Hallam protects bank agreements against ‘financial deterioration’

A major English university has drawn up plans to avert the risk of breaching its agreements with banks, as a crisis in higher education funding continues to take hold.

Sheffield Hallam University said shortly before Christmas that it was opening a voluntary severance scheme to all 1,700 of its academic staff to address “financial challenges due to a combination of increasing costs associated with inflation, rising pension costs, and a flat undergraduate fee”. That was one of the most severe responses yet to sector-wide funding problems that combine an ongoing freeze in the English fee cap at £9,250 with the first signs of a fall in overseas recruitment, which universities have relied on to compensate for real-terms cuts in domestic teaching funding.

Now Sheffield Hallam – England’s fourth biggest recruiter of home students, with nearly 30,000 – has published its financial statements for 2022-23. The university recorded a deficit of £4.7 million, down from a £15.1 million deficit the previous year. However, with pension adjustments excluded, the university’s underlying operational deficit was £1.1 million, compared with a £5.6 million surplus the previous year.

Sheffield Hallam’s financial statements also say that “the university has drawn up mitigating actions to ensure that there are no covenant breaches”.

Covenants with bank lenders require institutions to maintain certain levels of financial performance. A risk of covenant breaches could leave the governing body of an institution unable to class it in accounts as a “going concern”, able to meet its financial obligations for the next 12 months.

Coventry University’s latest financial statements had also noted “covenant forecasts which indicate the risk of breaching one of the debt covenants in relation to the group’s borrowings” – although the governors did not think the uncertainty cast doubt on the institution’s ability to continue as a going concern.

Sheffield Hallam’s financial statements say: “The university has completed its first quarterly performance review for 2023-24, which confirms a £3.6 million shortfall against the budgeted £5.0 million operating deficit and £0.6 million debt servicing covenant headroom.”

And they add: “The university has identified and quantified a series of mitigating actions that could be put into place to ensure financial covenant compliance in the event of further financial deterioration. They include delaying revenue investment and reducing non-essential spend in the short term, while wider efficiency to secure the university’s financial sustainability is put in place.”

It is thought that such mitigating actions would include measures such as extending staff recruitment pauses.

With those plans and “strong cash balances” taken into account, the financial statements say the university’s board of governors “consider that the university can comply with all its financial covenants”, and the accounts were signed off on a going concern basis.

John Rushforth, executive secretary of the Committee of University Chairs, which represents heads of UK governing bodies, told Times Higher Education last month that in the context of a sector-wide funding squeeze on multiple fronts, “these discussions are already happening” among governing bodies, “with people talking to their auditors about whether they [the university] are a going concern”.

The Sheffield Hallam and Coventry financial statements indicate that the funding climate is making some university governing bodies increasingly nervous about future financial risks and about their judgements in signing off accounts on a going concern basis.

Sheffield Hallam’s University and College Union branch has also highlighted the university’s decisions to spend on new buildings in Sheffield city centre and on opening a London campus.

A Sheffield Hallam UCU branch spokesperson said university management “have made choices that have significantly exacerbated the financial difficulties the university now faces, including financially overcommitting itself and substantially increasing its borrowing by an additional £20 million. Management have made a choice to prioritise capital projects – vanity projects – over what really counts: staff and students.”

In a statement published on 10 January, Sheffield Hallam offered further detail on its savings plans.

David Shepherd, deputy vice-chancellor (academic), said of the voluntary severance scheme: “Overall, we anticipate the need to reduce our 1,700 academic staff by around 5 per cent through this process, although precise numbers may change following the consultation period.”

He added: “We have also implemented measures to reduce costs in non-academic areas, such as reductions to operating budgets and a pause on recruitment to vacant posts. We will continue to seek opportunities for further efficiencies, wherever these are consistent with our overall strategy and our commitment to our students.”

But the university remains “committed to our longer-term plans to grow and diversify our income, and to build a more efficient and sustainable estate”, including London and Sheffield city centre campus plans, he continued.

john.morgan@timeshighereducation.com