As we near the end of our financial year, I wanted to update you on the financial challenges facing our sector, and our own financial position. The College is financially strong, but the environment for higher education institutions is challenging, and factors, many of which are beyond our control, mean those challenges are likely to increase.
In the last HEFCE report on the financial health of the English sector, 24 higher education institutions were highlighted as having recorded financial deficits in 2016/17, compared to 11 the year before. Operating in Higher Education is harder now than ever before.
In 2016/17, Royal Holloway recorded an operating surplus of £5.6m. We achieved this by increasing our income and spending within budget. Achieving a surplus is a necessity as it gives us the capacity to invest in academic research, excellent teaching and the distinctive student experience we offer.
I am asked: ‘Why do we need to increase our student numbers?’ Although we are a medium-sized university, our core services are similar to larger, and even smaller institutions. To achieve the economies of scale we need, to meet our baseline costs and create an investment surplus, we must increase our income. With 60% of our income coming from student fees, the way we increase our income is to grow our student numbers. Most institutions are in the same position, and we’re trying to grow in a climate where the number of 18 year olds is falling, and will continue to do so until 2020.
Adding to the challenge is that the fees undergraduate students pay, £9,250, is fixed by the Government. We can’t increase it and its value, in real terms has fallen by about 12.5% from when the £9,000 fee was first introduced in 2012/13. We can control the fee we charge to international students, but that is finely tuned so that we remain competitive.
Commercial activity accounts for about 20% of our income, but it is a price-sensitive mark and we need to remain attractive and competitive. Our income challenges sit within the context of rising costs, in particular, staff costs are 56.9% of total operating costs compared to 55.3% a year ago.
Over the coming academic year we, together with most other universities, will need to be prudent, managing the costs we can control, and carefully navigating what we cannot. In doing so, we can create the capacity to continue to invest in developing our College and meet the modern needs of the people who study, live and work here.
Chief Financial Officer