Deputy Vice-Chancellor Professor Andy Long and Chief Financial Officer Margaret Monckton update colleagues on plans to address the significant financial impacts of the coronavirus over the short- and longer-term.

We hope you are all safe, well and continuing to manage the national restrictions that we all face in these extraordinary times. This is the second in our series of joint blogs on an issue we think is vital to be open and frank with our University community: how coronavirus will affect our University finances and how, while we do not have all the answers yet, we are responding to them.

As we set out in our initial blog in April, the coronavirus and lockdown presents us with two financial problems that we need to tackle simultaneously. We have an immediate cash flow problem between what we will need to spend on staff, students and research this term and what we intended to earn, with a projected loss of £60 million over the next four months.

We then have an even greater challenge to reset our financial plans for the new academic year to weather, and then recover quickly from, a reduction in our annual turnover of up to 20%. Alongside every sector in the country, we will have to scale back big spending plans, increase efficiency and cost-effectiveness, and innovate in finding new ways of increasing our income to spend on our staff, our students and our research.

Protecting short-term cash flow
In helping to manage our short-term cash flow issues, we would like to thank all colleagues for using the emergency spending controls. Together we have significantly reduced invoices, payment and recruitment requests, ensuring we can manage our cash flow across the term to protect staff salaries, online teaching and critical research. While a time will come when we can reduce our reliance on such spending controls, for now we ask everyone to remain committed to their use.

Managers are also protecting jobs and cash flow by working with HR Business Partners to identify staff who may be eligible for furlough under the Government’s Coronavirus Job Retention Scheme, where work cannot be delivered from home or where staff have significant caring or shielding responsibilities, which we understand must take priority. We are working closely with our trades unions to ensure that managers continue close support for the wellbeing of any furloughed staff and that furlough is without prejudice to any future workplace decisions.

Announced on Monday, the government financial support package for higher education also helps, but by no means solves, our immediate cash flow issues. This autumn, all universities will be able to recruit up to 5% more home undergraduate students on top of their forecasts, receive fee payments from the Student Loan Company earlier than planned, and have a share of £100 million public research funding brought forward from 2020/21.

We are confident that with your continued support for our own savings measures coupled with the government measures, the University can manage the immediate issue of our cash flow across the summer. However, while welcome, the government package is significantly less than the sector’s requirements as estimated by Universities UK. The government funding is not “new” but a down payment from next year’s planned budgets that does not offset the pressure on research funding in particular.  For example, Nottingham’s share of the £100 million early allocation of research funding will be around £3.4 million whereas, prior to the global shutdown, international student fees contributed £40 million to the annual research budget.

Financial recovery for the long-term
The government’s approach provides further indication that universities, alongside organisations up and down the country, will be expected to resolve for themselves many of the severest financial challenges we will face. Analysis by the Office for Budget Responsibility, comparisons with the Russell Group and independent surveys of international student intention all indicate the same thing. The impact of the global shutdown and travel restrictions will lead to a stark drop in international students, with some domestic students potentially seeking to defer entry, significant reduction in research income as industry partners manage their own losses, and a large decline in the commercial income that we generate.

For Nottingham, this means we need to plan now to manage a loss of between £150 and £200 million next year. The diminution of student numbers and reduction in commercial and research income could translate into a shrinkage of 20% on our annual turnover, from £700 to £500 million a year – a loss that will roll over into future years before we are able to recover.

This is why we have asked budget holders across the University to make sustainable 15% savings to next year’s budgets and paused investments other than those associated with health and safety. Coupled with some further measured borrowing on top of our £100 million debt, we can manage that 20% loss and be in a position to recover more quickly than a university that seeks to borrow its way out of crisis and spends the next decade paying any surpluses to debt interest.

Colleagues have responded thoughtfully, innovatively and selflessly to this challenge. Savings proposals have reduced non-pay spend in areas such as travel, utilities, conferencing, subscriptions and events as well as more environmentally sustainable commitments to reduce energy or print costs and move to digital working environments.

Many ideas to generate new and further income have also been proposed, for example in expanding teaching online for postgraduate taught courses, creating more higher apprenticeship degrees, and extending our offer on Continuing Professional Development. A great deal of thought has also been put into improving our research margin by increasing the amount of externally-funded research, improving our costings and enhancing our efficiency.

Voluntary redundancy
However, pay represents well over 55% of our spending – more than £365 million each year – and so careful measures to manage our pay bill must also play a part in meeting our 15% challenge. As we wrote last month, we view compulsory redundancies related to COVID-19 as a last resort and will avoid them if at all possible. Instead, budget-holders are proposing not to fill vacant roles and manage overall staff costs very carefully.

To further reduce spend on pay and avoid compulsory redundancies, we are this week opening a specific voluntary redundancy scheme to run from 6 May to 30 June 2020. This will be open to all job families but with specific exclusions that will ensure we do not compromise our future operational or financial sustainability.

Details of the scheme will be cascaded to staff through faculties, professional service departments and other areas of the University shortly. In summary, offers for voluntary redundancy will be made in line with the University’s redundancy scheme, offered on the same terms as compulsory redundancy, but with an additional 12 weeks’ pay for staff leaving on or before 31 July 2020.

Executive pay voluntary reductions
We recognise that the financial implications of this crisis are significant and that our University leadership is asking our community to meet some challenging savings targets. The Vice-Chancellor has therefore volunteered to take a reduction in salary of 20%, and University Executive Board members are able to make voluntary reductions in salary of up to 10%. These reductions will take effect from now until the end of August, the period during which University cash flow is most challenged. We will review this against the emerging picture for admissions and our finances for 2020/21 and consider whether to end or further extend the measure.

While we do not propose to ask staff more widely across the University to make such voluntary salary reductions, our Campaigns & Alumni Relations Office will be establishing a new coronavirus research fundraising appeal to which you might consider a donation.

In line with many universities, to protect jobs and meet the 15% savings, we may also need to pause some of the reward mechanisms that would result in an increase in our pay bill such as the Nottingham Reward scheme, pay increments, promotions, re-gradings or the pay award. We will discuss these measures with our trades unions and our staff prior to reaching a decision.

The Vice-Chancellor has written recently about initial plans for recovery and ensuring that we remain a strong global University when the pandemic eventually abates. Alongside this, we are developing a new mid-term financial plan to support that recovery, setting the right levels of income, cost and investment that we are confident will take our community into a sustainable and successful future.

We hope that you find this update useful and will write again next month with further news on progress. In the meantime, should you have any reflections and thoughts on our short- and longer-term financial planning, please get in touch.