THE UNIVERSITY OF LEEDS
Proposed merger with Bretton Hall
Since the previous cycle of meetings (last term), considerable progress has been made in the development of the proposal for the merger of Bretton Hall with the University. Discussions with HEFCE have been productive, and have secured some further support over and above that anticipated in February. Internal work to identify other ways of increasing income after merger and means of reducing (and spreading) costs has likewise borne fruit. As a result, the latest financial forecasts are significantly more positive than those available in February: they show a cumulative surplus of £2.3 million over the (ten-year) planning period, and a net cash outflow of only £0.261 million over that period. In consequence, the six conditions set last autumn for merger have now materially been met (albeit that some residual due diligence issues are still to be resolved), and it would seem therefore that the stage has now been reached when the University is in a position to take a firm decision on the proposed merger. This paper accordingly seeks to set out a coherent overview of the position as it now is. The academic vision is summarised in paragraphs 3-11; the basis of the latest financial projections is explained in paragraphs 12-15; and associated risks are reviewed in paragraphs 17-21.
The issue for the University now is to weigh the obvious academic and strategic benefits of merger against the potential financial risks, and a key question in this connection is whether such risks are manageable. Both the Academic Development Committee and the Planning and Resources Committee have considered this paper, and both committees have not only reiterated their previous view that the academic case for merger is strong, even compelling, but also reached the conclusion, on the basis of the revised financial case and risk analysis, that the merger should proceed. Inherent in this conclusion is the judgement that the potential risk in a merger with Bretton Hall is well within the scale of risk which the University manages year by year (see paragraphs 20-21). The Senate is accordingly invited to consider a formal - and unanimous - recommendation from the Planning and Resources Committee that, subject to the satisfactory resolution of residual due diligence issues (in particular the outstanding issues indicated in paragraph 16 below), the University merge with Bretton Hall with effect from 1 August 2001.
1. In the first cycle of meetings of this session, the Senate and the Council agreed that the University should commit itself to an intention to merge with Bretton Hall subject to certain conditions being met. The idea at the time was that a final decision on whether or not to proceed with the proposed merger would be taken last term, but in the event that was not possible. Financial projections prepared in February (after completion of the bulk of the ‘due diligence exercise’) were less favourable than the forecasts produced in October, giving rise to concerns about the degree of financial risk (both in terms of the revenue account and, more especially, in terms of cash-flow). Further discussions and analysis were therefore initiated to identify ways of generating additional income, of reducing costs and of spreading costs over a longer period (thus obviating cash-flow difficulties).
2. Those discussions have been intensive, and ultimately productive: the latest financial projections are significantly more positive than those produced in March, and it seems that the stage has now been reached at which the University can reasonably take a final decision on whether or not to proceed with the planned merger. This paper therefore seeks to present a coherent overview of the proposal (albeit with an emphasis on recent developments). The decision whether or not to merge will turn upon two factors in particular: the strategic benefits of merger, particularly in relation to academic development, and the business plan, and in particular the assessment of risk. The primacy of those issues is reflected in the structure of the paper which follows.
The Strategic Benefit
3. New strategic developments should be driven by academic development objectives, and the proposed merger with Bretton Hall is indeed rooted in such objectives. The academic case for merger was spelt out in an ‘academic vision’ submitted to the HEFCE in January as part of the bid for financial support. A copy of that vision has been made available previously to Academic Development Committee, Planning and Resources Committee, Senate and Council, but the main features - as refined in discussions over the past four months - are rehearsed here for ease of reference.
4. From the perspective of the University as a whole, the strategic advantages are that merger would
5. Paragraphs 6-11 below summarise the main features of the academic case for those departments most immediately affected by the proposed merger. The academic development plans for the merger would, in aggregate, bring in 1094 additional student numbers (over and above the combined total of existing numbers at Bretton Hall and the University), as shown diagrammatically in Annex 1.
Faculty of Visual and Performing Arts
6. Merger would allow the creation of a Faculty of Visual and Performing Arts, consisting of four schools.
School of Music
The School of Music at the University of Leeds has built a strong reputation in teaching and research. It is well situated and has developed links with Opera North, the English Northern Philharmonia and the Leeds International Piano Competition. The merger would bring together the University’s expertise in theory and the many technical aspects of music, with Bretton Hall’s strong reputation in performance (both traditional and popular). Through better resourcing and more efficient targeting of resources, the School would develop a number of innovative new degree routes to increase student choice and to improve access and progression in areas such as World Musics, Popular and Commercial Music, Popular Musicology and Film & Theatre Music. The merger would create critical mass, facilitating the development of doctoral programmes and research centres such as ICSRiM (Interdisciplinary Centre for Scientific Research in Music) and LUCEM (Leeds University Centre for English Music), and enhancing the prospects for funding from agencies such as the AHRB, EPSRC, ESRC, National Lottery, Culture 2000 etc. Both sites would be upgraded to improve the standards of the teaching accommodation and enhance the student experience. At the Leeds site the accommodation of the School of Music would be consolidated into a specially-designed building to facilitate the significant increase in student numbers, and appropriate use would also be made of the State Rooms in the Mansion House at Bretton Hall for collections, concerts and exhibitions. The merger would also give students greater access to a wide variety of learning materials and staff, and provides the opportunity to consolidate the University of Leeds as a regional, national and international centre of music excellence for teaching and research.
School of Fine Art
The creation of the new Faculty would raise Music and Fine Art from their currently relatively marginal position within the Sub-Faculty of Arts to become major forces in Arts education and a major Faculty within the University as a whole, reflecting the growing economic and cultural significance of the Arts in Europe. The University of Leeds enjoys a strong reputation in Fine Art both in terms of teaching and research. Its provision is highly interdisciplinary which makes its degrees in Fine Art, Art History and Cultural Studies very distinctive. The merger would provide the opportunity to expand courses currently offered by the School of Fine Art at both sites by combining Leeds’ emphasis on theory and Bretton Hall’s strength in studio practice. The new Department would become one of the largest providers of Fine Art education in the country, able to capitalise on the strengths already built up over the years on both sites. The merger would enhance and extend the Fine Art provision at both Leeds and Bretton, by extending studio facilities and activities available to Leeds-based students, and art history, library and other facilities to those students situated at Bretton. Amongst other things, the new combined School could and would address the needs and aspirations of ethnic groups by developing provision in Visual Arts and Cultural Diversity. It is also planned to introduce technology into the curriculum through a Fine Art Digital Technology route to respond to the convergence between art and technology. The new Department would help the University to implement its Lifelong Learning and Widening Participation strategies in an educationally disadvantaged region which has relatively little higher education, without compromising its international and national research priorities: indeed these would be enhanced by the combined strengths of the new department. The creation of the new School of Fine Art would provide an integrated programme of study for students, with access to a wide variety of resources and facilities. An essential part of the development would be to establish the Bretton Hall campus as a specialist academy for fine and visual arts, building on the strong relationship which already exists between Bretton Hall and Yorkshire Sculpture Park which has attracted significant European and lottery funding.
The School of Cultural and Arts Industries
This new School, based at Bretton, would further develop the innovative work in Cultural Industries and Arts Management, building up its research and teaching profile underpinned by a growth in student numbers. The undergraduate portfolio would be developed through the addition of a new suite of undergraduate programmes. New dedicated pathways would be developed within the existing Performance Management programme, which would be re-titled Arts Management and offer specialist pathways in Music, Performance, Visual Arts and Cultural Policy. The new undergraduate provision has been developed in response to the national and international arts and culture agenda. These programmes would be further expanded to incorporate additional specialisms including cultural policy and joint honours programmes with other disciplines in the Visual and Performing Arts. These programmes support the increasingly important role that arts and the cultural industries have on political and social agendas.
School of Dance and Drama
Bretton Hall has a long established reputation for the excellence of its programmes in the area of Dance and Drama, combining academic rigour with professional training. These programmes provide for high levels of graduate employment in film, television, national and regional companies and a range of community locations. The current school, which is already one of the largest providers in the country, would use this opportunity to consolidate its undergraduate portfolio through the further development of vocational programmes in performance design and technology and theatre costume. This expansion would support the further development of partnerships with national and regional organisations including the National Trust, Yorkshire Arts, West Yorkshire Police, West Yorkshire Playhouse, Yorkshire Arts Circus, the Centre for Management Creativity and numerous national and regional theatre and dance companies.
School of Textiles and Design
7. A new Leeds-based School of Textiles and Design would combine the University’s tradition based on its association with the Clothworkers’ Company and Bretton Hall’s emphasis on innovative design. The creation of the new School of Textiles and Design would bring together the functionality and aesthetics of textiles and design, establishing the School as a key provider of design education. Bretton Hall has developed a national reputation in fashion and has been involved in events such as London Fashion Week and a number of international events. The School would also benefit from the University’s research in textile materials engineering and textile management and its links with industry, to further develop its strong teaching and research programme. The School would develop new innovative provision in the textile and design areas using the latest technology and techniques to respond to the demands of students and industry. The Bretton Hall Design Realisation Centre could provide a conduit to link the work of the new design department to industry in the local area and so increase opportunities to the School. The combined expertise of the two institutions would provide opportunities to develop new multi-disciplinary undergraduate areas such as Interior Design, Product Design and Interactive Media Design.
School of Education
8. The proposed merger provides the opportunity to combine the Education provision of the two institutions. Students and staff would in the medium term be consolidated on the Leeds site, where the University has an excellent track record in teaching quality and research. The combined School of Education would allow the University of Leeds to expand its well established and nationally regarded Secondary PGCE course and to more than double the size of its existing and relatively small Primary PGCE course enabling it to become a major national player in primary as well as secondary initial teacher training. The proposed merger would put the University of Leeds into a very strong position to become the regional leader for teacher training, a concept favoured by the Teacher Training Agency. In order to create the combined School of Education, it is proposed to transfer some of the student numbers from Bretton Hall’s BA QTS programme into additional Primary PGCE numbers and to use the remainder to develop new undergraduate BA (joint honours) programmes in Education plus a National Curriculum subject. Due to the extensive range of subject provision at the University of Leeds, potentially almost all of the relevant subject areas can be offered including the shortage subjects. This combined route would be able to feed directly into the large PGCE Secondary and Primary programmes which the new School would offer. These proposed developments are in line with current Teacher Training Agency and Department for Education and Employment policies and have been welcomed and strongly supported by both the Teacher Training Agency and the Higher Education Funding Council for England. The merger would also make it possible to bring together the existing BA Childhood Studies and BA Child and Family Studies. (These nationally-strong undergraduate courses are offered as part of a programme delivered in both full-time and part-time mode.)
School of Continuing Education
9. The University of Leeds Centre at Wakefield, managed through the School of Continuing Education, would be the focus for part-time and continuing education in Wakefield and its surrounding district, and would have the potential to make Leeds a major centre for continuing education and lifelong learning in the UK. The Centre would bring the academic resources of the University of Leeds to people who have had little or no opportunity for higher education, and would contribute to the development of lifelong learning in an economically disadvantaged area. It would therefore enable the University to implement its Lifelong Learning and Widening Participation strategies in an educationally disadvantaged region which has relatively little higher education.
10. The Centre would work with existing partners of Bretton and the University to respond to regional and national agendas for widening participation and lifelong learning. It would benefit from already-established relationships and from newly-established structures for partnership including the Wakefield Lifelong Learning Partnership and the local Learning and Skills Council. It would work with a wide range of FE colleges and other partners. Through the Centre, the University would be well-placed to respond to regional priorities in the south, including those set by Yorkshire Forward, the Regional Development Agency and the new Learning and Skills Council.
11. There would be three integrated approaches:
12. Up-dated financial projections for the proposed merger are set out in Annex 2; they show a cumulative surplus of £2.3 million for the (ten-year) planning period, and a net outflow of £0.261 million over that period. The basis on which these figures have been prepared includes the following:
(a) the HEFCE has confirmed that it will allocate to Leeds the additional 1094 student numbers which the University had sought - albeit phased over a slightly longer period than originally requested;
(b) the TTA has confirmed that the primary and secondary targets for the merged institution from 2001-02 would be the sum of targets which the University of Leeds and Bretton Hall would otherwise have received separately;
(c) the TTA and HEFCE have agreed that undergraduate numbers can be transferred from the BA(QTS) at Bretton Hall to the primary PGCE and other courses, and that the loss of student numbers through moving a course from four years’ duration to one year’s will be replaced by HEFCE numbers;
(d) the HEFCE has also confirmed that it will contribute £5.6 million to the cost of the merger (£1 million more than previously indicated), the timing of this payment to be determined by the University;
(e) in addition, and in response to the University’s concerns about cash-flow in the first few years of the planning period, the HEFCE has this month agreed to provide the University with an interest-free repayable grant of £2 million, payable to the University in 2000-01 and repayable in five instalments over the period 2004-09 (or earlier if circumstances allow);
(f) the HEFCE has agreed to the early release - in 2000-01 - of a (relatively small) proportion of the £5.6 million grant (see (d) above) - and this early release would allow the staffing profile at Bretton Hall to be restructured before merger, thus paving the way for the recruitment of research-active staff in accordance with the University’s academic vision for Bretton Hall;
(g) income of £225k is shown in 2004-05 in anticipation of a successful bid to the HEFCE, under its Poor Estates programme, to refurbish a lecture theatre at Bretton Hall (HEFCE having indicated this month that it would be receptive to such a bid);
(h) following reviews by the departments concerned of their plans, the number of new posts to be established over the planning period has been reduced from 56 (in February) to 43 now (the departments being satisfied that this level of recruitment will enable realisation of their academic visions assuming that Bretton Hall secures the staff re-profiling indicated in (f) above);
(i) in line with advice from the University’s bankers, an average interest rate of 6.75 per cent is assumed for the planning period;
(j) Bretton Hall’s borrowings will be renegotiated (saving interest payments);
(k) Bretton Hall staff will remain in their existing pension schemes, and not transfer to the University’s;
(l) additional income will be secured through postgraduate recruitment - provision having been made to increase Bretton Hall’s postgraduate numbers by 70 by the end of the planning period - and through the recruitment of international students (33 by the end of the planing period);
(m) the project budget includes provision not only for project management but also for appropriate marketing to guard against the danger of a shortfall in student recruitment in the first year following merger (and this will include production of a new prospectus as well as re-badging Bretton Hall with the University’s name).
13. The RAE performance assumed in the financial projections for Bretton Hall departments is based upon assessments made by the relevant units at the University itself (and are thus, in aggregate, significantly more cautious than Bretton Hall’s own original planning assumptions). The projections also include provision for the appointment of six new research-active staff in 2000-01 (see 12 (f) above), thus allowing them to be taken into account in the submission for RAE 2001.
14. Although there is still some detail to resolve, it is apparent that Bretton Hall can be assimilated into the University’s resource allocation and overheads model, initially on a ring-fenced basis, using the University’s normal units of resource and cost drivers. This would allow consistency, support the vision of a merger into a single institution and provide a margin of flexible funding to provide support as necessary for the merging resource centres. On the basis of the latest financial projections, which show a surplus of over £2 million on merger, it is apparent too that bringing Bretton Hall into the model will not itself require any element of ‘subsidy’ from any existing resource centre. In relation to their existing activity, those resource centres which are merging will be expected to contribute to the University’s overheads and strategic funds in the normal manner. However, the incremental activity relating to Bretton Hall might well be in deficit during the planning period. This would be balanced by any excess overhead recovery and strategic funds created at the Bretton Hall ‘centre’. In any event, it is intended that within a maximum time-frame of five years the ring fenced incremental Bretton Hall element will be fully merged. Since there will be economies of scale relating to central administration activity at Bretton, for example the majority of the existing finance functions activities will be absorbed by the existing staff at Leeds, then a fully merged model can be expected to reduce the percentage overhead charge to all resource centres in the University.
15. For completeness, details of recent changes in the financial projections are summarised in Annex 3, and a summary of the transitional arrangements for 2000-01 is attached as Annex 4.
16. As will be apparent from 12-13 above, considerable progress has been made over the past few months to resolve questions arising on a merger with Bretton Hall. There are, however, still a few outstanding issues, as follows:
(a) a final report is still awaited on the state of one of the dams at Bretton Hall (although current indications from the surveyors imply that there are unlikely to be any major problems);
(b) there are contractual issues still to resolve between Bretton Hall and the Yorkshire Sculpture Park regarding the development of the latter;
(c) Bretton Hall has been successful in securing EU funding for a number of projects; given the complex nature of EU funding a specialist auditor is currently reviewing the projects to ensure that the objectives of these projects are being met, but her report will not be available until the end of the month;
(d) because of their distinct legal status, the two students’ unions (at the University and at Bretton Hall respectively) will themselves have to agree to merge - and Leeds University Union will therefore have to undertake a ‘due diligence exercise’ on the Bretton Hall union.
Assessment and Commentary
17. Throughout the committee discussions this session, the academic case for merger (as summarised in 4-11 above) seems generally to have been regarded as strong, even compelling; and, on the basis outlined above, the six conditions for merger identified last autumn are now materially satisfied (albeit that there are some residual due diligence issues to resolve). The issue remaining for the University now is to weigh the obvious academic and strategic benefits of merger against the potential financial risks.
18. It is obviously important in this context that the latest financial projections (see above) show that merger would generate a modest surplus over the planning period, and only a small net cash out-flow. These projections reflect the increased support now secured from HEFCE (see in particular 12 (d)-(g) above), as well as efforts within the University to identify other ways of increasing income after merger and means of reducing (and spreading) costs.
19. It is important too that the latest financial projections have been prepared on an explicitly prudent basis. Thus, for example, assumptions about Bretton Hall’s RAE performance are now more conservative than Bretton Hall’s own plans. Similarly, the execution of the due diligence exercise has given University officers a much better understanding of Bretton Hall, of the issues to be addressed in the context of merger, and the costs thereof; and provision has been included accordingly in the budgets. This in itself gives grounds for increased confidence that the financial projections are both realistic and prudent.
20. All this said, there is however no denying that there are invariably elements of risk in a project of this size and complexity. Identifiable risks specific to the merger are surveyed in Annex 5, which indicates how those risks could be managed.
21. It also has to be said that, whilst the student number projections are probably reasonably robust (given the continuing high levels of demand for places at Leeds and HEFCE’s commitment to allocating the merged institution additional student numbers), financial forecasts over a ten-year period become increasingly provisional as they move towards the planning horizon. The difficulty of forecasting economic trends and cycles - in particular interest rate movements and inflation - comes into play; and similarly there are bound to be uncertainties about government policy towards higher education over a ten-year planning period. The risks associated with these types of factor are not however peculiar to the proposed merger with Bretton Hall, but would apply to the University as a whole (of which Bretton Hall would represent a relatively small proportion). It is perhaps worth adding that, if ten-year financial forecasts were prepared on current planning assumptions for other University resource centres, they would in general be significantly worse than those now available for Bretton Hall. This is not to say, of course, that the University faces insuperable financial problems; rather, it is to illustrate that the degree of potential risk in a merger with Bretton Hall is well within the scale of risk which the University routinely manages year by year. In any event, there is a sense in which, through the preparatory work undertaken to date, many of the management issues that all resource centres inevitably face have already been addressed in the case of the merging resource centres. And the point should perhaps be made that the expansion inherent in a merger would position the University well in the event that the next few years bring (as some commentators expect) additional funding for at least research-led universities.
22. The Senate is asked to consider the proposed merger with Bretton Hall as outlined above, and in particular is invited
(a) formally to endorse the view of the Academic Development Committee that the academic case for merger is strong;
(b) to consider the unanimous recommendation of the Planning and Resources Committee that, subject to the satisfactory resolution of residual due diligence issues (in particular the outstanding issues indicated in paragraph 16 below), the University merge with Bretton Hall with effect from 1 August 2001.