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9 January 2006

Surpluses set to rise for higher education institutions

The surpluses of universities and higher education colleges are forecast to improve following the introduction of variable fees for students, according to the latest five-year financial forecasts.

The operating surplus, forecast to be £70 million for the sector in 2004-05, is expected to dip in the short-term to a £41 million deficit in 2005-06, but then to rise annually to a £427 million surplus in 2008-09. One of the main reasons for the dip is a high growth in staff costs in that year.

The projections are revealed in the annual financial forecasts report prepared by the Higher Education Funding Council for England based on the returns from universities and colleges. The forecasts take into account current funding announcements and the prevailing general economic climate.

Much of the predicted rise in surpluses is attributed to the new income stream of variable fees for students being introduced later this year, plus a projected 11 per cent growth in total student numbers between 2004-05 and 2008-09. Institutions forecast that fees from non-EU overseas students will rise by nearly 25 per cent, but the report warns that recent indications show growth in overseas recruitment slowing down.

The report reveals that many universities and colleges will use the additional resources from variable fees to increase investment in infrastructure in order to remain sustainable in the long term. Forecast capital expenditure over the five-year period totals over £9,700 million.

In total the sector's dependence on income from the funding bodies is forecast to reduce from nearly 38 per cent of total income to 34 per cent over the five years. Over the same period the proportion of income from fees is predicted to rise from 25 to 31 per cent.

Staff costs over the five years are predicted to rise by £2,224 million (26 per cent) to £10,709 million, while other operating expenses are forecast to rise by £1,313 million (25 per cent) over the same period to £6,479 million.