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The news that inflation reached 5% in September could not have come at a worse time for universities already licking their wounds after investing more than £77m in collapsed Icelandic banks. As the final instalment of a three-year pay deal, universities had committed to increase pay from October by the same amount as the retail price index for September 2008 or 2.5%, whichever was greater. With RPI at 5%, this means higher education institutions are facing much higher than expected wage bills. The latest rise means pay will have increased by 15% since 2006.
Some universities are already feeling the pinch. "The magnitude of the October pay increase will stretch the finances of all higher education institutions and some may be forced to phase or defer payment," says Jocelyn Prudence, chief executive of the Universities and Colleges Employers Association (Ucea). "However, the rise will still be applied, albeit in stages, prior to August 2009. Institutions will need to make difficult adjustments to their planned budgets to meet these new costs and minimise job losses."
Universities can defer the pay rise by up to 11 months if they are in "serious financial difficulty". Already Bolton and Swansea universities have said they will defer October's rise. Peter Marsh, deputy vice-chancellor at Bolton University, says the decision is necessary. "In the interests of job security, we need to be assured that it is both affordable and sustainable, without putting our interests into serious financial difficulty," he says. Staff will get 2% now and the rest by September 2009. Swansea, meanwhile, concerned that the rise represents a "significant departure" from its salaries budget, will not pay the 5% until it is ratified by the university's finance committee on December 1. In the interim, it will pay 2.5%.
Others have yet to decide, and although the Russell Group of universities says its members will honour the pay rise in full, it is concerned. "The deal agreed in 2006 was already at the limit of affordability for many higher education institutions and this final phase, linked to the extraordinarily high retail price index, will place a considerable strain on already stretched university finances," the group says. "When combined with other financial pressures, this will inevitably impact on future pay and pension negotiations." But the University and College Union, which represents academic staff, says the universities have had ample time to budget for the rise. "I am completely confident that every university employer will have the finances to pay this," says the general secretary, Sally Hunt.
So far, it seems, the combined financial pressures of pay rises and the recession have had minimal impact on recruitment and retention. A forthcoming survey by Ucea, the Higher Education Funding Council for England (Hefce), Universities UK and GuildHE during August and September 2008 found no significant change in the job market for higher education since the last study in 2005. "Early indicators from the latest research show that there has been little change in recruitment and retention difficulties for institutions," says Prudence. "Even where recruitment difficulties are present, there appear to be few problems with retention of staff once they are employed."
However, the recession is likely to exacerbate problems in finding enough academic staff in specialist subjects as fears over job security increase and people look to retrain. The Training and Development Agency for Schools has already seen a sharp rise in inquiries related to teaching, while others are seeking to boost their job prospects with formal professional qualifications in areas such as law, accountancy and business administration, all of which were highlighted in the Ucea survey as major areas of recruitment difficulty.
Redundancy fears
But many believe the financial downturn is likely to improve retention. Staff in related disciplines may be less likely to leave academia for a career in the City. In other disciplines, however, redundancies are on the cards. Plymouth has announced around 200 job losses and Queen Margaret's, Fife, has said it will make some staff redundant because it cannot afford the 5% pay rise. "There is certainly some evidence that a number of institutions, if they weren't contemplating redundancies, are contemplating them now," says Phil Harding, chairman of the British Universities Finance Directors Group.
Some are concerned that the credit crunch could see undergraduate numbers suffer amid concerns about student fees. "It will be interesting to see how student numbers hold up because of anxieties about debt," says Hunt. These fears could be exacerbated, if there were any change to eligibility for grants. And if industry cuts back on research contracts - from which Hefce reported universities earned £2.6bn last year - more job losses may follow.
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