Deficit-hit Goldsmiths ‘at sharp end of financialisation of HE’

Although pandemic-era turbulence in English higher education has not been on the widespread scale once feared, jolts are sharp at Goldsmiths, University of London. The arts, humanities and social sciences institution, located in south-east London, returned a £12 million underlying deficit in 2019-20, wrestled down to a £6.5 million deficit last year after a voluntary severance scheme, recently published accounts show.

Amid an ongoing “recovery programme” to address what the college terms its “unsustainable finances”, there is acrimony over further planned job cuts. What are the roots of Goldsmiths’ problems?

Goldsmiths was in deficit, narrowly, as far back as 2017-18, with annual reports pinpointing the growth of staff costs to match expanding student numbers. The current picture, said a college spokesperson, involves dealing with the underlying deficit, “over £10 million of additional costs and lost income due to Covid-19” (the 2020-21 accounts refer to a £4.6 million loss in overseas student income), “government cuts that will see the college lose over £2 million in funding every year, and a decline in the overall number of students studying some subjects”.

THE Campus resource: How to use journalism and current affairs to support your teaching

The losses in public funding come via the government’s decision to end London weighting, which recognised institutions’ higher operating costs in the capital, and to halve grant funding for high-cost arts and humanities subjects.

But critics of Goldsmiths’ leadership, under warden Frances Corner, also point to the decision to sign up to “punitive” new financial covenants with the college’s banks – arguing that senior management panicked in the depths of the pandemic, seeking new credit in fear of worst-case scenarios that never materialised.

Last year, the college agreed a deal with Lloyds and NatWest “to amend the terms” of existing loan facilities totalling £12.5 million, while gaining access to two new short-term credit facilities of £5 million and £7 million, the accounts show. The agreement involved “revision to the financial covenants” – commitments that borrowers will operate within rules set by the lender.

As it turned out, the college did not make use of the first short-term credit facility (the second runs for six weeks up to 26 May 2022).

The Goldsmiths University and College Union branch says its call for senior management to release the full terms of the new covenants with the banks has been refused. But according to those in the union with some knowledge of the agreement, the college has moved from having covenants based on staying within certain a debt-to-assets ratio, to those involving cash levels and EBITDA (earnings before interest, taxes, depreciation and amortisation), a measure of financial performance.

The UCU argues that the new covenants in effect require the college to rapidly move to permanent surplus – and that because cost-cutting measures such as selling off buildings cannot help the college meet the EBITDA covenant, they make major job losses inevitable.

Plans for 52 redundancies across professional services, English and creative writing, and history were the subject of a three-week UCU strike which ended last month. The college’s spokesperson said the recovery plan includes “reducing capital costs and selling buildings which are not major teaching spaces…with redundancies always our last resort”.

“I think this really is the sharp end of the financialisation of higher education,” said Tara Povey, co-president of the UCU branch. “The government is obviously hostile to the kind of social sciences and arts and humanities [subjects] that Goldsmiths offers.

“But I think…Goldsmiths senior management have sought to deal with that by involving the banks on an unprecedented level in making decisions about the college and bypassing all of the usual staff and student organisations that would be involved in those conversations.”

Financial experts consulted by the UCU characterise the agreement between Goldsmiths and the banks as “one of the crappiest bank deals you could have got”, said one academic.

While institutions such as UCL and the universities of Cambridge, Manchester and Oxford can borrow via big public bonds at cheap rates, for institutions lower down the ladder of income and perceived prestige, bank loans remain the source of lending.

One corporate expert on sector finances said that with the tuition fee cap flat since 2017 and Covid uncertainty, “banks have been very much aware of this declining credit environment [in higher education], so they have generally changed the covenants they require for lending”. Even pre-pandemic, there had been a shift to covenants focused on EBITDA, standard in other sectors, as the consumerisation of higher education made universities appear “more corporate” to banks, he added.

The situation at Goldsmiths again highlights how a higher education market can bring institutional instability, and how any wider moves towards new banking covenants in the sector, if perceived as more restrictive on the financial flexibility of universities, could accentuate existing concern about the reduced role of academics in governance and decision-making.

Bob Rabone, a former chair of the British Universities Finance Directors’ Group, said it was not unusual for universities to renegotiate covenants with banks as they pursued aims such as reducing the cost of borrowing “by restructuring the facilities”.

But with non-disclosure of such covenants “normal practice” for commercial confidentiality reasons, that brings “the potential for misunderstanding and speculation about what the financial covenants are”, he added.

john.morgan@timeshighereducation.com