PUTTING TOGETHER THE 2009-10 BUDGET
Introduction
1. The annual budget is a key financial planning and control mechanism for the University. Under the University’s Articles of Government, it is required to be approved by the Court of Governors after scrutiny by the Finance Committee.
2. In accordance with best practice and the University’s risk management strategy, the University’s procedures on risk management which include an updated risk register are available on the Finance intranet site enabling members to consider business risks as part of the planning and budgeting process. The University has done well in this area in recent years with clean bills of health achieved from HEFCE, external and internal auditors.
3. For the purposes of this paper the starting point used for determining next year’s budget strategy is the revision of the current year’s budget assuming a steady state and this is set out below.
Income
4. The main components of income for target setting purposes are grants from funding councils and tuition fees. Additional income in these categories over 2008-09 may be analysed as follows;
£ millionHEFCE teaching grant - Inflation uplift
- ELQ reduction
- Moderation / 0.8
(1.1)
0.2
Decrease in HEFCE research funds
- Ongoing reduction (in/out item)
- Moderation
/ (3.4)
3.1
Home fees - Inflation increase / 1.4
- Decrease associated with ELQ reduction / (0.5)
Movement in overseas fees / 2.4
LSC funding – Partial withdrawal of part time +19 provision / (2.0)
0.9
5. Funding levels for HEFCE items above have been provisionally advised but are not expected to be confirmed until at least July by which time it is envisaged that the Department for Innovation, Universities and Skills (DIUS) will have confirmed funding levels to HEFCE for the 2010-11 financial year, which has a four month overlap with the 2009-10 academic year. HEFCE have based provisional allocations to institutions for the last four months of the 2009-10 academic year on a number of assumptions and if these differ significantly when DIUS confirm funding levels, they reserve the right to review all allocations to institutions for the 2009-10 academic year, including the uplift for inflation and the ‘base price’ in the teaching funding method.
6. Bearing in mind the uncertainty detailed above and based upon the information in the provisional funding letter, UAL’s HEFCE teaching grant for 2009-10 includes an inflation increase calculated at 2 per cent to produce an increase in grant of £0.8 million (2008-09: £1.2 million).
7. In terms of volume changes for HE provision although the University has a strong track record successfully bidding for additionally funded places, the negative outcome of the ELQ transition has been confirmed and the initial strong indication of compensating ASNs has not materialised with a zero allocation being confirmed at least for 2009-10. The initial reassuring signs in last year’s Secretary of State’s letter (which suggested that those HEIs ‘most affected’ by the changes in ELQ funding should have their positions ‘carefully considered’ by HEFCE when allocations of new funded places are being made) had been confirmed in discussion with HEFCE up until November. However the Government has significantly moved the goal posts and ASN awards for the sector have been put on hold for at least 2009-10 as a result of budgeting pressures in relation to the costs of loans taken out by students. This has resulted in an overall volume decrease of £1.1 million for 2009-10 and compares to a £1.2 million increase in 2008-09.
8. In cash terms there is no overall change in the other elements of the teaching grant although it should be noted that the Teaching Quality Enhancement Fund (TQEF) has now been embodied within the main grant allocation as part of the Teaching Enhancement and Student Success (TESS) element. As detailed in the next paragraph, moderation applies to 2009-10 funding and the teaching element totals £0.2 million giving an overall net decrease in the HEFCE teaching grant for 2009-10 of £0.1 million in cash terms (2008-09: £2.0 million increase).
9. The position for mainstream funding for research is not good with a decrease in funding of £3.4 million although there is moderation funding for 2009-10 of £2.8 million and transitional funding of £0.3 million, both of which are likely to be for one year only and need to be used to reduce activity levels so that they are in line with the lower levels of funding going forward. Both these elements of one-off funding have been put in a specific research contingency (see expenditure section) to ensure monies are used in line with the conditions of the grant. Overall in this area, UAL seems to have suffered from other subject areas being prioritised by the government; and a growth in the number of institutions receiving a share of the total allocation for the Art and Design subject area.
10. Movements in home fees have been estimated in broad terms at £1.4 million for a price increase of 2.54 per cent for under-graduate courses and 21 per cent for post-graduate courses. For the purposes of this paper, no volume changes are envisaged for 2009-10 other than a £0.5 million decrease relating to ELQ students. To minimise budgeting pressures on the cost of providing student loans, the government has put a block on any expansions of home student numbers, even if institutions wished to recruit additional students on a ‘fees only’ basis to improve their position within the tolerance bands within the HEFCE funding model. HEFCE have confirmed, however, that within reasonable limits, UAL will not be affected by the Government’s edict.
11. In recent years the situation for overseas fees has been difficult, particularly in the Far East where there has been adverse exchange rate movements and strong competition. For 2009-10 the economic world-wide downturn has compounded the situation. The good news is that the value of the pound compared to the dollar (and linked Far Eastern currencies) has fallen significantly in recent months and the University has done very well with its recruitment in 2008-09, particularly when compared to the performance of its competitors.
12. With the very favourable exchange rate movement, and as recently approved by the Court of Governors, UAL has taken the opportunity to increase overseas fee levels for 2009-10 by up to 12.5 per cent to cushion the impact of unfavourable movements elsewhere in the budget. Notwithstanding the price increase, the actual cost to overseas students in their own currencies will still be quite a bit lower. In addition, it has been agreed that 10 per cent of the additional income should be used to provide scholarships for international students and this is included in the expenditure later in the report.
13. The risks associated with achieving current levels of overseas income continue to be higher than they have been in past years and EB will need to carefully consider the target income figures for each college and how to manage the associated risks particularly in light of current market information from the International Centre, the pricing up of college student number targets and the effect of space constraints for popular courses. In addition, EB still need to consider the University’s current approach to the new system of checking on foreign students which the Home Office has introduced. For the purposes of this paper, overseas fees are assumed to expand by £2.4 million, which is a 5.8 per cent increase on the previous year to cover both price and volume changes. It should also be noted that the inflation allowance (see expenditure later on) allows for the additional cost of overseas commission payments and £30k towards potential additional costs associated with the new system of checking on foreign students which the Home Office has now introduced.
14. The precise effect of LSC grants to the University is unclear and a number of meetings with staff from the Learning and Skills Council have been held over the past few months with the aim of maximising the funding position. It is currently assumed that the LSC grant will remain at current levels for 2008-09 although it is important to note that this figure could be revised upwards or downwards as further information becomes available. Certainly it is clear that the LSC is in severe financial difficulties itself and its Chief Executive has recently resigned. This paper also assumes the decision to partly withdraw from part-time plus 19 provision will go ahead, and that the estimated £2 million reduction in income will be matched by a £2 million reduction in costs at the associated colleges.
15. All other income categories are assumed to be at 2008-09 levels for the purpose of this paper. In particular, no account has been taken, at this stage, of increased income from sponsorship and the fund-raising activities of the Communications and Development Office although we are in the Government’s matched funding programme and have a number of stretching targets to meet.
Expenditure – Pay
16. On the expenditure side, one of the main increases will be the effect of the pay settlement to be finalised with the Unions at a national level. Negotiations have just begun and an estimate has been included below along with the fraction of the 5 per cent pay award from October 2008 that falls into 2009-10 and an allowance for pay progression. If the cost of the pay award is higher than amounts allowed, additional savings beyond those shown in this report will need to be made. If the cost of the pay award is lower than amounts allowed, savings targets can be reduced accordingly.
Expenditure – Non Pay
17. Other expenditure increases required to maintain a steady state are estimated to be in broad terms, an inflation allowance of approximately 2.0 per cent in all non staff budgets resulting in an increase of £0.8 million. The University needs to set aside sums to complete work at Lime Grove to allow the decant of LCF students from Davies Street; short term accommodation for both LCF and CSM due to Crossrail progress; and also finance for the initial costs of the efficiency programme. Amounts for all of these amounts have been included in the table below.
Estimate expenditure increases may, therefore, be summarised as follows:
£ MillionPay award and pay progression / 2.7
Inflation increase in non-staffing budgets / 0.8
Reduction of FE 19+ costs / (2.0)
Decrease in research expenditure in line with increase in Research income (in/out item) / (3.4)
Specific research restructuring payment / 3.1
Allocation for International scholarships / 0.2
Lime Grove redevelopment / 1.9
Short-term rental of additional space for CSM students from Catton Street / 0.3
Short-term rental of additional space for LCF students from LCF / 0.3
Restructuring costs / 1.0
4.9
Budget Position so far
18. The situation so far may be summarised as follows:
£ MillionEstimated increase in income / 0.9
Anticipated increase in costs / (4.9)
Predicted savings target (excluding Research) / (4.0)
19. As illustrated above, the new savings target to balance the budget, before research restructuring, for 2009-10 will be at least £4.0m. Headroom to enable the University to invest in measures to improve the student experience (in particular the Course Organisation and Management Programme) and the need to adjust to a decrease in research funding of £3.4m will push the savings target up to well over £7m.
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