FAQs – Coronavirus and our finances

June 23rd, 2020

Below are a number of common questions regarding the University’s financial standing that have come up frequently in roadshow meetings hosted by Margaret Monckton and Andy Long:

Interest rates are at a record low, why not simply borrow more money?

  • We already have a manageable debt of £100 million and plan to borrow a maximum £60 million during this period, depending on the scale of losses in 2020/21.
  • The financial impact of coronavirus will not be a short-term problem, so in order to remain sustainable as a University, we need to reduce our costs to match our reduced income.
  • Debt still has to be serviced with interest payments, and significant debt would mean that money we want to invest in teaching or research becomes absorbed in interest repayments.
  • Banks will only lend money if we can demonstrate we could maintain the interest payments and repay the debt – which brings us back to the need to bring our cost base down

Why not use the University’s reserves to tide us over?

  • Simply put, this is a cash issue – the difference between what we want to spend and how much income we will generate. Reserves are not cash, they are net assets – our buildings and endowments for example – so for the most part, they are not easily cashable and of no help in the current situation.
  • To use a domestic example. Add up the value of any property you own, a car and savings, then deduct any debts, eg a car loan or mortgage.  The sum is the value of your net assets or ‘reserves.’
  • Imagine you wanted to fund a career break, so you look at your net assets to see how much you can afford – you have some savings, could sell your car and are thinking about even extending your mortgage.
  • However, some of your savings come from a legacy with ‘strings attached’ on how you can spend it, you cannot sell your car at the asking price and the bank says it will only extend your mortgage by 50% of what you need.
  • So you are already restricted in how much cash you can access from savings, and how much and how quickly you could convert your physical assets like your home or car into cash. Can you still use your reserves to fund a career break?

Why not delay financial reductions until we know the actual scale of the impact?

  • If we delay, there is a very real risk that we would have to impose sharper, more sudden measures or it will simply be too late to do anything about it and we run out of cash and can no longer operate.
  • We will know our true position on our income at the end of the calendar year. If the impact is anywhere near as expected, it would be too late to empower budget holders to choose where to make the considered savings that we are making now.

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