Thank you, convener. Scotland’s university sector is highly respected and makes a vital contribution to the economy and wider society, primarily through the important education and research that it delivers. The sector in Scotland is diverse. Our analysis of university finances finds that the sector, overall, is in good financial health, but that masks some significant variation.
Scottish Government funding to the sector reduced by 7 per cent in real terms between 2014-15 and 2017-18. Despite that, overall sector income increased by 3 per cent over the same period. Tuition fees represented the single largest source of income for the sector in 2017-18, overtaking Scottish Further and Higher Education Funding Council grants for the first time.
The sector faces a number of financial pressures and uncertainties, including increases in pension contribution rates, significant estate maintenance requirements and, of course, EU withdrawal, which is likely to have significant implications for students, staff and funding.
Although the ancient universities are generally better placed to respond to these financial pressures because of their ability to generate surpluses and the levels of reserves that they hold, they face strong competition from other universities in the UK and the rest of the world. Universities are adopting a range of responses to financial pressures and most are forecasting increases in fee income, mainly from international, non-EU students.
The Scottish funding council, as the body providing the bulk of the university sector's public funding, has a good understanding of the risks facing the sector. Outcome agreements are a key accountability mechanism between the Scottish funding council and universities, setting out what universities plan to deliver in return for SFC funding. However, in 2017-18, many universities did not have agreed targets for some measures relating to teaching and research and, in some cases, as few as two universities met their targets. That makes it difficult to determine whether universities are contributing as intended to the Scottish Government's national outcomes. There is also room for improvement in the SFC’s public reporting of university finances and of university performance against outcome agreement measures.
The Scottish funding council’s recently published strategic framework provides a good foundation for future engagement and delivery. The funding council now needs to develop specific proposals to ensure the sector can maintain and enhance its position and the contribution it makes to Scotland.
As ever, my colleagues and I will be happy to answer the committee's questions.