Financial Sustainability of
Universities: the UK Experience
Professor Iraj Hashi
7 March, Prishtina
Background
• Public spending has been subject to severe
restrictions since the 1980s
• There has been a gradual shift of the cost of
HE from the public sector to students since
1997 and eventually in 2010 (since then fees:
£9000)
• Finances became tighter especially after 2008
Background (ii)
• Almost all universities in the UK are public
universities
• But although universities receive (some)
public money, they are independent
organisations, not under any Ministry and not
individual items of budget
Background (ii)
• Government decides on broad policies related
to HE and allocates a total sum for HE each
year
• Money is given to an independent
organisation HEFCE which divides the budget
amongst public universities on the basis of
explicit criteria (separately for teaching,
research, and development)
Autonomy
• Universities are completely autonomous
subject to:
– HEFCE for financial matters and student numbers
– QAA for the quality of their programmes
– Annual audits (like any other company)
– They have their own bank account, receiving their
budget from HEFCE
• Development of new programmes and
accreditation are matters for themselves to
decide
Funding Criteria
• University financing in the UK is largely driven
by:the product universities produce and their
quality
• Measured by a range of KPIs:
–
–
–
–
–
number of students on different types of programme,
the quality of their graduates,
employability of graduates,
satisfaction of students with their experience, and
the amount of high quality research they produce
Public funding continues
• Universities still receive public money
(through HEFCE) to cover:
– Additional cost of laboratory based subjects,
– Cost of research, depending on the quality of their
research
– For capital projects and new developments (some
may be suggested by government or HEFCE)
Sources of income
• Student fees (currently £9250/€11000 pa)
• Public money (mentioned above)
• External income (overseas students, consultancy,
EU and other projects, work with companies,
exploitations of patents, endowments)
• Institutions strive to reduce their dependence on
public funding (third stream accounts for 10-40%
of total income)
But autonomy means..
• Universities bear the financial consequences
of their decisions
• They have to take into account commercial
considerations when making academic
decisions
• Most importantly, they have had to diversify
their sources of income to reduce their
exposure to risk
Within each University
• Resources are limited and unit of resources
declining over time
• Competing demands for limited resources
• In theory, universities can go bankrupt and
have to close down (no precedent yet of
course)
• Thus, the need for building reserves to meet
unexpected financial difficulties
Balancing the budget
• Income
– from the 3 sources mentioned
• Costs
– salaries, running cost, materials, etc
• If Income > Costs
– Hire more staff, improve facilities, offer scholarships….
• If Income < Costs
– They have to cut some activity to reduce costs or find
new sources of income
Unit of account: Schools
• Schools have a budget based on its student
numbers, its research income and external
income.
• If the number of students falls, the School’s
income falls and it has to either reduce its
costs or find extra income.
Within each School
• Each activity (individual study programmes,
each research project, each external project)
has its own cost centre, with a budget
• Each cost centre show the balance of income
and expenditure and an expected surplus of
x% when possible (different in different Unis)
to generate a surplus for the University.
For any new idea
The proposer must show:
• The evidence that there is demand for this idea
(market research, the provision in universities in
the region, number of students on similar courses
elsewhere, etc.)
• The full cost of running the programme will be
met by the income (fees, overseas students).
• Any intangible benefits for the University will be
taken into account
Non-academic activities
• Financial services, student services, information
services, estate and building services, Human
Resources, etc. are indirect costs of Unis
• Cost of these services constitute the overhead
to academic activities (direct costs), they are
around 130-250% of its direct cost (cost of staff
and non-staffing inputs associated with each
activity)
• Activities must cover the full cost of an activity
plus some x% surplus
Summing Up
• A market based system driven by students (and
parents) who are not well informed
• Financial Sustainability requires:
– Diversified sources income
– Offering subjects expected to generate high incomes
– Ensuring high quality as demanded by HEFCE and QAA
• Generating and perpetuating an unequal system
Background
Background