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Financing the Future: University turnaround requires a genuinely collective, whole-institution approach

  • 24 August 2022
  • By Susan Lea

This blog was kindly provided by Professor Susan Lea, Vice Chancellor, University of Hull.

We have been talking about the financial viability of higher education providers for some time. In 2019, headlines declared that ‘Britain may soon have a bankrupt university’ and discussion raged as to whether the Government would allow a university to ‘go to the wall’. During the pandemic, the Institute for Fiscal Studies found there was ‘a very real prospect’ of what became the headline: ‘13 universities could go bust without bailout’.

These things did not come to pass. Overall, as the Office for Students reports, the sector has continued to weather both the volatility of the higher education landscape and the impact of COVID-19. In the main, universities have proved themselves to be agile and responsive, managing their cashflows carefully and accessing government Coronavirus support as required during the pandemic. 

It is clear, however, that financial challenges remain and may intensify further in a climate of rising costs and flat tuition fees. In June, the Committee of Public Accounts reported that higher education providers ‘continue to face long-term, systemic, pressures on their financial sustainability and viability’. Indeed, National Audit Office (NAO) analysis shows that the proportion of institutions with an in-year deficit, even after adjusting for pension deficits, has increased every year in the period 2015/16 to 2019/20, rising from five per cent to almost a third – and the NAO report attests that financial stress is not confined to one part of the sector. It is perhaps not surprising that, anecdotally, vice-chancellors cite the unsustainability of the funding model for higher education as their number one current concern.

Financial health determines wider organisational health and financial strategy exists at the heart of a university’s ability to deliver its academic strategy. A fundamental appreciation of the relationship between an organisation’s finances and the associated risks and opportunities to achieving its ambitions are vital. For example, in 2018, the University of Hull faced significant financial challenges which threatened its future. Hull’s performance across a range of metrics had been declining for some time, and would continue to do so without collective, institution-wide change.

Delivering financial viability as well as wider performance improvements requires certain critical elements. These include: 

  • absolute honesty as to the reality of the situation;
  • robust modelling of future scenarios, including those that anticipate major catastrophic events;
  • a strategic approach to financial constraint (as opposed to salami-slicing cost reduction);
  • a shared and comprehensive understanding within the senior executive of the challenges and a clear commitment to the changes required;
  • senior, regular, transparent engagement and dialogue with the whole university community;
  • a coherent narrative as to why the current situation exists, what is required to return to a position of financial health and improved wider performance, how that will be achieved and the implications for staff and students; and
  • meaningful partnerships, working with those key to success – including banks, corporate financial advisers, major industrial partners and civic organisations.

At Hull, this approach enabled us to reverse the financial fortunes of the University, achieving our best financial outturn in seven years in 2021 and attracting £86 million of external investment through a private placement in April 2022. This major turnaround would not have been possible without partnership working with our principal bank and corporate financial adviser. Re-defining these ‘rules of engagement’ and creating confidence in our lenders that we were both serious about business turnaround and could deliver it at pace were critical to moving from a very tenuous financial position just three years ago to one where investors saw us as an attractive prospect.

Andrew Connors, Head of Higher Education at Lloyds Bank, who provide banking facilities to the University and arranged our private placement, said, ‘strong, engaged leadership who have worked in partnership, alongside a credible strategic plan where clear progress has been made, were key to a successful outcome for Hull’.

Importantly, the University’s non-financial performance has also improved dramatically at the same time. This has included rising more than 50 places in league tables (from sub-100s to low 50s)* over three consecutive years and regaining above sector student satisfaction across undergraduate and postgraduate populations by 2021. We have secured improvements in the Research Excellence Framework across every element, including doubling our 4* research and improving our overall grade point average from 2.70 to 3.10. Aligned to the key themes of our Strategy 2030 (environmental sustainability and social justice), we have risen to 35th in the People and Planet University League and secured 81st position in the most recent Times Higher Education Impact rankings. 

The pace and scale of Hull’s transformation are testament to the commitment of our staff and students. They have united in pursuit of a common goal and worked extremely hard in difficult times to restore the University’s performance, profile and pride. It is that collective understanding and shared will that has seen Hull redress its very significant financial and performance challenges through robust evaluation of the University’s operating model and actions taken to revise it, through investing in strength and opportunity and divesting from sustained weakness and poor performance. 

Beyond Hull, a strong higher education sector remains vital to the success of the UK. The value of universities extends well beyond what happens on their campus into the very fabric of society, arguably even more important at a time of climate emergency, devastating war, and threats to human rights. Therefore, as storms continue to buffet the financial sustainability of universities, threatening their excellence and ambitions, it is vital that they seize the moment, take the hard decisions and secure both their own future and wider societal impact. 

Guardian League Table: 106 in 2019 to 53 in 2022; Times League Table: 103 in 2019 to 52 in 2022; Complete University Guide League Table: 94 in 2019 to 58 in 2023

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