Higher Education: Regaining Stability

The Higher Education (HE) sector is a vibrant and important part of the UK economy, developing skills and life chances for students and delivering world-leading research that drives innovation and change.

While there was already an ongoing debate around the range of courses provided, the relevance and value to economic development and the ongoing challenge of social mobility and diversity, the statistics speak clearly to the value delivered by the sector:

• The Office for Students has 394 registered providers of HE (as at 4 June 2020)
• Of those institutions delivering returns, HESA reports the total number of students in the UK in 2018/19 was 2,383,970, an increase of 2% on the previous year
• Of these enrolments, 1,898,205 were UK domiciled and 485,645 had travelled to the UK to study
• These students, both EU and non-EU, contributed an estimated £11.9bn to the UK economy in tuition fees and living expenditure in 2016
• A report for the House of Commons Committee on Exiting the European Union, used analysis by Oxford Economics which found that in 2014/15, universities’ expenditure, and that of their international students, generated a £52.9bn gross value added contribution to UK GDP in 2014/15. This accounts for 2.9% of all the economic activity generated in the nation that year. However, when viewed as businesses, the HE providers face challenges which, while often specific to the sector, will resonate across many commercial organisations:
• Providing innovative and compelling products and services that attract their target students
• Delivering a value for money, high-quality student experience that responds to the needs of the wider economy
• Attracting and retaining the highest calibre academic staff and management while also successfully managing the wider workforce required to administer and maintain the institution
• Maintaining and developing academic campus and student accommodation
• Funding and treasury management, particularly where long-term debt is taken on to support long-term value creation
• Managing regulatory and political focus on quality, cost base, social mobility, value for money and relevance of curriculum
• As well as dealing with ongoing changes in demographics, a large defined benefit pension liability, the impact on Brexit given the number of students, academics and researchers at the institutions

All of these factors have seen pressure building on the sector. While there are a number of ways of assessing data, at a high level the 2018/19 results for HESA showed 113 institutions reporting an overall in year deficit against income.

There will, of course, be a wide range of reasons for this, but again, at a high level this could be viewed as indicative of a sector that may struggle to deal with significant external adverse shocks to income.

Then Covid-19 emerged and delivered a massive shock to the sector, with campuses closed and a forced shift to online delivery. The UK Government has delivered some £2.6bn of support by advancing tuition fee payments, but this is perhaps best viewed as short-term support while each of the providers looks to how and perhaps in some cases if, they can manage the long-term challenges to service delivery and, therefore, income and costs, arising from Covid-19.

Universities UK, the collective voice of 137 universities in UK, has warned that the sector was facing losses in the region of £790m from accommodation, catering and conference income, as well as additional spend to support students learning online, in the current 2019/20 academic year alone. The potential impact on UK HE in 2020/21 was also extreme, with institutions projecting a significant fall in international students and a potential rise in undergraduate home student deferrals. A 100% fall in international students will deny the UK HE £6.9bn in income.

Immediate Response

In line with all well run organisations, the boards and governing bodies of HE providers have taken short-term steps to manage health risks in delivery and preserving cash resources. While the hard work and difficult decisions involved will have provided an element of stability, this is likely to be only the first step in a process to fully assess, test and challenge the operational and financial resilience of the organisation going forward. Boards, with the support of operational, financial and HR management will need to assess:

• The building and risk assessment of new ways of operating all aspects of learning delivery, supporting professional services, estate design and management
• The translation of this operating model into a financial plan across a number of years
• Academic and residential estate planning and management in the light of revised student numbers and wider scope for remote delivery methods
• The financial cost of any restructuring required to deliver this plan and any longer term impact on the organisation and wider community arising from that
• The upside and downside sensitivities that might be applied to the financial plan to fully understand the range of potential outcomes and any mitigations that can be found
• The consequences of that plan on a range of stakeholders to the business and how engagement and communication will be managed
• The impact on the funding (reserves and external debt) of the financial plan to establish how any shortfall will be managed
• The range of skills and experience available to the board to deliver the plan over a number of years while also managing whatever ‘business as usual’ is going to look like
• Ability to attract external funding and partnership arrangements to accelerate development of priority sectors, such as life sciences and innovation
• The range of options available if further external economic, regulatory or political shocks adversely impact the core plan

This provides the context for the organisation to assess its range of ‘self-help’ options or those that involve working with existing stakeholders. Boards will also need to consider how overall demand and capacity within HE will be affected and whether this will in turn lead to some form of voluntary merger, partnership or other transactions to reflect the new market.

It is also worth noting that while it is not a preferred option, the financial pressures on the sector may lead to some organisations being unable to rebuild a sustainable future which may see them forced to transfer operations to another provider or, at the very worst closure of some or all operations.

How we can help

The Begbies Traynor Group team consists of a number of highly experienced partners that provide board level support and advice across a range of sectors. The HE sector is, of course, highly specialised, and that knowledge and experience is embedded in the boards and management teams. The challenge in the coming months is context and experience in dealing with systemic shocks. Our specialists regularly supplement existing board skills to ensure that robust challenge, process management and stakeholder engagement experience is brought to bear during situations of this type, whatever the cause.

In particular we can quickly bring the following support:

• Facilitating full board engagement and robust project management
• Focused diagnostic approach on key issues, and developing plans to address those issues
• Cash and resource management in a crisis
• Organisational and operational benchmarking to develop a ‘best in class’ approach
• End to end analysis of operational infrastructure and related physical and organisational footprint
• Exploring potential for sharing assets, service delivery and professional services with other providers and possible outsourcing of some provision
• Robust challenge of working capital and other funding requirements
• Supporting funding and stakeholder discussions

National Head of Education at Begbies Traynor Rob Insall said:

"The HE sector is one of the UK’s greatest assets, recognised across the world, and an important contributor to both UK GDP and social mobility, but one facing serious challenges with the impact of Covid-19. We are pleased to be able to offer a high-quality, cross-discipline diagnostic service to help HE institution boards focus on identifying and addressing key issues. A key differentiator from our competitors is our willingness and experience in not just offering advice but taking a formal role and accepting accountability for delivering on the recommendations. It is that ability to implement difficult and complex changes and recommendations which is a skill set not always found in HE leadership teams.”

Javid Patel, National Head of Public Sector at Begbies Traynor said:

"The HE Sector is facing unprecedented challenges not seen in a generation, but with careful planning it should be able to come out of this with an estate and services infrastructure that is aligned to the new climate. Universities need to be able to transition to new arrangements ¬for the UK to remain one of the most successful education providers to the world. Universities have the opportunity to recalibrate through new measures that will assist in reprofiling their revenue and cap ex commitments. Begbies Traynor Group is delighted to support the sector.”