Wealthy few hide colleges' distress

The financial fortunes of English higher education institutions are highly polarised with 43 operating at a deficit while just three hold a quarter of the sector's operating surplus and eight hold half of it.

Latest figures from the Higher Education Funding Council for England show that a handful of institutions are causing the council serious worry.

The figures also show 106 institutions, or three-quarters, did not generate the annual 3 per cent operating surplus in 1996-97 that the council recommends. The shortfall is the more serious because HEFCE believes a 3 per cent surplus may no longer be enough.

It is reviewing the target figure in the light of changes to capital funding over the past few years, which mean the council no longer provides money for capital projects separately. The review is not yet complete but it is likely to add 1 or 2 per cent to the target figure.

Ian Lewis, HEFCE's director of finance, said: "When we looked at institutions' forecasts last summer, the level of operating surplus wasn't as high as we thought it ought to have been in terms of the need to reinvest in estates and equipment. There is a need for institutions to decide how they can generate either additional income or reduce their costs."

In 1996-97, the surplus across the sector was Pounds 140 million, compared with Pounds 109 million in 1995-96. But HEFCE says changes in 1996-97 in the way that formula capital funding was treated may have increased the figure by up to Pounds 50 million. This would mean the underlying surplus last year was slightly below the level achieved in 1995-96, representing only 1 per cent of total income or Pounds 183 million less than the 3 per cent target.

At July 31 last year, only 42 universities and colleges had net cash balances that would cover 30 days or more of expenditure. The average across the sector fell to 19 days, from 24 the previous year and 28 in 1995.

The position is slightly better than forecast last autumn, when institutions were warning of an overall shortfall of some Pounds 235 million, rising to Pounds 336 million by 2001. But in an overall budget of Pounds 9 billion this improvement is minimal.