In their Allocations Report of May 2004 (Reporter, 2003-04, p. 716), the Council noted that opportunities existed to reverse the current deficit and to bring the University into financial balance over the next five years.
The Council noted that there were a number of options and uncertainties that needed to be properly quantified and that they expected to complete the preparation of a financial plan by the end of Michaelmas Term 2004.
An important and recent change is the shift in implementation of financial decisions from the centre to the Schools and institutions. The central bodies approve the overall strategy and request subsidiary plans showing how this strategy will be implemented. This change is not yet fully in place. The planning enquiry was launched in May 2004 with returns expected by 1 December 2004. This first stage is intended to develop into an annual planning round. Plans will be scrutinized by the Planning and Resources Committee (PRC) during the Lent Term.
A key element contributing to financial recovery will be the much clearer understanding of the University's forecast financial position that will result from this process and its further development. Other benefits are expected to be:
| (i) | a rolling forward look adjusted annually in the light of new developments and new assumptions; |
| (ii) | approved plans supported by a comprehensive view of the financial position; |
| (iii) | delegation of financial decision making; |
| (iv) | financial incentives at School and departmental level; |
| (v) | clearer understanding of costs, indirect costs, and subsidies. |
The guidance to Schools and institutions for this first round asks them to put forward plans showing how the gap between income and expenditure will close by some £5m over five years. This apparently modest target implies an improved control of pay costs as well as a 1% saving on Chest expenditure. This is therefore a testing target, and is in addition to the steps already agreed.
There are other steps that could be taken. Key uncertainties remain unresolved and it is not yet possible to prepare a comprehensive financial plan. Nevertheless, given reasonable assumptions and the following additional actions, the deficit will be reversed by 2008.
The overall effect is to increase income by £13m by 2008, and to reverse the deficit. This is, however, dependent on the ability of Schools and other University institutions to develop 5-year plans within the agreed financial framework set by the RAM (Resource Allocation Model). The Financial Model shows, however, that the financial recovery is temporary unless the underlying growth in the pay bill is curbed or substantial new sources of income can be identified. This will be a major challenge particularly given the recurrent costs of implementing the single pay spine.
1. The Block Grant
The HEFCE has announced that it will be conducting a further review of teaching funding. The formula makes assumptions about fees which will necessarily have to be revisited. The funding of postgraduate research students through the formula 'T' and 'QR' route is expected to cease. These students will be funded through a separate element of the Block Grant but the details and financial effect are unknown. The component of QR driven by charity income is expected to change and additional income may result. The scale of these uncertainties is considerable. As an indication, the increase in 'charity QR' might be as much as £10m, but the QR funding currently received in respect of postgraduate research students is approximately £20m.
2. Full Economic Costing (FEC)
The details of FEC remain uncertain. Some assumptions were included in the projections made in the Allocations Report but these figures remain insecure. In particular, there is debate about infrastructure costs of research by postgraduate research students, and the appropriate source of funds to meet these costs.
3. Overseas student numbers
In their Allocations Report the Council noted that a modest decrease in Home/EU numbers could be achieved without drifting outside the HEFCE contract range so that the unit of resource would be increased. The Planning and Resources Committee have consulted the Senior Tutors' Committee on the matter and understand that they will advise that it would be premature to propose an increase in overseas student numbers coupled to a reduction in home/EU numbers at this time. The issue of overseas student recruitment is being considered by a working group chaired by the Pro-Vice-Chancellor for Education, Professor Melveena McKendrick.
Student number plans are an element of the planning enquiry and while radical changes are not expected, there will be sufficient for a discussion with the Colleges who are rightly concerned about their ability to support changed numbers, changed subject balance, and changes in the undergraduate/postgraduate balance.
4. Single pay spine
The development of the single pay spine for all grades and categories of staff is proving contentious and negotiations are currently under way to find an acceptable model. A sum of £2.6m from HEFCE HR (Human Resource) Strategy funding is available recurrently to implement single-spine arrangements and this has been included in projections of Chest income and expenditure. Job matching analysis is in progress and current estimates from the Personnel Division suggest that implementation of the single spine will add approximately £5m to the pay bill (an increase of approximately 2.5%). The Council are proceeding on the assumption that this figure will not be significantly exceeded.
There is concern that the University is not paying competitive salaries, but the extent of any gap is hard to quantify. The implication is, however, clear: if the University is to pay more competitive salaries while keeping the pay bill under control, substitute funding must be found or staff numbers decreased.
Notwithstanding the uncertainties outlined above, the Council are reasonably confident that the University can balance its budget by 2008. However, the ability of the University to attract and retain high quality staff and students requires a sufficient surplus to allow investment. This can be achieved, in part, by judicious identification of priorities for the 800th Campaign. But further measures will be necessary, and the Council give notice of three areas of concern:
(a) Postgraduate research student fee income:
The University has 5,200 postgraduate research students registered for a higher degree of whom only about 4,200 are fee paying. While the Council recognize that there are circumstances in which it is appropriate to waive the fee, they are concerned that fee waiver has become a routine mechanism for increasing postgraduate research student numbers in the absence of adequate funds, and that it also encourages poor completion rates. The Council will ask the Board of Graduate Studies, in collaboration with Colleges and Schools, to review fee waiver procedures as a matter of urgency.
(b) RAM targets
The implementation of the RAM provides a means of devolving budgeting and planning responsibility to Schools and institutions. The financial health of the University is therefore dependent on the ability of Schools and institutions to plan within a financial framework. As part of the agreement to implement the RAM, the Schools and institutions were asked to improve their financial position annually by a figure corresponding to no more than 1% of Chest expenditure. It is apparent that this 1% cap may provide inadequate improvement, but that frequent changes in the financial framework will make planning impossible. Nevertheless, the Council give notice that the 'cap' may need to be revised for 2006-07 if the financial projections do not deliver sufficient and timely improvement.
(c) Central service budgets
Staff, student, academic, and central services have a combined total expenditure from the Chest equating to University Education Fund (UEF) support for the Schools. The guidance for the planning enquiry assumes that central spending will also reduce, but there are broader questions about governance and value for money that need to be addressed activity by activity until there is confidence that expenditure on central services is in every case at the appropriate level for the services required.