The impact of cuts on capital investment

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Faced with 85% cuts to teaching and capital funding, universities generally have two options if they wish to improve their campuses: borrow or save. The University of Hertfordshire, like many other institutions, chose to save. According to a March 2013 report in The Times Higher, this has led the Treasury to believe that universities are “awash with cash” at a time when it is deciding the budget for 2015/16. The reality is very different.

The need to invest

The University of Hertfordshire needs to invest in its estate. We currently teach students in buildings from the 60s that are in a poor condition, costly to run and release high carbon emissions. We can only offer rooms in our halls of residence to one in two first year undergraduates who apply for them, even though all our survey evidence suggests that students living on campus enjoy a better university experience.

To address these problems, the university has a ten-year, £400m estates strategy, which includes building 2,500 new rooms in our halls of residence and constructing new science and engineering centres.

It’s pertinent to mention here that for every £1 spent on construction, £2.84 is generated in economic activity (i.e. GDP increase). When universities invest in their estates, it not only materially improves the student experience, but also has a positive impact on regional economies.

Realising the estates strategy

Capital funding from the government is limited as are the recommended borrowing levels set by the Funding Council. Therefore, the university has had to find alternative solutions to realise its estates strategy. This is being done in two ways.

  • First, the halls of residences development is being funded by a £190m investment from a public-private joint venture. The joint venture will operate the accommodation for 50 years and release a capital receipt to the university to help fund some of the other projects.
  • Second, in order to complete the vision the university needs to invest a further £204m itself. As a result, it must make a £10-15m surplus each year until 2021. These surpluses are being driven by efficiency savings in non-staff costs – an approach that has since been recommended by the Diamond Review of efficiency and effectiveness in higher education.

Efficiency savings

Examples of efficiency savings include £3.5m saved annually from new and renegotiated contracts and £1.2m in new annual savings from our membership of the Southern Universities Purchasing Consortium.

Universities are already under financial pressure from rising costs, the fixed cap on fees that does not take into account inflation, and uncertainty over international student recruitment thanks to student visa reforms. Considering the efficiency savings already made, funding cuts would make it virtually impossible to achieve the level of surpluses required to fund our capital programme. The only other option would be to reduce spending on core services, which in turn would have a material impact on the student experience.

The University of Hertfordshire is one of a number of institutions that will be making decisions on where to prioritise its spending. Funding cuts will leave universities without any capacity or incentive to invest in their campuses – rolling back the calendar ten years to a time when the deferred maintenance and construction bill across the sector amounted to £9 billion. But worst of all, it will prevent universities from building growth in their regional economies.

Read the case study

Read the full case study on the impact of cuts on estates investment at the University of Hertfordshire.

Professor Quintin McKellar CBE is Vice-Chancellor of the University of Hertfordshire

 

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