Financial Position and Projection (March 2023)

Financial Position and Projection (March 2023)

Dear colleagues,

We are writing to update you on the financial position of the sector and the University, now that we know how many students we recruited in January 2023 and our likely overall income for the year.

UK and Scottish Higher Education Finances

Institutions across the UK are dealing with the consequences of a long-term decline in the real value of funding for home undergraduate students. Over the last decade the funding per student has been effectively frozen at its 2012 cash level and has therefore progressively declined in value by around 30%.  UK and Scottish government decisions mean that the decline in the funding per home undergraduate is set to continue for the next few years.

Research is also significantly underfunded, with research grants typically covering only 75% of the cost of undertaking the work. Therefore these very valuable activities that are central to the purpose of higher education are a source of intense financial strain for the sector. The financial viability of all institutions is dependent on being able to cross-subsidise home undergraduate teaching and research from other income, especially that derived from international student fees.  The ability to generate other income varies across the sector, which is why around a third of universities are already in deficit.

Our Financial Position

We are pleased to report that despite these difficulties across the sector the underlying financial position of the University of Aberdeen remains strong. We’ve had five years of revenue growth and four years of generating annual surpluses for investment. The revenue growth and surpluses have allowed us to recruit extra staff and to invest in our physical and digital infrastructure. The University Court has approved a projected £1.9m deficit for the current academic year; whilst achieving this will be a challenge, we remain committed to revenue growth and generating surpluses for investment.

Our revenue is sufficient to continue to employ our current number of staff and to implement the national pay award for 2023/24, a part of which has been brought forward to February 2023 to help to mitigate the current cost of living pressures. It is not, however, sufficient to allow us to continue filling vacancies in the remainder of this academic year, except posts required to achieve revenue growth and posts required to teach higher student numbers or to deliver externally-funded research projects. This selective investment will cover academic and professional services staff in the relevant areas of activity.

Our 2022/23 budget

We can now share the overall budgetary position of the University in this financial year (1 August 2022 to 31 July 2023), and the actions we need to take as a result. This update follows discussions at the most recent meeting of the Finance and Resourcing Committee and University Court.

Student Recruitment and Fee Income

Student fee income grew from £63.5m in 2017/18 to £102m in 2021/22, growth of 61%, and our total revenue grew from £217m to £260m.

Against this backdrop, ambitious student fee income targets were set for 2022/23 and the following two years in the Court approved budget. This was based on previous growth patterns and increased international PGT applications.

However, the growth in applications this year did not result in increased entrants. Overall, International PGT new entrant numbers are 10% lower this year than 2021/22. Shortfalls in domestic PGT and Undergraduate recruitment are also evident. While student income grew by £8.3m gross (8%) due to fee increases, the projected final return is significantly short of budget by £14.1m gross (projected £110.3m, budget £124.4m).

We’ve analysed the reasons why our student recruitment growth targets have not been met this year. These include: slow processing times for the large number of applications received; disruption to travel and visa processes in September; a greater proportion of applications coming from markets with lower conversion from applicant to student; and a lack of prioritisation of high conversion markets. The result was that higher applications were not converted into more students.

Lessons have been learned. Our overseas PGT applications for September 2023 entry are showing further large increases, up 24% from this stage last year, a 53% increase in the number of offers made and a 38% increase in the number of acceptances. Thanks to the hard work of the recruitment and admission teams, and by engaging an external organisation (QS) to assist with offer making, applicants are now receiving an offer quickly and the pending pile of PGT applications is now cleared. This gives us confidence that we will be able to continue to grow our tuition fee income in 2023/24 and beyond.

Financial implications of not achieving the budget target for this year

A financial challenge has been created by the combination of the shortfall of tuition fee income against budget this year, the “flat cash” SFC settlement for teaching, the cut in our Research Excellence Framework (REF) funding, and rising costs at a time of high inflation. The deficit budget approved by Court was in recognition of the fact that the University was losing £1.9m of research funding from the Scottish Funding Council in 2022/23 following the results of the 2021 REF.

In order to achieve the planned budget outturn this year, a further £6.8m of savings/additional income are required to make up for the reduction in tuition fee income. 

Good progress has already been achieved against this target, but it means that some planned investments are having to be paused or stopped.

In terms of specific actions;

  • All planned/budgeted staff recruitment is being reviewed to ensure only essential appointments are made.
  • Schools and Directorates are identifying areas of underspends and where discretionary spend can be paused.
  • Working closely with the Development Trust to identify potential extra financial support.
  • Identifying any parts of the Capital Programme that will not fully use up budgets this year.

We acknowledge the actions in place to make savings and generate additional income have wider impacts across the University. We are working to continue to manage and minimise these impacts.

The outlook for 2023/24 and beyond

The planning and budgeting process for 2023/24 to 2025/26 is well under way. There are still challenges ahead, not least the fact that the reduction in research funding from the Scottish Funding Council as a result of the REF is set to rise to £4.7m in 2023/24 and continue at that level through to the next REF. Inherent wider economic and sector challenges also persist. But we remain confident that growth in student tuition fee income will recover strongly in 2023/24, and this will be combined with growth in research income and commercial income. This revenue growth will continue to underpin our education and research and our positive regional and global impacts.

George Boyne

Principal & Vice-Chancellor

Mark White

Chief Financial Officer

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