Deputy Vice-Chancellor Professor Andy Long and Chief Finance Officer Margaret Monckton write about plans to address the significant financial impacts of the coronavirus over the short- and longer-term.

We are writing to give you as much information as we can about the financial impact of COVID-19 on the University and to engage your support with some difficult measures to help ensure the University comes through this current crisis and continues to thrive when it is over.

The social and health damage caused by the pandemic are plain to see, and increasingly the economic impact of the global shutdown is becoming clearer. Governments, organisations and households are considering how to meet the financial costs of the restrictions in place to control the spread of COVID-19.

Universities throughout the world are also facing these economic challenges, and Nottingham is no exception. By working together to make calm and considered savings over the coming months, we are confident that our community can weather the financial, as well as the health, impacts of COVID-19.  Beyond ensuring the health and wellbeing of our staff and students, our priority is to make whatever savings we can to ensure that jobs are protected wherever possible. Without taking these steps now, we may need to undertake more severe measures in the coming months.

How our finances work
In normal circumstances the University generates an annual income of around £700 million which covers our necessary running costs.  Any surplus is reinvested into the University to fund additional priorities, and to improve the experience of staff and students. For example, surplus has enabled us to appoint Nottingham Research Fellows, and to meet demand for additional teaching space by opening the Teaching and Learning Building.

About 60% of our income comes from student fees and our teaching operations, 20% from our research activities and 20% from other sources such as student accommodation and commercial ventures in catering, hotels and conferencing.

The majority of our fee income comes from Home/EU tuition fees, which are delivered by the Student Loan Company in three instalments across the year. However, our spending on, for example pay, pension contributions and utility costs such as electricity, gas and water is spread evenly throughout the year. There are certain times of the year when our ‘cash’ position is therefore low, so we need to ensure that we have enough money in the bank to meet all our salary and pension obligations, pay suppliers and service our debt. For this, we need to maintain an annual ‘headroom’ of £40 million to cover the daily fluctuations in our spending.

Like most large organisations, we also borrow money to provide security for unexpected needs or to fund significant projects that cannot be paid for in a single year.

Our University currently has a debt of around £100 million, and we have recently reorganised our loan facility to ensure that we can borrow above that, with the view that we would do so only if absolutely necessary. It is important to note that debt has to be repaid with interest. There is a limited tolerance by banks as to how much debt we can take out, and significant debt means that any surpluses become eaten away in interest repayments, rather than in supporting core education and research activities. Too much debt will also significantly limit our ability to invest in priority areas in future years and leave a significant burden for our successors.

So debt is a useful fallback, but it is the cash we have access to on a daily basis that enables us to pay our staff and continue our work.

Before COVID-19, our financial position for the next academic year looked healthy. For example, we had planned to receive £165 million in income from international student fees – of which £88 million would be from new students – as well as £108 million from first year UK/EU undergraduate students. We had also planned to receive £140 million in research income, £60 million from conferencing and student accommodation and £13 million from the hotel and conference centres. However, all of these sources of income are now under threat.

Immediate economic impact of coronavirus
The immediate economic impact of the virus on our University is known. Over the next four months alone, we will definitely lose £58 million: £25 million from cancelled conferences and hotel reservations, £20 million from commercial ventures and £13 million in cancelling student accommodation fees. £60 million from research income is due before the end of July, and some of this is also at risk.

If we did nothing and carried on spending as normal, our debt could increase to around £175 million by August 2020, meaning, with our current facilities, we would no longer be able to operate and pay the bills that we need to pay. Of course, we are not going to do nothing. Like domestic households in tough times, we will scale back big spending plans, reduce unnecessary costs and find other ways of increasing our income.

That is why we are delaying all uncommitted investment in buildings and infrastructure, with the exception of costs related to the health and safety of our staff and students. That is why we have put emergency spending controls in place to ensure that we are only spending money on the things that really matter at this moment in time. And that is why we are seeking to increase our maximum capacity for additional borrowing by £60 million.

This will ensure that we can continue to pay our staff, teach our students and conduct our research for the rest of the academic year to July, while we deliver our plans to meet the new challenges for the next academic year and work to sustain and grow in future years.

The economic impact of coronavirus on the 2020-21 academic year
While we are clear about the short-term impact of the virus on our finances, there are a significant number of unknowns in the medium term.

Most universities are assuming that the impact of the global shutdown and travel restrictions mean there will be a significant loss of income from international students next year. For us that could be a loss of up to £165 million, alongside the immeasurable impact on our global community at Nottingham.

Some UK/EU undergraduate students may choose to defer entry, following the premature conclusion of their school careers, wanting to let their lives settle, or if we are still in this position, wanting to avoid starting their studies with online teaching and instead have the full student experience that we value so much. On the other hand, it is possible that students with few options for a gap year (e.g. travel, employment) and having endured lockdown will be even more eager to come to university. However, is impossible at this stage to predict what the impact of the altered examination grading system will be on student outcomes or the behaviour of candidates and universities during the admissions period in August. This will be the most volatile admissions period we have ever experienced.

It is also likely that we will receive less income from research activities, due to the impact of lockdowns, financial restructuring by our industrial partners, pressure on charity funders and a recalibration of the global economy. We have already seen evidence of this.

So, in line with other Russell Group universities, we are modelling a reasonable worst case scenario of a loss of income of between £150 million and £200 million from our annual income of £700 million.

Meeting the financial challenge
That is why we will all need to work together to make some serious but achievable savings to ensure our University can continue to deliver its mission long into the future. In addition to delaying all major infrastructure projects, Faculties, Professional Service Departments and other areas of the University are being asked to find savings of 15% in their budgets for 2020/21.

To deliver these savings, we will be expecting budget-holders to make reductions in non-pay spend as far as possible, for example reducing spend on travel, utilities, conferencing, subscriptions and events. We consider compulsory redundancies related to COVID-19 as a last resort and will avoid them if at all possible. However, we will ask budget-holders to manage vacant roles and staff costs very carefully. We urge everyone to think differently about what we do, following Getting in Shape principles to stop, streamline or deliver our work in more efficient ways.

Other mitigations and keeping you informed
We are considering all measures available to us. Schools and Departments with a heavy reliance on international students are looking at a range of different ways to deliver teaching and learning through the 2020-21 academic year, in order to retain those applicants. We will be making an application to the job retention scheme for staff to which it applies. If and when the government introduces other ‘stabilisation’ measures with access to additional funds, we will ensure that we benefit as much as we can. As mentioned above, we are taking on extra borrowing to help us through in the short term, but we cannot simply borrow our way out of this situation.

We are keeping our finances under constant review.  We are ensuring that our University Council is informed and that we have their support for all the steps we need to take — from additional borrowing to savings targets. As circumstances change and things become clearer, we will adjust the measures we are using in response to new information.

We are preparing a Q&A site and we will update the University community at least once a month on the financial position through blogs and other methods of communication.

Our values and looking ahead
We will ensure that our University values both inform and sustain our work, with fairness and transparency. We will keep our spending and saving under close review and only take the most difficult decisions if and when we know that we must. We will also ensure that it is our community that shapes our financial future, delivers our strategy and retains control of our destiny, rather than become an institution reliant on debt and excessive bank loans. We know from the experience of UNNC that we will come out the other side of this, and we want to ensure that we are in the strongest possible position to flourish when we do.

We recognise that everyone is dealing with a significant number of work and personal challenges right now and that this additional pressure will be an uncomfortable additional burden.

However, we are confident that the collegiate and agile way in which we have already met many of the demands presented by COVID-19 will enable us to achieve these savings by continuing to work together in the interests of our community.