Leader column

I never thought I would see the day when it would be a positive advantage to have a relatively small endowment.

Harvard’s eye-watering £3.6bn fund has until recently generated a third of the university’s annual operating income, helping along the way to sustain its dominance of world league tables (See http://tinyurl.com/6cn4z8).

According to its president, America’s oldest university now faces unprecedented losses, hard choices, contingencies, constraint and efficiencies in order to protect the core business from its exposure on the stock market as the global economy enters a period of massive turmoil.

As we seek to manage the difficulties ahead, we are arguably better placed than some to navigate our way through the extreme financial volatility threatening higher education income and funding streams in the UK and across the world.

Our university has benefited from sound financial management for many years. We are all facing the similar challenges, but we start from a very good base and are well positioned to withstand instability (and even gain competitive advantage).

We have a clear strategy on which we are focused, and we are improving our performance across the board. We’ve released a huge amount of creative talent; we have great staff and students and a real desire for success.

Nobody can say how long we will be grappling with this financial turmoil and insecurity; my guess is five years at least, so we need to ensure that as far as possible we remain in control of our finances, and that all this turmoil does not blow us off course and jeopardise the considerable progress we have made towards realising our strategic ambition.

Some of our peers are already freezing recruitment or shedding jobs. The efficiency saving we have agreed to make in next year’s budgets of 5% is a planned, measured response that will enable us to preserve our academic mission and continue to make strategic progress – by reducing the staff/student ratio, for example – while developing efficient and effective support services.

The combination of two factors, unpredictable swings in our income and significant increases in costs, presents us with enormous challenges for the foreseeable future. The Deputy Vice-Chancellor’s briefing note for staff has outlined the background to our financial planning, but it’s clear that universities will not escape the effects of public spending cuts.

We have already seen reductions in the government’s student support package; student numbers have been capped and it is extremely unlikely that there will be any rise in the real level of student fees before 2013.

Although universities have benefited from a combination of growth in student numbers and tuition fee income in recent years, we are still worse off than we were some two decades ago. The ‘unit of resource’ – the money we receive from government to teach each of our students – fell by a massive 43% in the period between 1990 and 2003.

Fees income has of course improved the situation, but we are still only back to 70% of what we were receiving of the unit resource in 1990. So things still feel tight, even before HEFCE’s grant settlement in March, predicted ‘real term’ cuts in funding from research councils and, of course, from industry.

Financial volatility will also affect philanthropy, which will impact on us directly and indirectly. Although we raise relatively small sums through donations, one of the major cancer charities – and prominent research funders – is already anticipating a fall in income this year of at least 20%; others will be similarly threatened.

International recruitment is relatively robust at the moment – but who can predict what proportion of students will still be in a position to take up places next and in future years.

Cost pressures are coming from at least three directions. Staff costs have risen at least 10% – some £34 million – in the current year, just about the same as our income from international student fees. We will be required to increase our contributions to staff pension funds by at least 2%, and energy costs are expected to be significantly higher than currently budgeted for.

All of these issues and challenges require a planned, careful response to ensure we spend as wisely as possible so we are able to keep developing the University and remain focused on our academic mission and strategy.

By the time you read this, we will know the outcome of the research assessment exercise although it will be March before we understand how the results will affect our ‘quality’ (QR or core research) funding. We have a number of people involved, but quite rightly they are keeping confidences. I do know, however, that our submissions were regarded as highly professional, very well organised and well written. That’s good news, not least because it will have put the RAE panel members in a positive frame of mind as they assessed our work.

We also know we have improved our performance since the last exercise in 2001, but also that the overall level of international performance across the country has gone up, so the issue, as always, is where we stand in relation to our peers, and in various quality/volume tables. It would be surprising if the outcome were to be a major change in‘QR’ funding across the sector, but we won’t be jumping to any conclusions until we have all the data.

Irrespective of the result, I would like once again to thank everyone for the massive effort that went into producing the best submission possible. I am sure we gave it our all; after that, we’re in the hands of the assessors and the fairness of the process (or otherwise). For sure we’ll take the hand we’re dealt and work with it. Meanwhile, have a great Christmas and New Year.