Rosier outlook for UK sector finances with pension changes excluded

The proportion of UK higher education providers recording a deficit more than halves when changes to pension fund valuations are excluded, analysis suggests.

While still not telling the full story, figures without the volatile changes of pensions adjustments show a more complete and “reassuring” picture of the sector’s finances, according to experts.

Previous data from the Higher Education Statistics Agency (Hesa) revealed that 55 per cent of higher education institutions recorded a deficit in 2021-22 – mainly as a result of an increase in provision for the Universities Superannuation Scheme (USS).

However, analysis by Times Higher Education reveals that the proportion of providers in deficit drops to just 25 per cent when total changes to all pension provisions are excluded.

Instead of being at a high in the four years of adjusted comparable figures, the proportion of institutions in deficit in 2021-22 becomes a low.

The USS, the UK higher education sector’s largest pension scheme, has reported multibillion-pound deficits in recent years.

“I think these new figures excluding pensions are a better, but still incomplete in themselves, measure of a provider’s and [the] sector’s underlying financial position in one year,” said Bob Rabone, former chair of the British Universities Finance Directors Group (BUFDG).

“The figures which include the long-term pensions commitment must be also considered. It’s not a binary choice.”

He said the figures show the sector grappling with the impact of the Covid-19 pandemic and static tuition fees for home students, resulting in a “broadly stabilised position, but one which remains uncomfortable”.

Almost all 24 Russell Group universities were in deficit last year, but when pension fund fluctuations are excluded only one is – Newcastle University.

Sarah Randall-Paley, director of finance at Lancaster University, also a former BUFDG chair, said: “A one-year snapshot for an individual institution is difficult to interpret without the context of its strategic direction and timelines for investments or changes planned.

“All universities are dealing with significant inflationary pressures alongside the flat home undergraduate fee, which is eroding ever more quickly in this period of high inflation.”

When pension changes are excluded, the analysis suggests that the sector’s overall balance moves from a £3.8 billion deficit to a £3.1 billion surplus.

Erica Conway, current chair of BUFDG and director of finance at the University of Birmingham, agreed that the level of cash generated is key, but that a surplus is an alternative indicator of financial stability.

“Looking at the surplus results without movement on pension provisions is a useful metric as it removes a significant non-cash adjustment that is longer-term in its nature,” she said.

“It is reassuring that this adjustment reflects that the sector overall is making a surplus.”

King’s College London’s deficit of £245 million – the largest of all 267 HEIs – is transformed into a £45 million surplus, with changes to pension provisions excluded.

Instead, The Open University now has the biggest deficit of all HEIs, at £53 million.

However, the institution said that it had an underlying operating surplus of £23 million – once restructuring and strategic change, unrealised investment losses not used for operations, and share of deficit of joint venture were also taken into account.

On the list of largest deficits with pension provision changes excluded, it was followed by the University of Wolverhampton (£27 million), the University of Kent (£15 million), the University of East Anglia (£14 million) and Middlesex University (£14 million).

Wolverhampton said it was planning to deliver an operating surplus next year, while Kent told THE its deficit, which reflected a “return to a new post-pandemic, post-Brexit operating level”, had been largely managed and work to reduce it is ongoing.

UEA has previously said that the effects of Covid, the tuition fee freeze, pressures on student numbers and rising costs for energy have impacted its budget.

And Middlesex said the 2021-22 financial year had proved a “challenging one” for the institution against a backdrop of significant economic factors impacting the sector.

In a separate analysis of 147 universities from the Hesa figures, the University and College Union (UCU) found the sector’s total income saw the biggest annual rise in at least five years, while staff expenditure fell to a record low 51 per cent of income.

UCU general secretary Jo Grady said the figures show that universities are richer than ever, but are “waging a war on staff” by withholding the pay of those engaged in the ongoing marking boycott over pay and conditions.

“If vice-chancellors cared about staff and students, they would use the sector’s vast wealth to end this dispute tomorrow,” she added.

patrick.jack@timeshighereducation.com