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The University's finances: Q&A with Allan Spencer, Director of Finance

Director of Finance, Allan Spencer

In December 2018, the University of Sussex published its Financial Statements for the 2017/18 academic year. Published annually, the document provides a detailed look at the University’s finances.

We spoke with Allan Spencer, Director of Finance, about the latest Financial Statements and the outlook for 2019.

How would you describe the University’s current financial situation?

The University is performing better than many institutions and we’re still producing surpluses.

However, we have two main issues.

One is that we’re working in a more volatile environment. That means we need to be targeting higher surpluses so that, if difficult things happen, we’re in a better position to absorb those or have time to react to them.

The other thing is that we have ambitions with our new strategy (Sussex 2025) that require us to invest in our infrastructure, in order to provide the kind of university experience we want to provide and that our students are telling us they expect. In practice, because there are no government grants available for improving infrastructure, this again means we have to produce more of a surplus.

For those who haven’t delved into our financial accounts, what was our income and surplus last year?

Our consolidated income was just under £300 million for last year and that means that we’ve grown every year for the last ten years – not just in cash terms but in real terms. That is definitely at the better end of what has happened in the sector.

Our surplus for the year was between £4-5 million, but that was after some one-offs. Our operational surplus - our ongoing surplus - was around £10-11 million. That’s around 3.5 per cent of turnover and really we should be targeting around twice as much as that.

It was an acceptable result, but it’s the sort of result we have to improve on in future. It’s also worth noting the University agrees its surplus targets with our Council, who are responsible for governing Sussex.

Looking at the financial accounts, it looks like we have quite considerable cash reserves. Why are these important?

One of the main reasons for building up our cash is to enable capital investments such as the ability to improve infrastructure for students and staff. For example, this will allow us to invest in delivering critical Estates and IT route maps as part of Sussex 2025.

Another reason for holding cash reserves is for working capital. For many things, such as many research grants, we don’t receive money the same month as we pay it out. In many cases, we’ll have to pay out salaries for three months and then reclaim them from sponsors. We have to have cash in the bank to be able to pay for those sort of things.

In addition, cash reserves are there to either provide resilience in terms of some additional buffer to be able to adapt to adverse events. With many moving parts in both the UK economy and the higher education sector, these reserves are essential.

What’s the financial outlook for 2019 and the next academic year?

For 2019, we have set a target of around £14 million surplus, which we’re expecting to hit. The good news is that we have achieved our tuition fee income target, which we set at a level to make sure that we didn’t have to make in-year savings this year.

However, there are many other variables for us to consider.

We definitely know that the Government has frozen Home/EU student fees. Effectively, we’ve had only one year’s inflation since the current fee regime was introduced in 2012. That means that we’ve had about a 10-15 per cent cut in real terms in our Home/EU tuition fee income. That’s going to remain a pressure because there’s no realistic chance that fees are going to get inflated for the time being.

The other thing is whatever happens with the USS pension scheme. It’s not clear exactly what will happen, but there are already increases announced for USS employers’ costs - that’s going to be a considerable strain if those come into operation. There is a new valuation going on now, which might mean that full cost doesn’t hit us but, even so, it will certainly increase cost pressure by increasing the amount of money the University has to pay towards USS.

Then there is the stuff that we suspect will happen but is more difficult to quantify.

On Brexit, it has not been confirmed whether EU students starting university in the UK from 2020 onwards are going to be eligible for student finance, nor whether they’re going to continue to benefit from Home tuition fee rates. If they don’t, then obviously both those things could affect the number of EU students coming to the UK. We’d either have to replace those or accept that our student numbers won’t be quite as high as they were.

The other major impact is what comes out of the Augar review, which is the Government’s review into post-18 fees and funding. This could mean that fees actually don’t stay at £9,250 for Home students but are reduced. Obviously we’re only speculating, but any reduction in tuition fees for Home students, without any additional funding from the Government, is going to mean additional pressure on the University.

With it being such a tough environment around funding, how can we still afford to invest in programmes such as IT and Estates?

Government grants are very low now, less than £3m per annum, so we rely really on two sources of funding to be able to make investments in our capital – or in other words our infrastructure.

One of the things we do is generate surpluses, which means that we have cash in the bank and we can therefore spend the money on IT, new buildings or refurbishing buildings.

The other thing we do is periodically use borrowings to leverage the amount of money that we have. Just over 12 months ago, we raised £100 million through the capital markets, which means that effectively we have £100 million at good rates of interest, which is available to supplement the amount of money from surpluses over the years and which we seek to continue to generate.

Last year, for example, we achieved a surplus of around £5 million and we spent £19 million on capital investments.

Finally, it sounds like we’re facing not only some tough external factors but also quite a lot of uncertainty. Could you explain a bit about what the University is doing to prepare and mitigate for some of those things?

One of the things we’re implementing is an integrated planning process, so thinking more than 12 months ahead. We’ve traditionally thought, at university level, in ‘strategic plan periods’, i.e. five-year chunks. But often, at budgetary level, we’ve only thought for one year. So one of the things that we’re trying to work on with Heads of School and Directors of Professional Services is to devise plans that will give a longer time scale so that people can plan ahead.

And we are looking to increase the level of surplus so that the chance of us having to make sudden savings is reduced.

I mentioned at the start that there are some things that we know about and that we’ve built in, plus there are some things like Augar that we really can’t build in at the moment. If those turn out to be a reality, we will have to adjust our plans again.

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By: Sean Armstrong
Last updated: Friday, 18 January 2019

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