UK deficits at record levels ‘due to pension schemes’

The majority of UK higher education providers recorded a deficit in the past financial year, new figures show, as pension fund valuations continue to disrupt university accounts.

Data from the Higher Education Statistics Agency (Hesa) summarises the financial accounts of 267 institutions for the 2021-22 academic year – with 148 (55 per cent) recording a deficit for the year.

This was double the proportion in the previous year (28 per cent), and the highest percentage on record.

Hesa cautioned that financial data for 21 providers had not been finalised by the cut-off date for publication.

Many universities have previously explained that their deficits were the result of an increase in their provision for the Universities Superannuation Scheme – the UK higher education secor’s largest pension scheme, which has reported multibillion-pound deficits in recent years.

When such data was first recorded in 2015-16, just 13 per cent of institutions were in deficit.

Staffing costs across the sector rose from £23.7 billion in 2020-21 to £30.6 billion in 2021-22 – a 29 per cent rise and the second highest increase on record.

“Analysis of staff costs showed that changes to pension provisions or pension adjustments added £6.9 billion to staff costs for the year, with 90 providers recording pension adjustment costs of over £10 million,” said Hesa.

“This is not a typical annual operating expense for these providers and therefore not reflective of their underlying financial operating performance in 2021-22.”

Erica Conway, chair of the British Universities Finance Directors Group and director of finance at the University of Birmingham, said a surplus or deficit does not just reflect in-year operating activity, it also includes changes in the valuation of items in the Statement of Financial Position.

In 2021-22, universities will have seen increases in long-term pension liabilities, such as the USS and other schemes, which will have generated large costs.

“These represent long-term cash commitments that fluctuate at the conclusion of each actuarial valuation and do not necessarily indicate an immediate financial concern,” said Ms Conway.

Analysis shows that almost all the 24 institutions that make up the Russell Group recorded a deficit in 2021-22, with eight of the top 10 largest deficits of all providers coming from the group.

At £245 million, King’s College London had the largest deficit of all 267 HEIs, although its accounts show that this came after a £284 million increase in USS provision.

It was followed by University College London (£240 million in deficit), and The Open University (£233 million).

From the Russell Group, only Queen Mary University of London (£2.3 million) and the University of Cambridge (£120 million) – which had the largest surplus recorded by Hesa – were in the black.

The figures for the most recent academic year are the reverse of 2020-21, when only the University of Leeds and the University of Exeter reported deficits.

More than half of post-1992 institutions, and more than two-thirds of all universities, recorded deficits.

Ms Conway highlighted the importance of other financial measures beyond an institution’s deficit or surplus. “It is also advisable to review the cash holdings at the year end and whether the cash flow statement shows cash inflows from operating activities,” she said.

“Cash is king is a commonly used phrase for a reason; the ability to generate cash remains the best indicator of short-term viability of any organisation.”

patrick.jack@timeshighereducation.com