59 Virtual Brochure – March 2025 Financial Sustainability Ranked 5th unmitigated 3rd mitigated Unsurprisingly, financial sustainability appears on the strategic risk register of almost every institution. While the ranking of the inherent risk remains unchanged from 2023 the ranking of mitigated risk rises from 7th to 3rd reflecting increasing risk exposure and the challenges of managing rising costs and the volatility of income streams. Most institutions describe a variety of risk factors impacting on their financial sustainability. In addition to risks from the declining value of tuition fees and recruitment challenges, this includes the familiar challenges of growing pension costs, difficulties in securing investment, and rising staff and operating costs. The detail provides governing bodies and their committees with a good degree of transparency about the scale of risks and how these are being addressed. UUK reports that 80% of institutions are undertaking efficiency programmes to address financial challenges. While these reflect individual institutional circumstances, there is a prevalence of direct cost reduction activities. Mitigating activities include: - Strengthening longer term financial planning and forecasting and greater use of contingencies - Strengthening financial controls e.g. close monitoring of accounts and cashflow, and of student enrolments, leavers and deferrals, and tighter budget management - Activities to maximise income (e.g. use of credit facilities, improving debt recovery and disposing of assets) and diversify income (e.g. Transnational Education, fundraising and CPD) - Cost reduction activities including headcount reduction, controls on vacancies and starting salaries, curriculum review and stronger management of supplier costs - Exploration of opportunities to reduce pension costs. Risk commentary As UUK states in its blueprint for HE, “the funding of universities is structurally unsustainable across all four nations in the UK” and it notes that “40% of HE providers are expected to be in deficit in 2023-24”. Our analysis echoes many of the observations in the blueprint. We can see that institutions have taken, and will continue to take, substantive actions to ensure that they remain financially viable and can continue to undertake high quality teaching and research. For institutions locked into the Teachers’ Pension Scheme (TPS), there are limited options to manage costs due to statutory requirements. This is particularly impacting on smaller institutions, and GuildHE has requested that institutions be released from TPS liabilities so they can offer alternative pension provision2. While risk registers signal that institutions will continue to take further efficiency measures while seeking to grow and diversify income streams, yearon-year cost reduction activities will over time degrade the health of the sector. This is likely to result in less spend on student services and support, the enhancement of teaching, investment in research and potentially access to some subjects in parts of the country. While government proposals on the future funding of the sector are expected in 2025, they will not provide a panacea. Some institutions will need to consider more fundamental changes to business and operating models. Audit committees and governing bodies need to ensure they have sufficient assurance about financial sustainability beyond the one year going concern assessment, and have opportunities to discuss and challenge underlying assumptions, stress tests and scenarios – a message also emphasised by the OfS3. They should also ensure that risk appetite and comprehensive risk analysis is at the heart of all scenarios for transformation, collaboration, consolidation or structural change. We would also encourage audit committees to discuss the impacts of management actions on the effective management and control of other strategic risks 2 https://guildhe.ac.uk/guildhe-spending-review-submission/ 3 https://www.officeforstudents.org.uk/media/kegazm0o/ insight-brief-21-financial-challeges.p 5th 3rd
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