Elite’s building spree hides capital spending crisis

The dangers of distributing too great a proportion of higher education funding competitively have been highlighted in a study that reveals that a third of universities have cut spending on campus facilities by more than a quarter since 2008.

About half of English higher education institutions reduced their annual capital expenditure by some degree between 2008-09 and 2013-14, according to a report prepared for the Higher Education Funding Council for England.

This overlapped with a 46 per cent rise in sector-wide infrastructure spending between 2005-06 and 2013-14, from £2 billion to £2.9 billion annually, at a time when Hefce funding for capital expenditure was reduced by nearly 70 per cent, from £1.2 billion to £340 million.

But the report says that the overall growth was driven by disproportionately high amounts of spending at a small number of institutions, principally the universities of Oxford and Cambridge and Imperial College London.

The level of Hefce funding reductions varied by university, with some research-intensive institutions in particular struggling to find money from other sources to maintain expenditure.

And while 60 per cent of capital spending was bankrolled by internal funds in 2013-14, compared with 20 per cent in 2005-06, the review says that in 2013-14 the majority of institutions fell below the 7 per cent operating surplus that Universities UK says is required to maintain existing infrastructure. Even more fell short of 10 per cent, which is judged to be a requirement for financing new investment.

Universities “may increasingly struggle to self-finance capital expenditure in the future”, the report warns.

This is of concern, the study continues, because UK higher education already spends considerably less per student on capital projects than most international competitors, with outlays running at roughly a third of the US rate, and less than half that of Australia.

“If the situation remains unchanged, the world-class reputation of UK higher education could be at risk,” it says.

The report, prepared by Frontier Economics, highlights that the bulk of capital spending was directed at new buildings and facilities, rather than at maintenance of existing infrastructure.

Improvements in the quality of non-residential building stock have slowed in recent years, and more than 10 per cent of universities’ estates remain in poor or fair condition.

The report says the valuable marketing power of new buildings and their attractiveness to external funders means that they take priority, with the overall result being a “polarisation of the infrastructure quality within institutions which results in an uneven student experience”.

An important trend, the report adds, is the clear shift towards competitive distribution of resources, with almost half of Hefce’s capital allocation being handed out in this way in 2013-14.

Although competitive distribution does allow strategic priorities offering the greatest benefits to be supported, Hefce is told in the report that formulaic allocation remains important to support maintenance and to provide certainty for institutions’ budgets.

Competitive allocation is more costly and time-consuming for Hefce and for institutions, and tends to benefit only a minority of institutions – a third in 2013-14.

The report concludes that there would be “clear risks” of moving to a fully competitive funding mechanism, and recommends a continuing mix.

Trevor Humphreys, director of estates and facilities at the University of Leicester and chair-elect of the Association of University Directors of Estates, said that institutions “may not have learned the lessons of the past” when maintenance budgets were the first to fall victim to cuts.

“The increasingly internationally competitive nature of higher education…means that there is a significant risk that, given the continued trend in capital expenditure, we will become less able to attract home, European Union and international students to study in the UK,” he added.

Bob Rabone, chief financial officer at the University of Sheffield and chair of the British University Finance Directors Group, said that Hefce needed to monitor the situation because some institutions’ lack of spending would make it harder for them to attract students, and therefore to build surpluses to fund investment.

“Clearly that is not a tenable position to be in,” he said.

Nolan Smith, Hefce’s director of finance, said a mixture of formulaic and competitive distribution would continue, with the balance depending “on the level of funding available and the priorities placed on this funding by government”. 

chris.havergal@tesglobal.com