University of Leeds Due For Financial Hit From Coronavirus

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With an operating deficit of £11 million due to charges relating to USS pensions and likely significant losses in international student fee income, The Gryphon concludes the future looks worrying for the University of Leeds and the Higher Education sector on the whole.

Even before the pandemic hit, the consequences of several periods of strike action, rising pension contributions, and growing student dissatisfaction were placing strains on the University sector across the country.

On top of this, Brexit was causing uncertainty for EU students and the future of the Erasmus scheme is still uncertain whilst the USS deficit positions were placing financial strains on the University of Leeds and other universities. Staff pension contributions increased significantly following the 2017 USS valuation and put significant financial pressure on the University’s balance sheet. With pension contributions potentially set to increase following the 2020 USS valuations, the University already appeared to be in hot water before coronavirus swept the globe.

A University spokesperson said:

“We entered this pandemic in a position of financial health and strength – precisely due to prudent financial management – while meeting all our legal and governance obligations.

The operating deficit resulted from a one-off charge, spread over eight years, relating to the Universities Superannuation Scheme (USS) pension deficit recovery plan – a significant factor affecting the UK higher education sector. Excluding this charge, the University reported an underlying operating surplus of £38 million, as highlighted in our 2018-19 annual report and accounts. The balance sheet is strong.”

The deficit in the USS pension schemes presents another issue for Universities UK (UUK), a national HE organisation the University of Leeds is part of. Even before the crisis the pension deficit was huge. Now that the crisis has hit and central banks are forcing interest rates downwards, USS stakeholders will have an even harder time climbing out of its pensions deficit as a result. The University may have to contribute even more of its surplus to the USS pensions deficit at a time when its investment returns are falling dramatically. 

It must be noted that the University and College Union (UCU) argue that there is no deficit in the USS pensions scheme. A UK working group has now been set up between UCU, UUK and USS to look at the USS valuation process though this has since been delayed by the pandemic. In a statement, a UCU Leeds spokesperson said:

“UCU have long argued that the increasing pension costs to both staff and universities are unnecessary, caused by university employers agreeing to a flawed valuation of the USS scheme scheme and low interest investments. The UCU strikes were partly to do with this. “

The greatest financial threat, however, will be the result of a decline in international students due to coronavirus. Statistics taken from the University’s 2018-19 annual report show that 43% of all tuition fees were from international students, which represents 20% of the University’s total income. A survey by the British Council in early April suggested that 26% of Chinese students, who account for nearly a quarter of all non-UK students at the University of Leeds, are planning to cancel their study abroad plans or already have done so. Whilst this survey focuses exclusively on Chinese students, its findings are undoubtedly relevant to the wider international student population. 

It was reported in The Guardian that several higher education institutions are expecting a reduction of between 80 to 100% in the number of foreign students with losses of more than £100 million as a result. If these figures were repeated at the University of Leeds, this could see the University lose at least £124.46 million in income if there was an 80% drop in international students.

Statistics taken from the Higher Education Statistics Agency show the University of Leeds has the seventh-largest intake of international students across the UK. As part of its five-year growth plan, the University has focused on increasing international admissions. In the most recent annual financial report, the figures show that this intake has more than doubled within 4 years in line with this business plan. However, with international student admissions set to plummet in the face of coronavirus, this loss of income puts the University in a precarious position. 

A University spokesperson said:

“The scale of international recruitment in the next year is not yet known. The University is putting in place steps to address the financial position – including a pause in the vast majority of staff recruitment, a pause in our capital programme and vastly reduced non-staff spending. We are now carefully assessing the financial positon before considering what further mitigation might be needed.

As a counterbalance to the widely reported uncertainty among international students considering whether to study in the UK, it’s worth noting that there has been significant growth in interest from prospective post-graduate taught students from the UK, reflecting concern about the post-pandemic graduate job market. Leeds’ overall student mix is likely to change this year and the picture for the wider UK and global sector is likely to evolve considerably over the coming months.”

Andrew Connors, the Head of Higher Education at Lloyds Banking Group, said the loss of student fee income has felt “less like a perfect storm and more like a tsunami hitting the sector”.

Connors also added that “every university we have spoken to expects to be impacted and for some the potential loss to income is projected to be greater than £100m. And that is before you factor in that losing new students has a multi-year impact.”

The University of Leeds is currently assessing its financial position in response to the effects coronavirus has had on the Higher Education sector across the country and is putting in place mitigations to minimise the financial impact as much as possible.

It seems not only international students are reconsidering studying at UK universities in the next academic year. According to a Sutton Trust survey, 19% of British applicants said they were changing their plans to study in the autumn with 4% of those definitive in deciding not to go.

If these figures were repeated at the University of Leeds, this could potentially mean nearly 1,300 undergraduate students might no longer accept their place to study this autumn resulting in an estimated £11.9 million additional loss in income.

A University spokesperson said: “Our own data suggests that deferral requests among undergraduate applicants are down on the same point last year.”

Whilst the financial implications of dwindling international students are undeniably concerning, the University also faces more immediate challenges. Reports from the BBC highlight that the University sector has already lost £790m after cancellation of accommodation, catering, business activity and conferences. These areas account for 16% of the University’s total income and with many uncertain students already opting to withdraw from University accommodation early, the immediate loss of income is a drop in the water compared with what’s to come. 

On 4th May, the government refused a multi-billion pound bailout for Universities and instead allowed academic institutions to charge full-tuition fees and £2.6 billion in tuition fees due to be received in September were brought forward.

In a statement, a UCU Leeds spokesperson said:

“Higher Education is facing the biggest crisis in its history; the tuition fee market bubble is expected to burst, leaving a £2.6bn ‘black hole’.   Some employers are lining up for a full-frontal assault on the sector, using bankruptcy and closure to make thousands of redundancies.  The fees and loans funding model is not fit for purpose; the market competition for student fees is at the root of the crisis affecting us and it will continue in future years if coronavirus impacts on student recruitment, particularly from overseas.”

Is Student dissatisfaction on the increase, fuelled by the disruption caused by coronavirus?

Growing student dissatisfaction around the quality of online teaching only exacerbates the University’s position as it responds to the coronavirus crisis. Teaching moved online in March in line with Government advice to protect student and staff health and wellbeing. At the time of writing, a petition calling for universities across the country to refund tuition fees had already reached 340,000 signatures. Whilst a refund is highly unlikely, an increase in the number of students deferring next year due to a belief that online teaching is not good value-for-money may well prove to be a reality. 

A University spokesperson said: “Our overarching priority is the safety and wellbeing of our students and staff, while protecting the integrity and quality of a Leeds education and acting in line with Government advice and legal and governance requirements. To this end, many of the steps we have introduced have been replicated across the entire sector.”

Questions have been raised over the quality of teaching since the University moved all of it online. One student claimed to have had only two lectures since February with only two lecturers offering Facetime calls. They believe they have missed 14 lectures over the last three months with ten of those being after strikes finished on 13th March.

They also added that a lecturer hasn’t been in communication with their students except one email early March. This is despite a deadline that students have been working towards since September. The student also went on to add that this particular member of staff is the student’s personal tutor. 

A University spokesperson added: “We are confident that in the unique circumstances created by the coronavirus pandemic we have made appropriate and adequate online provision. 

“For first and second year students, although the remaining two weeks of timetabled teaching were cancelled, students have access to all the materials related to their modules in Minerva, including recorded lectures, and also to the many learning resources available online through the Library. 

“Alongside this, academic support from tutors is still being provided, as is the full range of student support. For students progressing to levels two and three without the usual end of semester exams, tailored academic support will be provided at the start of the next academic year to ensure they are well placed to succeed at the next level.
“Final year students are progressing with their degrees to timetable, albeit with appropriate logistical and assurance adjustments in place to reflect these unique circumstances. More details are available on our dedicated coronavirus website.”

Online teaching at the University of Leeds is expected to continue into the autumn with social distancing rules still in place after that, according to an email sent to staff by University Secretary Roger Gair.

“We are currently planning on the basis that it will be necessary to practise some form of ‘social-distancing’ throughout the summer and autumn, and perhaps for longer still” – University Secretary Roger Gair

Do international students feel like they are getting value for money?

Value-for-money is a particularly pertinent issue for current international students paying a premium for their education. With significant disruption due to the industrial action and the pandemic, many students have expressed their concerns. Asking another international student what his thoughts on the situation were, Amir said the following:

“For me personally, the situation is terrible. I have lost all my part time jobs. I have no loans because I am not eligible as an international student. This is a policy I view to be unfair. My parents help me pay my fees but they haven’t been able to work as much because everything is closed back home. 

They haven’t earned enough to support me as they did before, especially as they have their own costs. I believe the University must reduce the fees or, at least, allow us to pay them in more than 2 instalments. The consensus amongst international students is that we want a refund.” 

The University of Newcastle announced to students it was offering financial compensation to final year students because of strikes ranging between £100 to £200 depending on the number of modules affected.

A University spokesperson said:

“Money deducted from salaries as a result of industrial action will be used for the benefit of students, with the agreement of our Leeds University Union partners. “We understand that the periods of industrial action were disruptive for students, and the University made every effort to ensure their education continued during the strikes and learning was recovered after them. We have no plans for any compensation as the recovery of learning has been the emphasis.”

Joanna, an international postgraduate studying Sustainability and Consultancy raised similar  concerns. She told The Gryphon that what drew her to study in Leeds (and justified the £18,000 per year tuition fees) was the networking opportunities. 

“Our placement is supposed to be equivalent to a master’s dissertation; it was basically sold as a ticket entry into the industry. I have had to completely give up my ambition to work in the UK”. 

With social distancing measures in place and teaching moving online, many international students will be questioning whether the money spent to study in the UK was and is worth it. 

One domestic student, due to start their masters in September, highlighted the same issues surrounding part-time jobs as raised by Amir. Part-time jobs are a crucial source of income, without which many students would not be able to go to University. Even students who rely on their families’ financial support may struggle as the economy faces its worst crisis since the Great Recession. Such a reality makes deferring studies for the upcoming year much more attractive. 

Yet for those international students who remain stranded in Leeds, their options are very limited. Either they remain in Leeds where some face the uncertainty of being unable to pay their tuition for the upcoming term. Alternatively, they can leave Leeds with an incomplete degree and no guarantee of being able to return and finish it.

How will the university adapt to its new reality for the next academic year? 

The future looks challenging for the University of Leeds, particularly when things will be unlikely to return to normal until a vaccine is rolled out. With the Financial Times reporting the headline “the Universities’ plea has fallen on deaf ears”, hope for a bailout from the government was dwindling as the Treasury seemed reluctant to favour the education industry over other struggling sectors. This was confirmed in May when the government refused a bailout to the Higher Education sector.

Students can also still be charged the full £9250 a year even as campuses remain closed, face-to-face classes are cancelled, and students are unable to access important resources such as library study spaces, books not currently available online, and research laboratories. 

Michelle Donelan, the Universities minister, said 

“We have already seen over the last few months courses being delivered online and virtually to an amazing degree of quality and I know the efforts made across the sector to facilitate that”

“We’ve always said that we don’t believe students would be entitled to reimbursement for tuition fees if the quality is there.”

However £2.6 billion in tuition fees will be brought forward from September as well as £100 million in research funding. Nevertheless this will mean Universities will receive less funding at the end of the year as a result when restrictions due to coronavirus could still be in place.

Donelan acknowledged that further support may be needed and the government will continue to review universities’ financial circumstances.

Additionally, the University of Leeds will be unable to significantly increase the number of British and EU students enrolled at the University in an attempt to compensate for reduced international fee income. According to The Guardian, strict limits are due to be imposed on Universities in a step to avoid a “free-for-all” in admissions.

The University of Leeds will only be able to accept up to 5% more British and EU undergraduate places than the number it had forecast to the Office for Students as a result.

A significant reduction in intake could see the University opt for lay-offs to reduce the massive staff wage budget of £412m. Furthermore, pension contributions have increased significantly following the 2017 and 2018 actuarial valuations from the USS. 

This is already being seen at other Universities across the country. The Guardian reported that staff on precarious contracts at Bristol and Newcastle University have already been issued redundancy notices, while the University of Sussex is preparing to terminate the contracts of any “non-essential” staff “as soon as possible”. Whilst no official statement has been made by the University of Leeds, it may be forced to do the same. 

It must be noted that a University of Leeds’ employment policy says that staff with more than 3 years service will normally no longer be fixed term on the next renewal of their contract.  This policy ensures job security for long-serving staff at the University and the policy was agreed between both the University and campus trade unions.

A UCU Leeds Spokesperson said:

“We are particularly concerned about precariously employed staff, who include many students who need the income from university work in order to continue their degrees.  So far the unions have not been consulted on plans, merely informed but we hope that will change so that we can ensure workable future arrangements and a safe return to campus.”

Furthermore, with statements from both the Universities of Cambridge and Manchester stating online teaching will remain for the best part of the 2021 academic year, some students may opt to defer the year as to avoid online teaching or a reduced educational experience with social distancing restrictions potentially still in place for halls of residence, Freshers’ week and nights out. 

Whilst the University holds substantial reserves (£680m), that does not guarantee its financial stability. Most of these reserves are illiquid – tied up in fixed assets like property. The ratio of fixed assets to current assets does not bode well. The University holds £174m in net current assets according to their 2018-19 Annual Report. By comparison, the fixed assets the University holds total £950m. Though the Roger Stevens building may be an architectural icon, it is unlikely that we will see any ‘FOR SALE’ signs any time soon and there are currently no plans to mortgage property. 

A University spokesperson said: “The University has cash and investments of £307 million that it could access relatively quickly, although it is required to have £150m of cash available to it at all times to meet short term liabilities. 

“The current level of cash gives us a little time to plan how we address the immediate challenges ahead. As already pointed out, we are currently taking action and developing further mitigation plans to ensure financial sustainability.”

However it is not known if these assets could be freed at the pace needed to offset any immediate financial impact from coronavirus. 

Additionally, even with this ability to free up more assets, with expected losses in both international and UK student fee income as well as reduced commercial business on campus, the upcoming academic year will not be easy. A UCU spokesperson said:

“We are keen to work in partnership with University management, and we believe the campus trade unions should be involved in the decision making that’s going on in the university about planning for the next academic year and about making any return to campus safe.  We also believe the University should share University and local financial information with the trade unions in good faith (including current and future investments, planning on capital expenditure, and restrictions on reserves) and to liaise on using those finances to best effect including avoiding job losses.

Are there fundamental issues at the heart of the British Higher Education sector?

The coronavirus pandemic has uncovered fundamental issues within British University business models. Securing lucrative international tuition has been Universities’ priority across the sector. International students can have tuition fees of up to nearly £59,000 a year compared to £9250 for Home and EU students. However, the current crisis highlights the fragility of this plan and casts doubt on the sustainability of the sector if changes aren’t made.  

The same institutional faults have been laid bare in Australia. As the academic year in Australia begins in late February, the pandemic could not have come at a worse possible time.  It is predicted that the reduction in educational exports (fees from international students) in Australia will cost the sector A$2.81bn. 

With the value of educational exports being similar between the UK and Australia, and the uncertainty of how long the pandemic will persist remaining high, the losses seen in Australia could be tale-telling signs for British universities, whose hands remain bound. 

A UCU Leeds spokesperson said: 

“Education will be vital to the reconstruction of the post-coronavirus world. The government needs to underwrite the costs of maintaining and expanding post-16 education in the aftermath of the COVID-19 crisis.  UCU argues for a different model of further and higher education which places knowledge, research, planning and collaboration at its centre instead of the market and competition.”

Whilst it is easy to lay blame with the clarity of hindsight, the University should not be too harshly criticised for its failure to prepare for such an unprecedented challenge. After all, governments all over the world chose to ignore the warning signs illuminated by Bill Gates six years ago and the World Health Organisation. In the UK, a pandemic has been classed as the number one threat to public health for over two years and a “level 5” threat for the past 13.

The failure is not in the University’s lack of preparation for a crisis like this as these are certainly unprecedented times. However some fear that it will be academic staff that will be expected to bear the brunt of managing the crisis day-to-day. Some argue that strike action was needed in the first place to highlight the human cost of a surplus-driven University system as staff contend that they face ever-increasing workloads. 

A University spokesperson added: “While we didn’t have a specific plan for a worldwide pandemic – no doubt in common with the vast majority if not all universities worldwide – prudent financial management means we have a strong balance sheet and are well placed to manage our way through the challenges ahead. The University is responding swiftly, decisively and carefully”

On 20th May, Professor Tom Ward, the Deputy Vice-Chancellor for Student Education, outlined how staff would be able to better adjust to an online mode of teaching and access support

For students, they continue to pay full tuition fees for what some call “an unsatisfactory service” as teaching moves online. One student argued getting a degree “seems to have become more about earning a piece of paper than actually learning in recent weeks” and argued Universities have become degree mills over the past decade. 

Another student told The Gryphon:

“This means students are left with a product that is not worth what it was 10 years ago. Yet at the same time, costs are three times as much. Something has to change.”

Written by Alex Storey and Sam Boshoff.

All images credited to George Stamets. See more of his photos on FlickrInstagram or website.