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Warnings on the long term sustainability of Wales’ universities are made in a report out today showing they have racked up a combined deficit of £16m with more shortfalls forecast.

A multi million pound gap in deficit and surplus over two financial years is laid bare in the document from the Higher Education Funding Council Wales.

And the figures are likely to have got worse since then.

Cardiff University has already forecast an operating deficit of £21m in 2017-18 compared to a deficit of £8.7m listed in HEFCW's report for 2016-17

Financial uncertainty, Brexit , global competition for students and pension payments are among pressures facing the eight universities, HEFCW’s Financial Position of Higher Education Institutions in Wales: 2016/17 says.

It warns: “The sector has a track record of meeting such challenges, showing itself to be adaptable to a more competitive and uncertain environment. However these risks will need careful monitoring and mitigation if institutions are to ensure their long-term sustainability.”

Nick Hillman, director of independent think tank the Higher Education Policy Institute said the report should serve as a warning that universities, while resilient are not guaranteed survival and their importance should not be taken for granted.

Asked about the future positions of universities Dr David Blaney, HEFCW chief executive said : "“Any institutional failure would have a seriously detrimental impact on students, as well as staff and the broader local and national economies. It is in nobody’s interest for a situation to develop to such a crisis, and our work with universities is, in part, intended to mitigate against such a risk."

(Image: PA)

Forecasts from July 2018 show the sector overall in Wales anticipates further financial deficits, at least in the short term, HEFCW’s document adds.

It details how Wales’ eight universities had combined income of £1.5b in 2016-17 and a combined operating deficit of £16.7m compared with a £74.3m operating surplus in 2015-16.

In 2016-17 universities in Wales saw income fall 1.2% while spending rose 5.2% and borrowing rose 2.1%, compared to the previous year.

Cash from operating activities fell but income from students (home, EU and international) was up by 5.5%.

At the end of July 2017, the sector reported external long-term borrowings of £745.2m, which is equivalent to half of its income. Interest on borrowing reported was £29m in 2016/17, as against £23.4m in 2015-16.

On top of this the USS pension scheme “adds uncertainty and exposes member institutions to significant financial and operational risks” while uncertainty around the higher education sector could make lenders and investors wary, the report adds.

It warns: “The various elements of uncertainty that currently exist within the sector are likely to lead to greater focus from investors on the financial strength of individual HEIs, with any fall in confidence levels likely to either restrict the availability of finance or result in a rise in the cost of borrowing for those able to secure such funding.

“This would inevitably put significant elements of the sector’s investment programme at risk and could harm the long-term financial sustainability of some HEIs."

Nick Hillman said universities are facing risks which should not be ignored: “This is a very important report which shows the risks facing higher education institutions in Wales.

“There is a perfect storm ahead, thanks to demographics, higher borrowing costs and shortfalls in pension funds – not to mention the fallout from the Augar review ( of tuition fees ) in England or, the biggest potential problem of all, which is the Brexit shenanigans.

“The numbers in the report are an important and salutary reminder that universities are not guaranteed to thrive or survive in all circumstances.

“People with long memories will remember that University College Cardiff was nearly declared insolvent in the late 1980s.

“Universities are resilient, typically have excellent staff and are crucial to the whole UK’s future economic success. But, when we take them for granted, they can’t deliver as much as society needs them to – and the news from Westminster suggests we may need them like never before in the months and years ahead.”

He said that while some people believe merging institutions might strengthen them the history of mergers shows that it is expensive to deliver successfully and is not a quick fix.

Dr David Blaney, Chief Executive of HEFCW, said: “It is undeniably challenging for the higher education sector, in Wales and elsewhere in the UK. Through our engagement with them, we know that the universities in Wales are taking action to address the challenges they face and we will continue to work closely with them to monitor their responses to these challenges.

“Any institutional failure would have a seriously detrimental impact on students, as well as staff and the broader local and national economies. It is in nobody’s interest for a situation to develop to such a crisis, and our work with universities is, in part, intended to mitigate against such a risk.

“There is no policy steer towards reconfiguration and no pressure to merge from either the Welsh Government or HEFCW. We encourage universities always to ask themselves whether collaborative activity could help to address some of the challenges they face, and we certainly wouldn’t rule out mergers if institutions considered there to be a sustainable business case.

Andy Williams, Cardiff University College Union spokesperson said: “These figures just confirm our current campaigning priorities. Cardiff University and others are spending and borrowing too much, in large part to fund flashy capital expenditure projects and bloated executive pay. To balance the books, they then cut jobs and downgrade our pensions.”

Universities Wales, which represents the sector, said it could not comment specifically on the gap between the surplus in 2015-16 and deficit in 2016-17 detailed in the report.

A spokesperson said: “HEFCW’s report relates to 2016-17 and reflects the strong performance of Welsh universities in navigating a difficult operating environment including the demographic dip in 18 year olds.

“Since then, the Welsh Government has confirmed a new package of investment in universities through the Diamond Review and has outlined how this will be delivered.”

He said Universities Wales was unaware of any merger plans: “We are not aware of any further plans for mergers. Although there can be benefits to mergers, in general they do not result in cost savings.”

A Welsh Government spokesman said: “We have given assurances that the funding we provide to our universities, via the Higher Education Funding Council for Wales, will increase in each year of this government as we phase in the reforms to higher education and student support. “More recent data for 2017-18 will be available soon, which will give a more up-to-date picture of higher education institutions’ finances.”

(Image: Aled Llywelyn Photography)

The figures for each university

Income 2016-17

University of South Wales £184.168m

Aberystwyth University £124.521m

Bangor University £143.380m

Cardiff University £505.123m

University of Wales: Trinity Saint David £119.340m

Swansea University £278.153m

Cardiff Metropolitan University £99.871m

Wrexham Glyndwr University £35.716m

Sector total £1.5bn

Operating surplus and deficit 2016-17 (deficits in brackets)

University of South Wales - £9.486m

Aberystwyth University - (£2.632m)

Bangor University - (£8.764m)

Cardiff University - (£8.716m)

University of Wales: Trinity Saint David - (£25.530m)

Swansea University - £18.714m

Cardiff Metropolitan University - £54,000

Wrexham Glyndwr University - £592,000

Sector total - (£16.796)