Institutions at risk due to Covid-19: a tool kit for members and negotiators
PDF in production
UPDATE: Additional interactive tool options: direct download link (Excel file) or alternative Google Doc link
This Brief draws on the recent London Economic analysis for UCU to investigate which Higher Education Institutions (HEI) are most at risk due to the ongoing Covid-19 pandemic and goes on to introduce an interactive tool for branches to assess the situation at their institution. It supplements the recent analysis of proposed student number control (see USSbriefs94) and suggests that we should be critical of Universities UK proposals to link government backed support to the current level of QR funding for each HEI rather than financial distress. Given the depth of data publicly available on, and from, individual HEIs, we also call on UCU to support comprehensive financial analysis of this data in the near future.
2. The London Economics report: the wider economic context and implications for branches
The headline figures in the London Economics analysis are grim: over 30,000 job losses across the sector and a total loss of £2.5bn in tuition fee income — and that for just 125 HEIs of the 156 institutions for which we have a full dataset via in the Higher Education Statistics Agency (HESA).
The top line figure for job losses is based on the projected impact on cash flow of reduced student intake converted into staffing costs. That is, how many staff on average HEIs would need to dismiss in order to make up the lost income. It assumes a uniform impact across pay grades, and it assumes that any reduction in tuition fees directly translates into job losses.
Central to this analysis are two surveys, a UCAS YouthSite survey of 500 A Level students with data collected between 27 and 30 March predicting a 14% drop off in home applicants, and a British Council survey of 11,000 Chinese students conducted between 27 March and 3 April that is used by London Economics to model a 47% drop in overseas applicants. The British Council survey in particular is a major source of uncertainty with 39% of respondents “undecided about cancelling their study plans”, and with the London Economics analysis then extrapolating this across both the rest of the world and the EU. The final analysis models a 47% drop off in all overseas applicants and a 16% drop off in home applicants, which is adjusted for undergrad/postgrad and full-time/part-time intakes to give the projected fall in income per institution.
Assuming this reduction in student numbers, the calculation of job losses can be criticised from a couple of perspectives — on the one hand many institutions have significant financial reserves and can and should absorb at least some if not most of the impact of a temporarily reduced student intake. This is addressed in the additional institution-level analysis provided with this Brief. But the second more worrying criticism from the perspective of UCU branches is the absence of data on casualisation from the analysis. There are major concerns that Universities will attempt to make casualised staff the primary victims of this crisis by not renewing or cancelling casual (i.e. fixed-term, temporary or zero-hours) contracts, with Bristol, Newcastle and Sussex already announcing such moves.
As staff on casual contracts are typically lower paid than their permanent colleagues, any focus on casualised staff in job losses will have the effect of magnifying the total figure. For example, if we generously assume that a casual teaching contract is paid at spinal point 27 £30,395 and attracts employers’ NI at 13.8% and employers’ USS pensions contributions of 19.5% (though not all casual staff will be in the USS) this would translate into twice as many job losses, almost 59,000 full time equivalent posts. Emphasis here being on full time equivalent as most casualised staff would only partially count towards each substantive post so that the figure of individuals affected would be many thousands more again. Casualised staff are already self-organising in the face of this threat through the #CoronaContract campaign, with model branch motions and negotiating guidance being made available on their website. This is an area all branches must address urgently with their employers.
The remaining London Economic analysis splits Universities into four ‘clusters’ of roughly Oxbridge, the Russell group +, post-92, and other (for a full definition see pg.2 of their report). It then reviews the losses in income and students at different levels across the clusters and concludes that cluster 1 & 2 are likely to lose more income due to having higher fees and more international students but that there is significant variability between institutions. They conclude that across the clusters there were seven institutions with an already negative net cash flow in 2018/19, but that increases to thirty-six institutions after factoring for the projected decrease in student numbers. While interesting at the sector wide level, from an individual branch perspective this is not fantastically useful information. Indeed the remaining analysis is relatively weak on financial distress at the institution level and the only financial indicator used throughout the report is net cash flows from operating activities.
The key takeaway — there is a lot of uncertainty across the sector but the impact of Covid-19 is going to be big. However, if you’re looking for information on how your institution will be affected by the pandemic the London Economics report is relatively limited. The remainder of this Brief attempts to fill this gap.
3. The interactive tool and analysing your institution
Following the broader analysis by London Economics, to properly analyse your institution you need to balance a range of major risk factors alongside your local knowledge of your institution. A key source of information will be your institution’s annual accounts, but you may need to supplement these with additional local data requests (e.g. on employee numbers and casualisation). One of these risk factors is the exposure of your institution’s net cash flow to international student fees, but this has to be considered alongside debt, liquidity, and wider profitability measures, as well as anything you may know about other commitments such as overseas campuses or debt conditions.
The following tool allows you to select your institution from the drop down menu and see a range of descriptive data and financial ratios that draw directly on the HESA datasets. The financial ratios are benchmarked against the sector and then combined to give your institution an at risk score and ranking. You can also manually estimate the drop in income at your institution and see how this impacts on its core profitability and cash flow:
The key message from analysing the entire sector in this manner is that there are many wealthy institutions that have significant financial reserves and relatively low financial risk despite their exposure on the international market, and a number of mainly (but not exclusively) post 92 institutions that have a high underlying at risk score and are susceptible to drops in either home students or international students or both. The perfect storm for an institution comes where they have high debt or other fixed costs, strict debt covenants, high exposure to international student fees, and pre-existing poor cash flow and poor liquidity. In the second tab of the tool you can review the institutions from most at risk to least at risk both by the overall at risk score and by nine separate individual indicators.
To summarise this analysis, the following graph charts (a) the ‘at risk score’ of each institution (green dots represent cluster 1 for Oxbridge; blue dots cluster 2 for the Russell Group +; and black dots for other post 92 and unaffiliated institutions in the London Economics classification) and (b) the institution’s expected loss in cash from operating activities as a percentage of total income (red circles). These are ordered from left to right by their position in the overall at risk ranking from 1 to 156. It clearly demonstrates why an analysis of the susceptibility to loss of cash from operations as a proportion of total income is a poor indicator when taken in isolation. The variation in loss of income is significant across the range and is not well correlated to other risk factors. We therefore need to stress that the potential exposure to Covid-19 must be considered in combination with broader financial analysis to get sensible results:
While this is a Brief summary article only, a number of conclusions can be drawn from the underlying analysis. Firstly, when reviewing the individual institutions most at risk, all of the top 8, and 17 of the top 20, institutions fall into clusters 3 and 4 in the London Economics classification. These are institutions that would be less likely to benefit from the Universities UK bailout proposals to double the QR grant. The Russell Group and other wealthier institutions are indeed somewhat more exposed to international student fees, but typically have much more non-fee income, have greater reserves and investments, and are able to borrow at less risky rates.
Secondly, more debt is not the answer — ending marketisation of Higher Education is. In November 2014 the University of Northampton, number 1 on our list of at risk institutions, issued £231.5m in corporate bonds. In March 2016 they drew a further £60m from the Public Works Loan Boards. Increasingly due to marketisation institutions have been pouring hundreds of millions of pounds into new buildings, marketing, and senior executive pay, which was already pushing a number of institutions into financial distress before the present crisis. In the past four years alone HESA data shows that universities expanded their total external borrowing by 48% to a sum total of £14bn by July 2019. They’ve leveraged in the good times in the pursuit of increasingly lucrative international fee income and now some are poorly equipped to deal with crisis. Meanwhile, in the same period, universities have pursued their REF returns by offering six figure salaries to top academics while casualising the majority of their teaching workforce. The University of Birmingham alone, for example, increased the number of staff earning over £100,000 by 57% in 2019, at a cost of £8.9m.
The wealthiest institutions that have driven all of the trends described should not now be allowed to transfer their moderate risk onto smaller post 92 institutions who cannot afford it, by poaching and stockpiling post 92 home student allocations or by collecting the lion’s share of any bail out. Or similarly, by turning to casualised staff when looking to make savings because they happen to be the most easily cast aside.
This paper represents the views of the author only. The author believes all information to be reliable and accurate; if any errors are found please contact us so that we can correct them. We welcome discussion of the points raised and suggest that discussants use Twitter with the hashtag #USSbriefs95 ; the author will try to respond as appropriate. This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.