Monday, 20 February 2012

The outriders of the AAB apocalypse

A while back I posted about the UCAS data, identifying the four institutions I consider most at risk from core/margin. They are Surrey, City, Goldsmiths and Aston, institutions which I offended one reader by describing as 'surprisingly posh', although I meant by that only that they are a lot further up the league tables than London Metropolitan. Since then, there has been further confirmation in the press that institutions have over-recruited by a very serious margin in 2011/12. This will cost BIS a lot of money, and make the prospect of moving the AAB boundary even less inviting (it is also, incidentally, a truly shocking example of the challenged competence of certain HE managers. The London Met staff posting on that THE story have, in my view, every right to be angry with senior managers who have let them down badly by managing their admissions so poorly. We have had years to get used to the Student Number Control now). So there is the possibility that the AAB boundary will stay at AAB for many years. What kind of impact would that have on these four outriders of the apocalypse?

Let's assume that the AAB boundary stays where it is for the next three years, and that the institutions at risk can't turn around their loss of applications in the current year. These strike me as rather pessimistic assumptions. I've modelled three scenarios, one in which the institutions lose AABs in proportion to their overall loss of applications, one in which they lose AABs at twice this rate, and one in which they lose all their AABs. This last option is pretty implausible on its face, but something similar could arise if they lose most of the AABs, and also lose further sub-AAB numbers to further rounds of core/margin cuts. In summary, the numbers look like this:

Table 1 Turnover (10/11) Surplus (10/11) Scenario 1 Projected Surplus (14/15) Scenario 2 Projected Surplus (14/15) Scenario 3 Projected Surplus (14/15)
Aston University 112,248 -94 -3,271 -6,447 -15,590
University of Surrey 211,591 10,793 7,678 4,563 -3,695
City University, London 183,618 -5,979 -8,180 -10,380 -16,167
Goldsmiths' College 81,324 1,959 517 -925 -4,310

2010/11 was an unusually good year, and 11/12 will be worse for most institutions because of the round of HEFCE cuts implemented, so my three scenarios may be a little rosy on that account. On the other hand I should note that City's 10/11 financial data include a large restructuring cost associated with over 100 redundancies, so projecting forwards the numbers might be £6 million better than shown here if those costs were stripped out. And I should also note that the VC at Surrey claims that the loss of applications has been from sub-AABs, not AAB+. If we accept this basis, none of the institutions are seriously financially threatened by scenario 1 and even scenario 3, although painful for all of them, is leading to losses well below 10% of turnover for all except Aston.

Other than Surrey, all these institutions have quite high proportions of staff costs currently.

Table 2 % Staff Costs (10/11) Scenario 1 % reduction in non-staff costs Scenario 2 % reduction in non-staff costs Scenario 3 % reduction in non-staff costs
Aston University 57.70% 16% 20% 35%
University of Surrey 49.90% 10% 11% 16%
City University, London 61.30% 15% 17% 23%
Goldsmiths' College 62.30% 17% 20% 29%

To calculate the % reduction required in non-staff costs for each scenario, I've assumed 2% year-on-year growth in staff costs (the effect of modest pay rises and incremental drift). Clearly 20% reductions in non-staff costs are unlikely to be achievable in institutions that already have over 60% of their costs tied up in staff. This means that the adjustments implied by Table 1, although pretty clearly achievable, could not be achieved without job losses.

Job losses, for better or worse, are hardly a new phenomenon in the sector.

If these institutions are the outriders of the AAB apocalypse, then I think it is clear that this will be a slow-motion apocalypse. It is surely unlikely, on these data, that any institution will go bust in this Parliament but life could get very unpleasant in one or more. I should also re-iterate a point I have made previously. We do not know what will happen in Clearing and institutions like Leeds Metropolitan, doing adequately in the January data, might still have a bad experience in Clearing if Clearing applicants decide that £8,810 is too much to pay for their second-choice university.

So what we can expect in the near term, even if the AAB boundary doesn't move, is perhaps a major impact on particular departments or subject areas in certain universities, but not a life-threatening impact on any whole university.

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