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Governance news: Finances of Scottish universities

20 Sep 2019 | David Williams The Audit General for Scotland has published a report on the financial position of Scottish Universities.

Key findings:

  • Significant variation in the financial health of Scottish universities.
  • Surpluses are concentrated in three of the four ancient universities.
  • Not all institutions, faced with a reduction in funding from the Scottish government, have the same ability to diversify their income streams.
  • There are difficult challenges faced by governors of individual Scottish institutions.

The Audit General for Scotland, who is responsible for the audit of all public bodies except local authorities in Scotland, has prepared a report on the Finances of Scottish universities with a short podcast to accompany it.

The report considers changes in the financial position of universities between 2004-15 and 2017-18 and divides universities in Scotland into four groups (see Appendix 1, p.39.):

  • Ancient universities (4): universities of Aberdeen, Edinburgh, Glasgow and St. Andrews
  • Chartered universities (4): Dundee, Heriot Watt, Stirling and Strathclyde
  • Modern universities (7): Abertay, Edinburgh Napier, Glasgow Caledonian, Highlands and Islands, Queen Margaret, Robert Gordon and West of Scotland
  • Small and specialist (4): Glasgow School of Art, Royal Conservatoire of Scotland and the Open University in Scotland

While the report finds the sector overall in 2017-18 to be in good financial health, this masks considerable variation between institutions. The Audit General notes, “many sector-level indicators are disproportionately affected by the financial results of three of four of the ancient universities” (p.9).

When faced with a reduction in funding provided through the Scottish Funding Council (SFC), ancient and chartered institutions have generally been able to diversify and increase their income, mainly from non-EU tuition fees (see, Exhibit 3, p.15). Modern universities have found this more difficult and as a group remain more reliant on public grant funding from the Scottish government (56 percent of their income). The report confirms that modern universities are generally more teaching intense, and have a greater proportion of Scottish students.

The report suggests that “between 2014-15 and 2017-18, the underlying position (financial) of the sector improved, but the position was worse for six universities.” (p.9) Illustrating the marked variation between institutions, Exhibit 1 of the report (p.11) shows changes in each institution’s operating position (surplus or deficit) by percentage of income. With the exception of one institution, all members of the modern group, have experienced a deterioration in their financial position.

Using TRAC data, the report highlights the reliance by universities on “cross-flows” of income between activities to fund those activities which do not fully cover their economic costs (p.16). As in the rest of the UK, universities in Scotland do not recover the full cost of research activities.

All universities in Scotland, to differing degrees, face significant cost pressures. Notably the financial impact of leaving the EU, estate maintenance requirements and pension contributions.

Conclusion

The report from the Audit General highlights that universities in Scotland do not all occupy the same financial position, and some are much better placed that others to absorb reductions in funding from the Scottish government than others. This emphasises that while the sector as a whole may face common challenges, individual institutions occupy very different strategic and financial positions within the sector. As a result, some are much better placed than others to manage changes in public policy, while for some there are major challenges for both governors and senior leaders.

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