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REPORTS

Report of the Council on the financial position of the Chest, recommending allocations for 2000-01

The COUNCIL beg leave to report to the University as follows:

SUMMARY

The following are the principal points of this Allocations Report:

The current year 1999-2000

• The estimated deficit shown in the 1999 Allocations Report was some £1.4m for the year 1999-2000. The latest estimate of the year-end results is a surplus of some £4m. This change has been caused by a number of factors, the most substantial of which are the increase in VAT recovered due to changes negotiated with HM Customs and Excise (£1.75m) and salary savings due to the delay in restructuring non-professorial academic and academic-related pay scales for staff (£2.1m). As a result of these variations the Council propose additional non-recurrent allocations to the New Buildings Enabling Fund, the Minor Works Fund, the Strategic Planning Reserve Fund, the General Board Equipment Fund, and the Buildings Maintenance Fund; this is expected to result in a deficit for the current year of about £1.6m after transfers to and from reserves, which the Council regard as acceptable (paragraphs 2-4).

2000-01 and the four-year forward view

• The HEFCE and the Teacher Training Agency (TTA) have announced recurrent funding for 2000-01, which has increased by 2.2 per cent overall. Within this figure, funding for teaching has increased by 1.7 per cent and funding for research by 2.6 per cent. However the overall increase has been affected by the funding reductions which form part of the College fee agreement (paragraphs 17-22, 26-27). Salary increases have been estimated at some 3.5 per cent although the final increases are still the subject of negotiation; other costs are also rising by more than inflation. The annual 'efficiency gain' assumed by the Funding Council can be expected to continue for the remainder of the planning period (to 2003-04) and therefore as we progress towards the end of that period the financial position is likely to deteriorate, unless the University can achieve even more income from sources other than HEFCE/TTA. The Council expect that there will be a deficit of the order of £2.2m in 2000-01, to be funded out of reserves. It is calculated that over the period of the current plan this annual deficit will increase to some £15.4m by 2003-04 unless additional income is generated. The Council will be considering the implications of the longer-term forecasts over the next few months and aim to review a number of options. They are aware that some of the assumptions on which the forecasts for later years are based may not be very robust.
• Overall income, excluding non-recurrent capital receipts is expected to be up by 2.8 per cent in 2000-01; this is due in part to a projected 7.0 per cent increase in research grant income (paragraphs 14-34).
• The pay restructuring exercise for professorial staff took place in 1999-2000, however the proposed restructuring for non-professorial academic and academic-related staff has now been delayed until 2000-01 (paragraphs 7-12).
• The capital programme has expanded dramatically over the past year, with the value of buildings in planning and construction doubling to around £280m, with the help of major contributions from industry and other benefactors and with funding made available through the Joint Infrastructure Fund (JIF). Over the next few years a considerable number of additional buildings will be completed. They will all need to be maintained and operated, and this will considerably increase the costs for the University in this area. It is expected that by the end of the current planning period (2003-04), the costs will have increased by some £8.6m over the level set out in the original budget for 1999-2000 (paragraph 44).

Introduction

1. As in previous years, the purpose of this Allocations Report is to assess the financial position of the University and to recommend allocations from the Chest for the next financial year.

Revised estimates 1999-2000

2. When the Council reported in May 1999 (Reporter, 1998-99, p. 638) they expected that total income for the year 1999-2000 would be £342.5m, of which £177.2m would be unrestricted Chest income and £165.3m would be restricted income (research grants and contracts, trust funds, special funds, self-supporting accounts, and commercial activities). The overall position was expected to be a surplus of £1.5m on restricted income and a deficit of £1.4m on the Chest.

3. The Chest out-turn for 1999-2000 is now forecast to be as follows: income £181.1m, expenditure £182.7m, deficit £1.6m. The extra income, shown in detail in Appendix 2, includes additional grants from the HEFCE, more endowment income than originally forecast, and additional income from research grant overheads and other sources, including a £1.75m refund of VAT. Expenditure will be less than forecast last year, partly as a result of careful management and partly owing to the delay in implementing pay restructuring for non-professorial academic and academic-related staff, for which money had been set aside in the estimates. These changes have enabled the Council to finance additional non-recurrent grants of £5.5m. Details of the proposed additional expenditure are set out in Appendix 2.

4. The revised forecast for restricted income for 1999-2000 is £188.6m; expenditure is now estimated at £183.2m, giving rise to a forecast increase in surplus of £5.4m. This includes surpluses generated from trading activities, for example services rendered, Continuing Education courses, and the departmental element of research grant and contract overheads.

Forecasts for 2000-01

Achieving the University's mission

5. The University's mission is to provide an education of the highest quality at both undergraduate and postgraduate level and to encourage and pursue research of the highest quality over a wide range of subjects. The University's role is regional, national, and international. The Planning and Resources Committee will be giving further consideration to matters related to strategic planning during the forthcoming year, in the light of the responses to the initial consultation on the University's mission, which will, it is hoped, lead to a clear statement of the University's aims and core values.

6. It is fundamental to the University that research and teaching are integrated. The maintenance of the University's excellent ratings is primarily dependent on the quality of all its staff. It is essential that academic and research staff have the time and space necessary to carry out research, as well as up-to-date equipment and facilities, books, and journals, and access to other sources of information. The Council believe that all staff at whatever level should be adequately paid and supported and that their workplace accommodation should be adequate and appropriate. Over the past decade the number of staff employed by the University has increased steadily. The balance between established staff, funded by the Chest or the University Education Fund, and unestablished staff, paid for primarily out of research grants, continues to change, with an increasing number in the latter category.

Personnel matters

7. The University must be able to attract and retain staff of the highest calibre if it is to remain a leading international academic institution. Its remuneration policy and terms and conditions of employment must be sufficiently attractive and competitive to induce leading academics and professional staff to accept appointment and to reward them in the course of their employment for their commitment and achievements. A particular problem for the Council is the need to reflect local costs (including housing) and market requirements.

8. Following approval by the Regent House of proposals for the introduction of the office of University Senior Lecturer as part of the University's policy for the recruitment and retention of academic staff, a scheme for promotion to that office will be introduced with effect from 1 October 2000. Consideration will be given by the new Personnel Committee and recommendations made to the cen-tral bodies on the implementation of the detailed arrangements for additional, discretionary pay awards to non-clinical academic and academic-related staff which have been approved by the Regent House. With regard to assistant staff, the local labour market continues to be very competitive and staff turnover has increased. In order both to reward existing staff and to introduce greater flexibility in the salaries that can be offered to new recruits, salaries on promotion or on the regrading of posts will be increased by 5.0 per cent. This will be at a cost of approximately £100,000 which is being funded from the recurrent provision of £300,000 agreed two years ago to assist in recruitment and retention and for payments for excellence.

9. The report of the Independent Review of Pay and Conditions in Higher Education (the Bett Report) was published in mid-1999. This confirmed that throughout the sector there are problems of equal pay, arising from the many separate national bargaining units and pay scales, of low pay in some areas, and the perception that pay in the sector as a whole has fallen behind. The Report also gave support to the harmonization of terms and conditions of staff and to provision for management and staff development and, in particular, to membership of the Institute of Learning and Teaching for academic staff. Since the publication of the Report, there has been a protracted process of consultation by the Universities and Colleges Employers Association with member institutions about the Report's recommendations, most notably on the role of the proposed National Council. This remains ongoing and the restructuring of the national pay scales awaits completion of the process.

10. The University has introduced new arrangements to provide a more coherent approach to the personnel management of all groups of staff. These involve the appointment of a Director of Personnel (effective from 1 November 1999); the integration of the existing separate Work and Stipends and Assistant Staff Offices to form a Personnel Division (which will be completed once the offices can be co-located on a single site); and the establishment of a single Personnel Committee covering all groups of staff (which had its inaugural meeting in April 2000).

11. With these new arrangements in place, consideration will be given and recommendations made to the central bodies on a range of personnel strategy and policy issues. Of prime importance amongst these will be the issue of reward and remuneration. In the context of recruitment and retention this must have regard to the maintenance of the University's outstanding position nationally and internationally, the local labour market, and the costs and the travel difficulties of living in the Cambridge area. Other facets include the introduction of a common job evaluation scheme, a review of the arrangements for senior academic promotions in the light of the experience of their application over the past few years, and transparency in promotions and reward mechanisms.

12. In response to the Concordat and Research Careers Initiative, further work is planned on career management for contract research staff. The new arrangements for personnel management presume convergence in the treatment and terms and conditions of officers and assistant staff and this will feature in much of the work done in the Personnel Division. With the support of the Vice-Chancellor, an audit is being undertaken which will help determine the next stage of the agenda for equal opportunity. The breadth of training and development activities will be enhanced, for example, by undertaking a scoping study for the introduction of a course in academic practice and by making specific provision for the first time for academic-related staff training.

The physical environment

13. The overall increase in staff numbers places increasing pressure on the University's physical infrastructure. The charts in Appendices 3 and 4 show in real terms the ten-year trends in income and expenditure from all sources, together with the movement over a nine-year period of the unit of funding for Home/EU students. Despite the financial constraints which have affected the higher education sector in recent years, and the need to place emphasis on pay restructuring, the Council have continued to strive to include adequate support in the budget for the maintenance of buildings and the renewal of plant and equipment, as well as doing all they can to facilitate the provision of new or refurbished accommodation. During the year the Council have approved a formula for maintenance costs for the future, which will provide some 1.5 per cent of replacement cost as an annual budget for maintenance and this is expected to enable the University to maintain its buildings to a suitable standard in the short term.

Financial prospects for 2000-01 and beyond

Income

14. The overall financial position of the University continues to be one that requires the cautious strategy referred to in previous Allocations Reports. The Government's support for education and the increased funding in the sector (e.g. for infrastructure) is welcome; however the effect is diluted by the requirement to increase student numbers and by recurrent funding continuing to be subject to 'efficiency gains'.

15. The University's five main sources of revenue are as follows:

• Funding Council grants
• Student tuition fees
• Research grants and contracts
• Endowment income, trust and special fund income and interest
• Other associated operating income, including transfers from the Local Examinations Syndicate and the University Press.

16. The amounts which accrue to the Chest and which form the subject of this Report are the unrestricted elements of these revenue sources. Total estimated income amounts to £376.8m (shown in the diagram in Appendix 6), of which £184.4m will be unrestricted income accruing to the Chest. Efforts continue to be made to increase the income available to the Chest, for example by ensuring optimum distribution of income from the University's Amalgamated Fund, by continuing to adopt an energetic cash management policy, and by encouraging greater use of trust and special funds. However, the major portion of Chest income comes from the HEFCE grant and student fees, both of which are subject to restraints. At the same time costs of salaries are increasing faster than the HEFCE grant and the costs of running and maintaining new buildings is increasing as the University's capital programme grows. Table 1 sets out the view of the Planning and Resources Committee on the likely financial position up to the year 2003-04. The Council aim to develop a strategy to identify potential future income streams and increase margins on activities to offset the deficit shown. They will also be reviewing the use of non-chest balances and reserves.

17. A breakdown of expected Chest income in 2000-01 is set out in Table 1 (see p. 801).

HEFCE/TTA funding

18. Total HEFCE funding for the University is up by 1.6 per cent overall in cash terms, a net reduction of 1.0 per cent against the GDP Deflator for the academical year 2000-01. The most recent figures for the Higher Education Pay and Prices Index (HEPPI), which is produced for the CVCP by a team at the London School of Economics, show an increase of 2.6 per cent for the year to January 2000.

19. Under the HEFCE 'T' funding model the University grant for next year, 2000-01, attracts an increase of 2.5 per cent to cover the Government's prediction of inflation, but then suffers a real-terms reduction of 1.0 per cent. With the addition of funds to provide for the extra pre-clinical students which the University accepted from 1999 onwards, the University's teaching grant becomes some £49.4m. This is substantially higher than the historic baseline, but it now includes sums which form part of the College fee transfer under the new arrangements agreed with the HEFCE and the DfEE. The University does not benefit from the substantial extra monies made available to the sector in support of additional student places, since its sole bid was unsuccessful. The future level of HEFCE funding for teaching is in the hands of Government: the CVCP has lobbied in the current Spending Review for the further 1.0 per cent 'squeeze' planned for 2001-02 (and possibly thereafter) to be remitted.

20. In 1999-2000 the HEFCE introduced a grant to recognize the extra costs of widening participation of full-time undergraduates from disadvantaged backgrounds, and for 2000-01 the University receives a sum of £116,976 under this heading (out of a national total of £18m). Two further such 'premiums' have been announced for 2000-01, the first for widening participation of part-time undergraduates and the second for widening access for students with disabilities; in respect of the latter, Cambridge receives a sum of £35,444 out of £5m nationally.

21. The quality-related component of research funding ('QR') for 2000-01 shows an increase of 3.1 per cent over 1999-2000 which, although about double the national average, is a smaller increase than for many sizeable Higher Education Institutions (HEIs). The level of this funding for 2000-01 will reflect the relative shift in the University's share of national research 'volume' (research assistants and postgraduate students) compared with other HEIs. An addition to 'QR' of some £2.8m is provided for 2000-01, corresponding to the inclusion in the calculations of College-employed staff who were research-active as at 31 March 1996. As expected, this is less than for the current year because College staff work predominantly in subject areas where the funds allocated by the HEFCE have been reduced in relative terms in recent years. From 2002-03 the level of both these components may change substantially, depending on the outcome of the Research Assessment Exercise in 2001.

22. The TTA funding for Initial Teacher Training (ITT) in 2000-01 is only 1.1 per cent more than this year, in the final step to adoption of a standard 'price tariff' - fixed units of funding per student - a methodology disadvantageous to Cambridge. The funds for In-Service Education of Teachers (INSET) are similarly subject to a new method of calculation, and the corresponding grant falls by 4.1 per cent. The level of funding of ITT may hold up in future, but that for INSET is likely to decline.

Student numbers

23. In the Michaelmas Term 1999 the Council and the General Board consulted University institutions and the Colleges on a number of matters affecting the University's mission, including the future student population of the University. The Colleges' Standing Committee is currently undertaking more detailed consultations with the Colleges on future capacity. In the meantime the Council have agreed that planning to the year 2004-05 should proceed on the basis that, at undergraduate level, there is likely to be little if any change in the number of students admitted annually through the normal process. The total undergraduate population is nevertheless expected to continue to increase very slowly, at about 0.5 per cent a year, having regard in particular to the planned intake of twenty students a year to a new four-year course in Clinical Medicine intended for graduates transferring to medicine after their first degree.

24. The future position on postgraduate numbers is less easy to predict. The steady growth in the number of home postgraduates which was a feature of the 1990s has largely abated, perhaps a function of the limited supply of studentships and an unwillingness of some recent graduates to continue with postgraduate study having regard to the level of debt accumulated during their years of undergraduate study. On the other hand, the University's substantial building programme is expected to create capacity for additional postgraduate students, both home and overseas. Forecasts for the period for 2004-05 assume a continuing growth in postgraduate student numbers of about 2 per cent a year.

25. The Council intend to discuss home and overseas student number projections, at both undergraduate and postgraduate level, with the Colleges' Standing Committee in the light of the results of the current survey of College capacity referred to above.

College fees

26. Last year's Allocations Report included a report on the agreement which had been reached with the DfEE and the HEFCE on the future arrangements for the funding of Oxford and Cambridge College fees from public funds. From 1 October 1999 public funds no longer reached the Colleges through College fees paid on behalf of Home and EU award holders by Local Education Authorities; instead public funds relating to the services provided by the Colleges are now included in the University's block grant. For 1999-2000 the Council agreed that the whole of the identifiable additional income of the University's block grant for that year on account of the new arrangements would be paid to the Colleges.

27. During the summer of 1999 discussions took place between representatives of the University and the Colleges on the mechanism for this transfer and over the conditions, including audit arrangements, under which the funds would be transferred. Following these discussions it was agreed that, up to and including 2002-03 when the arrangements would be reviewed, the University would pay the Colleges a per capita sum, in lieu of College fees, in respect of every home and EU undergraduate eligible for fee support from public funds. The University agreed with the Colleges that the rate of increase in the per capita payment would be determined by the University in consultation with the Colleges, having regard to the underlying rates of increase in the components of the University's HEFCE grant but without regard to planned student numbers, and allowing for the annual reduction in the sums included in the University's block grant over a period of ten years (of which 1999-2000 was the first), this phased reduction being part of the agreement negotiated with the DfEE and the HEFCE. The application of these principles is expected to lead to a weighted average per capita College payment by the University to the Colleges of about £2,700 for 2000-01, and this assumption has been included in the estimates of expenditure for that year.

Endowments, income and interest receivable

28. It is estimated that income from this source will be £7.4m, made up as follows:

† Interest rates on cash balances have fluctuated between 4.8 and 5.5 per cent during 1999-2000, and it has been assumed for 2000-01 that they will remain at about 5.75 per cent.

* The University owns a considerable amount of non-operational property in and around Cambridge. This is managed by the Estate Management and Building Service; the net income (after all costs have been taken into account, including money set aside for maintenance and refurbishment) is transferred annually to the Chest.

Other operating income

29. It is estimated that income from this source will be £8.0m, made up as follows:

† See paragraph 31.

* Earmarked donations are generally accounted for as non-chest income to the extent they are spent in the year, or as capital receipts which go direct to the Balance Sheet, if they are not.

Overheads on externally funded research

30. It is estimated that the share of overheads accruing to the Chest will be £9.9m which represents a 9.6 per cent increase over the income estimate for 1999-2000. The estimate is based on a predicted volume increase of 7.0 per cent in the year 2000-01, and is expected to be maintained at this level over the planning period (to 2003-04). The Chest share of the overheads earned is expected to be 60 per cent of the total for the period. Chest overhead is used to offset all centrally funded operating costs associated with Research Grants.

Financial support from the Local Examinations Syndicate and the University Press

31. The Annual Reports and Accounts of these two associated bodies will be published in the Reporter later this year. Regulation 13 for the Local Examinations Syndicate (Statutes and Ordinances, p. 137) provides that 'In any year in which the audited accounts show a sufficient balance the Syndicate shall pay to the Chest such a proportion of the balance as shall be agreed between the Syndicate and the Council'. Over the period from 1981 to 1999 the total amount transferred from UCLES to the University was £88.7m (including £3.2m for the Centre for English and Applied Linguistics and excluding £17.9m transferred to the Cambridge Commonwealth Trust and Cambridge Overseas Trust). In 1999 the Syndicate again made an operating loss, but nonetheless transferred £3.543m to the Chest plus a total of £260,250 for other purposes (Cambridge Commonwealth Trust, Millennium Maths Project, and College support for overseas students).

32. The financial year 1998-99 saw the full implementation of major structural and operational changes in all areas of the UCLES Group's activities, which came into effect at the beginning of the period. These changes, which have been under development for several years, have involved the complete restructuring of the organization's operations, to allow the Group to provide a better, more targeted and cost-effective service to customers, and to correct several years of poor financial performance.

33. The external environment in which the UCLES Group operates continues to be extremely challenging. Nevertheless, the Council expects minimum transfers of approximately £3.5m a year over the next five years.

34. The Press is governed by its own Statute (Statute J), which entrusts the management of its finances to the Press Syndicate. Capital and income are controlled and applied by the Press Syndicate for the purposes of the Press, i.e. '... to printing and publishing in the furtherance of the acquisition, advancement, conservation, and dissemination of knowledge in all subjects; to the advancement of education, religion, learning, and research; and to the advancement of literature and good letters' (Statute J, 1). The Press Syndicate makes regular transfers to the Chest for these purposes; £1.33m in respect of 1999-2000 was transferred in 1997 and applied to library purposes. At the end of 1999, the amount held by the Press Syndicate was valued at £7.9m. The whole of the income on this sum, and part of the capital, forms an appropriation-in-aid to the University Library. An amount of £3.6m will have been transferred to the Chest in 1999-2000, for capital and other purposes, bringing the total transferred in the last ten years to £30m. The Press Syndicate keeps the question of transfers to the Chest under regular review, and will be considering future transfers in the first part of 2000-01, after taking necessary account of the Press's own future funding requirements. These currently include heavy investment in business facilities and technological change.

Quinquennial Equalization Fund (QEF)

35. The QEF is derived from accumulated surpluses (or deficits) on Chest income and expenditure, and is available to make good any deficiency of income in a year in which the authorized expenditure of the Chest exceeds its income. The balance in the Fund at 31 July 1999 was £9.0m. If the deficit of £1.6m forecast in this Report for the current year is realized (paragraph 3) including the 1999-2000 expenditure on CAPSA, the balance in the QEF will be reduced to approximately £4.1m. The effect of the deficit forecast for 2000-01 will be to reduce the balance in the Fund to about £1.9m. Stated balances reflect the current valuation of units of the Amalgamated Fund in which part of the QEF is invested, no account having been taken of the revaluation of units at 31 July 2000 and 31 July 2001 respectively; it is hoped that part of the reduction will be offset by an increase in the capital value of the units.

Expenditure

36. Draft estimates of expenditure for 2000-01 have in general been prepared by updating the 1999-2000 figures to include pay inflation and any new recurrent needs agreed by the Council and the General Board in that year, which then go into the baseline for the following year. Some demand-driven increases in volume have been agreed for central expenditure (for example on buildings maintenance and utilities) but otherwise little change has been made. Individual detailed estimates have however been referred to Heads of Departments and other institutions as a check against error.

Funding priorities for 2000-01

37. The General Board accord a high priority to ensuring that there are sufficient funds for new developments, including the funding of equipment, infrastructure, and salaries for non-professorial academic and academic-related staff. Their views have been reported to the Planning and Resources Committee. In the light of advice received from that Committee, the Council have proposed that £1.3m should be allocated recurrently to meet the costs of salary restructuring for academic and academic-related staff, including any cost of upgradings and personal promotions beyond that provided for within the recommended allocation of £1.2m for new needs. The Council and the General Board have agreed that, as in 1999-2000, personal promotions should be primarily determined by the assessment of academic merit, without budgetary restriction. If necessary, the Council will ensure that funds are available to meet the additional cost of promotions recommended by the Board. This is in addition to the amounts regularly set aside for recruitment incentive payments (£0.3m for Professors and £0.2m for non-professorial staff in 2000-01).

Commitment accounting - Project CAPSA

38. In the 1999 Allocations Report, it was noted that the University had decided to proceed with the procurement and installation of a new accounting system which would provide more accurate and timely management information. During 1999 the implementation faced a number of difficulties and the implementation strategy was reviewed. As a result of that review, it is planned that there will be one implementation date for the whole University which will be 1 August 2000. The implementation team consists of a mix of seconded University staff both from Faculties and Departments and from the Finance Division, as well as Oracle and KPMG implementation experts. Additional resources have been made available in 2000-01 for both the Council and General Board institutions to help implement and use the new system.

University Offices

39. The Council have proposed significant additional recurrent (and non-recurrent) funding for the University Offices, particularly in the Research Services and Personnel Divisions, in response to requests from the Offices. Extra resource has previously been provided for the development of CAPSA (see above, paragraph 38). The Council have been concerned for some time that the level of resources in the Offices has delayed the development of the new systems and ways of working that are necessary to meet the expectations of Faculties and Departments. The Board of Scrutiny have also drawn the University's attention to some specific issues. The Offices are currently undergoing major organizational change and specialist new senior level appointments have been made. The Council are satisfied that without additional resources the services the University needs cannot be provided. By comparison with statistics published for all UK universities, Cambridge spends less than average on administration and significantly less than Oxford. The Council intend to develop explicit review procedures for the Offices both to look at the quality of the services provided and to ensure that they continue to be appropriate for the University's needs. As a first step the Council have asked the Registrary for detailed proposals.

Analysis of Chest expenditure

40. A breakdown of proposed expenditure from the Chest for 2000-01 is set out in Table 1. The following table shows the main components. Detailed estimates will be referred for approval to the Council in the case of Council institutions and to the General Board in the case of institutions under the supervision of the Board.

¹ Percentage increase/decrease on comparable expenditure in 1999-2000 (including supplementary allocations described in this Report).

² There are a number of changes to Central Heads of Estimates :

41. As indicated above, much of the University's core expenditure is budgeted for on a historic basis. The Council take this opportunity, however, to comment on some of the main areas of expenditure in 2000-01 which will be funded out of reserves.

Medium-term capital programme

42. It was decided last year that the University should draw up a review of its present estate and a plan of how that should best be developed. An initial draft paper setting out the proposed shape of an estate plan, with its underlying assumptions, was considered by the Council and the General Board during the Summer of 1999.

43. The University's operational estate (i.e. excluding investment properties) is currently about 500,000 sq.m. and valued for insurance at £850m; it costs about £30m annually to be maintained and serviced. It is now growing in size at over 6 per cent a year as a consequence of the University's capital construction programme of £280m of building projects, the fastest growth in the history of the University.

44. The original estimate for 1999-2000 estimated maintenance of premises costs at a total of £27.3m. This included £24.3m maintenance costs (Table 1, line 14) and a £3m allocation to the Minor Works Fund (included in Table 1, line 23). With the increase in growth in the Estate, by 2003-04, the estimated premises costs are expected to increase to £35.9m (£31.9m and £4m Minor Works Fund allocation) a total increase of some £8.6m.

45. During the last year there has been a detailed review of all the operational buildings with the main aim of assessing the size and nature of the estate needed as the numbers of staff and students increase. It is a long and detailed, but essential, process to get 'clean data' on all the rooms, laboratories, lecture theatres, etc., in over 300 buildings, and accurate staff and student numbers; having a robust data base is necessary for taking good decisions on allocating resources that can never meet all needs.

46. In essence, the Estate Plan addresses first the nature and extent of the current estate and its local environment. Then it assesses space needs based on national reviews of the use of space, in all the various academic and administrative functions; over the years resulting 'space norms' have been updated and adjusted locally to better match Cambridge practices in teaching and research. There will always be further need for updating those space standards.

47. Student and researcher numbers are the fundamental 'drivers', with some allowances for certain specialist equipment, museums, and some other special circumstances. While many universities base their estates at a level of 50-70 per cent of the 'norm' indicated space needs, for Cambridge a 90 per cent level is deemed necessary, given the higher staff/student ratios. Quality of space and the optimum locations for cognate disciplines are also being assessed as part of the emerging Estate Plan.

48. The difference, or 'gap' between space provided and space required (projecting both over the next five years) gives an assessment of what should be done to achieve an adequate supply of space: many Faculties and Departments are under-provided, while others are much better off. Condition and suitability of space are addressed at the same time.

49. The Estate Plan will conclude with a prioritized list of future capital projects aimed to bring Faculties and Departments up to at least a sensible minimum level of space sufficient for high-quality research and teaching, on the assumption that waste and poor use of space are at a minimum. Achieving adequate funding for such projects will be a continuing target for the Development Office and the Council.

50. Once again the Council have been advised by the Planning and Resources Committee that the pressures on recurrent funding are too great to allow for any contribution to be made from the Chest to the New Buildings Enabling Fund (NBEF) in 2000-01. The improved position in the current year has, however, permitted the Council to agree a non-recurrent allocation of £1.0m in 1999-2000. In addition, the Council have, on the recommendation of the Planning and Resources Committee, agreed to allocate to the NBEF a further non-recurrent amount of £985,000, which represented the increase in value since 1 August 1999 of the Chest's holding of shares in Cambridge Water Company, which were sold in December 1999.

51. The balance standing to the credit of the NBEF at 1 August 1999 was £5.703m. £805,000 has been allocated for contributions to two mainly JIF-funded projects, including a major extension to the Wellcome/CRC building. It is anticipated that an amount of up to £400,000 a year for the next five years will need to be charged to the Fund in order to pay for the additional cost within the Estate Management and Building Service of managing an unprecedentedly large capital programme.

52. Notwithstanding other calls on the Fund, the Planning and Resources Committee has advised the Council to earmark £4.0m from the NBEF as a University contribution towards the proposed new building for the Faculty of English, to be constructed (subject to planning permission, the approval of the Regent House, and fund-raising) on the Sidgwick Avenue Site.

53. The University's programme of building continues to expand, with support from the Government's Joint Infrastructure Fund and from a wide range of benefactors, including individuals, companies, and charitable trusts. The work of the Development Office, both in the UK and in America, is crucial in this area, as is the support of the Cambridge Foundation.

54. The following major projects started in 1999-2000 and will be in progress during 2000-01:

55. Projects planned for 2000-01 (some of which are still subject to approval by the Regent House) are set out below:

Microsoft Research Building
Centre for Mathematical Sciences, Clarkson
Road: Pavilions 4, 6, 7, and 8
Wellcome/CRC Institute: new building
Experimental Psychology
Marconi Building
Engineering: Thermodynamics laboratory
Engineering: Geotechnical processes
Genetics: Cell biology/drosophila
Virology refurbishment
Astronomy, Phase 2 - Hoyle Building

56. The total cost of these forthcoming projects amounts to over £92m, which comes from the following sources:

Minor capital works

57. The Minor Works Fund, which is used as a source of funds for building alterations, refurbishments, and extensions, has continued to be subject to heavy demands. These arise for numerous reasons, including health and safety, the arrival of new staff, especially Professors, and in anticipation of or in response to Subject Review visits and changes in teaching arrangements. In order to ensure that the University's resources are deployed in as cost-effective a manner as possible, schemes have continued to be subject to detailed examination by the Minor Works Review Group throughout key stages of their development. In 1999-2000, for the first time, a building upgrading procedure has been introduced for schemes where the estimated cost is above £50,000 and there is a call on the Fund. Faculties and Departments were asked to put forward proposals which were then placed in priority order, based on academic need, by the Councils of the Schools before being considered by the Minor Works Review Group. A list of schemes for implementation was then agreed by the General Board (no schemes were put forward by Council institutions). The arrangement has generally worked well and is due to be repeated in 2000-01 with some minor amendments. The General Board and the Council have also continued to require contributions towards the cost of minor works to be made from funds available to Departments and other institutions; this encourages the authorities concerned to keep specifications to the minimum necessary to satisfy the purpose of a scheme.

58. During the current year, the sums of £10.5m (for research capital) and £1.4m (for teaching and learning infrastructure) have been made available to the University under the HEFCE Project Capital Allocations. A number of submissions have been put forward under this initiative and these are in the process of being evaluated by the HEFCE. Funding has also been made available under a joint Royal Society and Wolfson Foundation initiative in Informatics in the areas of chemistry, biology, and medical sciences. However, such targeted initiatives can support only a part of the work necessary to bring all the University's teaching and research facilities up to modern standards and there will inevitably be a continuing need to provide substantial funds for that purpose from the University's own resources.

59. A summary of the estimated position of the Minor Works Fund in the current year and a forecast for 2000-01 is given below:

60. As the Minor Works Fund has to meet the needs of Council as well as General Board institutions, and a number of minor works schemes for Council institutions are in preparation, the Planning and Resources Committee have recommended that the allocation to the Fund in 2000-01 should be £3.0m (1999-2000 £3.0m). However, the Committee recorded the hope that it would be possible to increase this allocation to £4.0m for 2001-02 having regard to the high level of demand on the fund for the foreseeable future. Hence the Committee recommended a further £1.0m to be allocated to the Fund in 1999-2000.

61. Schemes where the contribution from the Minor Works Fund is in excess of £50,000, and which have been approved or commenced since the last Allocations Report include:

The figures above show the Minor Works Fund contribution only, not the full cost of the project, which may be greater in some cases due to contributions from Faculties or Departments or maintenance sources.

62. There are a number of further schemes in development, which are likely to place substantial demands on the Fund.

Maintenance of buildings

63. The Buildings Maintenance Fund is used for planned maintenance over a five-year rolling programme. The position of the Buildings Maintenance Fund for the years under review is estimated to be as follows:

64. On the recommendation of the Finance Committee, and having regard to the need to maintain the University's buildings properly, and prevent levels of annual maintenance expenditure falling below the level recommended by the HEFCE, namely 1.5 per cent of the replacement costs of the estate, the Council have proposed an allocation of £4.0m to the Fund in 2000-01, supplemented by the third of five additional annual allocations of £1.0m for the continuance of the fume cupboard upgrading programme. In the current year the Council have recommended an additional £1.5m, mostly to accelerate the fume cupboard programme to take advantage of JIF refurbishment, and for other maintenance. The Council have also agreed to an increase in the general maintenance budget to £5.1m (£4.6m in 1999-2000).

65. The Council have noted the Finance Committee's advice that, on current projections, allocations to the Buildings Maintenance Fund will have to be raised by an additional £14.4m over the years 2001-02 to 2004-05 if the target level of 1.5 per cent of replacement costs of buildings for maintenance expenditure is to be maintained. This forecast assumes that the operational estate will continue to grow at a rate of 2.5 per cent a year; the current rate of expansion is about 6 per cent. It should be noted that the target of 1.5 per cent takes into account the benefit of major refurbishment projects and improvements funded by the Minor Works Fund, without which the benchmark would have to be 2.0 per cent. It is not clear, however, that this low base is sustainable in the longer term, given the highly-serviced nature of much of the University's scientific accommodation, and the need to maintain a significant number of ancient buildings.

66. Projects approved or started since the last Report include:

Strategic Planning Reserve Fund

67. The Strategic Planning Reserve Fund was established in 1993 in response to the need to introduce a measure of flexibility into the budget so as to make it possible to provide financial support for projects of strategic importance, as determined by the Council on the advice of the Resources Committee (now the Planning and Resources Committee) and the General Board. The Council take this opportunity to inform the University of the projects for which assistance from the Fund has been committed since the publication of the 1999 Allocations Report, which are as follows:

68. The uncommitted balance of the Fund at 30 April 2000 was £1.4m. The existence of the Fund continues to enable the central bodies and the Vice-Chancellor to respond rapidly and creatively in pursuit of the University's goals, especially in negotiations with new Professors and external funding bodies. The Council propose a further allocation of £1.0m to the Fund for 1999-2000 but resources are not available for a further contribution to the fund in 2000-01.

West Cambridge infrastructure costs

69. The Council take this opportunity to inform the Regent House of the likely cost implications of developments at West Cambridge. To date, an amount of £5.23m has been set aside from the Land Fund to pay for necessary infrastructure works including access roads, archaeological works, some landscaping, and a new sewer. The likely overall cost of infrastructure for the whole site is currently estimated at £21.72m (including the £5.23m referred to above). Funding is also required for those common services, such as aspects of the East Forum, for which monies are unlikely to be able to be raised from industrial collaborators or benefactors. Although it has always been envisaged that the Land Fund would need to provide some of these costs, the indicative planning figure used to date has been £10m (including the £5.23m referred to above). It now seems likely that an additional £20m will have to be found over the next five or so years in order to move the development forward. Strenuous efforts will need to be made to raise additional capital and income from a wide variety of sources.

HEFCE Initiative - HERoBaC

70. In that connection the Council wish to draw attention to the establishment by the HEFCE of its new HERoBaC (Higher Education Reach-out to Business and the Community) initiative which is intended to increase the capability of HEIs to respond to the needs of business, including companies of all sizes and the wider community, where this will lead to wealth creation. The new fund is intended to initiate a third stream of funding, complementing the HEFCE's existing grant for teaching and research, to reward and encourage HEIs to enhance their interaction with business. The University has received an allocation of £1.1m over four years and is now establishing a Reach-Out Office, under the day-to-day management of the former Director of the Cambridge Programme for Industry, reporting to the Treasurer. For many years the agencies in the University responsible for different elements of the interface with business and industry have collaborated informally. The Reach-Out Office offers an opportunity to build upon that informal collaboration and to establish much clearer links between academic staff and business and vice versa.

Provision for rising pay costs

71. The estimates have been prepared on the basis of stipends and wages in payment on 1 January 2000, and provision has been made for estimated cost-of-living pay increases which are expected to take effect before 1 August 2000. The Council emphasize, as they have done in earlier years, that pay remains the most critical factor in the University's overall budget, representing approximately 55 per cent of total expenditure from the Chest. It is therefore essential that the overall pay budget should be contained at a level which the University can continue to afford in the long term, but which is consistent with local costs and the University's international position. Changes in pay costs are a function not only of annual pay awards but also of changes of the structure of staffing throughout the University as a whole, for example the numbers of Senior Lectureships and Readerships. The Council recognize that it will be difficult to meet the target of longer-term sustainability and the changing environment in which the University operates, however it is determined that our pay and reward system should reflect achievement. A sum of £210m has been estimated for the University's total annual salary costs as at 1 January 2000; this assumes staff numbers as follows:

72. Approximately £101m falls on the Chest (including the UEF), and the balance of £109m is from restricted income (research grants and contracts, trust funds, etc.).

Recommendations

73. The Council recommend:

I. That the supplementary allocations for 1999-2000 referred to in this Report be approved.

II. That allocations from the Chest for the year 2000-01 be as follows:

III. That the allocations for 2000-01 be adjusted to take account of any differences between actual and estimated expenditure on pensionable stipends, wages, pensions, national insurance contributions, and other personal emoluments.

IV. That any additional surplus achieved in 1999-2000 and any supplementary HEFCE grants which may be received for special purposes during 2000-01 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 II above be adjusted accordingly.

12 June 2000

Pages 792-802 of the paper issue of this Reporter are reproduced online in the form of an Adobe Acrobat PDF file. Notes on viewing PDF files are provided.

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Cambridge University Reporter, 14 June 2000
Copyright © 2000 The Chancellor, Masters and Scholars of the University of Cambridge.