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July 2011/23
Core funding/operations
Report on outcomes

This report is for information

Financial health of the higher education sector
Including overview of 2009-10 annual accountability returns

This report provides an overview on the current and future financial health of the higher education sector in England. It also gives an overview of the outcomes of the review of annual accountability returns for 2009-10.

To: Heads of HEFCE-funded higher education institutions
Of interest to those responsible for: Audit, Estates, Finance, Governance, Management, Planning
Reference: 2011/23
Publication date: July 2011
Enquiries to:

HEFCE assurance consultants or assurance advisers (for financial and audit accountability returns)

HEFCE higher education policy advisers (on annual monitoring statements, corporate planning statements, student data and research activity returns)

Contact details for HEFCE staff

Table of contents and executive summary (read online)


  • Executive summary
  • Overview
  • Summary and headline information
    • Assessing future financial sustainability
    • Forecast performance in 2010-11
    • Forecast performance in 2011-12 to 2013-14
  • Annex A Annual accountability returns feedback
    • Annual assurance return
    • Annual monitoring statement (AMS)
    • Corporate planning statement (CPS)
    • Audited financial statements and financial forecasts
    • Financial commentary
    • Audit committee annual report
    • External audit management letter
    • Internal audit annual report
    • Higher Education Students Early Statistics return and Research Activity Survey
    • Transparent Approach to Costing return
  • List of abbreviations

Executive summary


1.   This report provides an overview on the financial health of the higher education sector in England. The analysis covers the financial forecasts for the period 2010-11 to 2013-14, as submitted to HEFCE in December 2010 and April 2011.

2.   The report is being published to provide universities and higher education colleges with feedback on their projected financial performance. The analysis also provides stakeholders with information about the sector's current and future financial health and supersedes our previous analysis published in March 2011 ('Financial health of the higher education sector: 2009-10 financial results and 2010-11 forecasts', HEFCE 2011/06).

3.   In addition to the financial health analysis the report provides an overview of the outcomes of our review of the annual accountability returns for 2009-10.The outcomes of our reviews of all the annual accountability returns feed into the risk assessments and risk letters to institutions as well as informing the continuing dialogue with each institution. This publication provides some general feedback points for consideration by all institutions.

Key points

4.   Higher education institutions (HEIs) in England are required to send us their annual accountability returns in December each year. These returns form a significant part of the way in which HEIs can demonstrate accountability for the public funds distributed to them. The accountability returns enable HEFCE to reassess HEIs' overall risk assessments and to ensure that HEIs are meeting their accountability responsibilities.

5.   Due to the uncertainty over the future funding climate, we gave institutions an option to defer forecast information for the period 2011-12 to 2013-14 until April 2011 (see 'Update to our requirement for the 2010 accountability returns in relation to financial forecasts', HEFCE Circular letter 27/2010). Eighty-five institutions decided to defer submission until that time. A further 28 institutions revised their original forecasts in April. The White Paper on Higher Education, published in July 2011 introduced further reforms, for example in relation to student number allocations. These are subject to consultation at this present time, and as a result will not have been included in HEIs financial forecasts, and are therefore outside of the scope of this report.

6.   The overall financial results for the sector in 2009-10 showed a stronger financial position than previous years. At the end of 2009-10 the sector had strong cash balances and healthy reserve levels, which will provide some cushioning for the likely risks the sector now faces.

7.   The projected performance in 2010-11 is sound overall, albeit not as strong as 2009-10. Cash levels are expected to remain strong, which is important as the sector enters a potentially challenging year in 2011-12. The performance in 2010-11 is now expected to be better than HEIs estimated in December 2010. This may be due to prudent forecasting earlier in the year.

8.   Over the past 10 years the sector has seen its overall financial position strengthen, but this has been on the back of significant income growth rather than cost reductions. The future is likely to be less predictable for some institutions and they will need to respond decisively to the new funding and policy priorities.

9.   Based on the financial forecasts there are no institutions that are presently close to risk of insolvency. This is supported by independent going-concern opinions of institutions' external auditors and the projected continuation of positive cash in-flows and healthy cash-backed reserves.

10.   The key risk to the sector's forecasts not materialising is a significant fall in student participation from 2012. The sector is forecasting a small reduction, but there is no certainty over the likely level of student numbers in the future. We are aware that institutions have developed contingency plans to deal with changes in income if recruitment levels are not as forecast from 2012.

11.   This report includes feedback to the sector on all of the annual accountability returns submitted in December 2010. For the first time in 2009-10 most HEIs were required to include additional information in their financial statements, relating to their status as exempt charities. The quality of reporting in this area was variable and we are preparing updated guidance, particularly on public benefit reporting, that will be available during August this year in publications. There were also a small number of instances of other non-compliance with the requirements of the Financial Memorandum (as distinct from weak performance) and we have drawn these to the attention of the individual institutions concerned.

Action required

12.   No action is required: this report is for information.