Signs of recovery for the HE sector?

The exceptional circumstances which have been experienced this year due to the pandemic have created unprecedented challenges for the higher education sector. 

At the start of the pandemic in April 2020, the BBC reported that higher education leaders sent a letter to government ministers stating that “Without government support, some universities would face financial failure, others would come close to financial failure and be forced to reduce provision”.

By July, the Institute for Fiscal Studies (IFS) had warned that thirteen universities face “a very real prospect” of insolvency following the coronavirus crisis unless they receive a government bailout.  The IFS report stated that whilst high-ranking universities with large numbers of international students face the largest immediate drop in income, it is the least prestigious universities that are at the greatest risk.  The IFS did not name the universities, but claimed a targeted government bailout would be the most cost-effective plan.

The fallout from Covid-19 “poses a significant financial threat” across UK higher education, with most institutions left with reduced net assets, stated the analysis.  The IFS concluded that the total size of the sector’s losses is “highly uncertain” – anywhere between £3bn and £19bn, or between 7.5% and almost half the sector’s annual income.  The researchers’ central estimate is an £11bn loss, amounting to a quarter of the sector’s annual income.

However, in an article by published on the BUFDG website in December 2020, Matt Sisson Head of Education at Barclays reported that there’s good reason to be confident about the future of HE.

The perception at Barclays, which is a major funder across the sector, is that UK universities have done incredibly well to manage the exceptional challenges they have faced. 

Media attention may have focused on a few isolated incidents of Covid-related difficulties, and even talk of some universities going bust, but Matt Sisson considers that the sector is in robust financial health, certainly in comparison with some other sections of the economy.      The article reports that the fundamentals of the sector remain strong: it is strategically important to the UK’s economic development, and benefits from largely stable and predictable income and cashflows. There are undoubtedly challenges and uncertainties but overall the sector is considered to be strong enough to deal with the current issues.   

The article continues to report that Barclays see very little prospect of financial failures, despite the popular perception. Some institutions will need to amend business and operating models, while others will go through restructuring to align cost bases with reduced income streams. This is seen as being largely voluntary, driven by managers and governing bodies, rather than mandated as part of some condition of a government bail-out.

Matt Sisson reported that ‘Despite the challenges, I’ve been impressed by how HE has responded to Covid-19. Faced with the initial lockdown, universities moved teaching from face-to-face to online platforms within just a few weeks – a huge logistical achievement. Equally impressive has been how effectively institutions adjusted once students were allowed to return to campus.’

With the onset of the pandemic, one of the first things the sector did was to tighten up cost control. Facing something like a 2% income impact in 2019/20, institutions reined in discretionary spending, pulled capital projects and reviewed their cost bases.

A combination of that cost control and upper-end estimate enrolment means most universities are in a far better financial position than they could have hoped for just a few months ago.

So, while the challenges of 2020 have been very real, on the whole, Matt Sisson concludes that the HE sector has risen to those challenges and Barclays see every reason to continue supporting a sector with a very positive future.

 

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