Shared service savings could mitigate £2.9bn funding cut

23 December 2010:

Senior university managers' "lack of enthusiasm" is conspiring to block the path to shared services among institutions that could yield as much as £2.7 billion in savings for the higher education sector each year, according to a new report.

The study from Policy Exchange, a right-leaning think tank, suggests that as much as 30 per cent could be shaved off UK universities' annual £9 billion bill for goods and services via joint partnerships.

But cost savings of that magnitude - almost as great as the government's £2.9 billion cut to the higher education budget - could be achieved only if universities were able to find a way around the requirement to pay VAT on shared or outsourced operations.

The report, Higher Education in the Age of Austerity: Shared Services, Outsourcing and Entrepreneurship, says the VAT issue is still a key obstacle to the wider use of shared services in the higher education sector.

It contends that the government should either adopt measures used in the NHS to exempt contracted-out services from VAT, or implement a European Union directive that would allow universities to set up partnerships without facing extra tax bills.

Alternatively, it could be possible to avoid the need for legislative change by moving in-house functions such as finance, human resources and student records into separate companies run by the private sector, but still majority owned by the university.

This joint venture model, which has been advocated by private firms such as University Partnerships Programme, the campus infrastructure specialists, would allow a new company to be registered in the same VAT group as its parent university.

However, for outsourcing and shared services schemes to work, institutions must overcome suspicions about the private sector and a cultural aversion to institutions working together, Policy Exchange argues.