Governing in a Downturn

London

30 September 2010

Alison JohnsHead of Leadership, Governance and Managment

The political context as seen from a funding council’s perspective and what questions we would like to see governors addressing

Appendix A(ii)

Context (1)_______________________________________________________________________________________________________________________

The Independent Review of Higher Education and Student Finance

The coalition Government’s first spending review

Context (2)_______________________________________________________________________________________________________________________

increasing student demand

international competition

cost pressures

the shift to a new business model

technological advances

Public concerns_______________________________________________________________________________________________________________________

Unmet demand

Graduate unemployment

High personal debts

The World as we know it

Sources of income for universities and colleges, 2008-09

Source: HESA finance record 2008-09, HEFCE-funded HEIsNote 1: This income includes a share of income in joint venture(s) of £97MNote 2: We do not have precise data on postgraduate fees paid by UK research councils. Full-time postgraduate research fees from 'other' sources is used to estimate this. ('Other' sources are those other than the SLC and DH).Note 3: 2008-09 refers to the academic year ending 31 July 2009

Universities and colleges

Total income £21,015M

Research grants & contracts

£1,240M (5.9%)

HEFCE, TDA & LSC funding

£7,097M (33.8%)

SLC/LEA fees

£1,909M (9.1%)

Department for Business Innovation and Skills UK Research councils

Other income£4,161M (19.8%)

UK charities£748M (3.6%)

Overseas student fees

£1,885M (9.0%)

Residences and catering

£1,178M (5.6%)

Other government

Non-research£1,360M (6.5%)

Postgraduate fees

£91M (0.4%)

Research£800M (3.8%)

Other research income

£545M (2.6%)

Other fee income £1,708MIncome for non-research services £967MEndowments £295MOther operating income £1,191M

Financial flows chart_______________________________________________________________________________________________________________________

HE Business models – from HE workforce framework

Six main income streams for English HE:

o Publicly-funded researcho Privately-funded researcho Publicly-funded teachingo Privately-funded teachingo Academic enterpriseo Other services

Illustrative examples of institutional strategic profiles based on income

Type B Type A

Type C Type D

Imagine a world….

Key propositions in Sunday Times article – 26 Sept 2010

• Fees up to £10k pa• Public funding for teaching reduced by 2/3rds• A cut of £3bn or 64% of £4.7bn T funding• With effect from2012• Degrees paid for by students mainly paid by them

from their future earnings• Overall reduction in state funding for HEIs circa

37% (incl £1bn off £6bn for research)• Subsidies on student loans gone > 2% rise

Stronger market dynamic_______________________________________________________________________________________________________________________

Improved information for students

Greater student choice

Continuous quality improvement

Supply side reform? Lowering of entry barriers for private providers?

Students numbers?

HEI pressures_______________________________________________________________________________________________________________________

Decreasing public spending

International competition in teaching and research

Increasing requirements for quality improvement

HEI pressures_______________________________________________________________________________________________________________________

Discussion

What are the pressures you are facing in the current and future political and fiscal environment?

What are the risks you should be thinking about and discussing at your GB?

What can we glean from USA?Regulation

• Increased oversight and compliance arrangements

• Greater transparency for students and parents• Growing need to improve and demonstrate

quality• Governance to show a moral compass: ‘doing

the right thing’• Efficiency and greater use of IT internet tuition

Key issues _______________________________________________________________________________________________________________________

changes in multiple income streams

a new balance of public, student, employer funding

new business models at institutional level

ensuring clear lines of accountability, effective governance of financial control at a time of change

maintaining market confidence through orderly transition

Market confidence at a time of change_______________________________________________________________________________________________________________________

“Press reports discuss the UK university system as facing profound changes. Whether the change evolves smoothly or not may depend on the consistent and historically effective regulatory framework provided by HEFCE, the regulator and main funding vehicle for the sector and on the ability of universities to forecast and plan for change. HEFCE’s tight regulation and oversight of the sector, as well as a historical record of strong extraordinary support for distressed institutions, offer the promise that change will be orderly”.

Opportunities_______________________________________________________________________________________________________________________

Imperative to differentiate

Get the price right

o what will the market bear?

o cover costs and reinvestment?

o what if price wrong?

o net price : gross price – what is your offer?

• bursaries and freebies

Others?

Questions governors should be asking?_______________________________________________________________________________________________________________________

Does our strategy…

o focus on strengths?

o widen the funding base?

o articulate the brand?

o focus on appropriate risks?

...and seek to where appropriate…

o disinvest?

o develop strategic partnerships

Questions governors should be asking?_______________________________________________________________________________________________________________________

To what extent are our resource strategies fit for purpose?

Where do we need to build capacity and capability?

o change management?

o human resources?

o estates

o finance?

o other?

Questions governors should be asking?_______________________________________________________________________________________________________________________

How efficient are we?

o new business models?

o cost management?

o culture change?

o short and medium term plans?

Strategic issues_______________________________________________________________________________________________________________________

Direction

Alignment

Efficiency

Role of Governing Bodies

Set StrategyMonitor

Performance

Protect Autonomy

Stakeholder Confidence

Public Confidence (FM)

• Risk management, control and corporate governance

• Information systems

• Financial sustainability

• No surprises – material adverse change requirement

• Regularity, propriety, value for money

• Audit systems

• Self-regulation

• Risk-based intervention

• Respected governance

Institutional Autonomy

HEFCE Support

• Communications

• Training via LFHE

• Benchmarking

• Good Practice (via CUC)

Communications

• Risk letter

• Grant letter

• E-mail alert -

• Annual meeting - 26 November 2010

• Institutional visits

HEFCE Governance Alert

• http://www.hefce.ac.uk/lgm/governance/

• https://www.jiscmail.ac.uk/cgi-bin/webadmin?SUBED1=governance-hefce&A=1

• K.thompson@hefce.ac.uk

Thank you for listening

a.johns@hefce.ac.uk