UK universities spend more than £200 million on severance pay

UK universities’ annual spending on severance payments has skyrocketed past £200 million, with more than 10,000 staff losing their jobs last year.

Dozens of higher education institutions have announced redundancies and cost-cutting plans in recent months, with one vice-chancellor predicting that 10,000 jobs will be lost across the sector during the current academic year – but Times Higher Education’s analysis reveals that this grim milestone was already surpassed, comfortably so, during 2023-24.

Across 103 universities to have posted financial accounts so far this year with relevant figures, £210 million was spent on compensation for loss of office last year. This was a 67 per cent increase on the £126 million figure for the same institutions in 2022-23.

The severance payments, which do not reflect the whole of the sector, affected about 10,300 employees – up from 7,300 the year before, and an average of 100 per institution.

The figures underline the financial pressures facing UK universities battling rising costs, a volatile international recruitment landscape, and a dog-eat-dog domestic market – but are also likely to raise questions about whether the money could have been better spent keeping academics and higher education professionals in their jobs.

The data clearly demonstrates that universities are focused on “substantial cost reduction”, Phil McNaull, a former finance director at the University of Edinburgh, said.

This could have been caused by a rapid drop in demand from international students, or some “overdue culling” of loss-making courses that were suddenly seen as no longer sustainable, said McNaull, now a strategic finance consultant.

“The universities should have calculated that a one-off hit last year to buy out staff contracts will result in a sustainable, recurring saving in future annual staff costs. The result should be a more sustainable cost base to serve changing income streams,” he said.

The biggest compensation packages among this group were at the University of Nottingham (£13.8 million to 408 employees), the University of Central Lancashire (£10.5 million to 264 employees) and Leeds Beckett University (£10.3 million to 279 employees).

McNaull said the data suggested that universities were taking the hard decisions to reduce staff numbers in the face of a “perfect storm” of fast-rising cost increases.

However, he added: “If one was being critical, it could represent the unavoidable action to survive now having procrastinated in similar decisions over the years.”

Russell Group universities were responsible for a third (£70 million) of the total severance spend, and around half of the impacted employees.

Martine Garland, formerly a lecturer in marketing at Aberystwyth Business School, said the sector was “clearly troubled” in 2023-24, but the amount paid out the year before did not paint a good picture either.

Garland said institutions would not feel the benefit of removing a staff member from the salary bill until the value of the severance pay has worked its course.

“Giving someone six months’ severance pay in January means you won’t see a saving until July. So possibly the 2022-23 cuts were not deep enough to stave off the need for more in 2023-24.”

THE’s analysis found that the average compensation awarded to employees let go from Russell Group institutions was much lower than that in the rest of the sector.

“What this says to me is that, with the exception of Nottingham, the Russell Group have been shedding lower-paid facilities and support staff whereas the others have been cutting from much higher pay grades,” said Garland.

“It would suggest the ones with the bigger payouts are in more trouble and thus cutting at the core of their operations.”

The £13.8 million spent by Nottingham was up from £1.4 million across 126 employees the year before. “Steps have been taken to manage the cost base in year and a voluntary severance scheme was concluded which will improve our ongoing operational efficiency,” it said in its accounts.

Compensation at Leeds Beckett rose from £1.7 million to £10.3 million over the same period. It said its voluntary severance scheme was opened to respond to future financial challenges.

“The university took decisive action across all costs to ensure that we exited the year with a sustainable cost base,” it added.

Other institutions with large severance payments for 2023-24 include the universities of Exeter (£8.8 million), Swansea (£8.5 million) and Surrey (£6.7 million).

patrick.jack@timeshighereducation.com