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HEFCE

January 2005/06
Core funding/operations
Report on outcomes and consultation

This report is for information. Comments on the AMS are invited by Wednesday 30 March.


Financial forecasts, annual monitoring and corporate planning statements

Outcomes for 2004 and changes to annual monitoring statements in 2005

This document gives financial projections for the higher education sector covering 2003-04 to 2007-08, and summarises the sector's annual monitoring statements and corporate planning statements for 2003-04. It also includes information on our plans for a revised approach to monitoring strategic special funding in 2004-05.


To: Heads of HEFCE-funded higher education institutions
Heads of universities in Northern Ireland
Of interest to those responsible for: Finance, Planning, Management
Reference: 2005/06
Publication date: January 2005
Enquiries to:

Financial forecasts
HEFCE finance advisers

Annual monitoring and corporate planning statements
HEFCE higher education advisers

Changes to annual monitoring statements
Davina Whyte
tel 0117 931 7480
e-mail d.whyte@hefce.ac.uk


Executive summary (read on-line)


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Main text and list of abbreviations
[ MS Word 520K | Zipped Word 95K | Adobe PDF 334K | Zipped PDF 227K ]

Annexes
[ MS Excel 90K | Zipped Excel 20K ]


Executive summary

Purpose

1.   This report gives financial projections for the higher education sector covering 2003-04 to 2007-08, summarises the sector's annual reporting statements for 2003-04, and invites comments on proposed changes to the process for submitting annual monitoring statements. The outcomes are based on information provided by higher education institutions (HEIs) in July 2004.

Key points

Financial forecasts

2.   The analysis in this publication concentrates on the financial position of the sector excluding the impact of variable fees.

3.   The operating position, before exceptional items, is forecast to remain relatively constant from 2004-05, with surpluses at approximately 0.5 per cent of total income per annum. This is in line with the actual surpluses achieved in 2000-01 and 2001-02, but lower than the outturns achieved in 2002-03 and 2003-04.

4.   Total student numbers (headcount) are forecast to increase by 9.6 per cent over the period 2003-04 to 2007-08. Within this total, overseas student numbers are forecast to increase by 26.7 per cent. This will see forecast overseas student fee income increase by 44.1 per cent from 1,125 million in 2003-04 to 1,621 million in 2007-08. The sector has previously exceeded ambitious plans for overseas growth: there was a 66 per cent increase in income between 1999-2000 and 2002-03.

5.   Income from research grants and contracts is forecast to increase by 30 per cent from 2003-04 onwards, averaging an increase of 6 per cent per annum. These annual increases are lower than those actually achieved over the period 1998-99 to 2002-03, which averaged 9 per cent per annum. The 2004 forecast figures include the additional 120 million being made available by Research Councils from 2005-06 to increase contributions to the full economic costs of research projects.

6.   The sector's dependence on income from public sources is forecast to decline marginally from 60.9 per cent of total income in 2002-03 to 59.9 per cent in 2007-08.

7.   Staff costs are forecast to increase well above the rate of general inflation, while staff numbers increase by 6.3 per cent over the period, leading to a reduction in staff:student ratios. The sector may be exposed to risk that pay inflation (including additional pension costs) may be higher than forecast in the later periods. The additional costs relating to job evaluation and movement to the new single pay spine will mean additional pressures on costs in the next few years.

8.   Net liquidity is forecast to increase to 2,219 million by 31 July 2004, before fluctuating around 2,100 million for the remainder of the forecast period, which is equivalent to over 50 days' expenditure (higher than forecast in previous years). Borrowings are forecast to increase by 1,159 million to 3,591 million by July 2008, which represents a substantial investment for the sector.

9.   Total capital expenditure during the period 2003-04 to 2007-08 totals 7,896 million across the whole sector, of which 4,056 million will be financed by capital grants.

10.   The major risk identified by institutions remains the under-recruitment of students (both home and overseas students). Other major risks include salary increases above inflation and the management of capital programmes.

11.   Generally the forecasts appear to have been prepared on broadly reasonable assumptions, although for some institutions these may be challenging or unduly optimistic. The financial strength of the sector is satisfactory when viewed in aggregate, but a small number of HEIs are facing significant financial constraints.

12.   While recognising that the forecasts provided are confidential, we have produced schedules for individual institutions so that they can compare their position against financial health indicators for the sector. Institutions can download their own schedules through the HEFCE extranet, https://extranet.hefce.ac.uk.

13.   We are continuing to look at ways of reducing the accountability burden on the sector in producing financial forecasts. We will consult with the sector later in the year about specific proposals.

Annual monitoring and corporate planning statements

14.   Our analysis of the 2003-04 annual monitoring statements (AMSs) focused on five key areas of HEFCE strategic funding: widening participation, learning and teaching, business and the community, rewarding and developing staff, and research capability (monitored for the first time this year through the AMS). Race equality monitoring was introduced last year, and continues to be monitored as part of our obligations under the Race Relations (Amendment) Act 2000.

15.   Institutions were also asked to submit a corporate planning statement (CPS). The CPS is a general update of the institution's progress during 2003-04 against its corporate plan and strategic priorities.

16.   Our analysis of the 2003-04 AMSs and CPSs shows that nearly all institutions are making good progress with their plans in each of the areas of strategic special funding, and against their own strategic priorities.

17.   Where the AMS indicates that an HEI has fallen behind with its plans, we will investigate the matter further to determine what action is appropriate. In extreme cases we may re-profile funds or take back funding.

Changes to the annual monitoring statement

18.   We are continuing to develop the AMS framework, seeking to identify the minimum range of information that we need for monitoring, and collecting as much of it as possible through the AMS.

19.   In order to lessen the burden on institutions, we will be changing the AMS process in 2005. The final section of this report illustrates these changes. We would welcome comments on the revised approach to monitoring strategic special funding.

Action required

20.   Institutions are invited to comment on the proposed changes to the AMS. Comments should be e-mailed to d.whyte@hefce.ac.uk by Wednesday 30 March.