How finance works ... in the Higher Education Sector
What does the money get spent on? |
| These charts show what the Higher Education (HE) Sector in the UK and what the University of Sheffield spent its money on in 2007/08. |
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| In addition to the recurrent expenditure shown in these charts there was one-off capital expenditure of £2,835 million across the sector as a whole (equivalent to 12% of total recurrent expenditure) and £52 million at the University of Sheffield (equivalent to 14% of total recurrent expenditure). This largely consists of expenditure on the construction and purchase of buildings and equipment. On this page you’ll find information about funding the general expenditure and the salaries, profits and monitoring the finances. You can also learn more about Where does the money come from? |
| How is expenditure funded? The expenditure illustrated in these charts includes discretionary expenditure (where the institution can decide what it spends money on) and earmarked expenditure (where the expenditure is prescribed by the source of funding). Discretionary expenditure is funded from income received from the funding councils, tuition fees and the contribution (difference between income and direct costs) from research grants and contracts and other activities. Earmarked expenditure is funded from income received for research grants and contracts, endowments, other services provided and some funding council grants. |
| Who pays the salaries? This can be a complicated question to answer. It is a common misconception that salary costs of permanent staff, premises costs and administrative costs are paid for by the funding councils. This is not the case. The funding councils provide funds to universities on a formulaic basis to support the infrastructure and running costs of the institution. However, for most institutions funding council grants alone are not sufficient to meet all of these costs. Some staff in HE establishments are appointed for fixed periods of time to do a specific piece of work. The salary costs of these staff are funded directly from the income received to do that piece of work. This is the case for many researchers. Other staff; particularly professors, lecturers and support staff, have a more open ended contract of employment. The salary costs of these staff are usually funded from a combination of funding council grants, tuition fees and contributions from externally funded activities. |
| Do universities make a profit? Most universities are set up as charities by Royal Charter or by Act of Parliament. As such they are non-profit making organisations. However, institutions do aim to generate a surplus of income over expenditure year on year. This enables them to invest in their facilities and infrastructure so that they can remain financially viable. |
| How are the finances monitored? Every university that receives funding from the Higher Education Funding Council for England (HEFCE) has to sign a Financial Memorandum. This stipulates the conditions under which the HEFCE will grant funds to the university. These conditions include that a university must:
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| Failure to meet these conditions would result in intervention by the funding council with the ultimate withholding of grants. As well as audited accounts universities also have to return financial information to HEFCE and to the Higher Education Statistics Agency HESA. This includes a more detailed analysis of income and expenditure than is included in the audited accounts and also analysis of income and expenditure based on the Transparent Approach to Costing (TRAC). Monitoring arrangements in Scotland, Wales and Northern Ireland may vary. |