Edinburgh University boss says 'radical' action needed to plug 'severe' £140m budget gap

Sir Peter Mathieson said measures must be taken that will “lead to a smaller staff base and lower operating costs”. The scale of the university’s budget gap was announced just two weeks after Sir Peter wrote to employees saying “nothing is off the table” as part of efforts to stabilise the institution’s finances, raising the prospect of “restructuring” such as school closures.

Sir Peter’s latest announcement came as Dundee University’s ruling court was meeting on Tuesday to discuss a financial recovery plan, amid strike action by staff.

At Holyrood, Finance Secretary Shona Robison announced £15m of financial transactions would be made available to the Scottish Funding Council (SFC) to support the higher education sector. The SFC has recently said public money could be used to help support Dundee University’s recovery.

Sir Peter, the Edinburgh University boss who earns a total pay packet of £422,000 a year, updated staff on the institution’s financial woes on Tuesday.

He said: “I have been open about the severe financial difficulty our university, and the wider sector, is facing.

“Today my senior team and I have announced how we will address these issues. We are currently forecasting to be in operational deficit in forthcoming years and this must be reversed for us to sustain our position as a world-leading institution.

“The size of the financial gap that we need to close over the next 18 months is about 10 per cent of our annual turnover – a similar percentage to that of many other universities. This has to be a recurring and sustainable reduction in our costs. For us, this is of the order of £140m. To put this into context, it costs around £120m a month to run the University of Edinburgh.

“To make these recurrent savings, we need radical university-wide actions, which will lead to a smaller staff base and lower operating costs. We are also reviewing all capital expenditure, including previously approved projects, with a renewed lens of affordability. There will be five workstreams to deliver the required changes, aiming to restore the university to a secure sustainable position by financial year 2026/27.

“This news is understandably difficult. However, tough decisions and bold actions are required for us to continue delivering an excellent education for our students and to change the world for the better with our research. We will continue to inform and support colleagues throughout this process, and liaise with respective unions.

“There are several coinciding factors that have brought about the circumstances our sector is now reckoning with, many of which I have warned of publicly and privately for a number of years in a bid to abate this situation.

“These factors include years of income for teaching not rising in line with costs, steeply rising utilities prices, inflation, recent unexpected announcements on National Insurance contributions, and a rise in employment costs. These have all contributed to the fragility of the sector’s finances. Moreover, across the UK, we are facing a reduction in the attractiveness of the UK as a destination for international students.

“However, since it was founded in 1583, the University of Edinburgh has always adapted to – and help shape – the world around it and this moment is no different. Changes will be made, but we will emerge as a stronger institution that will continue to have a huge, positive influence on society for centuries yet to come.”

Jo Grady, general secretary of the UCU union, said: "The University of Edinburgh is one of the oldest and richest institutions in Scotland with endowments stretching back through the centuries, so management's threat to make cuts of this size is shocking.

“Prof Mathieson needs to use the billions of pounds the university boasts in wealth to protect jobs, protect provision and protect the university's global reputation.

“The Scottish Government also needs to call on university management to halt these devastating cuts. Scotland cannot afford to allow one of its great public institutions to engage in academic vandalism of this scale."

Accounts for 2023/24 show the university’s surplus before other gains and losses, and prior to pension-related changes, was £25m, down from £104m in the year before.

Edinburgh University’s earnings before interest, taxes, and amortization (EBITA) last year was £84m, having fallen from £148m. It is now 5.8 per cent of total income, having previously been 10.7 per cent of income.

Its total income in 2023/24 was £1.434 billion, an increase of 4 per cent from the previous year, driven by higher research income and increased returns on treasury investments. Student headcount fell by 0.5 per cent to 49,485, from 49,740 in the year before.

Total expenditure in 2023/24 was £1.409bn, a 10 per cent increase on the £1.28bn in the year before, with salary costs rising by 12 per cent, and other operating expenses up by 17 per cent.

Meanwhile, the UK government’s decision to raise National Insurance employers contributions is expected to add £12.5m to the university’s staff bill, or 2 per cent.

Scottish Liberal Democrats leader Alex Cole-Hamilton described the update from Sir Peter as a “bitter blow for staff, students and the city of Edinburgh”.

He said: "The university is not only a major draw, but a significant employer. Cutting staff numbers risks having knock on effects for years to come in a whole host of fields.

“There will be an awful lot of households in my constituency and across the city worrying as a result of this announcement, especially when the university has failed to confirm the number of staff reductions and whether these will include compulsory redundancies.

"I will be urgently reaching out to the principal to seek further clarity around the university’s plans. I would also urge the Scottish Government to engage with the university to see what additional support it may be able to provide.”