So, what is Brexit likely to do?
On 11 January 2017, Cambridge University announced there had been a 14% fall in applications from students in the EU. With a fall in student numbers comes a fall in income and pressure to borrow money from other sources.
By contrast, in Scotland, student fees are paid by the state, and a reduction in students from Europe is seen as an opportunity to fill places with more Scottish students.
Andrew McConnell from the University of Huddersfield summarised the current balance sheet dilemmas of many universities. Over the period 2014/15 through to 2018/19, expenditure is expected to grow more than income, with increasing reliance on borrowing and difficult funding decisions.
On face value, borrowing through bond finance is not an issue for universities as outlined by Sarah Seed, a finance lawyer with Mills and Reeve. The cost of borrowing post Brexit was expected to rise but in reality it has fallen. However Sarah tempered this optimism with the reality that universities still need to repay their loans and with typical bonds circa £250m+ and over 40 years, the interest alone is substantial and more uncertainty over future university income could create difficult funding decisions.
Sir Simon Hughes of the Open University (and former deputy leader of the Liberal Democrats) speculated that the profile of education in five to ten years will be different from today with more students opting to stay in further not higher education, and preferring paid apprenticeships to the burden of student debt. This all adds to the pressures on university income.
Other non-Brexit issues for universities include:
The forthcoming Teaching Excellence Framework (TEF). This will produce gold, silver and bronze league tables from mid-2017. Bronze is actually the booby prize reflecting a poor institution. Universities create surpluses each year (an excess of income over expenditure) which is re-invested in new facilities. The feeling is that falling student numbers at a TEF bronze university could wipe out any surplus within five to ten years.
- The Office for Students (OfS). This new Government body replaces the HEFCE (Higher Education Funding Council for England). OfS is seen as more akin to a regulatory body (similar to Ofsted in schools) whereas HEFCE was an active promoter of the university sector.
- Substantial backlog of maintenance. Investment in lifecycle and maintenance is the first thing to go when estates directors are forced to make efficiency savings. This is a serious issue and getting worse. Poor quality environments adversely affect student choice.
- A second Scottish referendum. The Scottish economy is weaker now than it was during the first referendum. The consensus is that a second one is unlikely to happen and even more unlikely to succeed. But, if it did, then this could put a strain on the Scottish Government’s current model of financing student education.
It’s clear to me that competition for students at home, on the European continent and further afield will be a major challenge in the years ahead and that universities will have to differentiate by the quality of their facilities and the student experience they can offer. Existing estates will need to be made more efficient and/or be reconfigured for the future. Increasingly, using data intelligently to monitor how buildings are used and when, and the user experience, will help drive decisions about future development. BAM can help universities with developing smart campuses, reconfiguring existing buildings and planning future sustainable development.
One delegate told me that seeing BAM there taking an interest in the sector’s outlook was most welcome. We regularly sponsor AUDE’s annual conference, and understanding the environment for our clients is the basis of being a strong partner when creating their future estates.