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Universities are facing a significant period of transition in the next few years, with reductions in public funding, and a move to a new student finance and funding regime from 2012. However, they do so from a sound financial position, according to the Higher Education funding Council for England, which published a review of their finances yesterday (7 March).

A report 'Financial health of the higher education sector: 2009-10 financial results and 2010-11 forecasts' (HEFCE 2011/06) shows that the financial results in 2009-10 on a number of key indicators are the best on record. 'At the end of 2009-10 the sector had strong cash balances and healthy reserve levels, which will provide some cushion for the likely risks the sector now faces,' the report says.

It adds: 'There is also evidence that many institutions have taken the opportunity to restructure their cost bases ahead of the pressures on public funding.'

The report concludes that the projected performance in 2010-11 is sound overall, but not as strong as 2009-10. 'Cash levels are expected to remain strong, which is important as the sector enters a potentially difficult year in 2011-12.'

The total income for higher education institutions in England in 2009-10 was £22.2 billion, representing a 5.7 per cent increase on the previous year. The main reason for the increase was the significant rise in tuition fee income from home and international students.

The report does however make clear that, although the overall financial results showed a healthy position, the sector-wide picture encompasses a wide range of results. Of the 129 universities and higher education colleges in the English HE sector, 20 institutions recorded real-terms reductions in income compared to 2008-09. Another 20 recorded cash increases of over 10 per cent.

Overall, the higher education sector reported an operating surplus (that is, total income less total expenditure before any exceptional items) of £716 million, representing 3.2 per cent of total income.

Sir Alan Langlands, Chief Executive of HEFCE, said:

'Universities and colleges posted very respectable financial results in 2009-10, with sound levels of cash and reserves. In the main they have anticipated the future financial challenges, and the outlook for 2010-11 (despite further in-year reductions to recurrent funding) is manageable for the vast majority of institutions.'