The COUNCIL beg leave to report to the University as follows:
1. This Allocations Report assesses the financial position of the University and recommends allocations from the Chest for the financial year 2004-05.
2. The financial position of the University has worsened significantly during the past 12 months. The single largest factor is the return to making regular contributions in the Cambridge University Assistants Contributory Pension Scheme (CPS) (see paragraph 11 below), and a number of other factors give cause for concern in the immediate future. Looking forward, measures in place and further anticipated changes as detailed in paragraph 9 provide a more favourable view in the longer term.
3. The original estimated deficit on the Chest for 2003-04 was £(5.1)m on Chest income1 of £224.8m (and total University income of £481m). An exceptional contribution of £9.5m will be made to the CPS in respect of the year following the most recent actuarial valuation. The latest forecast is for a deficit of £(15.6)m, close to the original Estimate after taking into account the CPS contribution.
4. Last year's Allocation Report projected a deficit of £(3.5)m for 2004-05, but the current estimate is substantially greater. Although the HEFCE block grant settlement for 2004-05 was an above-inflation cash increase, the T-component represents a real term decrease and the R-element does not keep pace with increased research volume. Fee income is expected to decrease as a result of the expansion of the EU and the consequent increase in Home/EU students relative to 'overseas students' paying higher fees. In addition there are a number of items of significant new expenditure. The employers' contribution to the CPS is increased to 16.5% at a cost to the Chest of £6.3m. Increases in energy prices and use have raised the utilities bill by £1.8m. Other additional costs include implementation of full economic costing of research (FEC), as required by the Office of Science and Technology (OST) and estimated at £0.4m; and the installation of a personnel/payroll IT system to replace the ageing SECQUS and payroll systems at an expected project cost of £4.1m, of which all but £0.6m has been deferred to 2005-06 and beyond. The Council and the General Board consider these new costs to be inescapable. The Council also propose an allocation of £2m for staff restructuring as the minimum needed to implement the financial strategies of Schools and other institutions. The overall result is a deficit of £(11.8)m on Chest income of £238.3m, despite an exceptional contribution of £4.0m from UCLES.
5. For many years the devolution of academic planning and budgetary responsibility to Schools and other institutions has been regarded as an important element in strategic and financial planning. A Resource Allocation Model (RAM) was developed to facilitate devolution and in December 2003 the Council and the General Board reported on a RAM built on the 2003 Allocations Report and Estimates. The model has been rolled forward for 2004-05 on the same assumptions as this estimate for 2004-05. Schools and other institutions have been asked to prepare plans and financial forecasts for a five-year period in the course of 2004-05. As experience grows this process will develop into an annual planning round.
6. During consultation on the design and implementation of the RAM it was agreed that no School should be expected to make savings, in any one year, corresponding to more than 1% of Chest expenditure, and that all other institutions would be expected to make savings equivalent to those made by Schools. The scale of the 2004-05 estimated deficit makes it apparent that a 1% annual improvement will be insufficient to rectify the financial position. The Planning and Resources Committee (PRC) considered increasing this savings target for 2004-05 and beyond. They noted, however, that the pay bill for assistant staff funded from sources other than the Chest would rise by more than £2m, and that this would be an additional burden on the Schools and other institutions. The PRC therefore recommended to the Council and the General Board that it would be unrealistic to raise the 'savings target' in 2004-05.
7. The greatest risk to the University is that it fails to recruit and retain high quality staff of all grades. If Cambridge is to survive as a world-class university, it must not merely achieve a balanced budget, but must generate sufficient funds to allow further investment including greater rewards for staff and increased flexibility in recruitment. In the current circumstances this is a major challenge.
8. Projections to 2007-08 show a deficit reducing to £(6.5)m after the agreed capped 'RAM targets' of annual improvement in Chest income/expenditure. In the context of devolved financial planning, the role of the central bodies must be to improve central income, decrease central expenditure, and implement policies that will allow greater earnings and efficiencies in Schools and institutions. There are a number of opportunities for savings and possible sources of new income that are expected to arise in the next few years but there are also very significant uncertainties, and it would be unwise to make solid financial predictions at this time.
9. The Council are satisfied that opportunities exist to reverse the current deficit and bring the University's finances into balance over the five-year period. However the various options need to be properly quantified, the scale of the uncertainties and their effects must be estimated, and, where necessary, the consent of the Regent House must be obtained. The Council expect to complete the preparation of such a plan by the end of the Michaelmas Term 2004. The opportunities include:
| (i) | Research funding. From October 2005 all research grants will be priced on the basis of full economic costing (FEC), and this should result in a significant improvement in overhead recovery. It is unclear, however, how FEC will impact on the total research activity of the Higher Education sector, and charities (a major source of research funds to the University) have yet to reach agreement with the OST as to the extent to which they are expected to meet full cost. In addition the future basis of dual support funding remains under discussion and the HEFCE's formula for R-grant allocation after the next Research Assessment Exercise (RAE) is unannounced. Nevertheless, an increase in Research Council overheads has been announced and predicted increases in income have been incorporated into the financial projections. |
| (ii) | Science Research Infrastructure Fund (SRIF). Provided that the Higher Education Bill is passed, SRIF will become RIF (to include Arts and Humanities), and the HEFCE is expected to reduce its micro-management of the allocated funds. It is essential that these funds (currently at the level of approximately £30m a year) are used where possible in place of Chest funds. |
| (iii) | Promotions. The introduction of the current promotions scheme resulted in an increased rate of promotions and the need to build new recurrent funds into the budget year on year. The expectation is that the staff profile will reach a new steady state within a few years, at which time funds liberated by the retirement of senior staff will be available for promoting more junior staff. |
| (iv) | Profile of the student body. The number of Home/EU students has risen, partly because of EU expansion, and the number could now be reduced (and replaced with overseas students paying higher fees) without a reduction in the HEFCE-T grant. It is probable that the plans of Schools will include the introduction of a small number of 'high value' taught postgraduate courses. It is important to consider various scenarios, but the implementation of variable M.Phil. fees would require the approval of the University and changes in the pattern of student admissions would require the co-operation of the Colleges. |
| (v) | 800th Campaign. The Campaign has been funded from the Chest with the expectation that it will more than repay the investment. It is, however, crucial that fund-raising is targeted as far as possible to increasing general endowment and improving current activity as well as supporting entirely new activity which would generate new central expenditure. |
| (vi) | Student fees. An increase in home/EU undergraduate student fee income to £3,000 per student would bring approximately £21m to the University by 2008-09 and would close the projected deficit. However, the Higher Education Bill has yet to be passed, the Regent House must approve fee levels, and at this stage it is uncertain what proportion of this income will be needed to support efforts to widen access. In addition, the HEFCE will introduce a new formula for T-funding that will take some account of additional fee income. The Council expect to publish a Report on fees later in the Easter Term 2004. In the light of the above uncertainties no additional student fee income has been included in the projections. |
10. The Council reported in June 2003 (Reporter, 2002-03, p. 1074) that they estimated that the total income for the year 2003-04 would be £481.9m, of which £224.8m would be Chest income and £257.0m would be non-Chest, or restricted income. The overall position was expected to be a deficit of £(5.1)m on the Chest. The latest forecast is for a significantly larger Chest deficit, mainly because of an exceptional payment of £9.5m to be made into the Cambridge University Assistants' Contributory Pension Scheme.
| Latest Forecast | Original Estimate | Change | |
| £m | £m | £m | |
| Chest Income | 223.1 | 224.8 | -1.7 |
| Chest Expenditure | (229.2) | (229.9) | +0.7 |
| (6.1) | (5.1) | -1.0 | |
| Chest Exceptional Expenditure | (9.5) | -9.5 | |
| - payment to the CPS | |||
| Chest Deficit | (15.6) | (5.1) | -10.5 |
11. The main changes compared to the original Estimate are as follows:
| - | Reduced funding council grants of £1.8m primarily because of deferral of special funding, and recovery of overheads by the Chest lower than estimated, offset by additional fee income primarily arising from a higher than expected number of postgraduate students. |
| - | Savings from activity deferred to 2004-05 (to be funded from funding council special grants) £1.4m. |
| - | Additional pay costs from general increase and additional salary costs of clinicians £1.1m. |
| - | Other net increases in costs £0.8m. |
| - | The main impact on the outturn for 2003-04 arises from the triennial actuarial valuation of the CPS as at 31 July 2003. In common with many final salary schemes in the UK, the results of the valuation showed deficit for past service. In the case of the CPS the deficit is about £17.6m in contrast with a surplus at the last actuarial valuation in 2000 of around £68m. Although this deficit is a large figure, it is relatively small in relation to the size of the scheme: the market value of its assets as at 31 December 2003 was approximately £204m. Much of the change is due to the reduction in investment returns, experienced by all pension schemes during this period, and the fact that contribution rates to the scheme had been held at a low level during the period between valuations. Contributions by the University and employees are being increased to 16.5% and 6% of pensionable pay, respectively, from 1 August 2004. In addition the University will make an exceptional contribution in 2003-04 of £9.5m. |
12. In reaching the Estimate for 2003-04 the financial impacts of certain measures recommended by the Finance Working Party of the Planning and Resources Committee (Reporter, 2002-03, pp. 697-700) were included. The out-turn of these measures has been much in line with expectations.
13. The estimate for 2004-05 is for a deficit of £(11.8)m, a small improvement on the latest forecast for 2003-04, but significantly larger than the deficit for the same period projected in last year's Allocations Report. A major explanation for the worsening result is the additional cost to the University of its regular employers' contributions to the CPS, which are budgeted at £6.3m for 2004-05. The Council are deeply concerned with the level of deficit, but are of the opinion that further short-term reductions in expenditure are not possible without seriously damaging the University's excellence and that challenging steps outlined in paragraph 9 are in place to restore to balance.
| Estimate | Latest Forecast | Change | Change | |
| 2004-05 | 2003-04 | |||
| £m | £m | £m | % | |
| Chest Income | 238.3 | 223.1 | +15.2 | +6.8% |
| Chest Expenditure | (250.1) | (238.7)* | -11.4 | +4.8% |
| Chest Deficit | (11.8) | (15.6) | +3.8 | |
(+ = favourable)
(* Includes £9.5m to CPS)
14. The officers have taken the previous year's estimated expenditure figures, updated for the impact of the pay award, based on approved establishments. They have added in an overall estimate for future pay awards in 2004. Other expenditure is adjusted for known changes or estimated from volume changes. New expenditure as approved by the Resource Management Committee is included.
15. Income is estimated to rise by 6.8% to £238.3m.
| Estimate | Latest Forecast | |||
| 2004-05 | 2003-04 | Change | Change | |
| £m | £m | £m | % | |
| HEFCE/TTA grant | 154.1 | 145.2 | +8.9 | +6.1% |
| Academic fees and support grants | 46.1 | 46.0 | +0.1 | — |
| Other income | 14.6 | 10.6 | +4.0 | +38.7% |
| Endowment and investment income | 9.4 | 9.1 | +0.3 | +3.3% |
| Research Grants and Contracts - indirect Chest overheads | 14.1 | 12.2 | +1.9 | +15.6% |
| 238.3 | 223.1 | +15.2 | +6.8% | |
The details of the changes are as follows:
16. The Secretary of State's letter to the HEFCE of 8 January 2004 announced that total institutional funding for Higher Education Institutions (HEIs) in England would increase from £6,406m in the 2003-04 financial year to £6,928m in the 2004-05 financial year (excluding Access and Hardship funding and the costs of capital and depreciation). This represented a cash increase of £522m, or 8.1 per cent.
17. The HEFCE Grant Letter to the University shows that on HEFCE calculations Cambridge receives a 4.0% increase in resource for 2004-05 over that for 2003-04 when adjusted for volume increases, and 4.2% overall. In grant terms, the HEFCE definition of resource includes HEFCE grant, the HEFCE's estimate of the University's Home/EU Composition Fee income, and the funding attributable to the Colleges under the College Fee Transfer arrangements. More appropriate comparisons between the years, using local estimates of Composition Fee income and excluding the College Fee Transfer-related component show an increase in total HEFCE funding and Composition Fees of 4.5%.
18. The increase to the sector's baseline teaching funding was announced by the HEFCE at 3%, but this includes Round 2 funding for Rewarding and Developing Staff. The sector level inflation adjustment to baseline teaching funding excluding this exceptional funding is limited to 1.5% - a real terms cut.
19. The basic HEFCE 'T' funding model is unchanged from 2003-04 but incorporates a number of detailed changes following consultation with the sector in 2003. The total effect did not materially alter the position of the University in its contract range, and consequently the University's baseline funding for teaching rolled forward with volume additions. HEFCE calculations produce for Cambridge a total core teaching grant for 2003-04 (excluding Round 2 funding for Rewarding and Developing Staff) of some £53.9m. This is an increase of 2% compared with 2003-04, and reflects the funding addition for the last additional cohort of students for the graduate-entry course in Medicine.
20. The funding formula is not settled for the long term but will last at least three years. The HEFCE has announced that it will be starting fundamental review work in 2004.
21. In 2003-04 additional funding was provided for Units of Assessment (UOAs) that achieved a rating of 5* in both the 1996 and 2001 Research Assessment Exercises. In consultation with the sector this definition was broadened for 2004-05 to include UOAs that achieved a 5* in 2001 without a reduction in volume as compared with 1996. In Cambridge the number of 'Best 5*' UOAs has increased from 23 to 29, but there has been a greater proportionate increase in the sector, reducing the quantum of funding for each qualifying UOA. Supplementary funding was therefore made available by the HEFCE to compensate for the decrease ensuring that the best of the 'Best 5*' universities did not lose out in 2003-04 as compared with 2002-03.
22. The HEFCE has stated that the average unit of resource for 5 and 5* departments has otherwise been at least maintained in real terms, and the weighting attached to the 5* quality rating has been raised, but 4-rated departments have been capped at a real terms increase.
23. Changes introduced by the HEFCE to the QR formula last year reduced the weighting for high-cost laboratory and clinical subjects. In 2003-04 the weighting applied to income from charities was reduced to ensure broadly constant proportions of QR are attributed to the various elements of research (the 'Minor Volume Factors') measured annually in the Research Activity Survey. The effect of a reduction in weighting for a Minor Volume Factor is to reduce the quantum of QR funding for each volume unit. No improvements in QR funding are likely before 2008-09. The HEFCE will in due course review the R formula in the light of the changes in the next RAE, and these factors are at risk.
24. The Sector increase in R funding is 4%. Taking account of the increase in funding for the supervision of Home/EU postgraduate research students, total R funding for the University has risen by 5.3%.
25. The special funding for Chinese Studies has been discontinued. Funding for minority subjects is under review, but has been continued for one more year. The HEFCE special funding in respect of the copyright library and minority subjects attracts the general cash increase of 2.5% for 2003-04. The Institute of Zoology is funded through the University as a special arrangement with the HEFCE.
26. The funding received in 2003-04 for Rewarding and Developing Staff has been rolled into mainstream Teaching funding. This has been received at its full amount, not pro-rated on Teaching Funding as originally proposed. As noted above, Round 2 funding has been added. The HEFCE have been told that the University will participate in the HEFCE 'Golden Hello' scheme but that few awards are likely to be made because of the criterion that those receiving awards must not have been employed previously in HEIs. The University scored too highly in the RAE to be eligible for funding for the Promising Researcher Fellowship Scheme
27. In 1999-2000 the HEFCE introduced formula-based grants to recognize the extra costs of widening participation of full-time undergraduates from disadvantaged backgrounds (the 'postcode premium'). A further premium was announced for 2000-01 to encourage the widening of access for students with disabilities. For 2003-04 a third stream to support retention was added. The basis of calculation of the 'postcode premium' has been changed for 2004-05 to a measure of participation (full-time young undergraduates) or achievement (part-time and mature undergraduates) by ward.
28. Changes in data and the calculations for funding for widening participation strategies mean that the allocation to Cambridge has reduced by 5.4%, almost all the reduction being accounted for by a change in the method of distributing the sum attributable to part-time undergraduates. Total funding in the Sector has increased by 2.5%.
29. Mainstream funds for initial teacher training (ITT) are stable at £3.7m, but there is a reduced holdback for under-recruitment. TTA funding for Rewarding and Developing Staff received through the HEFCE has been consolidated within ITT mainstream funds, as has the formerly separate stream of Partnership Funding.
30. The present planning assumptions are that undergraduate numbers continue to increase slowly, at about 0.5% a year. The number of home/EU postgraduate students is assumed to have reached a steady state and, except for the impact of the enlargement of the European Union discussed below, no volume increase has been included for future years. Overseas postgraduate student numbers are expected to increase at a rate of around 2.0% a year.
31. Fees: Home and EU students. The estimated income to the Chest from this source for 2004-05 is £20.9m. The University Composition Fee for an undergraduate has been set by the Government at £1,150, for an estimated 11,686 students. The postgraduate fee for 2004-05 has been set by the Government at £3,010, for an estimated 2,665 students.
32. Fees: Overseas students. The estimated income to the Chest from this source for 2004-05 is £24.1m, which assumes 945 undergraduate students and 1,898 postgraduate students. Composition Fees for overseas students were increased by 2.0% above the rate of inflation for 2003-04 and this increase of 2.0% above inflation is being maintained for each of 2004-05 and 2005-06. Part of this increase is providing additional resources for overseas scholarships. Students from countries newly admitted to the European Union will be classified as home/EU, and attract lower fee levels. If the student profile is unchanged, the impact of this is expected to be a reduction in overall fees of £1.1m.
33. The College fee transfer of £30.8m has been estimated in accordance with the Terms of Agreement between the University and Colleges regarding College fees, with the addition of a separate sum for Homerton College.
34. It is estimated that the unrestricted income from this source will be £9.4m.
| £m | |
| Income from Amalgamated Fund | 4.3 |
| Income on short-term and other investments | 3.8 |
| Income from managed non-operational property | 1.3 |
| 9.4 | |
The Investments Sub-committee of the Finance Committee has provisionally estimated a distribution from the Amalgamated Fund of 116.34 per unit, a yield of approximately 4.3% on the capital value. This is the same level as the 2003-04 distribution. The University's cash deposits are budgeted to earn at an interest rate of 4.25%.
35. It is estimated that income will total £14.7m, an increase of £4.1m over 2003-04. It includes a special contribution from UCLES of £4.0m.
| £m | |
| Transfer from UCLES | |
| - Regular | 4.1 |
| - One-off | 4.0 |
| Refund of VAT (recurrent) | 2.2 |
| Arts and Humanities Research Board support for museums, (provided to assist with the cost of maintaining the University's collections) | 1.5 |
| Other | 2.9 |
| 14.7 | |
36. Overall direct cost relating to research grants and contracts are budgeted to increase by 5% over the latest forecast for 2003-04. Work is in progress to improve the understanding of costs to the University of carrying out research, and the UK Research Councils have agreed that with effect from 2005 they are prepared to provide funding on the basis of full economic costs. It is expected that this will give a significant improvement in overhead recovery. The combination of volume increases and improved recovery of allocated and indirect costs of research is estimated to add £1.8m to Chest income. The enhanced costing information will provide further support in achieving improved recovery of indirect costs from industrial and other sponsors, in line with the Finance Working Party recommendations.
37. Expenditure is estimated to rise by £11.4m (4.8%) over the Latest Forecast for 2003-04.
38. In addition to the expenditure from the University's own general funds, refurbishment of premises and replacement, renewal, and upgrading of equipment is being funded over the two years, 2003-04 and 2004-05, from the second round of the Science Research Investment Fund (SRIF-2 - of which the University's allocation is £60.3m) and Project Capital round 3. The aims of SRIF-2 are to contribute to the long-term financial sustainability of an institution's physical research infrastructure (buildings and equipment) and its activities and to make up some of the past under-investment in research infrastructure.
| Estimate | Forecast | |||
| 2004-05 | 2003-04 | Change | Change | |
| Chest Expenditure | £m | £m | £m | % |
| Academic departments | 122.0 | 110.0 | 12.0 | 10.9% |
| Academic services | 16.2 | 14.6 | 1.6 | 11.1% |
| General educational expenditure | 5.5 | 5.2 | 0.3 | 6.6% |
| Maintenance of premises | 34.1 | 32.5 | 1.5 | 4.6% |
| Administration and central services | 26.4 | 24.7 | 1.6 | 6.5% |
| Student and staff facilities and amenities | 2.4 | 2.3 | 0.1 | 6.1% |
| Residences and catering operations | 0.8 | 0.7 | — | 4.9% |
| Severance costs and unfunded pensions | 0.1 | 0.1 | — | 5.0% |
| Miscellaneous expenditure | 4.1 | 4.3 | -0.2 | -4.5% |
| Provision for pay and price increases* | 0.0 | 4.6 | -4.6 | — |
| College fee transfer | 30.8 | 29.6 | 1.2 | 4.1% |
| Equipment and furniture | 2.3 | 2.0 | 0.3 | 12.5% |
| Allocations for capital expenditure | 0.6 | 0.1 | 0.5 | |
| Provision for salary restructuring | 2.0 | — | 2.0 | |
| Provision for new recurrent needs | 1.4 | 0.9 | 0.5 | 51.5% |
| Provision for non-recurrent expenditure | 1.7 | 2.7 | -1.0 | -38.0% |
| 250.1 | 234.3 | 15.9 | 6.8% | |
| Less: Estimated savings on stipends and wages* | 0.0 | -5.0 | 5.0 | — |
| Pension contribution | 0.0 | 9.5 | -9.5 | — |
| Total | 250.1 | 238.8 | 11.4 | 4.8% |
* From 2004-05 incorporated into the baseline expenditure categories.
39. A significant increase in staff costs from increased contributions to the CPS has deflected the University from its aims to contain the deficit for 2004-05 and move quickly to break-even on the Chest. The financial constraints are considerable, but the Council recommend that the budget makes available certain additional funding.
40. Recurrent funding will be made available to cover utilities costs which will increase by £1.8m following expiry of a fixed contract for supply. £1.1m has been budgeted for promotions and regradings for all categories of staff. An additional £0.5m will be provided to the Unified Administrative Service (UAS) in order to fund the level of services required, including the costs of implementing full economic costing of research. The UAS, along with all institutions, will be subject to a separate savings target.
41. The Council consider the maintenance of the estate to be a high priority. The allocation for long-term maintenance has been set at £13.5m, with further elements of maintenance and refurbishment funded by HEFCE Project Capital and SRIF funding. The level of backlog maintenance is being monitored closely.
42. An allocation for equipment is budgeted at £2.3m. Many items of equipment cannot be obtained from SRIF sources, and further reduction of the fund would create problems in teaching, safety, and IT infrastructure in Arts Schools and non-School institutions. An allocation of £0.5m is made for minor works.
43. The Council believe that it is essential to invest in the necessary central information systems. The project to introduce the new student record system, CamSIS, is well underway, and £3.8m is included for expenditure in 2004-05. Budget provision is being made for a new human resources and payroll system with £0.6m included for 2004-05, and increased amounts in future years for a total project cost estimated at around £4.1m.
44. The contribution made to the Cambridge Commonwealth, Overseas, and European Trusts is maintained at the current level of approximately £3.0m. The Council consider that support for overseas students by these Trusts provide enhanced fee income to the University, and any increases in overseas student numbers will place increased demand on the Trusts.
45. The future financial position of the University will be determined in large part by the opportunities for significant cost savings or additional income generation through staff restructuring by early retirements and redundancies and positioning for the next Research Assessment Exercise. A provision of £2.0m has been made to facilitate restructuring.
46. In addition other non-recurrent sums totalling £3.1m have been set aside for known commitments and to cover areas of regular expenditure.
47. To maintain the deficit at an acceptable level, there will be targets to reduce expenditure or enhance income. In line with the proposed basis for introducing the RAM, the savings will be allocated to Schools. The targets have been restricted to one per cent of each School's direct expenditure. Non-School institutions will in turn be required to make similar percentage savings.
48. Over the last three years approximately £190m has been spent on large capital projects and in total the construction costs have been within budget each year. The Council, via the Planning and Resources Committee, introduced the Capital Projects Process (CPP) to provide a more robust control of strategic fit of projects, prioritization, of full capital and recurrent funding, and of the management of risk associated with capital projects. The CPP identifies specific stages of review prior to sanctioning or rejecting a project's progress to the next stage. An important outcome of implementing the CPP will be a clearer and more transparent understanding of the risks to the Chest which certain projects involve. A comprehensive review of the utilization of teaching and other space will inform requirements for additional space.
49. Opportunities to dispose of surplus property, including that vacated for new buildings, are being taken. Disposals will generally be by ending leases, by selling long leases of University-owned properties, and by sales of freeholds only where there is no long-term strategic interest in holding the land. Sales of a number of properties along Trumpington Street and Brookside are well advanced. The repurchase of the University's leasehold interest in the Pfizer building on the Addenbrooke's Hospital Site was completed at a cost of £3.5m.
50. The projection of approved expenditure on capital building projects is attached as Table 2 of this Report (p. 728). The table does not include further projects that are under consideration.
51. The significant growth of the estate has had a consequential effect on the cost of maintaining it at an adequate level. Funding provision for maintenance since 2000-01 has been held down, so that the maintenance backlog has grown, but the condition of built space is still better than the average for other research-intensive universities. There are increasing pressures of legislative compliance in a number of key areas: access for people with disabilities; fire safety; trade effluent consent; incoming water supply; asbestos; animal accommodation. The recurrent maintenance budget has been reduced from the 2003-04 level on the expectation that non-recurrent funding will be made available for certain large projects, for example the Chemistry teaching laboratories. The projections for future years show an increased maintenance requirement in line with the expected growth in the estate. Just as new buildings are designed to enhanced environmental standards, so in refurbishment and maintenance improved sustainability, especially energy efficiency, is sought.
52. In the course of 2004-05 short- and medium-term plans with financial forecasts will be developed by Schools and non-School institutions covering all sources of income (Chest and non-Chest) and the expenditure applied against all sources. Until these plans and financial forecasts are developed in detail, the estimates for non-Chest income and expenditure remain imprecise. In the absence of any detailed forecasts it is estimated that non-Chest activity will be break-even in that expenditure will be made against identified sources of funds.
53. Research grants and contracts direct costs incurred in academic Departments have been estimated to increase by approximately 5%, which is a reduction in the growth experienced in recent years. Improved recovery of overheads, including the impact of applying full economic costing for activity funded by Research Councils and other government bodies which is expected to be favourable, increase the non-Chest element of research grant and contract income by £9.6m to £177.3m. Other sources of non-Chest income are all estimated to increase much in line with inflation.
54. The increase of employer contributions to the CPS from 1% to 16.5% of pensionable salary will increase the costs of assistant staff posts funded from non-Chest sources. It is estimated that this increase in costs is approximately £2.5m.
55. Significant balances exist in trust fund spendable balances, donation and special accounts, and in departmental reserves which are available to be utilized. These balances have been increasing each year.
56. The latest forecast balance on the QEF at 31 July 2004 is a deficit of £(22.3)m, which after the estimated deficit in 2004-05 will increase to £(34.1)m at 31 July 2005.
57. Income and expenditure has been projected forward to future years, and the preliminary RAM calculations rolled-forward to consider the impact on Schools and non-School institutions.
58. The projections of Chest income and expenditure are:
| Estimate | Projection | Projection | Projection | |
| 2004-05 | 2005-06 | 2006-07 | 2007-08 | |
| £m | £m | £m | £m | |
| Chest income | 238.3 | 244.7 | 253.2 | 262.6 |
| Chest expenditure | (250.1) | (256.7) | (262.7) | (269.1) |
| Deficit on Chest | (11.8) | (12.0) | (9.5) | (6.5) |
The main assumptions made in these projections are:
| - | The HEFCE teaching grant is increased in line with inflation and QR funding at 5% a year. |
| - | Volume growth is 0.5% a year for undergraduates, and 2% a year for overseas graduates. The fee level for overseas students has been increased by a further 2.0% above inflation for 2005-06 after which it is maintained in real terms. |
| - | Increased growth in research grants and contracts direct costs by 5% a year, with improved recovery of indirect costs from research councils and industrial sponsors, from full economic costing of research. |
| - | Basic pay costs increase broadly in line with inflation, with contributions to pension schemes at 2004-05 levels. |
| - | Additional new recurrent new needs and non-recurrent allocations are maintained at the same level for future years as for 2004-05. |
| - | Building maintenance expenditure is increased steadily in line with the expanding estate. |
| - | Investment in administrative systems (CamSIS, HR/Payroll) is included over the year in line with the phased project budget proposals. |
| - | Amounts are included in each year of the projections to facilitate staff restructuring. |
| - | Increased fees for Home/EU undergraduates are likely to be an option from 2006-07, subject to the passage of the Higher Education Bill currently before Parliament and to University approval. At this stage and as explained in paragraph 9 above, no allowance has been made for any additional income from this source. The additional fee income to Cambridge would rise to approximately £21m a year at steady state by 2008-09. |
59. Further opportunities for improved income are being explored. It may be possible to increase the ratio of overseas to Home/EU undergraduate numbers, reversing recent trends, without affecting the HEFCE T-grant and it is anticipated that proposals will be submitted to the University to introduce variable M.Phil. fees.
60. To maintain the deficit at an acceptable level, there will be targets each year to reduce expenditure or enhance income, which are projected to be restricted to one per cent of each School's direct expenditure. Non-School institutions will have a similar target.
61. Further investment in the Development Office in the lead up to the Cambridge 800 campaign is included in expenditure. The Council anticipate that over time significant incremental benefactions and donations will be generated. Donations generated through the Development Office, the Cambridge Foundation, and directly by Departments support numerous academic developments. They do not in general assist the financial position of the Chest, since donations are typically for specific purposes. However there will be increased emphasis on generating donations for general purposes or in substitution of existing expenditure to allow current activity to be maintained. At this stage the impact of this has not been separately estimated.
62. The Council recommend:
I. That the revised allocations for 2003-04 referred to in this Report be approved.
II. That allocations from the Chest for the year 2004-05 be as follows:
(a) to the Council for all purposes other than the University Education Fund: £115.2m.
(b) to the General Board for the University Education Fund: £134.9m.
III. That the allocations for 2004-05 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 supplementary HEFCE grants which may be received for special purposes during 2004-05 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.
1 Note: Chest income consists of funding council grants, Home and Overseas fees, endowment income, a share of research grant overheads, transfers from CUP and UCLES, and certain other operating income. Non-Chest income consists of income from trust funds, special funds, the direct cost element of research grants and contracts, and departmental share of overheads, self-supporting accounts, services rendered, and residences and catering.
| 24 May 2004 | ALISON RICHARD, Vice-Chancellor | WILLIAM BROWN | D. W. B. MACDONALD |
| S. H. ADELMAN | D. A. GOOD | JAMES MATHESON | |
| SARAH AIREY | DAVID S. INGRAM | MARTIN REES | |
| Z. BARANSKI | IAN LESLIE | G. A. REID | |
| RICHARD BARNES | A. M. LONSDALE | LIBA TAUB | |
| JOHN BOYD | D. LOWTHER | JOAN M. WHITEHEAD |
Given our large deficit, and the proposal to fund early retirement among academics, I cannot support further growth in administration. The pain should be shared, not borne solely by academic Departments.
R. J. ANDERSON
• Appendices 1 and 2 are available as PDF download.