Education & Family

Universities: NAO warns cuts pose bankruptcy risk

Bank notes
Image caption Seven universities were classed as being at "high risk" last December

More universities in England could be put at risk of bankruptcy as a result of cuts and changes to funding, the National Audit Office (NAO) has warned.

A report from the financial watchdog says some universities will benefit from the changes but some will have less money.

It says the public might need to be told more about universities at risk.

Universities minister David Willetts says the changes will increase universities' cash funding by 2014.

Grants cut

The NAO report says the sector has seen "strong growth in its income" in recent years.

But it says: "The new funding framework, coupled with the squeeze in public funding, is likely to increase the level of risk within the sector.

"While there are a number of financially strong institutions, there is wide variation in institutions' financial performance."

It notes: "The transition and the new environment itself will increase the risk within the sector, potentially raising the number of institutions at high risk of failing".

Teaching grants to universities are being cut and universities will be expected to fund their courses from higher tuition fees, which are being raised in 2012 from just over £3,000 a year to a maximum of £9,000.

The government has said it will protect funding for science-based courses and research.

The NAO examined the regulation of the financial health of England's universities by the Higher Education Funding Council for England (Hefce).

About one in 10 institutions had been in the red in at least two of the past three years, it said.

And a quarter of England's universities fell below at least one benchmark designed to check an institution's finances in 2009-10.

Transition

The auditors said that as of last December, Hefce classified seven universities as being "at higher risk" .

The length of time that a university was in this category had grown, the report found.

One institution, Thames Valley University, had been "at higher risk" for 12 years.

NAO head Amyas Morse said: "The funding council has performed well during a benign environment for higher education.

"However, the sector is now facing a period of transition to a very different financial environment, increasing financial and management pressures on our higher education institutions."

Chairman of the Committee of Public Accounts, Labour MP Margaret Hodge, said: "Ongoing reforms towards a market-based system open up higher levels of risk for the financial viability of institutions."

Mr Willetts said: "I welcome the report's finding that our higher education sector has 'increasing robustness in its financial stability'.

"However, we are not complacent about the challenge ahead. We are clearly moving into a changing financial environment, but it should provide our universities with access to 10% more cash funding overall by 2014-15."

'Informed decisions'

The NAO report says Hefce should consider giving the public more information about universities judged to be at risk.

At the moment, the funding council waits at least three years before naming institutions thought to be at risk and then only does so if it considers there would be no harm to current students or the institution.

The report says: "As a greater proportion of funding begins to follow the student, the funding council should consider whether the current arrangements strike the right balance between protecting institutions and their students, on the one hand, and enabling prospective students to take more informed decisions on where to study, on the other."

Sally Hunt, general secretary of the lecturers' union UCU, said the report "lifted the lid on the financial health of higher education and the likely consequences of the government's proposals".

"The worrying conclusions are that, while there might be a handful of winners, many institutions will struggle to cope financially with the new regime," she said.

"We believe that our universities do an excellent job and letting them fail would be an act of academic barbarity."

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