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SOAS under “enhanced monitoring” owing to finances

Research Professional has obtained the names of seven universities currently subject to “enhanced monitoring” by Office for Students.

The list includes SOAS. In December I was asked by SOAS UCU to review the institution’s finances. I was greatly concerned by the cashflow projections and by the plan to shrink the School over the next few years. 

The Independent summarises the SOAS situation. OfS is primarily concerned about “weak operating cashflow”.

Minutes from a November meeting of its board of trustees show the university is now required to “notify the OfS immediately of any material change in the school’s projected financial performance or position”.

SOAS said the “external environment for UK higher education institutions is a challenging one, especially for relatively small and specialist institutions”.

“In line with our forecasts, we reported an overall deficit of £1.2 million for 2017-18. As our staff and students know, we are taking action to reduce costs and grow income, while protecting the student experience,” a spokeswoman added



December loan sale lost £1.15billion

£1.15billion was lost on the second loan sale in December according to the annual Supplementary Estimates, which itemise the additional budget given to government departments.

The sale raised just under £2billion, but this price was below the valuation of the loans sold in the Department for Education’s accounts. DfE has previously received assurances that the losses on the sale of pre-2012 income contingent loans would not impact on its budget and here we can see that it has been given additional resource AME to cover the sum.

loan loss

A first sale, in December 2017, lost £900million. That means the sale programme has lost over £2billion already, with three planned sales still to go. Current national accounting conventions mean these losses are not recorded against the deficit, but that seems likely to change after Eurostat advised ONS that it’s new accounting treatment should see loan sales dealt with as “capital transfers”.

Elsewhere in the Supplementary Estimates, we can see that DfE has been given over £11.7billion extra resource to bulk up the ring-fenced part of its RDEL budget that is uses to cover the estimated non-repayment on student loans issued in year (which was only £3.9bn for 2018/19). The DfE might not need all of that to cover the ballooning cost of loans, but notes indicate that the RAB charge has been pushed up by 2.5 percentage points because of “adaptations” to the department’s loan model, plus corrections to both overestimated earnings for 2016/17 and underestimated loan outlay the following year. This would take the RAB charge very close to 50%, meaning that the government only expects to receive back the equivalent of half of what it loans out today. We will get a fully picture of this in the summer when DfE’s annual report for April 2018 to March 2019 is published. (Though this might also be the last occasion on which RAB is used for departmental budgeting!)

These revisions to data and modelling also push up the cost of loans already issued, which explains why the supplementary resource is higher than 50% of the loans issued in the year to March.

Note that departmental budgeting and accounting is separate to national accounting and is governed by different conventions and practices.

An OBR update on student loan accounting changes

While today’s Spring Statement promised that the Augar review would appear “shortly” and that a government response would be forthcoming later in the year, the real HE action was located in Annex B to the OBR’s latest Economic & Fiscal Outlook.

This section – “Accounting for Student Loans” – outlined the state of play regarding the ONS’s decision to reclassify student loans in the national accounts. Although the OBR “does not yet have sufficient clarity” on the detail of the new method to include it in its forecasts (a number of issues remain to be resolved), it does now understand the difference between the approach that is proposed (“the partition model”) and its own Hybrid model (published last summer).

The fundamental concepts in the two models are similar: the current fiscal illusions in the student loan accounting treatment are reduced by recording as upfront spending an estimate of the write-offs associated with the loans issued that year. At the same time, the interest accruing against loan balances is only recorded as income if it is expected to be repaid. Thus the spending on loans increases in the year they are issued and the income being generated from all extant loans is reduced. Spending goes up and income comes down leading to a large change in Public Sector Net Borrowing Requirement – the “deficit”.

Previously the OBR had estimated the impact on the deficit of implementing this new treatment at £12billion in 2018/19, rising to £17bn by 2023/24.  Their new – albeit provisional – estimate is that £10billion would be added this year and £14bn in 2023/24. That said, “this estimate is subject to considerable uncertainty”. Currently, the deficit is estimated to be £22.8bn this year and £13.5bn in 2023/24. In both cases, the key target measure is moved adversely and significantly; it is more than doubled in the later year.

OBR are also to be commended for giving attention to the problem of revising estimates. Estimates of write-offs depend on forecasts of repayments and the economic variables baked into the income contingent repayment scheme. What should be done when these vary from original estimates?

Read more…

Reading update

Although Reading has still not provided details of the £120million its owes to the National Institute for Research in Dairying Trust, for which it acts as sole trustee, a couple of letters and a blog post have provided a bit more insight.

Reading’s UCU branch has published a letter from the acting vice-chancellor, Robert van der Noort, which argues that the £120m is not a debt.  I was told by Reading press office that the money owed to the trust is a loan and that interest is payable.  (As an aside, I first contacted Reading in mid-January and spoke to them at length over a week before publication, when I gave them a list of questions. These were reiterated in the email to which the letter refers. They have still not answered these.)

Following a staff vote of no confidence, van de Noort published an Open Letter on Reading’s website. It contained the following paragraph:

Undoubtedly, some past activities and investments, such as our Malaysia campus, have not performed as well as we would have liked. Others have given a positive financial return for the institution, which we have reinvested in necessary improvements to our campus environment, teaching and research infrastructure and student experience – including the redevelopment of a modern library. Despite views to the contrary, the NIRD land sale is one of these and all considerable net proceeds of the sale will over time be reinvested in research in food and agriculture at the University. (my emphasis)

The future of the loss-making Malaysia campus is now under review. More pertinent to our concerns, Reading management here appears to admit that money coming from the trust should have been spent on research relevant to the trust’s objects.

The key point is that Reading does not have that money currently to hand and “over time” funds will have to come from elsewhere to match the £120m. That has financial implications for university, despite what has been said so far and irrespective of arguments over what exactly constitutes a “debt”.

In a blog originally intended for wonkhe but appearing today at Times Higher Education, van der Noort expends a lot of words saying not very much but does confirm the outlines of what we reported:

The article in The Guardian highlighted an issue that we have already dealt with, relating to the sale of land belonging to a charity for which the university was both trustee and beneficiary. Acting on the best advice available, we took steps last year to resolve this, and there are no wider implications for the university group’s finances. This concerned a historical issue of governance that needed to be put right.

Reading have as yet not explained how the matter has been resolved (if it has – we have yet to hear from Office for Students) and, again, the article makes no mention of the loan.



Has Reading milked its dairy trust?

Back in December, I made an offer via Twitter to look over the accounts of any universities where academics and/or students had any concerns about what was happening.

A member of staff at Reading approached me. A quick look at the latest financial statement (for 2017/18) flagged up a few issues. The main one was contained in Note 19 “Creditors: Amounts falling due within one year”.

reading amounts

It looked as if the University was committed to paying £120m to the trusts for which it acts as sole trustee.

That seemed unlikely. It was not as if the University was in a position to produce such sums and anyway the figure included for 2017 indicated that a slightly smaller sum had been in the same category in the previous financial year.

The accounts offered no explanation. I would have expected to see something either in this Note or in that devoted to “Related Party Transactions”. This prompted me to look back through Reading’s previous financial statements.  I had to go all the way back to 2014/15 to see the first clue:

“Included in other creditors is an amount of £40.9m owing to the University’s endowment trusts (2014: £13.2m). This total increased significantly in the year due to land disposals by the trusts.”

In subsequent years, the amount owed to the trusts increased rapidly, climbing to £87m and then the £107m of the 2016/17 accounts. What I now know is that this reflects the manner in which the proceeds arrived from the sale of land at Shinfield belonging to the National Institute for Dairying Research Trust: £20m in 2014, £50m in 2015 and a further £50m in instalments over the next 3 years.

The University spent these sums and noted that it owed NIRDT the £120m. In a statement issued on Saturday in response to our Guardian story the University argues that the sales were fully documented in its accounts.

“The University is confident that it has responded appropriately to the issues relating to the sale of land that formed part of the assets of the National Institute for Research in Dairying trust. The details have already been set out in the University’s published financial statements.” (9 February 2018)

I don’t disagree. But what is missing from all recent financial statements is any account of the loans, which the University says were made to itself by the Trust. The University has nowhere disclosed the terms of the loan and, although it told me interest was payable, it was not able to say what interest was due and indeed whether any had been paid.  The terms of the loans should have been published in the accounts and declared in the notes devoted to “related party transactions”.

There are prima facie conflicts of interest when a trustee is also the beneficiary of a trust. In this case, Reading appears to have accepted that it should have acted differently …

“The appropriate governance arrangements are now in place relating to the university’s management of the trust …” (my emphasis)

but is still being less than clear regarding how the matter is going to be resolved. I was told that two independent panels with legal representation have been convened: one to represent the interests of the trust, the other, the university. And that the university has also informed the regulators of what Office for Students called “a reportable event”. OfS said it had received this notification “recently”, but would not give any more specific timeframe.

There is obviously a broader question about what this means for the university’s finances and whether such a loan should be thought of as a “real debt”. I take that to be part of what needs to be resolved. Since the trust is designed to fund research at Reading, it is never going to be in trust’s interests to precipitate a brutal reckoning, but it seems clear that the loan is on generous terms (rolled over and increased each year) and isn’t being used solely for agricultural research. This indicates two sets of questions: was the conflict of interest properly managed? should the loan have been approved and extended annually?

Setting those questions aside, and returning to the finances: it is clear that the university has used proceeds from the sales to cover over problems in the last few years (deficits from ordinary activities of c. £20m in each of the last accounting periods).* It is not all clear what additional pressure may be put on the university’s position when the matter is fully resolved. (If anyone knows more about trust law and potential precedents, feel free to comment below).

More broadly, there is a question regarding how appropriate it is to “consolidate” the accounts of related trusts into university statements. NIRDT accounts do not appear to be published. Since it is a trust connected to an “exempt charity” , its accounts do not appear on the Charity Commission website; since it is not a company, there is nothing at Companies House. Reading does produce an annual statement regarding the investments held by another of its trusts, the Research Endowment Trust, but does nothing similar for NIRDT. Does anything prevent OfS from requiring universities to also publish the accounts of such trusts? (Again, if anyone with more knowledge in this area wants to comment, please do so below).

Judging from my inbox, this story has wider pertinence. My offer is still there. Please email if you want me to have a look at something.

*update: while over £110m was spent on acquiring fixed assets.

SOAS: cuts to library & management strategy

I was recently asked by SOAS UCU branch to review the financial situation of the institution and assess the current management strategy.

Here is a recording of a public event from last week, where I outlined my concerns about plans for the School to shrink. The other speakers are from the library and academic staff at the institution.


I am always happy to help union branches dissect management accounts and plans.

Please contact me by email for details.


Trust, standards & the DDD tariff

If you’ve seen one of my talks over the last 18 months, you’ve probably seen me pull up a slide referencing a Browne review proposal that was rejected by the Coalition government:

“Entitlement to Student Finance will be determined by a minimum entry standard, based on aptitude. This will ensure that the system is responding to demand from those who are qualified to benefit from higher education.

“All students who meet the standard will have an entitlement to Student Finance and can take that entitlement to any institution that decides to offer them a place. Institutions will face no restrictions from the Government on how many students they can admit. This will allow relevant institutions to grow; and others will need to raise their game to respond.

“Rather than create a new test of aptitude, our proposal builds on the UCAS tariff admissions system, which is currently used by around 70% of full time undergraduate students. … The minimum tariff entry standard will be set every year by Government shortly after the UCAS deadline for receiving applications.”

Securing a Sustainable Future for Higher Education, p. 33 (my emphasis)

I have underscored ‘qualified to benefit’ because I think this point is missed in the current furore around a proposed DDD tariff.

Browne’s idea wasn’t simply to limit the financial costs of an uncapped system: it was an argument about standards. Browne doubled down on his proposal when he appeared before the Treasury Select Committee in December 2017. He described the idea as a key part of efforts to drive up quality. And indeed, he went on to provide an additional gloss: the minimum tariff should move upwards over time.

When I wrote my report, one of the things we said was we should set a standard for entry qualifications every year that made it tougher and tougher to get into higher education provision. We did that because we thought that was one of the aspects of improving quality and one of the aspects of getting the right people with a graduate degree, as opposed to some other form of qualification.

There was some evidence to show that the tariff points that you got when you went into university bore a strong relationship to the quality of the degree you eventually achieved and your employment. There were exceptions, and we covered that under the participation activity to make sure that disadvantaged schools did not create disadvantaged people.

He returned to the point later in his evidence:

When I looked at this a little while ago, the thing that was really concerning to us was maintaining and expanding quality. A lot of what we looked at was doing just that transparency but in a much more detailed way: suggesting that we qualified lecturers much as we would qualify teachers. It was the same idea: that we would look at tariff points—ie prior attainment—and make sure that that was rigorously applied across the system and made better every year. We are in a competitive world, and we have to improve the quality of our output every year. This was the most important thing that was driving the report.

Back in 2017, it seemed clear to me that the Higher Education & Research Act prefigured something like the return to the “quality wars” of the late 1990s and early 2000s. Trust in universities to provide appropriate undergraduate education to students who can benefit has been eroded. See the concerns about graduate inflation, graduate earnings and the comparatively low levels of numeracy and literacy amongst English graduates. Note how Browne would like to accredit lecturers and tie that in with current consideration of the feasibility of accredited external examiners (tasked with ensuring comparability of degree awards across the sector).

In short, I think it is a misjudgement to see the DDD tariff idea solely as an elitist variant of “more means worse”. It is also entirely possible to view the proposal from a different perspective: that students with lower tariffs should be nudged towards preliminary courses before embarking on a undergraduate study or to approach undergraduate study piecemeal by achieving levels 4 and 5 first.  (If it is meant to drive some students down a technical, vocational path rather than others, then it is a divisive proposal).

I am not backing this proposal, I am suggesting it needs to be better understood in the broader context of (i) a loss of trust in the quality of undergraduate courses and (ii) concerns that the post-2004 expansion in undergraduate numbers has been a bad deal for students and government, because low-tariff students were recruited onto low quality courses.

That is, the sector will misunderstand this proposal and be poorly placed to contest it if they fail to realise what it’s about.

As I stressed in my talks, it’s legitimate for government to ask how public money is spent (whether loans or grants). Reviewing who gets funding does not directly impinge on institutional (academic) freedom (deciding who gets offered a place). That matters legally, given the way HERA is written. But indirect controls are powerful.

You might also see the DDD-idea through the lens of “varieties of neoliberalism”. The weaknesses of market competition in English HE are already visible. I perhaps have more sympathy with the idea than some because I have seen up close what has happened in the private HE sector. You can find some frightening completion rates amongst new providers in the newly available Unistats data. As May said in her 2016 party conference, “where markets are dysfunctional, we should be prepared to intervene”. At the time I wrote:

If May is consistent then I would expect to see a shift away from the idea that competition (with easier market exit and entry) will drive up quality and a move to shore up (or impose) standards so that ‘university means university’.

… May announced a more interventionist policy with a bigger role for the state here, citing utility markets as a contender for reform. … [F]rom a certain perspective (that of the lender), the HE market looks dysfunctional with a large amount of misinvestment or even over-investment …

What Browne desires is to open up teaching and academic judgement to view. But if that cannot be done then what he (and others) seeks is a safeguard that funded students are in a position to benefit. They are inclined to trust A-levels, but that’s a whole other story.