Professor Stephen J Toope

The University needs to take tough decisions now to ensure it remains financially sustainable, writes Professor Stephen J Toope, the Vice-Chancellor

Readers of David Copperfield may remember Wilkins Micawber’s famous observation:

"Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

What is true for Dickens’ memorable character also holds true for institutions needing to manage their finances.

Universities around the world all have the same basic challenge: to provide the best quality education for students and to foster academic research while making ends meet.

But the headwinds facing higher education are blowing stronger. There is heightened competition for both students and academics. There is increased political and economic uncertainty, with the threat of lower incomes from endowments as financial markets stutter.  And there are increasingly complex global problems that universities seek to address, such as climate change and social and economic inequality.

In the UK, these challenges are exacerbated by the uncertainty posed by Brexit. Depending on what form it takes, additional pressures on the finances of the UK Government are likely. Investments in higher education may be reduced or at least remain stagnant. If, as expected, the Review of Post-18 Education and Funding (known informally as the Augar Review) recommends a significant reduction in tuition fees, and if the Government is not able or willing to make up for that reduction through other grants, the total income of the UK University sector will fall.

Although Cambridge is fortunate in that it does not rely on Government and tuition fee income as heavily as some other institutions, we nevertheless need to be prudent in our financial planning. Recent budget projections show that we are now running an annual cash operating deficit of roughly £30 million on a total combined budget of £1.25 billion. That position is deteriorating despite efforts to control spending over the last few years.

Modest requests for extra funding from across the University, increases in projected costs, and a deterioration in some revenue lines have boosted the forecast cash deficit to almost £55 million. Working closely with our academic leaders, we have identified potential savings that may help us reduce this to less than £36 million. We continue to review funding requests, and will look again at all assumptions concerning future revenue and expenditure.

To be absolutely clear, this is not yet an actual deficit, merely a projection. This situation was not wholly unforeseen. The University’s research endeavours have grown dramatically over the last decade and staff costs have risen accordingly. The cost of educating UK and non-UK EEA undergraduates far exceeds the fees we receive, and this fee income has been falling in real terms.

A deficit of this order, though manageable in the short term, is not sustainable in the longer term. We have a strong University with local, national and global influence. It is part of my duty to make sure that we do at least as well in handing on to our successors. That will require financial discipline now. The University needs, therefore, to take some clear decisions on where to prioritise its spending and investment, and how to maximise its revenue.

I am determined that even as we identify savings we must do our utmost to support the extraordinary and committed staff who underpin Cambridge’s worldwide renown. So it’s not just a question of cutting costs wherever it is most convenient.

There are legitimate demands for improvements in total compensation. We need to maintain strong pensions. We need to find ways to provide more affordable housing for staff. We must continue to attract the most talented people to Cambridge, especially in light of increased competition nationally and internationally. In other words, honouring our commitment to excellence requires continued investment.

The University is fortunate that its total income has grown substantially over the last five years. Sources of revenue are relatively well distributed. We have been able to use income from the operations of Cambridge Assessment and Cambridge University Press to help support much-needed capital projects. The Cambridge University Endowment Fund (CUEF) has tripled in size between 2009 and 2017. A separate fundraising campaign, which we call ‘Dear World’, has reached the £1.45 billion mark, with the annual underlying rate of giving to the University approaching £100 million.

Much of this money is earmarked for specific purposes and cannot be used for day-to-day expenditure. Our diverse sources of income mean that the budget pressures will be manageable. However, we must still act now so that we do not dig ourselves into a hole, and put the onus on future generations to solve a much bigger problem.

One of the University’s great strengths is its ability to seek out and develop new areas of academic endeavour. But these areas of new endeavour are rarely fully funded. This means that we need a clear-sighted view on what activities to stop as we expand into new areas. And where we do expand we need to ensure that costs are fully covered.

In administrative terms, the University’s organisation, systems and processes have grown up organically and now have to cope with greater complexity and volume, as well as additional burdens in terms of external reporting and regulatory requirements. We need simpler processes, with the right tools and systems to do the job.

Dickens’ Mr Micawber is also known as the embodiment of the optimistic notion that “something will turn up”. At times of severe financial pressures, this is not the way to plan for a robust financial future. 

We will need sensible planning, and the help of colleagues across the University, to emerge in a strong and sustainable financial position from this period of uncertainty. This is the only way to ensure that Cambridge remains among the very best universities in the world for decades to come.

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