In previous emails and videos I have explained that we are in the unfortunate position of having to plan for a large budget deficit in the academic and financial year 2020-21, which begins on 1 August. I want to tell you more about that, what the assumptions are that underlie the thinking and what we are doing about it.
Given the level of uncertainty, we are planning on what we regard as a realistic assumption that rather than rising moderately, as originally anticipated before the pandemic, our income may fall by £168m. The fall may not be so severe of course, but it is not impossible that it could be worse. As I have said before, we have to take measures to save 10% of anticipated operating expenditure next year, and if we are successful in doing so, plus increasing income in some areas to offset losses in others (notably tuition fee revenue), we are forecasting an operating deficit of some £102m. This would still require us to spend around £50m of reserves and it assumes that we will receive at least some extra help in the form of grants from government sources, but none of this will be enough to return us to a break-even position.
Other measures we have already introduced, alongside a voluntary monthly salary reduction for me of 20% and for all other UEB members of 10%, include a recruitment freeze for all but the most essential, business-critical posts. I personally sign off any request to recruit, and so far have had cause to do so on very few occasions. Any appointment must be made internally, and only if that proves impossible, because for example specialist skills are required, will I consider permitting external recruitment. Non-pay expenditure will be restricted to essential spend only.
In addition to reducing our operating deficit we have also paused capital projects to which we are not yet committed. No new business cases for capital expenditure are being developed. There are five construction projects where we will complete contractual commitments because there are no savings to be made by not doing so. If we did not take the above actions, we would see our cash reserves dwindling by more than £250m by the end of the next academic year in July 2021.
Staff costs under review include our reward and recognition schemes such as the Senior Salary Review and Outstanding Contribution Award Scheme, which are unlikely to take place this year. We are finalising our application to the government furlough scheme and will consider applying for loan schemes made available by the government too. On the plus side, we will be able to admit up to 6.5% more undergraduate students from England compared with the new intake last year (the challenge here will be to recruit them), and we await information on whether there will be controls on the numbers of students from Wales we can recruit.
On research, while UUK and the Russell Group’s request to the UK government for support to preserve the research base from damage initially fell on deaf ears, a UK-level Taskforce on Research Sustainability has been set up and discussions continue. I am mildly optimistic that there may be a positive result from that, but it is very uncertain and we cannot include any assumptions about government help in our budgeting at this stage.
Even all these measures that we have already taken do not go far enough. We still need to identify a further £50m worth of savings for next year. The principle we are adopting at this stage is that we need to conserve cash and preserve jobs. It is too soon to be making irrevocable decisions on staffing numbers, and we are conducting intensive discussions with the campus unions on how to go about preserving jobs as far as we possibly can. Once we know our student recruitment figures, or at least have a much better idea of the likely result, we will have a better basis on which to make decisions. At this stage we must consider all options for reducing staff costs whilst also recognising the need to reduce workload, especially academic workload, by reducing numbers of modules on programmes, and making assessment both more efficient and more effective wherever we can. We must also reduce or omit non-essential processes and activity. We will all need to work more flexibly and prioritise delivering the best education and student experience we can to as many students as possible in the coming year. While it is important to keep applying for grants where possible, we must focus on externally funded research and work that is vital for REF during this period. Please be assured that promotions and PDR processes will take account of the exceptional conditions we are facing and the need to focus on delivering the high-quality educational and student experience I mentioned a moment ago.
We are talking to the campus unions about voluntary reductions in salary or a collective agreement to reduce salary levels on a temporary basis. Unfortunately the alternative to this may be even more unpalatable and so it is important that we consider all possibilities. We have already indicated to UCEA that we will not be able to support a nationally agreed pay award this August.
However unwelcome any cost-saving measures may be, we must deal with the reality that faces us. Even though we have budgeted prudently over the years and have a good level of reserves, our monthly salary bill comes to more than £28m and we must manage our expenditure carefully to get us through this difficult period so that we can emerge strongly and be well placed as the recovery begins. We cannot leave all this until later in the year. It is essential that we identify £50m of additional savings now so that we can present Council with a budget for next year. Because there are so many moving parts in all this, we will be reviewing the position on a monthly basis and if things turn out not to be as bad as anticipated we will be able to make adjustments accordingly. It is entirely possible that they may be worse, however, and so we need to plan now, and take action now. We have organised an all-staff webinar to bring you up to date with our progress and answer your questions on 11 June at 2pm – all staff will receive an outlook calendar meeting request shortly with details on how to join us.
I am very sorry to be coming to you with such depressing news again. As I said in my last email, we are working hard on introducing a phased safe opening of the campus for research followed by a fuller opening for taught students in September. The more successful we are in opening the campus while keeping risk at an acceptable level, the better our position will be. There are many factors outside our control, however, which is why we must be realistic in our planning. We do have advantages: we have worked together superbly to manage the crisis so far, Cardiff is an attractive city where it is not necessary to use public transport to get into the University, and we have an outstanding range of expertise in house. Wales is not densely populated and the Welsh government has handled the pandemic with a commendable degree of caution. The months and years ahead will be difficult, but we have shown that we can manage difficulty well and will do so again.
With best wishes