the site, but this has proved inflexible in response to changing University and occupier requirements.

The emerging master plan

7. The emerging master plan looks at the site comprehensively, and incorporates land historically excluded from the overall plan, including the Department of Veterinary Medicine site and the current Cavendish site. The emerging master plan would make provision for:

•new academic faculty and research facilities, and commercial research organizations and research institutes;

•expansion of the existing Sports Centre;

•additional nursery provision;

•additional amenities for site users;

•an energy centre to provide sustainable energy supply;

•new and improved open spaces, including sustainable urban drainage systems;

•extensive sustainable transport measures, including new and improved pedestrian and cycle connections, additional bus routes, implementation of a site-wide travel plan, and co-ordination with the City Deal proposals;

•vehicular access principally from Madingley Road, with clustered car parking, including use of multi-storey car parks.

The emerging illustrative master plan is shown in the drawing below.

Illustrative master plan

8. The emerging master plan is based on a number of principles:

•creating strong focal points with shared open spaces and shared facilities at the East Forum (close to the Hauser Forum) and the West Forum (close to the lake), to encourage interaction between site users;

•creating a series of pedestrian/cycle ‘precincts’ where vehicle access is only for servicing and disabled vehicle access, enabling high quality public realm, and sharing of public spaces by a range of users within each precinct;

•creating a strong built-form character, with buildings fronting streets, rather than being set behind large areas of car parking;

•clustering of cycle parking in convenient locations, and clustering of car parking in multi-storey structures, releasing space for denser development and enhanced public realm;

•scale of new buildings reflecting the setting on the edge of Cambridge, particularly the sensitive southern boundary of the site onto the Green Belt, but with some slightly taller buildings being considered in the centre of the site;

9. The master plan would provide for up to 259,100m2 of academic space (including shared facilities), and up to 196,600m2 of commercial space (including research institutes). This is 350,600m2 more than currently built on the site and 256,000m2 more than currently permitted through the outline permission. There is additional flexibility in that any sites designated as commercial research could be used for academic growth if a need is identified.

Academic needs

10. The provision for academic space within the master plan responds to two current specific needs, as well as the desire for flexible sites to address future requirements.

Department of Physics

11. The master plan provides for the relocation of the Cavendish Laboratory from the southeast corner of the West Cambridge site to a site west of J. J. Thomson Avenue, currently used as the Department of Veterinary Medicine’s East Paddocks. Use of this site would not affect the operational use of the Department of Veterinary Medicine. A Project Board, which reports to the West Cambridge Site Development Board, has been established to set the brief for the new facility. A specific proposal for a new facility will be delivered in the context of the emerging West Cambridge master plan and approved through the normal Capital Planning processes.

Department of Engineering

12. The master plan makes provision for the east of the site, from Madingley Road to the Coton footpath, between J. J. Thomson Avenue and Clerk Maxwell Road, to be used for new buildings to enable the physical colocation of the Department of Engineering on the site. A Project Board has been established for Engineering, to look at the phased relocation of Engineering facilities onto the West Cambridge site. This could include a redeveloped Whittle Laboratory and use of the former Cavendish site (once the Cavendish relocates to the East Paddocks). Specific proposals for new facilities will be developed and approved through the normal Capital Planning processes.

Flexible academic sites

13. A range of additional academic sites are provided in the context of the emerging master plan. The master plan allows for future redevelopment of the Department of Veterinary Medicine site and its West Paddocks, but this would not be implemented until an alternative site for the Department is identified.

14. The master plan also makes provision for opportunities for shared teaching, meeting, and catering facilities. A shared facilities strategy for the West Cambridge site is being developed in parallel with the master planning process.

Commercial research growth

15. The master plan provides the opportunity for the University to facilitate collaborative projects, establish new research institutes close to Departments and Faculties, and deliver nearby space for spin-out businesses.

16. The government and the European Union are increasingly interested in the impact of research and collaboration, to the extent that ratings and funding of universities are influenced by their evidence. There is also an expectation that growing research institute and business engagement will help the University enhance the quality of its research into the future. Having capacity for this at West Cambridge, as well as the ability to deliver floor space at short notice, will have a positive effect on what can be secured in this respect.

17. The number of businesses developing new products through Open Innovation has risen sharply as the economy has improved since 2008. In the last two to three years this has had a dramatic effect on where businesses are locating their research and development activity. If Cambridge is to maintain its strong position in this respect and exploit the opportunities this presents, the University has a major role to play in engaging with business and delivering opportunity for occupancy close to Departments and Faculties.

18. The University is preparing an Innovation Strategy through the Research Strategy Office for the development of commercial research at the West and North West Cambridge sites. This will include policy for the selection of commercial research occupiers, together with a new governance structure to manage the decision-making process. The selection process will be informed by the extent to which research innovation allied with academic research and/or other research uses exists, or has the potential to develop.

Residential accommodation

19. There are 206 existing residential properties let by the University at West Cambridge, which represent the full amount planned for in the original planning consent. Any additional allocation of land for residential accommodation to supplement existing units would only serve to further limit the site’s capacity to meet academic and commercial research needs.

20. Further residential development is therefore not desirable or appropriate given the existing uses on, and future potential of, the West Cambridge site. The University is providing 1,500 affordable homes for University and College staff at the North West Cambridge site to the north of Madingley Road, which will contribute to the University’s staff housing needs.

Amenity facilities and supporting infrastructure

21. The West Cambridge site includes a nursery and sports centre, which assist in providing amenity for the local residents. When the development of the North West Cambridge site is complete, the West Cambridge residents will have close access to a range of local centre facilities, including a supermarket, local shops, GP surgery, community centre, hotel (and its ancillary facilities), and a primary school. The University is seeking to facilitate easy access between the two sites to maximize benefit to West Cambridge residents and employees.

22. The new master plan would enable later phases of the sports centre, additional nursery provision, and a range of catering options and shared facilities across Departments and Faculties and between academic and commercial site users.

Planning strategy

23. Cambridge City Council’s Local Plan is currently under review, and emerging Local Plan Policy 18 supports the densification of the West Cambridge site through a revised master plan.

24. The scale of change proposed in the master plan requires a new outline planning application to be made to Cambridge City Council. The planning application will be based on flexible parameters that enable the University to respond to changing needs over time as the development is implemented. The outline planning application process also requires identification of potential buildings to be demolished, which will be set out in the planning application but would require approval by the Regent House prior to demolition. The parameters will be tested through an Environmental Impact Assessment process prior to submission of the application, which is planned for autumn 2015 following additional consultation. Following determination of this application, Regent House approval will be sought for the construction or demolition of individual buildings and additional works within the site.

25. The outline planning permission will be accompanied by a Section 106 legal agreement, which will be negotiated with the City Council to ensure that the University mitigates the impact of the development. The Section 106 agreement could include measures such as highways improvements, public transport subsidies, travel planning measures, off-site infrastructure requirements, and public art.

Conclusion

26. The new master plan will establish a framework for development at West Cambridge that will establish the site as a globally significant hub for academic and commercial research. The scale of development enabled by the master plan will allow future University and allied commercial research growth in Cambridge. The ability to deliver this can be secured through an outline planning application.

   27. The Council recommends:

I. That the Director of Estate Strategy be authorized to apply for outline planning consent for a development on the West Cambridge site in general accordance with the illustrative master plan set out above; and also to enter into the Section 106 legal agreement to secure the planning consent.

18 May 2015	L. K. Borysiewicz, Vice-Chancellor	Helen Hoogewerf-McComb	Rachael Padman
	Ross Anderson	Alice Hutchings*	Shirley Pearce
	Richard Anthony	Richard Jones	Susan Smith
	Jeremy Caddick	Fiona Karet	Evianne van Gijn
	R. Charles	Stuart Laing	Sara Weller
	David Good	Mark Lewisohn	I. H. White
	Nicholas Holmes	Rebecca Lingwood	A. D. Yates

• ^* Correction, 22 May 2015: Dr Hutchings' signature, which was wrongly omitted from the original signature list, has been added.

Report of the Council on external finance for certain building projects, including North West Cambridge and the non-operational estate

The Council begs leave to report to the University as follows:

Current external finance

1. The Regent House approved Grace 4 of 9 February 2011 on 18 February 2011 giving authority in advance to arrange, on the advice of the Finance Committee, external finance up to a total amount of £350m, earmarked for the North West Cambridge development and the Capital Plan, and that the authority provided would apply for a period of two years from the date of the Report (which was published in the Reporter on 12 January 2011).

2. The University subsequently secured a rating of ‘Aaa (stable)’ from Moody’s rating agency. This was followed by the issuance of a public bond for £350m on 17 October 2012 at a fixed interest rate of 3.75%. The bond falls due for repayment in 2052. The bond proceeds are invested by the Cambridge Investment Office in a short-term fund until they are drawn down for use by the West and North West Cambridge Estates Syndicate. To date, the cost of the coupon of £13m per annum has been covered by investment returns. The financial appraisal for Phase 1 of North West Cambridge continues to show its ability to pay the interest and the principal of its share of the proceeds within the 40‑year time frame of the bond.

Development of the University’s Estate

3. The University is currently embarked upon a period of intense strategic capital development that affects most of the principal sites it owns. The Finance Committee and the Council, advised by a Financial Strategy Advisory Group, has projected the likely capital needs of the University to a 20-year horizon. These are significant and financially demanding given the loss of capital grant from the government (other than matching schemes for particular projects). Philanthropy must play its part through the coming campaign, and receipts from Cambridge Assessment and Cambridge University Press (CUP) continue to be channelled into the Capital Fund. However, these are insufficient in themselves and further external finance would relieve the pressure of financing operational capital expenditure provided such finance was directed to schemes that generated income and could repay the interest and principal of borrowed funds. The Council believes that this should be a principle of any further borrowing and examples of such schemes are given below.

Potential projects for external finance

4. Options are being explored for proceeding with a Phase 2 of the North West Cambridge development immediately following Phase 1 which is projected to be completed in the first or second quarter of 2017. The Council anticipates bringing forward a Report on Phase 2 in the Michaelmas Term 2015. The Council would only bring forward a Grace for continuing with development on the site on the premise that such development remained in the University’s strategic interest in terms, for example, of providing more homes for key-workers balanced by further homes for the open market, and exploring how and when to bring forward developments for the commercial research plots within the master plan. It would also require that the financial appraisal showed an ability to pay for the cost of further borrowing within a similar time period as obtains for Phase 1.

5. Work continues on a revised master plan for West Cambridge which would permit densification of the site to allow for the relocation and rebuilding of major academic facilities for, in the first instance, Physics and Engineering, as well as increased space for commercial research partners. It is possible that a financial appraisal would demonstrate that the income from new buildings for such research (for which there is significant demand in Greater Cambridge) would support external borrowings.

6. Within the City Centre, considerable progress has been made on a master plan for the Old Press/Mill Lane site. This work has been carried forward by a project board reporting to the Planning and Resources Committee and more recently is the subject of concluding discussions on a joint development with four Colleges which wish to create new postgraduate accommodation on the site compatible with the University’s ambition to improve the public realm and to develop income-generating commercial and retail space. The capital cost of the University’s share of the development could also be met by borrowings repayable from the projects’ cash flows.

7. The University’s non-operational estate will grow sizeably from the proposed developments exampled in this Report and potentially further by the office properties currently occupied by Cambridge Assessment on Regent Street and Hills Road when it relocates adjacent to CUP on the ‘Triangle site’ off Shaftesbury Road. In order that the non-operational estate can be managed optimally and overseen with external advice appropriate to its size, opportunity, and value, the Estates Strategy Committee has agreed that a proposal be brought forward through the General Board and the Council for a new syndicate or similar body to be established for this purpose. This would be of particular importance in the circumstances that properties within the portfolio were financed through borrowing. A Report will be brought forward in due course following further discussion and consultation.

Current market conditions for borrowing

8. The public bond issued in 2012 was judged to be well-timed. However interest rates have continued to fall and the spread to underlying gilts has narrowed, and the bond is currently yielding less than 3%. Current market conditions are attractive and the Council believes that there is a case for further borrowing. The favourable market conditions may not persist and there remains a need for new finance, directly to benefit projects for which there is a tangible long-term return of financial value to the University and indirectly to support academic capital projects by relieving pressure on the University’s cash flows required for operational capital expenditure.

9. The University does not wish to prejudice its Aaa rating. Moody’s has commented that the University has a ‘Low debt burden, although this is expected to increase to a modest level’ and continues that

‘Cambridge has not identified additional debt financing plans, but with a capital intensive business model and an increasingly competitive domestic and global environment, we believe the University is likely to rely on capital market access to a greater extent going forward.’

The Council would require that any further borrowing is well-timed, appropriate to need, and targeted for projects that can cover the costs of borrowing and ensure that the principal of a loan or bond is repayable at a future date.

10. It was vital to the efficient and professional issue of the 2012 public bond that the Regent House delegated power to the Council for a limited but renewable period, on the advice of its Finance Committee, to take forward plans for borrowing against a maximum total value. As was noted in the Council’s Report of 12 January 2011, there are various sources of external finance that the University could seek, for example, bank finance, private placement, and a further public bond issuance. There are factors of cost, flexibility, tenor, risk affordability, and so on which the Finance Committee will consider. Any proposals would be in the context of the current financial constraints, risks, and challenging outlook. However it is possible that the current conditions for external finance, which are attractive on a historic basis, may not continue. The process of negotiation with potential lenders would be lengthy and confidential. The Council, with the advice of the Finance Committee, wishes to have the flexibility to move swiftly to secure external finance when market conditions are attractive or in circumstances when conditions could move adversely. As a consequence, the Council is seeking similar powers from the Regent House from those Graced in 2011 to determine whether, when, and how much to borrow, and by what instrument. The proceeds would be earmarked for projects that are income-generating of which examples are given in this Report. The Council is proposing a limit for this further round of borrowing of £300m.

Recommendation

11. The Council recommends that it be given authority in advance to arrange, on the advice of the Finance Committee, external finance up to a total amount of £300m for income-generating projects.

The authority will apply for a period of two years from the date of this Report. In the event that external finance is not arranged within this period, or is not up to a total amount of £300m, then the Council will request continuation of the authority on a rolling two-year basis annually by Grace.

18 May 2015	L. K. Borysiewicz, Vice-Chancellor	Alice Hutchings	Shirley Pearce
	Richard Anthony	Fiona Karet	Susan Smith
	Jeremy Caddick	Stuart Laing	Evianne van Gijn
	R. Charles	Mark Lewisohn	Sara Weller
	David Good	Rebecca Lingwood	I. H. White
	Helen Hoogewerf-McComb	Rachael Padman	A. D. Yates

Note of dissent

If the Council wants authorization from the Regent House to borrow a further nine-figure sum, it should first decide what the money is for, and then present a proper case. Our remaining triple-A borrowing capacity should in my view be used for assets such as academic buildings that support our core mission, rather than for speculative investment. Not all academic institutions that have ventured into the commercial property business have made money from it.

Ross Anderson

Report of the Council on the financial position and budget of the University, recommending allocations from the Chest for 2015–16

The Council begs leave to report to the University as follows:

1. This Budget Report reviews the financial position of the University and recommends allocations from the Chest for the financial year 2015–16.

2. Information on trends in staff and student numbers, research, and expenditure patterns is provided in the usual way in Appendices 1–4 ( pp. 558–63).

Overview

3. This year’s Budget Report is set against a significant level of uncertainty in the political and economic landscape. The potential for change in higher education policy and funding over the years ahead is considerable and the University will need to respond adroitly to the associated risks and opportunities.

4. Constraints on public funding are expected to continue but with the likelihood that the higher education sector will be subject to more stringent cuts than have been incurred to date.1

5. Higher Education Funding Council for England (HEFCE) teaching funding for 2015–16 is as expected. Following the outcome of Research Excellence Framework (REF) 2014, HEFCE research funding is broadly flat but includes £4m of transitional funding. Funding for 2016–17 onwards will depend on the policies of the new government and the Comprehensive Spending Review. However, the removal of transitional funding and the anticipated loss of £2.7m special institution funding suggests a significantly reduced HEFCE grant in 2016–17.

6. Set against the pessimistic outlook for government funding, there are signs that the economy is slowly recovering. Cambridge Assessment and the Cambridge University Endowment Fund (CUEF) are performing well. The combination of low interest rates and low inflation reduce pressure on recurrent budgets and benefit our growing capital expenditure programme. The University continues to invest in fundraising and the new campaign will give impetus to our philanthropic income streams.

7. Forward guidance for the planning period continues to assume a modest 1% per annum increase in school and institution budgets, as it has done since 2011–12. The constraining effects of this prudent spending profile on academic development are mitigated by the availability of substantial reserves accumulated by Schools and Departments over recent years and which are now gradually being spent down.

8. Overall, the budget for 2015–16 is forecast to be in balance and it is expected that this will continue for most of the planning period, albeit with significant variance due to the uncertainties outlined above.

Key risks

9. The University is one of the top ten universities in the world, and most measures place it in the top five. This level of international standing is a key factor in our ability to continue to attract the very best staff and students to Cambridge. Such reputations are hard won and easily lost. Failure to invest adequately in staff, students, and facilities therefore represents the most significant risk of all.

10. Current assumptions about the funding of teaching and research may well undergo significant change under the new government. The undergraduate tuition fee regime remains under scrutiny and the UK’s status in Europe with its consequential impact on EU research funding is uncertain. The Nurse Review of the Research Councils2 may lead to changes in the balance of funding between universities and national institutes; and the continuation of the UKRPIF3 approach to competitive funding for capital projects may further erode direct government support for core infrastructure.

11. A continuing source of concern is our inability to generate sufficient income to cover fully the costs of self-funded research and the indirect costs of funded research. TRAC4 analysis indicates that less than 90% of our total expenditure on research is covered by income.5 In the long-term, although our income continues to grow, this is not sustainable. To some extent, the solutions to these problems are limited by the funding constraints applied by our sponsors. Nevertheless, we must strive to increase the proportion of academic time supported by external funding (so-called PI-time), ensure that all grant proposals are fully costed, and seek to build research portfolios in which low- overhead-paying charity funding is balanced by industrial funding providing no less than 100% of the full economic cost.

12. The University suffers from a historic under-investment in capital infrastructure. In response, the University has established a new Estates Strategy Committee, which is developing an ambitious capital plan encompassing all of our major sites. Overall, the capital plan will require expenditure in excess of £100m per annum for the next twenty years. Financing this plan will be a considerable challenge for fundraising and our ability to attract government support.

13. Philanthropic donations are an essential element of the University’s funding strategy and the University’s investment in fundraising is being increased significantly. The next fundraising campaign will be launched in Michaelmas Term 2015 and Development and Alumni Relations (CUDAR) have been working closely with Schools, Faculties, Departments, and Colleges to confirm strategic priorities. The full engagement and support of academic staff will be critical in realizing the potential of this investment.

14. Cambridge University Press and Cambridge Assessment are substantial businesses with a combined turnover exceeding £600m. In addition to providing a significant source of income from operating surpluses for the Capital Fund, they provide the University with many benefits in terms of broadening our academic mission, outreach, and the public good. However, both businesses face significant challenges operating in a volatile global economy and a rapidly changing technological environment. Ensuring that these businesses continue to prosper will be critical to the long-term financial health of the University. To this end, a review group is being formed under the Chairship of the President of Hughes Hall to advise on strategy and governance.6

15. The results of the 2014 Research Excellence Framework were published in December 2014. The outcome announced in the HEFCE grant letter was a reduction of £5.9m in mainstream QR offset partially by an increase of £2.2m in Charity QR. The General Board received a review of the University’s performance in the 2014 exercise7 and has endorsed a series of proposals to ensure that the University is better placed for the next exercise in 2020. This includes the establishment of External Advisory Boards across all disciplines in the University along with other measures such as a review of employment arrangements and policies. The role of these Boards will be to seek advice on how the research and academic environment across the University can be improved, and to maintain awareness of the practices of peer universities around the world. A REF Working Group has also been formed to oversee preparations for and delivery of REF 2020. Schools will be asked to report on the identification and generation of high impact case studies as part of the annual planning round.

16. As well as enhancing its income streams, the University must also continue its focus on efficiency in the use of resources. The higher education sector’s successes in securing greater efficiency over the last decade have been highlighted in the second phase of the Universities UK review of efficiency, effectiveness, and value for money, the findings of which are expected to inform the next Spending Review. In the report Professor Sir Ian Diamond draws attention to the capacity for, and importance of, further improvement. His report alludes to several areas where there is thought to be scope for further efficiencies including pay, research, asset sharing, shared services, procurement, and the use of space.

17. Achieving greater efficiency in the use of space must be a priority for all members of the University. Utilization of teaching space across the University is poor and Cambridge has one of the lowest teaching space utilization rates in the sector.8 In response, the General Board have supported a policy that all new teaching facilities such as lecture rooms or seminar space must be regarded as shared resources and that other facilities that impact on the student experience, such as catering, should be organized on a site-wide basis rather than department by department.9 The University’s major capital programmes are adhering to this principle and shared facilities are a central component of developments on the New Museums and West Cambridge sites.

18. Taking into account the risks ahead, this Budget Report recommends allocations from the Chest for 2015–16, which result in a small surplus on the Chest. The Chest is forecast to remain in balance for most of the planning period.

Planning round 2014

Guidance and assumptions

19. In July 2014, the Planning and Resources Committee agreed again to continue the Planning Guidance issued in previous years. Schools and institutions have, therefore, prepared forecasts of income and expenditure assuming a 1% increase in Chest allocation for 2015–16 over 2014–15 and for each year thereafter.

20. Assumptions about future pay awards are a key area of sensitivity in the financial projections of this Budget Report and increases in pay inevitably lead to significant, additional recurrent costs. A central contingency is set aside to mitigate this risk for Chest-funded posts, but the risk of extra costs remains. For modelling purposes, the pay award assumed in the planning guidance was 1% per year during the planning period (but see para. 40). Apart from national pay awards all additional pay costs arising from promotions, increments, and regrading are met from within allocations to the Schools and other institutions except where separate provision is made. The Finance Division’s pay model is used to identify how University-level forecasts would change for different pay assumptions.

21. A default inflation assumption of 2% has been used for non-pay inflation in all years unless there have been compelling reasons to adopt an alternative assumption for specific classes of non-pay expenditure.

22. The risk of an increase in employer contributions to USS from 16% to 18% was taken into account in the previous Budget Report, and provision from 2015–16 has been built into a central contingency.

23. Following the focus in recent planning rounds on understanding for what strategic purpose Chest reserves are being held, the PRC agreed that a focus in this planning round should be on non-Chest reserves, a significant proportion of which are held at Departmental level. Schools and non-School institutions have focussed initially on an analysis of trading reserves, and will continue this programme of work into the next planning round. Schools will encourage Faculties and Departments to use non-Chest funds more effectively to supplement School-led investment in academic initiatives of strategic importance.

24. The Resource Management Committee continues to use a Resource Allocation Model (RAM) and RAM Distribution Model to ensure adequate incentives are in place to maximize Chest income and minimize Chest costs. The RAM Distribution Model is based on end-of-year RAM calculations, whereby if a School’s RAM surplus exceeds 5% of its out-turn, then 10% of the surplus above the tolerance band is added to the School’s allocation in the next round. Similarly, if a School’s RAM deficit exceeds 5% of actual out-turn, then 10% of the deficit below the tolerance band is subtracted from the allocation. The operation of this mechanism based on the accounts for 2013–14 has resulted in an increase in core allocation in 2015–16 for two Schools and a reduction for two (see summary of additions to allocation table below).

25. For the purposes of this Report, allocations to Schools and institutions are assumed to be fully spent even if a balance is carried forward to the next year. This is the mechanism by which Chest reserves accumulate.

Financial forecasts

Fees and HEFCE funding

26. Appendix 5 ( p. 563) describes HEFCE funding in 2015–16. The University’s allocation of HEFCE funding for teaching continues to decrease with a reduction of £3.7m in 2015–16 compared to 2014–15. Home/EU undergraduate fee income has increased by £7.1m for the same period.

27. The University’s allocation of HEFCE funding for research has decreased by £0.3m overall compared to the allocation in 2014–15. The £5.9m reduction in mainstream QR funding is offset by an increase in Charity QR of £2.2m and the introduction, for one year only, of £2.4m non-consolidated, transitional funding to mitigate the removal of STEM protection.10 As always, the allocations outlined in the HEFCE March letter are provisional since the academic and government financial years differ. A government budget cut in 2016–17 may therefore result in a ‘claw-back’ from the 2015–16 HEFCE allocations.

Actual 2013–14 and forecast 2014–15

28. The actual Chest out-turn for 2013–14 is provided in Table 1 of this Report ( p. 554). The overall position on the Chest was a small surplus of £1.5m compared to a forecast deficit of £0.3m in the Budget Report 2014 (Reporter, 6347, 2013–14, p. 539). The main drivers behind this small improvement were increases in research grant and contract income, endowment income and interest receivable, and other operating income.

29. Table 2 ( p. 554) summarizes the forecast out-turn for the Chest in 2014–15. In the 2014 Budget Report, the overall position on the Chest was forecast to be a surplus of £6.7m. This position is now forecast to be a reduced surplus of £1.0m mainly resulting from a reduction in academic fee income due to overestimated student number forecasts submitted in the previous planning round and a higher than forecast transfer under the College Fee agreement.

30. Income-generating activity funded outside the Chest (excluding Cambridge University Press, Cambridge Assessment, and the Cambridge Trusts) was forecast to result in a small deficit of £2.1m in 2014–15 after making a contribution to the Chest for central costs. This component of the budget is difficult to predict with precision, but there is currently no reason to expect a significantly different out-turn by the end of the year.

Forecasts for 2015–16

31. Forecast Chest income for 2015–16 is £438.0m, compared to £413.2m assumed in the 2014 Budget Report. Forecast Chest expenditure for 2015–16 is £25.0m higher than forecast in the 2014 Budget Report. The majority of the increase in both income and expenditure is due to the formal consolidation of the University composition fee and College Graduate fee. The increase in fee income is offset by an increase in Chest expenditure reflecting the sum to be transferred to the Colleges under the College Graduate Fee agreement. Research grants and contracts income, and endowment income and interest receivable also improve relative to the 2014 Budget Report.

32. A breakdown of the forecasts for 2015–16 is shown in Table 3 ( p. 555). The increase includes a number of bids for additional Chest allocation beyond the core 1% increase built into the planning guidance. Bids were scrutinized at an annual planning meeting with each School or non-School institution, and reviewed again by the Resource Management Committee. In the current planning round, the Resource Management Committee has agreed to recommend increases in 2015–16 totalling just under £3.9m as detailed in the summary below. Approximately £1.4m of the increase to Schools is cost-neutral, representing their share of premium M.Phil. Degree and undergraduate overseas fee income and RAM Distribution Model adjustments, and includes mainstream QR income attributable to the MRC units transferred to the University. The additional allocation for the non-School institutions is £2.1m, the majority of which is for the UAS. Over £0.8m of the increase for the UAS is cost-neutral and counterbalanced by a corresponding decrease in the allocation to the Facilities Management administered fund. A further £1m is for recurrent investment in posts following strategic reviews in estate management and research operations.11 The remainder of the increased allocation to the UAS is to support new posts in the Office of External Affairs and Communications, and the Finance Division.

Summary of additions to allocation in 2015–16 (£000)

2015–16	Additions to allocation	RAM Distribution Model	Total addition to allocation
School of Arts and Humanities	150	0	150
School of the Humanities and Social Sciences	231	0	231
School of the Physical Sciences	94	34	128
School of Technology	50	592	642
School of the Biological Sciences	91	(35)	56
School of Clinical Medicine	601	(71)	530
Schools total	1,217	520	1,737
Institute of Continuing Education	70		70
Unified Administrative Service	2,076		2,076
Total non-School institutions	2,146		2,146
GRAND TOTAL	3,363	520	3,883

33. At the same time as approving a number of increases in allocation, the Resource Management Committee has also approved a series of measures to realize non-recurrent Chest savings totalling £17.4m over the planning period. The application of these savings has been phased to smooth the effect on the bottom line of the Chest forecast.

34. The Resource Management Committee has also considered the forecasts for the Administered Funds. These centrally held funds meet University-wide costs or provide specific streams of funding against which Schools and non-School institutions may bid. The forecasts for 2015–16 are £21.0m higher than forecast in the previous Budget Report, due substantially to the sum set aside for transfer to the Colleges under the College Graduate Fee agreement.12

35. The Administered Funds include the maintenance budget which, at just over £17m, is considered to be broadly appropriate in the short term. However, growth in the University Estate under the Capital Plan will require an increase in maintenance provision, and an uplift in the Chest allocation of just under £2.0m has been built into provisional forecasts for 2016–17. Estate Management’s forecasts have been informed by better information, which has enabled the production of more sophisticated data to support maintenance planning and the identification of high and medium priorities for maintenance works over the planning period.

36. The Operating Budget described in this Report is developed and managed on a fund accounting basis. The University’s annual Financial Statements are prepared on a financial accounting basis consistent with generally accepted accounting principles. A number of adjustments are needed to convert the Operating Budget to a format comparable to the Income and Expenditure account seen in the University’s Financial Statements. The main adjustments are to remove capital expenditure from the Operating Budget and bring in a depreciation charge, and to estimate the amount of spend against reserves and build-up of reserves. To aid comparison with the Financial Statements, such a conversion of the Operating Budget for 2015–16 is shown in Table 5 ( p. 557). The Council considers, however, that the format used in Table 3 is the appropriate one for planning.

Forecasts for 2016–17 to 2018–19

37. The forecasts for the Chest show a small deficit in 2016–17 and a return to a surplus, which in 2018–19 is forecast to be £5.3m as summarized in Table 4 ( p. 556).

38. Tuition fee income beyond 2015–16 is based on expected changes to the composition of the student population and the changing fee structures. A significant increase in tuition fee income is forecast from 2017–18 at which point the number of undergraduate clinical students is expected to increase from 160fte per annum to a maximum 273fte per annum as a result of the full cohort of students remaining in the University for their clinical training. The forecast additional income to the University is £1.65m, although there will be significant increases in accompanying costs.

39. Projections of expenditure beyond 2015–16 have been built up from the detailed plans at School and institution level submitted in December 2014.

40. Pay awards have been assumed to be 1% per annum across the planning period with a contingency set aside to allow for any variation in actual pay awards.

Conclusions

41. The financial restraint exercised over recent years has supported the delivery of a budget that is broadly in balance, although the assumptions on which this Budget Report are based are likely to require revision in the future.

42. Although the University is in a strong position to manage any funding constraints that may lie ahead, it is crucial that investment in staff, students, and facilities is maintained. The University will need to continue developing strategic planning and resource management policies that will facilitate such investment and, at the same time, promote greater financial efficiency. In doing so the University will be in a good position to continue to protect its global reputation and maintain its leading international standing.

Recommendations

43. The Council recommends:

I. That allocations from the Chest for the year 2015–16 be as follows:

(a)to the Council for all purposes other than the University Education Fund: £181.0m

(b)to the General Board for the University Education Fund: £254.3m.

II. That any supplementary HEFCE grants which may be received for special purposes during 2015–16 be allocated by the Council, wholly or in part, either to the General Board for the University Education Fund or to any other purpose consistent with any specification made by the HEFCE, and that the amounts contained in Recommendation I above be adjusted accordingly.

18 May 2015	L. K. Borysiewicz, Vice-Chancellor	Alice Hutchings*	Shirley Pearce
	Richard Anthony	Richard Jones	Susan Smith
	Jeremy Caddick	Fiona Karet	Evianne van Gijn
	R. Charles	Stuart Laing	Sara Weller
	David Good	Mark Lewisohn	I. H. White
	Nicholas Holmes	Rebecca Lingwood	A. D. Yates
	Helen Hoogewerf-McComb	Rachael Padman

Note of dissent

I cannot support allocating more new Chest funds to the UAS than to all of the University’s academic Departments put together.

Ross Anderson

2015 Budget Report - Tables and Appendices

• ^* Correction, 22 May 2015: Dr Hutchings' signature, which was wrongly omitted from the original signature list, has been added.