Universities at Risk of Going Bankrupt

The National Audit Office, Belgravia, London

The National Audit Office (NAO) has warned, today, that with the changes in higher education funding we could see more universities become at risk of bankruptcy.

Following the announcement of huge budget cuts in higher education funding in December and a significant raise in tuition fees, the UK authority has raised concerns about struggling institutions’ access to short term cash funding. As cuts take effect and tuition fees rise to counterbalance this effect, the English university market will undergo a transition to a very different financial environment; one where the student suddenly becomes the financial master of the institution.

The NAO argues that students have the right to know, therefore, how the universities they are applying to, or attending, are performing financially. At the moment the Higher Education Funding Council for England (Hefce) does not publish information about institutions that are failing financially, or at higher risk of bankruptcy, for three years. They claim this is in order to allow the university to recover financially before it has a negative impact on the number of students attending or applying. Today the NAO has questioned whether this is really the fairest approach as the number of universities in this situation is inevitably set to rise with the future uncertain financial climate.

Already we have seen an increase in financial pressures affecting the fiscal performance of many universities as a quarter of all institutions in England failed at least one of Hefce’s measures in 2009–10. This is seen alongside a rise in the number of universities at higher risk of bankruptcy from just 10 in 2007 to 43 in 2010 and a statement that 9% of universities have been running a deficit for the last 3 years.

In spite of the concerns, the NAO has made clear that the university sector has seen strong growth in terms of income and universities minister David Willetts has gone on record saying that the new system should provide universities with around 10% more cash funding by 2014. He claims that the report by the watchdog shows an increasing financial robustness within the higher education sector.

Meanwhile the the lecturers’ union UCU, which is set to strike later this month, denounced the findings, saying that while there may be a few winners from the new system, ultimately it created a lot more risk and that English universities should not be allowed to fail.

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