Staff news

An update on the University's urgent response to Covid-19

A staff update from the Principal on the likely impact that Covid-19 will have on the University, and the actions that will be taken in response to this.

I hope that you are keeping well in what continues to be a very uncertain time for us all. Unfortunately, we are not likely to see a resolution to much of that uncertainty for some time. However, what we can do is share openly what we know; what the likely impact on our University might be; and the actions we are planning to respond to this. Thank you so much for all you are contributing in these challenging times.

There are two main points that I want to share with you about the University of Edinburgh’s financial position. The first is that we are confident that we are able to meet our immediate financial obligations over the next few months; the second is that we face a very real financial challenge from the beginning of our next academic and financial year, and this is likely to continue for several years ahead.

In order to maintain the University’s activities, preservation of cash is vitally important: we need £90million per month to pay our salary bill and our various other operating costs. Every year, we aim to make a modest operating surplus that, as a non-profit organisation, we can re-invest into the University’s future needs. This year, prior to the impact of Covid-19, that operating surplus had been projected to be just over £40million: although that sounds a lot of money, you will see that it equates to less than two weeks of the cash needed to run the University. It is less than 3.5% of our turnover this year, and most successful universities aim to achieve 5% surplus or more. This year, the extraordinary circumstances have already started to impact upon us. Since the end of March, we have faced additional unexpected costs resulting from the Covid-19 pandemic, including the costs of releasing our students from rental contracts (we felt that this was the right thing to do but it has cost us £10million or more); we are projecting a further £10m loss of revenue from our catering, conference and hotel operations and there will be additional costs of moving our teaching and assessments online etc. We still expect to be able to cover all our costs in this financial year (to end July 2020) but we expect our operating surplus to be considerably reduced.

In August we start our next academic and financial year where we will face a significant financial challenge. We expect this to remain very real for at least the next 4-5 years. Since research in the UK is not adequately funded, our ability to conduct the world-leading research which underpins our national and international standing depends on a cross-subsidy from those areas of our activity which generate surplus. Only two main areas currently achieve significant surplus: income from international students and income from providing accommodation, catering and events. These are the two areas of our activity that are most threatened by the Covid-19 pandemic.

We are putting huge and important efforts into mitigating the impact of the pandemic as much as we can – and again I would like to thank colleagues for all the work that they are putting into adjusting the ways in which we deliver our teaching, learning and research. However, we are still likely to face a significant drop in income over the next few years. Our modelling suggests that this could be in the region of £70-150million next year. The loss of international undergraduate students in one year would of course also impact over multiple years so we expect the financial shock to be sustained, possibly with cumulative losses if intakes in future years are similarly affected.

An obvious question we have asked ourselves is whether we can use our cash reserves to help cushion this blow. The answer is that it might help us in smoothing some of the immediate effects but it does not provide a long-term sustainable solution. In addition to the £90m per month required to run University operations referred to earlier, we are also required to hold a further £90m in cash (30 days’ operating costs) to meet requirements for proper financial governance given our scale and charitable purpose.

As soon as we realized the scale of the implications of the pandemic, we took the decision to suspend all elements of our building program that had not yet started, the only exceptions being those where there were health and safety concerns, like fire protection work or disabled access etc, or major external funding. This keeps a further £92m of cash in our kitty, but clearly if it is spent on anything else we would not then be able to afford to restart those building projects until more cash has accumulated. We felt that was a justifiable risk because our needs might change as we adapt to the changed world that we will be entering.  

So how else are we responding to this?  

For the remainder of this financial year, we have sought to minimise the shock for our community. We have honoured expectations from our guaranteed hours staff; we have decided to proceed with the academic promotion round with the associated pay increases, unless current income is over £100k per annum when promotion will be in title only; we will continue with professional services grade reviews which are already under consideration or where there is a mission-critical need; we will honour pay increments due to commence in August for all staff earning less than £100k per annum; we will continue with the contribution award process for all grades this year (with some prudent changes to minimize ongoing financial impact through a shift to lump sum payments); and we will make a one-off payment to acknowledge those essential workers who have been required to attend on site regularly in these difficult circumstances.

We will be “furloughing” some staff who are currently unable to work from home (because their job cannot be done remotely and/or because they have caring responsibilities which make home-working impossible) by applying to the Government Job Retention Scheme in the next few weeks: although this scheme only supplies 80% of the salary cost and is capped at £2,500 per month, we will commit to making that up to 100% of current pay so that everyone furloughed will continue to receive full pay. Currently that scheme runs until the end of June.

Things will inevitably need to be different in the next financial year when the major hits on our income will start to impact. Both staffing and non-staffing costs will need to be reduced. You might have seen that I and all the senior team will be taking pay cuts. Along with many other Universities who face similar levels of challenge, we will consider suspending annual increments and promotions. We will limit internally funded new staff recruitment to mission-critical posts only. We will also look hard at non-staffing costs and will need to make significant savings there. Major efforts to increase income wherever possible will also be essential. Overall, the undeniable truth is that we will need to reshape and change how we deliver on our mission within the resource available.

I have convened an Adaptation and Renewal Team which will be meeting weekly (and reporting regularly into the University Executive) to help steer our way through these challenging years ahead. Maintaining our commitment to equality, diversity and inclusion will be a key concern in this work in relation to immediate and longer term impacts.

As we make significant changes to the ways in which we deliver on our core mission of excellence in teaching & learning and in research, it will be an uncertain time. The University community has already responded exceptionally well to this challenge and I am confident that, together, we will see our way through. Thank you again for everything that you are doing, and please accept my very best wishes to you and your loved ones.

Professor Peter Mathieson

Principal and Vice-Chancellor