In my last email I promised to update you on our financial position. You have responded magnificently to the huge challenges posed by Covid-19 thus far, and so while we do face some challenges in the current financial year (which ends in July), they appear to be manageable. The real issues that face us are in the next financial (and academic) year 2020/21.
The Office for Budgetary Responsibility (OBR) has concluded that the Covid-19 pandemic will affect education most seriously of all sectors, with a drop of 90% in its value-added contribution to the economy. The London Economics report that was commissioned and recently published by the Universities and Colleges Union (UCU) sets out the stark realities. For Wales, the report calculates that in the next academic year, Wales’s eight universities together may lose 13,250 students, of whom more than half would be international. This translates into a combined loss in income of £98m, although this refers only to fee income from new starters. The report suggests that universities of our size and breadth of activity could see a 24% reduction in first year student enrolments. In addition, we would forgo income from residences and catering and we should also expect a reduction in returning and post-graduate student income. Unfortunately, this means that even the average figure given in the report of a loss of £37m is likely to be a significant understatement.
Working with the Russell Group, earlier this month Universities UK (UUK) submitted proposals on behalf of the sector to the Westminster government for financial support to enable institutions to play their full part in supporting the social and economic recovery of the country from the pandemic. UUK pointed to the prospect of substantial reductions in non-UK student enrolments, which currently bring in annual fees of £6.9bn, significant levels of deferral by potential UK students and a major decline in what is currently £790m income nationally from accommodation, catering and conferences. These are not effects that can be offset by generally available government programmes like the Job Retention Scheme and the Corporate Finance Facility, and so UUK has asked for substantial extra funding for one year to get us through this difficult period. In addition, UUK/MillionPlus have just put in a proposal to DfE/DHSC looking at how universities and government can work together to boost educational capacity and retention of key workers.
For every university, impacts will vary, and we are building our own models of how Cardiff might be affected. While calculations of this type depend on the assumptions that underlie it, any reasonable set of assumptions gives little hope that the outcome will be anything but extremely challenging. Our modelling assumes different behaviour on the part of new starters versus returning students, and in some scenarios assumes that by the beginning of the new academic year we will be able to accommodate limited numbers of students and staff on campus whilst observing strict hygiene and social distancing protocols, but with most teaching continuing to be delivered remotely. It may be possible to open the campus in a more limited way early in the summer to allow researchers access to labs and other facilities, but there can be no guarantees at this stage.
While these scenarios vary in the optimism of their assumptions, they are all credible based on what we know at this stage. Unfortunately, even the best of them show deficits next year of more than £50m if we take no action. While there are many unknown variables, a realistic view would see us losing around 20% of our income or £110m. Even if the government funding called for by UUK and the Russell Group were to be forthcoming, any benefit to Cardiff would at most halve that deficit, which would still leave us in an unsustainable position.
We are in a good position compared to many universities because we have managed our finances prudently over the years and the steps we took collectively through Transforming Cardiff have been of enormous help. But even we might face cash-flow issues in the next academic year if the more pessimistic scenarios come to pass. For this reason, we are working closely with the campus unions to address the challenges we face. It is important to have those discussions from the start rather than waiting until we are facing a financial crisis.
Rest assured that I have been in frequent communication with Welsh government ministers and their advisers. They are supportive and sympathetic, but they too face severe financial constraints. If we face substantial losses Welsh government will not be able to offer significant mitigation unless the Treasury grants the funding requested by UUK.
There are still many unknowns. We don’t yet know when the lockdown will be relaxed and by how much, what measures will continue in place to control the spread of the virus or how they will affect educational settings. The good thing is that we are taking part in discussions with government on how to re-open universities safely, but there are other variables such as restrictions on travel that we will have little or no influence on. So, while we must not take any hasty decisions, equally we must not delay taking action when circumstances warrant it.
We need to see how things proceed in the coming weeks and months, but we are sufficiently sure that we will be facing a serious drop in revenue that we have already put a number of measures in place to help protect our current staff, including:
- Suspending any new capital expenditure on building or equipment
- A freeze on all recruitment except for critical roles, which will need to be signed off by me
- Reviewing our reward and recognition arrangements to contain costs
- Identifying roles for furloughing
- Reviewing and changing the way we deliver and assess many of our courses
- Voluntary salary reductions by members of UEB.
On the latter point, I can announce that I have asked for my salary to be reduced by 20%, and other members of UEB have agreed to reduce their salary by 10%. The proceeds from these measures (which will be in place for a four-month period in the first instance) will go towards a hardship fund for students and staff affected by Covid-19.
I am sorry to have to write to you in such pessimistic terms, but it is important that we are realistic about this crisis, how long it is likely to last and what we must do to weather the storm. Clearly, we will need to revise our strategy, The Way Forward 2018-23, to emphasise new priorities, foremost amongst them being to protect the health and wellbeing of our students and staff. Interdependent with that priority is financial sustainability; we need to manage our cash prudently so that we can emerge strongly and play our role in the recovery period. Student satisfaction, research activity and civic mission — especially our contribution to handling the present crisis — will be crucial. If we work together, focus on what’s important and remain agile and adaptable, we will come through this crisis successfully, just as the University has on many occasions in the past.
With best wishes