Skip to main contentCambridge University Reporter

No 6552

Wednesday 19 June 2019

Vol cxlix No 34

pp. 693–722


Report of the Council on the financial position and budget of the University, recommending allocations from the Chest for 2019–20

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


1. This year's Budget Report forecasts an improved Chest deficit relative to the previous Budget Report, but continues to forecast an overall operating deficit each year until 2022–23. The forecasts reflect a number of external challenges common to higher education institutions in the United Kingdom and around the world, together with local factors related to the extent of our academic endeavours that are not fully funded and the pressure being applied to administrative systems and processes that are required to manage a growing complexity and volume of University business. An operating deficit exceeding £30m, though manageable in the short term, is not sustainable in the longer term. The University must take some clear decisions on where to prioritise its spending and investment, and how to maximise its revenue.

External environment

2. The external environment continues to be dominated by the UK's withdrawal from the European Union. The University has renewed and established new international relationships at this crucial time. These include a strategic partnership with Ludwig-Maximilians-Universität München (LMU); a joint research and innovation centre at Nanjing in collaboration with the Nanjing Municipal Government, and a memorandum of understanding and joint research fund with Tsinghua University.

3. As noted in the previous Budget Report, fundamental changes to the regulation of the Higher Education sector have been realised in accordance with the Higher Education and Research Act 2017. The Office for Students (OfS) will implement its new regulatory functions in full from 1 August 2019.

4. Assumptions about national pay awards are a key area of sensitivity in the financial projections of this Budget Report. For modelling purposes, the pay award assumed in the planning guidance was 2% per year during the planning period. Higher increases in pay would lead to significant, additional recurrent costs, mitigated in part (for Chest-funded posts), by a central contingency set aside for this purpose.

5. Perhaps most critically for the University, the future of tuition fees remains uncertain. Concerns over levels of student debt, the level of remuneration of senior university leaders and the quality and 'value for money' of courses led to the announcement in 2018 of a major Review of Post-18 Education and Funding, chaired by Philip Augar.1 The review report was published on 30 May 2019. In the meantime, undergraduate Home tuition fees are frozen at £9,250 per annum.2

6. Forecasts for tuition fee income in this Report are based on current expectations for the composition of the student population, and anticipated fee structures. The Augar report has recommended a reduction in undergraduate Home tuition fees to £7,500 per annum, which could be introduced by 2021–22. The Augar report also recommends that the UK government should replace in full the lost fee income by increasing the teaching grant, leaving the average unit of funding unchanged at sector level in cash terms. The government is not expected to make any guarantees about the additional spending this would require ahead of the Comprehensive Spending Review later this year.

Internal environment

7. On 1 August 2018 Professor David Cardwell took up the new role of Pro-Vice-Chancellor for Strategy and Planning, following the departure of Professor Duncan Maskell to become Vice-Chancellor at the University of Melbourne. Since taking office Professor Cardwell has prioritised the reform of budgeting and planning with a focus on defining and delivering the University's academic vision within a financially sustainable framework, and to this end has consulted widely with academics and professional staff across the University, in particular with Heads of Department and Chairs of Faculty.

8. In the first instance, the Planning and Resources Committee (PRC) has agreed that the Planning Round must be reformed to introduce an altogether clearer distinction between an annual process of financial planning and forecasting, and longer-term strategic planning. Strategic academic planning will no longer be bound up with the annual Planning Round; Schools will instead undertake a comprehensive strategic review, in pairs, approximately every three years. The new process will commence in 2019 with the Schools of the Biological Sciences and Clinical Medicine. A similar process is envisaged for non-School institutions.

9. The PRC has initiated a comprehensive review of the University's approach to distributing resource and allocating costs across Schools, institutions and central funds. The review, led by Professor Cardwell and including external representation, seeks to establish a relatively simple model which promotes greater financial transparency and enables Heads of Department and others to identify and take forward academically-driven activity that can also improve the University's financial sustainability.

10. A critical component of any new approach will be to ensure that, where academic activity results in a financial return, the participating departments can benefit directly and receive a fair share. An urgent priority is to review the current arrangements for resourcing taught M.Phil. courses, responding directly to an issue that has been raised by several Schools, and by a number of strategic research review reports to the General Board.

11. Planning for the next several years will be informed above all by the development of a draft 'Priorities Framework,' which sets out fundamental opportunities and risks for the University, and highlights specific initiatives and actions needed to seize those opportunities and mitigate the risks. An early outcome is the establishment of a Joint University and Colleges Working Group on Student Numbers to develop a rigorous, ten-year model of student numbers at undergraduate, masters' and doctoral levels. With a clear sight on College capacity, the Group will consider the overall balance across the various disciplines to ensure that the University remains committed to broad disciplinary coverage and is open to emerging disciplines, including inter-disciplinary study.


12. Previous Budget Reports have highlighted the scale of the University's capital programme. Projects successfully completed during 2018–19 include the Jeffrey Cheah Biomedical Centre and the Chemistry of Health Building (both funded in part by Research England's UK Research Partnership Investment Fund, or UKRPIF) and the Student Services Centre on the New Museums site. The new Civil Engineering Building at West Cambridge is also approaching completion. A further UKRPIF project scheduled for completion in 2020 will see the creation of a Crop Science Building to facilitate and promote translational research and teaching in crop science, in partnership with the National Institute for Agricultural Botany (NIAB).

13. Given cost pressures within the University, government funding risks, and the likely impacts of Brexit, the University must carefully prioritise its investment in capital projects, recognising that further expenditure on new and replacement buildings, IT systems and equipment is needed to sustain and improve the University's position in relation to competitive research funding and the recruitment and retention of staff and students.

14. The Planning and Resources Committee has taken advice from the Finance Committee regarding the level at which capital expenditure over the next several years may be funded from regular capital grants (from Research England and the Office for Students) and from the surplus generated by Cambridge Assessment and Cambridge University Press. This will continue to be supplemented by other grants and donations. The PRC's priorities for further investment over the next five years will be reviewed in this context; the outcome of that review will inform further discussion of the priorities and feasibility of delivering projects at approximately five-yearly intervals thereafter.

15. Phase 1 of the North West Cambridge (NWC) development, which is managed as a ring-fenced project and lies outside 'little U' financials,3 is externally financed and underpinned by the University's balance sheet. The 2019–20 budget for NWC assumes minimal residual capital expenditure on Phase 1. Rentals from NWC flow through the University Group income and expenditure, and cash flow.4 The Council continues to discuss options for a potential Phase 2 of the NWC development.

16. Following authorisation by the Regent House, and on the advice of the Finance Committee, in May 2018 the Council agreed to proceed with a bond issue of up to £600m for income-generating projects. The proceeds of the bonds provide the University with options for developing its non-operational estate (i.e. capital projects outside those directly enabling core academic teaching and research). The projects will bring significant indirect benefits essential to the University's mission. They will, inter alia, address the critically important challenge of staff housing and provide alternative income streams at a time of significant financial volatility. A Special Ordinance approved by Grace 1 of 5 December 2018 restricts the application of the bonds proceeds to income-generating projects, and stipulates that if proceeds are to be used for other purposes the approval of the Regent House will be required. As with the fixed-rate bond issued in 2012, interest payable flows through the University Group income and expenditure, and cash flow.

Planning Round 2018


17. Last year's Budget Report forecast that the Chest would remain in deficit over the planning period, at levels of £25m in 2018–19 to £15m in 2021–22.

18. This year's Budget Report reaffirms that message. A Chest deficit of £16.1m is forecast in 2019–20 with similar deficits forecast each year until 2022–23. The position for 2019–20 is an improvement compared to last year's Budget Report due partly to forecast increases in tuition fee income and forecast growth in Chest income from research grants and contracts. Moreover, Chest allocations to Schools and institutions are lower than previously forecast following the implementation of revised planning guidance (see paragraph 21 below) and subsequent commitments to reduce Chest expenditure in Schools and in the Unified Administrative Service (UAS). Not all of these reductions are recurrent, however. Endowment income is forecast to increase slightly in relation to the previous forecast for 2019–20 but thereafter is expected to decrease as higher capital expenditure results in a drawdown of Cambridge University Endowment Fund (CUEF) holdings.

19. Over time, the Chest has become a progressively smaller proportion of the finances of the University, and Chest income and expenditure has come to reflect only a partial view of the overall financial position. In the current Planning Round the PRC has paid close attention to the overall operating budget and forecasts, encompassing non-Chest activity and planned expenditure from Chest-sourced reserves held in Schools and institutions. An overall operating deficit of £39.9m is forecast for 2019–20, and is projected to remain within a range between £35m and £41m across the planning period. A significant factor is the continuing expenditure of Chest-sourced reserves to meet recurrent costs that are growing faster than Chest allocations; this will be exacerbated by several of the measures taken to control Chest allocations in 2019–20.

20. To be sustainable, the University needs to match costs and revenues over time, and generate a sufficient surplus overall to invest in academic capital expenditure. In an extended period of CUEF growth through market performance, the University has accepted declining operating margins and experienced growth in expenditure (including staff costs) ahead of income. This is compounded by the perennial difficulty of recovering more of the full economic cost of research. The University's diverse income streams and strong balance sheet allow it to manage risk and deal with short-term uncertainty significantly better than the higher education sector as a whole. However, in the long-term, it remains essential that the University, if it is to maintain its leading global position, generates sufficient surplus to invest properly in people and facilities.

Planning guidance

21. In June 2018, the PRC considered the Planning Guidance for Planning Round 2018 and agreed that Chest allocations for 2019–20 and provisional allocations thereafter should remain at the levels forecast in Budget Report 2018. This approach allowed for a 1% increase to Chest allocations for 2019–20 over 2018–19 and for each year thereafter. Following further discussion at Finance Committee on 3 October 2018, the PRC agreed that there would not be a 1% increase in allocations for 2019–20, with the effect that allocations from the Chest in 2019–20 would be 'cash flat'.

22. Pending further reform of budgeting and planning under the Pro-Vice-Chancellor for Strategy and Planning, the PRC agreed that planning submissions from Schools and institutions would be limited to those mandatory elements required by the University's regulators or fundamental to the University's ability to demonstrate due accountability for the use of public funds.

23. Initial submissions received from Schools and institutions in December 2018 indicated an increased operating deficit compared to Budget Report 2018, including a Chest deficit of almost £35m. Significant work was undertaken during Lent Term to improve this position, reflected in revised forecasts that were considered at a joint meeting of the PRC and the Resource Management Committee (RMC) in March 2019. Notwithstanding the overall financial position, a small number of increases were supported. These are described in more detail in paragraph 35.

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


25. Apart from national pay awards, all additional pay costs arising from promotions, increments, and regrading are normally absorbed within existing allocations to Schools and non-School institutions except where separate provision is made.5 However, pay and reward initiatives proposed under the University's People Strategy are forecast to result in significant additional recurrent costs over and above the recurrent costs of the existing schemes. The PRC has agreed to make provision in this Budget Report to meet these additional costs, but remains concerned about the ability of Schools and institutions to absorb the recurrent costs of existing schemes, as demonstrated by the continued spend-down in all Schools of Chest-sourced reserves. As indicated in the previous Budget Report, Schools and institutions are unlikely to be able to absorb these without corresponding increases to Chest baselines. Current forecasts indicate the required increase to Chest allocations would be £2.7m in 2019–20 increasing to £11m per annum by 2022–23.

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

27. This Budget Report makes provision for the estimated additional cost of employer contributions to the Universities Superannuation Scheme (USS), reflecting the latest proposals following consultation on the Universities UK paper 2018 Valuation and Contingent Contributions.6 The additional cost is estimated to be £3.7m in 2019–20 rising to £4.3m by 2022–23.

Financial forecasts

Fees and OfS / Research England funding

28. The OfS and UKRI receive a guidance letter from the Government each year. This sets out the teaching and research funding budget, and details policy areas that should be prioritised along with any conditions of funding that should apply. The announcements of grants for each institution funded by the OfS were made available, under embargo, on 8 May 2019.7 UKRI has not yet received guidance on its total allocation from the Government, and therefore has not yet announced grants for institutions funded by Research England (which oversees UKRI's England-only functions).

29. Appendix 5  describes OfS and expected Research England funding in 2019–20. The University's allocation of funding for teaching has increased by 4.5% to £18.9m. However, this includes additional funding for the continuing expansion of the School of Clinical Medicine. If the additional funding for medical students is deducted, there is a marginal underlying decrease of 0.8% in the OfS grant for teaching.

30. The University's forecast allocation of funding for research is largely unaltered pending receipt of the grant letter from Research England. A very slight reduction from £124.4m to £124.1m reflects a revised calculation for Research Degree Programme Funding.

31. The allocations in the grant letters are provisional since the academic and government financial years differ. If there were to be a government budget cut in 2020–21 this might result in a 'claw-back' from the 2019–20 allocations.

Actual 2017–18 and forecast for 2018–19

32. The actual Chest out-turn for 2017–18 is provided in Table 1  of this Report. The overall position on the Chest was a deficit of £9m compared to one of £21.4m forecast in Budget Report 2018. Income was higher than previously forecast, and was supplemented by exchange rate gains of £4.9m. Expenditure was also lower than forecast, principally due to lower than forecast expenditure on utilities.

33. Table 2  summarises the forecast out-turn for the Chest in 2018–19. In the 2018 Budget Report this was anticipated to be a deficit of £25.2m. The forecast is now for a deficit of £15.1m. Income from fees is £3m higher than previously forecast; expenditure on utilities is once again £2.7m lower than previously forecast.

Forecasts in 2019–20 including allocations from the Chest

34. Forecast Chest income for 2019–20 is £492.1m compared to £488.8m assumed in Budget Report 2018.8

35. A breakdown of the forecast for 2019–20 is shown in Table 4 (p. 707 ). Forecast expenditure includes a number of changes to Chest allocations for Schools and NSIs over and above those that were already built into the previous Budget Report or arising from the revised planning guidance issued in October 2018. These changes were considered and recommended at the joint meeting of the PRC and RMC in March 2019.


Additional allocations to Schools in 2019–20 total £211k, increasing to £854k by 2022–23. This includes:

(i)An allocation to the School of Arts and Humanities towards the costs of several academic posts following the cessation of fixed-term funding from the Isaac Newton Trust and other sponsors. Provision has been made for a further increase with effect from 2020–21 towards the costs of several posts currently funded from School reserves. This provision is in accordance with a strategy and business plan approved by RMC and PRC in 2017.

(ii)Provision for an increase in the allocation to the School of Technology from 2020–21, representing a share of forecast additional fee income resulting from banding of the School's M.Phil. fees.

(iii)An increase in the forecast allocation to the School of Clinical Medicine to meet the funding shortfall resulting from the gradual withdrawal of the NHS Clinical Academic Reserve.9

A further £1.55m has been allocated under the Income Incentivisation Model, which informs allocations to Schools for the first time in 2019–20, pending a fuller review of resource distribution led by the Pro-Vice-Chancellor (Strategy and Planning).10

These additional allocations are offset by a commitment by the Schools to reduce Chest expenditure in 2019–20 by a total of £5m. As indicated in paragraph 19, some of the measures proposed to meet this commitment will increase expenditure from Chest-sourced reserves and non-Chest funds. This is reflected in the overall operating deficit identified in paragraph 19.

Non-School Institutions (NSIs)

The total additional Chest allocation to the NSIs is £961k in 2019–20 increasing to £1.052m in 2022–23. This is offset by a commitment by the UAS to reduce its recurrent Chest expenditure by £1m with effect from 2019–20. The additional allocations agreed in this Planning Round include the following:

Unified Administrative Service

(i)A recurrent increase of £50k has been approved to meet the costs of increased, non-medical assistance to students through the Disability Resource Centre's Reasonable Adjustments Fund.

(ii)A recurrent increase of £341k has been approved to meet operating costs of the Office of Postdoctoral Affairs following the cessation of non-recurrent funding from several sources.

(iii)Provision has been made for additional recurrent expenditure of £500k to meet costs associated with the implementation of a new structure for the management of maintenance and statutory building compliance.11

University Information Services

(i)A recurrent funding increase of £109k rising to £233k to meet the incremental costs of supporting new services as they transition from projects to 'business as usual'.

(ii)Funding of £160k in 2019–20 towards the costs of capital equipment and hardware.

(iii)Provision for an allocation of £495k in 2019–20 towards non-rechargeable electricity costs for Research Computing Services, subject to further scrutiny and approval of a business plan for Research Computing Services.12

(iv)These increases are largely offset by a reduction in forecast expenditure on software licences and subscriptions relative to the previous forecast for 2019–20. The net additional allocation to the UIS in 2019–20 is £70k.

Other NSIs

(i)Provision has been made for funding, if required, towards the costs of additional visitor assistants at Kettle's Yard.13

(ii)Provision has been made for an increased allocation to the University Library from 2020–21, in recognition of possible changes to the University's Open Access block grant from UKRI, which is confirmed only until 31 March 2020.

(iii)An adjustment to the allocation to Cambridge in America reflects the difference in the US dollar to GBP exchange rate. The Chest has previously accepted the risk of adverse exchange rate movements between the US dollar and the pound; in the current case a marginal benefit is returned to the Chest as the US dollar weakens.

Administered funds

Forecast annual Allocations £m

Administered funds





Teaching and research





Contingency and strategic funds










Human resources










General expenditure





TOTAL Allocation





36. The allocations to centrally-held administered funds are reviewed each year by the RMC. The total allocation to administered funds in 2019–20 is £205.7m compared to £209m in Budget Report 2018. Forecast allocations to the administered funds are broken down into different categories as follows:

(i)Teaching and research

£126.7m of the allocation to the administered funds in 2019–20 is in direct support of teaching and research activity. This includes funds that are held centrally initially, but are subsequently distributed, such as payments to Colleges14 (£74.2m), payments to University Partner Institutions (£1.2m), departmental shares of Charity Support Funding (£9.8m), and Knowledge Exchange15 (£4.4m). It also includes Chest allocations to support the Cambridge Trusts (£9.2m), bursaries and studentships (£5.5m), the Journals Coordination Scheme (£5.9m), Widening Participation (£2m),16 Examiner and Supervisor fees (£1.9m), and preparation for REF 2021 (£6.6m). Provision has been made here for initial development costs to meet the University's commitment to the Carbon Neutral Futures Initiative (a total of £2.6m commencing in 2019–20). A total of £3m is earmarked for targeted investments to improve administrative systems and processes, as identified by the ourcambridge programme.

(ii)Contingency and strategic funds

The total forecast for 2019–20 is £5.9m. This includes allocations to strategic funds such as the Strategic Planning Reserve Fund, the VC Strategy Fund, and the non-recurrent grant fund. It includes a centrally held contingency to support potential increases in pay awards as described in paragraph 4.17


Estates-related activity accounts for £58m of the forecast allocation to the administered funds in 2019–20. This is largely for costs associated with buildings maintenance (£18.6m), utilities (£21m), rates, rents and other running costs (£7.5m), capital equipment (£4.5m), facilities management (£1.7m) and minor works (£2m).

(iv)Human resources, operational and general

Remaining expenditure includes human resources expenditure totalling £2.9m such as in-year costs of existing pay and reward schemes, operational costs totalling £4.7m such as insurance costs, bank fees, and audit fees, and general expenditure totalling £7.5m including funding for Cambridge Enterprise, Cambridge University Health Partners, and projects overseen by the Information Services Committee.


37. The financial forecasts continue to show an operating deficit across the planning period.

38. To make the needed investments in people and facilities, the University must be financially sustainable over time, meaning that it cannot consistently spend more than it brings in from its diverse sources of income. The operating budget is in deficit and will remain so unless actions are taken across the University to increase revenue and reduce costs, and real choices are made about which opportunities to pursue.

39. The University's strength is sufficient to allow it to make the necessary changes over the next 2–3 years, but it is increasingly clear that these changes must be made if the University is to achieve a more financially sustainable position and continue to respond effectively to the changing environment in the years ahead.


40.The Council recommends:

  I.That allocations from the Chest for the year 2019–20 be as follows:

(a)to the Council for all purposes other than the University Education Fund: £133m.

(b)to the General Board for the University Education Fund: £375.2m.

II.That any supplementary grants from the OfS and UKRI (through Research England), which may be received for special purposes during 2019–20, 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 OfS or UKRI, and that the amounts contained in Recommendation I above be adjusted accordingly.

10 June 2019

Stephen Toope, Vice-Chancellor

Jennifer Hirst

Michael Proctor

Sam Ainsworth

Nicholas Holmes

Sofia Ropek-Hewson

Evie Aspinall

Fiona Karet

Andrew Sanchez

R. Charles

Christopher Kelly

Jason Scott-Warren

Stephen J. Cowley

Mark Lewisohn

Sara Weller

Sharon Flood

Marcel Llavero Pasquina

Mark Wormald

Anthony Freeling

Jeremy Morris

Jocelyn Wyburd

David Greenaway

Richard Penty

Tables and Appendices

2019 Budget Report – Tables and appendices


  • 1

  • 2The most recent calculation showed that the average annual cost of an undergraduate education borne by the University and Colleges per Home undergraduate student is £19,400. See

  • 3Excludes Cambridge Assessment and Cambridge University Press.

  • 4Bond interest is included in Table 5 of this Report.

  • 5The in-year cost of the contribution reward and progression schemes for Chest-funded academic, and academic-related and assistant staff is met non-recurrently via the relevant central administered fund. Normally, the recurrent costs are managed within existing Chest baselines thereafter.

  • 6The University has published its views on the assumptions and approach to be adopted for the 2018 valuation:

  • 7The embargo for the OfS grant letter was lifted on 9 May 2019.

  • 8The fee income forecasts include a £2m reduction in the central provision to de-risk ambitious projections of student numbers.

  • 9The NHS Clinical Academic Reserve has funded key clinical teaching posts, but is being withdrawn as post-holders currently funded from this source either resign or retire. The School is taking a strategic approach to refilling these posts and some are being suppressed. Additional Chest allocation has been provided since Planning Round 2015 in order to meet the resulting shortfall. The long-term arrangements will be reviewed as part of the planned strategic review of the Schools of the Biological Sciences and Clinical Medicine.

  • 10The Income Incentivisation Model maintains recurrent baseline allocations from the Chest, but supplements these on an annual basis by cost-neutral distributions based on year-on-year changes in certain streams of gross Chest income. The model is initially piloting three streams of income: postgraduate fees, the Chest share of overheads recovered on Research Grants and Contracts, and Research Degree Programme Supervision funding.

  • 11This allocation is provisional pending independent review of the proposed structure and final resource requirements. Accordingly in Table 4 below the financial provision has been made in the 'Contingency' budget rather than in the forecast allocation to the UAS.

  • 12Formerly the High Performance Computing Service. The PRC has previously agreed to provide allocation towards non-rechargeable electricity costs on the understanding that recharges to external organisations minimise the Chest subsidy.

  • 13Funding of up to £150k is earmarked for 2019–20.

  • 14This is the College Fee transfer and contributions to the Colleges in relation to the University's Graduate Fee.

  • 15Formerly the Higher Education Innovation Fund (HEIF).

  • 16The allocation to this fund is formula driven and based on increases in forecast fees and requirements set by the Office for Students.

  • 17The contingency holds an accumulated reserve of £11m in addition to the allocation forecast for 2019–20.