University finance update, March 2021

Welcome to this first quarterly University finance update to help you understand our financial performance, how we are doing against our budget and what that means for our financial health.

Financial overview

Over the last year, the University has implemented significant institutional change to the way we deliver on our education and research mission. This has included limiting spending to protect jobs and ensure the University remains on a sound financial footing at a time of great uncertainty. While this approach has been difficult, it has helped the University weather the storm better than many other institutions in our sector. It has also enabled us to do the right thing by our students, including providing an overall package of support for those in halls which totals over £8.3 million to the end of March 2021.

While I hope we’re now past the most significant period of disruption, it’s important that we keep an eye to the future and the possibility of further risks and uncertainties ahead. This means we must continue to be careful in how we make use of the University’s money and resources; plan for a range of scenarios; make a judgement as to the most likely course of events based on the best evidence available; and be flexible and willing to change course should that be required. This will help the University minimise risk, enable us to continue to honour existing commitments and maintain investment capacity to employ more people, enter into partnerships and make other investments that will accelerate our academic mission post-Covid.

How we are doing against our budget

There have been significant movements in the University income and expenditure compared to the original budget, which was signed off by the Board of Trustees in June 2020. A revised budget was finalised in November 2020, once the University had greater clarity over the impact of the pandemic. The forecast is the latest full year prediction as at the end of February 2021:

Income

Our income from tuition fees and funding council grants is forecast to be £15.1m higher than originally budgeted. Student numbers are 4% higher than anticipated, largely in Home Undergraduates where there has been a strong student intake. There have also been additional grants received from Funding Councils (Office for Students and Research England) to support Universities during the pandemic.

The University is also forecasting to exceed budget for Research indirect income, as we have managed to continue with the majority of our research activities during the recent lockdowns.

However, there is forecast to be a significant reduction in accommodation income of over £18m compared to the original budget due to rent rebates and lower occupancy levels during the pandemic. There have also been impacts on catering income (£3m) and sports income (£1m).

Expenditure

Although income levels are slightly reduced overall compared to the original budget, the University is forecasting to spend over £20m more on non-pay and pay costs to support essential activities. Across Faculties and Professional Services, additional posts have been approved since the budget was finalised to provide extra resources to support blended learning, as well as additional cleaning and security staff.

Also, in non-pay costs there has been additional spend to enable blended learning, providing safe transport to and from NHS settings, additional PPE and microscopes. Professional Services non-pay also includes forecast overspend in Education and Student Experience in response to COVID-19, additional cyber security costs, and overspend in Office for Fair Access due to increased undergraduate home students.

The original budget included £52.5m of contingency due to the high levels of uncertainty as to how the pandemic would impact this financial year. As we progress through the year and greater clarity is obtained, this has been reduced.  £5.5m remains in the forecast at the end of February as there is still uncertainty over the final impact of the pandemic. The recent government’s announcement on the roadmap and its impact on the finances will be factored into the forecasts in future months.

Surplus

Every year, our operating income needs to be greater than our operating expenses for that year. This enables us to generate cash to reinvest in the University’s long-term academic needs and research endeavour – including our infrastructure, equipment and IT – and to ensure we have sufficient facilities for the future. Based on changes we have seen and budgeted for, this leaves us with a deficit before Capital Grants of £-6.7m.

Now, more than ever, the University needs to be prepared for an uncertain future, given the lack of clarity on the full impact of COVID-19, future government policies and also potential changes to the Universities Superannuation Scheme (USS) pension scheme that is currently undergoing a new valuation that could increase the costs for all Universities going forward.

University income and expenditure analysis – year ending July 2021

Pensions update

As recently shared with colleagues, the latest USS valuation report sets out the USS Trustee’s assessment of the financial position of the scheme and suggests various pricing scenarios to maintain the existing benefit structure going forward. If ratified over the coming months, these new pricing scenarios could significantly impact member and employer contribution rates.  Some form of change to future pension benefits earned may also be required in response to significant cost increases, but we are working hard to ensure that any changes are as minimal as possible; ideally from our perspective there would be none. Based on the assumptions and methodology used by the USS Trustee in its Report, we will be challenging the size of the scheme deficit and the pricing suggestions both directly with the USS Trustees and through UUK on your behalf. Our Vice-Chancellor recently sent a letter expressing our disappointment at the approach adopted by USS, including their limited adoption of the Joint Expert Panel’s recommendations, to the USS Trustees.

The University will continue to be a vocal and active voice in the ongoing dialogue between the USS Trustee, Universities UK (UUK) and the group of 340 scheme employers about the current and future financial health of the USS scheme and its cost.  We will continue to work hard to lobby to protect the benefit structure and the financial stability of USS, knowing that it is fundamentally important for you to be able to plan financially for your future.

Following the Easter holidays, you will be invited to take part in a consultation on the USS Trustee’s Section 76.1 valuation report and the potential implications for members. We would urge as many of you as possible to input to our University’s response to UUK (who represent the 340 USS employers) and USS. You can read more on our pensions webpage.

In summary

The lead indicators for our institution such as research grant awards and student applications continue to look promising for the future. While we continue to navigate the risks and uncertainties associated with the pandemic, we need to proceed with care over the next few months. Protecting jobs will continue to be a key objective. As the government implements its recovery roadmap and normality (hopefully) begins to return, the University will be in a good place to continue investing in our academic endeavour, our Professional Services, and the future facilities we need to realise our institutional mission.

If you have any questions on the content of this update, or on any other matter, do please contact me at coo@bristol.ac.uk.

Our Annual Report and Financial Statements for 2019/20 and our outlook for 2021

This week we’ve published our Annual Report and Financial Statements for 2019/20. It showcases just some of the outstanding work that colleagues and students have undertaken over the last year in very challenging circumstances. The contributions of our community in helping society respond to the COVID-19 pandemic at both local and global levels are truly impressive. It also sets out our financial performance for the last academic and financial year and provides a snapshot of our financial position as it was on 31 July 2020.

Research

Our research activity was the key area impacted by the first national lockdown, between March and July 2020. Many colleagues were unable to access facilities and undertake the interactions that were needed to progress their projects. Activity was 7% lower than the previous year: a change from the sustained year-on-year growth in research activity in recent years.

This temporary setback was necessary at the time to manage the risk that COVID-19 posed across the wider community. We have subsequently learnt more about COVID-19 as a society. Government policy, based on this evolving understanding of the virus, reflects the view that the risk to ongoing research activity is now lower than previously anticipated.

Education and longer-term uncertainties

Despite the difficulties we’ve faced, learning activity has remained extremely resilient. This is not completely unexpected, for two reasons.

Firstly, the initial national lockdown occurred at a point where students were invested in completing the academic year, with a relatively low proportion of tuition still to take place across most of our programmes. Our student withdrawal rate in Term 3 of academic year 2019/20 was lower than in recent years, despite the lockdown.

Secondly, opportunities for school leavers and graduates to obtain work or travel are reduced at present. Universities are typically counter-cyclical to the general economy, and we are seeing greater demand from prospective students. That demand is often accompanied by increased investment from government to build the research, innovation and infrastructure economies needed to help sustain the country in the short term and position it well for the medium term.

Our student population grew by 7% during 2019/20. We expect similar levels of growth over the course of the current 2020/21 academic year, although it is still too soon to make accurate forecasts – we are still building our evidence base to understand how students are responding to blended learning, and some 4,500 students elected to start the academic year online. However, around 2,000 students have told us they are intending to travel to Bristol for the first time for Teaching Block 2.

We are left, then, with several important questions. Primarily, will student withdrawal rates be greater, less or about the same as usual? And what will the impact of vaccinations be? In response to these uncertainties, we need to continue to proceed with caution until the risks of student withdrawal are better understood, with the picture expected to become clearer in the new year.

What we do know is that demand for our other services, including residential accommodation, sport and catering, is down. This is the principal reason for a £23-million decline in ‘Other Income’ year-on-year between 2018/19 and 2019/20. We expect the decline to be sustained throughout most of the present year.

Residential income losses are expected to reach at least £25 million from the onset of the pandemic to the end of this academic year. This sum could be considerably greater if a higher proportion of learning activity were to move online. We therefore need to maintain adequate financial headroom to manage all of these uncertainties without adversely impacting our staff and academic endeavour.

Jobs and recruitment

Protecting jobs has been, and will continue to be, a key objective. We furloughed close to 900 colleagues over the summer period. Virtually all have now returned to work given the very significant institutional workload. Our temporary worker bank is also being fully utilised. However, we will continue to furlough permanent, fixed-term and temporary staff to protect their incomes as best we can, where it is not possible for their work to continue as a direct consequence of COVID-19.

Our investment in people has been significant. Our colleague base grew by 396 (6%) full-time equivalents over 2019/20. Investment in existing and new staff (excluding non-cash pension accounting) increased by £30 million. We have not stopped recruiting at any point. However, we’ve had to be really careful to make sure that we have only been recruiting the roles we require at the present time. This has helped us maintain the necessary financial headroom to manage the ongoing pandemic and reduce the risk of future job losses.

In prioritising recruitment and job protection, against the backdrop of falling residential, sport and catering income, we have been obliged to pause several planned capital projects. Our staff and students are the University’s top priority and our cash position remains healthy. This is critical to our collective future.

The 2019/20 surplus

So why, despite reporting a surplus for 2019/20 of £81.8 million, have we still been very careful with our resources? The answer lies in the accounting treatment for the deficit in the USS pension scheme and capital grants received during the year.

We are required to reflect the future value of payments due to be made over the coming years to USS to fund the actuarial assessed deficit in the scheme. This helps ensure that the future value of assets in USS are sufficient to pay the pension benefits earned. We had to recognise a very significant expense of £105.9 million in the 2018/19 accounts following the 2017 valuation of USS, leading to an overall reported deficit of £67.7 million. A subsequent valuation was undertaken in 2018 to respond to some of the recommendations of the Joint Expert Panel. This resulted in a reduction in the USS deficit and consequently the level of deficit recovery payments the University is contracted to make.

We have had to reflect this change in the 2019/20 accounts by reversing £63.6 million of the expense charged in the previous year in our income and expenditure statement. This is responsible for the majority of the £81.8-million surplus, alongside £26.7 million of capital grants (income received to pay for new assets where the expense is recorded initially on the Statement of Financial Position and not as operating expenditure). This leaves an underlying deficit for 2019/20 of £8.8 million, which was funded out of reserves.

Looking ahead

The lead indicators for our institution such as research grant awards and student applications look very promising for the future. Our Board of Trustees this month approved a plan to invest more in people and research in the New Year, if and when the present risks relating to student participation in on-campus learning recede.

In the meantime, we need to keep proceeding with care over the next few months as the government rolls out its Winter Plan for managing COVID-19.

It has been a very difficult year for our community, but your collective efforts have helped steer the University though what I’m sure we all hope has been the worst of the storm. As normality slowly returns, we will continue to invest in our academic endeavour, our Professional Services, and the future facilities we need to restore our place among the world’s top 50 institutions.