University Finances - an overview of the challenges ahead Sue Richardson, Head of Financial Planning & Budgeting

1. University Finances - an overview of the challenges ahead Sue Richardson, Head of Financial Planning & Budgeting

2. Spending Review CSR • 2010 Spending Review set out departmental spending plans for the 4 years until 2014/15 • Scotland’s revenue grant increases slightly in cash terms to £25.4 billion, cumulative reduction in real terms of 6.8% by 2014/15 • Scotland’s capital grant decreases in cash terms to £2.3 billion, cumulative reduction in real terms of 38% by 2014/15 • In 2010/11 funding for Higher Education in Scotland was approximately £1 Billion, from a Scottish Government budget of approximately £29 Billion

3. Spending Review CSR 2 • The £3.5bn spent annually by the seven research councils through the science budget within the department of Business, Innovation and Skills , will be frozen, but not cut, for the next four years. The settlement amounts to a 9 per cent cut in real terms. • The reform of Higher Education funding following the Browne report covers Universities in England only.

4. Scottish budget & SFC • The Scottish Budget for 2011/12 is based on CSR announced in October. • One year budget only. • SFC revenue grant announced for 2011/12 showed an overall decrease of 8.1%. • 38% cut in Capital funding

5. Other finance changes • The standard rate of VAT increased to 20 per cent on 4 January 2011. This will cost the University £600K on recurrent spending (excluding capital projects) as we are only able to claim back a proportion of VAT incurred. • We will also incur additional costs through Carbon Reduction Commitment and National insurance increases 

6. Income 2010 Income is shown in £’000. Total income 2009/10 £225M

7. SFC - Main Grant letter- 36% of funding Under the general fund grant letter penalties for shortfalls of general funded places and breaches of consolidation in 2010-11 were also announced, this amounted to £1,048k for University of Aberdeen

8. SFC - Main Grant letter- 36% of funding

9. SFC General grant letter • SFC/09/2011 under “Public Sector pay” • “The Scottish Government has indicated that it expects the college and university sector to follow public sector pay policy set by HM Treasury. In doing so, institutions are expected to take account of fairness, equal opportunities, the need to recruit, motivate and retain staff and affordability.”

10. Funded Tuition Fees -11% of funding

11. Non Funded Tuition Fees -9% of funding • Global economic downturn • Increasing international competition • UK Border Authority restrictions

12. Research grants-29% of funding • Restricted against eligible spend • 62% from research councils & UK government, therefore subject to public sector spending cuts -RERAD • 14% UK charity funding

13. Other income-15% of funding • Predominately student residences & catering • Also includes other services and income from health and hospital authorities • Incur direct costs to generate this income

14. Costs 2010 Costs are shown in £’000. Total costs 2010 after revaluation reserve release £220M

15. Scottish sector comparison

16. Scenario Planning • Funding cuts • VAT increases • Pension scheme cost increases • NI increases

17. Scenario Planning - Actions • Reduce capital spend commitments • Reduce operating spend – travel, marketing, etc. • Voluntary severance & Early retirement Scheme • Identify efficiencies • Opportunities for income growth

18. Voluntary Scheme • Voluntary scheme to reduce core staffing costs • Discretionary • Objective to deliver long term permanent reduction in core staffing costs to mitigate against budget cuts and cost increases

19. Scenario Planning – Going forward • Long term strategic transformation - strategic plan • Progress reported to Court as plans developed • Opportunities for income growth