At first glance, that sounds sensible: if you have money saved, why not use it when times are tough?
However, the reality is more complicated.
A red herring
Financial experts and accountants have described debates about using reserves to overcome universities’ financial challenges as a “red herring” because it focuses attention on the wrong question.
Rather than asking how much an institution has in reserves, the key question is whether there is enough income to pay for everything it needs to do.
Imagine a family who owns a large house. On paper, they may appear wealthy, however, if their monthly income doesn’t cover their bills, the value of their house does not solve that problem unless they are willing to sell it. They need enough money coming in each month to stay solvent.
University finances work in a similar way. What matters most is having sustainable income to cover the ongoing costs of teaching students, carrying out research, maintaining buildings and technical infrastructure, and paying staff. For the University of Edinburgh, this amounts to more than £120 million a month.
Using reserves to cover day-to-day outgoings is not a reliable or responsible way to solve the underlying problem long term.
What are reserves?
Reserves represent the accumulated financial value of everything an organisation has built up over time.
As shown on the University’s balance sheet in the Annual Report and Accounts, they reflect far more than money held in bank accounts.
Much of their value is tied up in physical assets, such as buildings and equipment, and long-term investments that are essential to the operation of the University.
All of this is fundamental to our ability to deliver excellent teaching and world-changing research.
Restricted reserves
There are different categories of reserves, and they can’t all be used freely.
Some reserves come with rules and requirements that mean they can only be used for purposes specified by donors or grant funders to fulfil a key project. This often includes research projects or scholarship funds.
These restricted reserves cannot be redirected to cover staffing expenditure or general operational costs.
Unrestricted reserves
Unrestricted reserves are the accumulation of all past surpluses and do not only represent ‘spendable’ cash.
Part of the reserves figure also reflects accounting revaluations. Universities periodically reassess the value of their land, buildings and assets to reflect market conditions.
If a campus building increases in value, this creates an accounting gain and increases reserves.
However, no cash is generated unless the asset is actually sold – and it can only be sold once.
Universities still need working cash
While the figures on the University’s balance sheet appear very large, this reflects the fact that the University itself is one of the largest higher education institutions in the UK, with an incredibly wide-ranging remit.
It is imperative that institutions have cash in hand to ensure we can weather financial shocks, including those caused by geopolitical shifts or government policy changes.
A resilient model is crucial
Reserves are an important part of our financial resilience, and we seek to make these resources work as effectively as possible through responsible investment – generating returns that support our activities and help safeguard the University’s future.
It is important to remember that there are no profits, no shareholders and no dividends to pay out. As a charity, any surplus generated is reinvested directly into the University's core mission.
Reserves provide resilience, but they are by their nature, finite. The long-term solution is not to drain what previous generations have built, but to create a sustainable model that enables the University to continue educating students, advancing research and innovation, and – ultimately – making the world a better place.
