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"The Governor View" - The cost of living crisis and HE

A combination of soaring costs amid a real terms fall in fee income, alongside rising demand for places and increased expectations around HE’s role in the skills agenda, is giving rise to growing concerns across the sector, according to governors who spoke to Advance HE.

Rapidly rising inflation is making financial planning challenging, while measures introduced by the government to ease the situation, such as the energy bill cap, only apply in the short term.

“Forecasting is very difficult given these escalating costs which are moving at an eye-watering pace of change at the moment,” said the governor of a post-1992 institution in London. “And it’s not all down to the war in Ukraine. There are other forces going on in the UK: inflation, static income, possibly another period of austerity and strong hints that we will have to pay for energy bill caps and tax cuts.”

One governor described the situation as “a perfect storm” for universities. At the same time as the increased pressure on operational costs, the system is facing pressure to increase capacity and deliver more.

One governor commented: “There is going to be a big debate ahead on the size and shape of the sector -- partly about what role it has in economic and social terms, but partly in terms of what is sustainable and affordable. It’s a real head-scratcher for boards of governors.”

Universities’ ability to respond to these challenges depends on a variety of factors. Each institution has its own cost pressures, levels of reserves and capacity for increasing efficiencies and boosting income streams.

“We are actually financially strong,” said the governor of a new university in the south of England. “We have quite good reserves and investments, although there are concerns about the diminishing value of these in the current climate. We returned a 6 per cent surplus this year which is above our target.

“But some other universities are much more on the edge and have very few reserves and are not returning surpluses, so there will be some that really struggle over this next period.”

Scenario planning and risk management are on the agendas of finance and audit committees and governing bodies across the sector, giving members several opportunities to challenge and scrutinise measures being put forward by the executive.

According to one governor, institutions are looking at possible “low-hanging fruit” where efficiencies might be made, for instance, savings in back office functions.

A governor of a university in London said her university had in train a voluntary severance/early retirement plan, with a view to making cost reductions.  The option of “holding” vacancies - not immediately replacing staff who leave - was mentioned by another.

If wage increases are difficult in the current climate, other rewards and incentives could be considered to help staff with cost of living pressures. One governor suggested food vouchers or bonus and reward schemes that give staff the prospect of some financial help, however limited.

The combination of a growing number of 18-year-olds at a time of falling income could run the risk of diluting the support institutions give to students, according to one governor. Supporting student mental health and wellbeing is an expensive endeavour, but making cuts in this area is seen as an option of last resort.

Activities which centre on future applicants, rather than current students, such as widening participation outreach, could also be threatened by funding constraints. Again, governors are reluctant to see this as an area where savings can be made.

One governor welcomed the recent Office for Students “shake up” of access and participation describing it as a “row back on targets” which will reduce pressure and give institutions more space to focus on work that makes a difference rather than ticks boxes.

Considerations of long-term energy needs have led one Welsh university to invest in a solar farm near its campus.

“It is providing some of our electricity and that will increase to full capacity by next year,” said a governor. His university is also a member of a common procurement group which had bought energy in advance, protecting institutions in the group from the immediate impact of the latest round of higher energy costs.

Opportunities to increase income across the sector vary and are subject to constraints. One governor mentioned that her university had a number of buildings it would like to sell but “it was the wrong time”.

Growth in the international student market is being explored by a number of institutions but others feel their current balance of home and foreign students is at the right level.

“It’s tempting to increase international students but we believe it would be wrong to privilege those students over our own home students, despite the fact they are more expensive and there are penalties if we lose them,” said a governor of a post-1992 institution in the south of England. “And given the rising inflation in the UK at the moment, would more overseas students even want to come when what they have to spend will not go so far?”

While universities are facing rising costs, they are also having to think through how best to support students with cost of living pressures. The challenges that students are facing are a major concern for governors. According to the latest NUS Student Cost of Living Report, a third of UK students have £50 or less to live on per month after paying rent and bills. 

One governor echoed concerns voiced by Universities UK that students were a “forgotten group” in government measures to ameliorate the cost-of-living crisis. Many face a postcode lottery to access council tax rebates and full-time students are not eligible for Universal Credit. UKK president Steve West has called for a “national conversation” on a long-term funding solution for higher education and a number of vice chancellors are arguing for a reintroduction of maintenance grants.

Advice from the Office of the Independent Adjudicator for Higher Education (OIA) warns that students with experience of the care system, disabled students and those with health conditions, those with caring responsibilities, and international students may face particular challenges.

Many institutions are supplementing hardship funds and providing emergency loans, and working with student unions to ensure signposting.

According to one governor, such schemes, which are generally aimed at students from low-income backgrounds or with a specific vulnerability, are, for the first time, being sought out by students from middle-income families who can no longer afford the basics.

“Maintenance loans have gone down in real terms,” he said. “You have students and families struggling who have historically been a bit more comfortable. That acute need is spreading to much broader swathes of the student population.”

A one-off household energy grant aimed at off-campus students in private accommodation has been established at one Russell Group university in the north. It has also created an online “cost of living hub” to give students advice on budgeting, wellbeing and accessing help.

A governor from an institution in London with relatively high numbers of mature students raised concerns about the impact of raised mortgage, food and childcare costs.

“We know that for these students, financial pressures are the main reason for dropping out, not academic failure,” she said.

Trying to hold rents down in university-owed accommodation was a measure mentioned by one governor in London.

“If there is a private provider, that could mean the university having to subsidise the private landlord,” she said. “There are various things we are thinking about such as not raising prices on food, not transferring our costs onto students as far as we possibly can.”

At a recent meeting of the university council a raft of measures were agreed upon, including “heavily discounting” food and beverages, free access to gym, clubs and societies and free sanitary products.

Universities are also setting up food banks, paying for rail passes, waiving library fines and providing free laptop loans.

At a recent governors meeting at one Welsh university, plans were discussed to open other campus buildings 24/7, as well as the library, to provide warm spaces for students in the winter months.

“The impact on students is on everyone’s minds and everyone’s agendas,“ said a governor at the university. “We are working closely with the student union on this to establish quickly and directly what problems are emerging. There’s a lot of concern about students in private housing keeping warm and any temptation to take shortcuts and the safety concerns around that.”

A recently announced 10 per cent increase in the UKRI postgraduate stipend is being passed in full to research students, the governor said. The university, like many others, is also working to ensure students are made aware of part-time work opportunities and encouraged to consider them if appropriate.

Given new OfS B3 conditions which specify student continuation rates of at least 80 per cent, supporting students at times of crisis and minimising dropout risk becomes even more imperative.

“We already know that one of the main reasons for young people to leave university is because they can’t afford to carry on studying,” said a governor. “In the current climate that risk is even higher and we are looking all the options we have to try and lessen the cost-of-living impact.”

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