 Welcome back. We are now going to take evidence from our second panel of witnesses this morning. I'd like to welcome Karen Watt, who's the chief executive of the Scottish Funding Council, good morning, and Professor George Boyne, principal of the University of Aberdeen, who's representing universities of Scotland. With our questions this morning, can I kick off with Stephen Kerr, please? Yes, thank you. We've already heard this morning the importance of the revenue that comes into the sector through international students, so if you don't mind, I'd just like to ask you, in stark terms, what is the financial impact of the 17,000 additional students that we now have in the Scottish University since 2016? Maybe Karen, you could go first and then George. Of course, thanks very much. International students are an incredibly part of the dynamic mix of a university, and they add significantly not just to the student experience, but they are part and parcel of many internationally and globally significant institutions that we have in Scotland. What we are seeing in terms of finances and the budgets, we have seen an increase, a steady increase in the amount of income being generated from international students. That varies very much across the sector, so some institutions, some universities, are more reliant on SFC funds than on international fees, but we're getting to a point clearly where there's a crossover in the amount of public funding that we put in for learning and teaching and the model in some universities that are becoming more reliant on international fees. I would say that we will always see an element of cross subsidisation, so we will always see some universities generating that kind of income in order to fund a range of research activities. Also, there will be an element of cross subsidy for public teaching and for funding Scottish students, so I would say that we'll see an increase. Clearly, one of the risks in all of that is that global markets change, international markets change and each university will have to come to its own view about what its business model is, how it wants to fund its activities and how it sees itself on that global competitive stage. Scotland is not alone in that. There are so many universities across the globe that are reliant on that flow of international students and compete on a regular basis. The word reliant, so just how fundamentally important are these international, particularly the increment? I mean, we went back to 2016 numbers in terms of international students. What would the impact of that be? We have seen a significant increase. I can give you that I haven't got the actual figure to hand, but we are seeing that very significant increase. What is also important is that every year, as has been part of our recent delving into more significantly the forward projections of universities, we are seeing many universities increasing or projecting an increase in that income. Further increase over time. Not every institution, but many, and that will partly be because of the strategies that institutions employ themselves, what their appetite is for increasing, for example, a research base where they will— Is it to do the business model? I mean, does the business model collapse without an on-going increase in the number of foreign students in Scotland? I would say that it is an integral part of most universities' businesses that they will look for international students, they will look for international income, research fees, whatever it is. In the round, I would say that that is very attractive for Scotland, it is bringing in talent. We would like to see that talent stay and we would like post-work visas that enable those students to stand and contribute more into the economy, but, yes, we are seeing an increase in international student fees. George, I am quite interested to find out how dependent our current business model is in terms of its viability on international students. I think that I am hearing that it is like critically important. Let me first reinforce the point that we are proud to have so many international students. In Scotland, that contributes to our international reach or soft power. We contribute across the world by educating so many international students, but it is also critical, as you rightly say, to our financial viability. The financial sustainability of Scotland's universities depends on the cross-subsidy from international students. You have seen the numbers and discussed them briefly this morning already. You know that our funding per undergraduate student from the Scottish Government has gone down by almost £2,500 in real terms since 2014, that our research income has also gone down in real terms, our research funding. Therefore, we are compensating for that through the fees paid by international students. And capping Scottish students, obviously. To be clear, individual universities are not capping the number of Scottish students that we take. That is a Scottish Government cap to ensure that undergraduate education is affordable within the Scottish Government budget. That is a Scottish Government cap, and we recruit to the cap. We take as many Scottish students as we are allowed to take. But then we need to help the revenues from the international students to compensate for the fact that they are not getting the full cost of the teacher. Correct. That has been true for some time. That happens in other education systems, not only in Scotland. For example, in England, our closest rival in our education terms and comparator, for some time international student fees have cross-subsidised research. The difference in Scotland is that international student fees are cross-subsidising not only research but also undergraduate education, so that puts us under greater financial pressure. Let's explore the vulnerabilities of that situation that we find ourselves in. Karen mentioned them in passing, but George, how many Chinese students do you have at Aberdeen? About 700. We're dealing with real-world politics. We know the situation with China is very precarious, very difficult. In a worse-case scenario, we might not have our Chinese student contingent in Scotland's universities. What's your reaction to that? Are those contingencies? I hope that the university secretary is planning on that. So global markets are unstable, of course, for a variety of reasons. Covid, war in Ukraine, cost of living crisis and therefore our reliance, to use your expression, on international fees, introduces more uncertainty into our financial situation. That makes it harder to plan. It makes it harder to be confident about what we're able to afford from one year to the next. Certainly over a period of five years, when we see what looks like a flat cash settlement, we are then needing to pay very close attention to what's happening in international markets. It becomes more difficult to put in investment that would be sustainable over the five-year period to invest in our students and to invest in our staff. Those are our two main priorities. Would you like to respond? Again, the issue will be which institution needs to think how exposed they are to particular markets. They will be looking at diversification strategies where they need to. It is something that we're tracking as well, because clearly, as you're saying, there are some volatilities in the wider international environment. What we are seeing is a number of institutions looking at where they have particular concentrations in particular countries, and they are, as we understand, diversifying into a range of other countries as well. I'm just anxious about that exposure. For example, Aberdeen has got a Confucius Institute How much income comes to Aberdeen through hosting this Confucius Institute? Very, very little. A couple of posts are funded from China, so the funding for those posts come in, but as you've raised the issue of Confucius Institutes, I have never experienced even a hint of an attempt to influence university policy. Either when I've been at Aberdeen or in my previous institutions, I've experienced no attempt to put any pressure on us to do one thing rather than another from a Confucius Institute. I don't want to go down the Confucius Institute. I don't want to go down that rabbit hole either this morning. However, it is a very important subject, which I hope we will return to at some point. The university of Aberdeen has strong financial links with Qatar as well. There, I say, is not the most attractive of regimes in Qatar. Can you just talk us through the ethical dimension of the revenue streams that you secure from international marketplaces? I would say that there are ethical challenges in any international joint venture. It is not our purpose at Aberdeen to stay in a little corner in the north-east of Scotland and to only interact with people whose values are identical to hers. Our purpose is to interact and to educate and to enlighten, and we think through international collaborations that we contribute to that. In the answers that you've given to my questions, I think that you've fully explained the vulnerabilities and how precarious the current business model is. I thank you very much for that, Mr Kerr. I've got some supplementaries on that, as you can imagine. Willie Rennie, first please. Karen, you've said on a number of occasions that the universities would come to a view that they'll make an assessment about their exposure to international students. Do they really have a choice? I mean, when the funding over the 10-year period has been cut or will fall by 37 per cent, and when student places in Scottish universities are underfunded between £4,000-7,000 to be on the course that you're studying, do they really have a choice about coming to a view? Do they not have to do this to survive? As talking as a funder, we look at a range of different indicators about is our public money working to best effect, and we look at the financial sustainability of the sector and individual institutions. We look at the quality of outcomes for students. We look at how well those students are, what experience they have in their learning and teaching. We look at the contribution that institutions make across the range of social and economic indicators, and we look at their international reach and their reputation. All of those factors are suggesting that we have a sector that is, yes, under a lot of pressure, and, yes, it will be looking at where its income comes from, but it's also thriving, and we have thriving institutions, both individually and collectively. I suppose that, at some level, the answer to your question is yes. There is an inevitability about universities looking for additional sources of income that will generate surplus for them, and they will cross subsidise always their activities. If we are looking at whether we think that we've got to a point where we are at risk in the university sector, I would suggest that we still have a thriving sector, and it is still continuing to deliver across a range of different important indicators for us. You may have heard the evidence from earlier on about student homelessness, short-term accommodation, staff pay, pensions, short-term contracts, staff ratios—huge stress. Then, we have massive cross-subsidy, and it is massive cross-subsidy. More than is in England where the funding from international students helps with research, here it helps with Scottish students, so international students are doing nothing. Isn't it a little bit complacent to say that the sector is thriving when we've heard that pretty dark story this morning? So don't misunderstand me. There is no complacency, particularly from a funding body, that is effectively here to champion the best in our college and our university sector. Our advice to government is based on those kind of indicators that I talked about before, about sustainability, about how much the balance in the number of funded places and how much we pay for a funded place. For example, we have increased the number of funded places over the past five years, so that we have 5,000 additional opportunities for people in Scotland to study at a Scottish university. Those places are funded places. It is always a balance and a negotiation with government, with the university sector, about what the balance might be between how much we pay for each of those units of learning and teaching and how much demand there is in the system that we can meet. It is always going to be a difficult set of choices around all of this. Last year, we were able to increase the price that we pay per unit of learning and teaching, albeit that was about 1.5 per cent. In terms of keeping up with the costs, there are cost pressures on the sector, inflationary pressures, the issues that students are facing on a daily basis around mental health and wellbeing, the accommodation crisis, all of those things. We absolutely understand the pressures that are there. As a funding council, our job is to work with the Government about what quantum they are willing to invest in the sector and, when we have that quantum, how best to distribute it. One final question. Are we comfortable that we are asking students from some of the poorest parts of the world to subsidise Scottish education to such an extent in South Asian countries? We are asking them to subsidise Scottish education to that extent. Do you feel a bit uncomfortable about doing that? We are investing in Scottish education. We are funding places for Scottish students. It is cross-subsidy across a range of different. Of course, there will be an element of a moral dilemma as you place it in that kind of term, but we have to hang on to the fact that those are also international students that are benefiting from a very high-quality opportunity at Scottish University. It is a very research-intensive, great learning and teaching opportunity. I think that we need to put it in that context as well. We are benefiting from having students from across the range of countries at Scottish institutions. I think that there are clearly pressures and strains. We are all trying to balance the decisions that we are being asked to make, even as we distribute those resources, between demand, widening access and ensuring that institutions are sustainable. Those are issues that we wrestle with universities and the Government on not just on an annual basis, but on a regular basis. Do you want to contribute to that, Professor? Yes, please. You are right to say that Scottish universities have been thriving. The most recent university league table was published just this last weekend on the garden and five Scottish universities are in the top 20 in the UK. So we have been thriving, despite the inadequate public funding for our undergraduate students and for our research. We have been thriving through the cross-subsidy from international students. My question would be if the public funding, which has helped us to thrive, it is not as much as we would have liked, of course, but we recognise the budgetary challenges. If the public funding falls significantly over the next five years, if it is flat cash, when inflation is in double figures, how can we possibly continue to thrive? We want to be able to continue to thrive, contribute to Scotland's economy, to society, to the climate emergency and all the wonderful things that we have been doing so far, but that will become much more difficult with a very significant cut in the real-terms value of public funding. That is why we are here today. In the years that I have taught at universities, I have to say that international students have made an unbelievable contribution in the classroom to the richness of the learning and the diversity that is in there. It is a pleasure of Frank Leslie Teacher to have those international students in the room contributing to those conversations. I do worry that we are not planning for the kind of difficulties to plan for volatile markets and the pressures that we have heard about this morning from colleagues around the housing market. I think about school places for children of students coming into the country. What you are telling us now is that this is going to continue to increase the demand, the need for universities to increase these numbers. Are we planning our social infrastructure to cope with those pressures? I think that that is an absolutely core question for us. Clearly, that is slightly beyond remit for us, but when we are looking at this, we need to be looking at institutions within place. They are in geographical places where they need to think about the broader community impact and the contribution that they are making. I think that there is a broad set of issues for us around how we support students more generally. When we are talking about social infrastructure, we are looking at whether there is sufficient support for learners who are dealing with a range of very difficult pressures at the minute and whether that is sufficient in and of itself. It is constantly that balance between housing supply, housing demand, place in a city. That is why universities are so integral to the regional planning that needs to be much broader than the essence of a Scottish student getting a place. It does not really feel like it is working at the moment, given some of the evidence that we have had today. Maybe I understand that it is not particularly on your desk. Professor? If I just turn to the institutional infrastructure at university level, what we are seeing is the level of need for support rising per student because of the consequences of Covid, mental health pressures accelerated and deepened by Covid. We have more widening access students and we are delighted to have them really pleased with the progress that we have made, but they also need more support per student. On the one hand, we have support need per student going up and flat cash and real terms going down. That is an almost impossible problem to resolve. On the pressure on social infrastructure, housing education in the city of Aberdeen, primary school places for children of students who have come to Aberdeen. Does it feel to me that those pressures are being planned for appropriately? To be fair, we work closely with the City and the Shire Council and the health board and the organisations around us to try to co-ordinate the existing infrastructure. You are asking an interesting longer-term question about whether investment in that infrastructure is being made and that is also a challenge for the priorities of government. Let us remember that Professor George Boyan is here, not just from Aberdeen, but he is here to represent all of the universities, if you do not mind today. We heard a little bit about some of the mental health challenges, specifically in some of your statements there, but the mental health councillor funding for colleges and universities is about to run out this year. If it is not confirmed, I am sorry to excuse my scribbly notes, the potential to lose 80 trained councillors across the sector. Given the pressures that you have just spoken about, is there enough adequate support for our students who are struggling and who need a bit more support than perhaps others are? What potential solutions can you see around that or options that we have? The Scottish Government committed additional funding for mental health councillors. We distributed that funding and that was part of the four-year funding settlement. Probably our righteous shy of £12 million has been spent on that. That, as you say, about 89 additional mental health councillors were provided through that. At this point in time, we are still in negotiation with the Government about that particular programme, because, clearly, institutions have often employed people in their support services to provide that. We are discussing with the Government whether that can continue. My understanding is that the Government is putting together a student mental health action plan, which it is planning to publish in spring next year. Partly the reason for doing it in that way is that there are many avenues in Government funding portfolios that might be relevant to the challenges that students are facing, but, yes, we are still in discussions with the Government about whether that funding will continue or not. Thank you for clarifying that, Karen. Can I now hand over to some questions from Ruth Maguire, please? Oh, wrong buzzer, there we go. Thank you, convener. Good morning and thanks for being with us. I appreciate your contributions so far. I asked the first panel about the cost of living crisis and specifically the impact on students. Initially, I highlighted an example of a constituent of mine, the impact on that cohort's university experience in terms of turning down placement opportunities and, on occasion, not travelling to lectures. I wonder if George could respond to that. Is that something that you are seeing in your university amongst the university that you are representing? I have not heard of an example exactly like that. I am not surprised to find that students are under those pressures. In all the universities in Scotland, we have hardship funds, which are specifically for those circumstances. In addition, during the pandemic, some of us at least raised extra funding from our alumni community to support students in financial difficulties. I want to record my thanks to the generosity of the graduates of Scotland's universities for stepping in and helping where students were in that position. Support is available, especially for those in greatest need. Of course, in a very tight budget context, it is difficult to ask for too many things simultaneously, but to see the financial support for students stepped up in line with inflationary pressures would be very welcome. The specific example that I raised was of a cohort who received living costs grants, and the issue was about them not being classed as students when they were on their placements. Is that something that you would come across? Do you think of any potential solutions to that? It is not something that I have come across, but I will check with my university's Scotland colleagues whether that is a problem that is arising across the sector. Moving on to staff, I would be interested to hear what your reflections are on the impact of the coastal living crisis on staff. The impact on staff in universities is similar to the impact for employees across the economy. Wages are not keeping pace with rising prices. That is not something that we are comfortable with, but we have to deal with what is affordable. As a sector, we are only able to offer a pay rise according to our means. Therefore, we are linking back now to the discussion about funding. If funding is flat four years ahead, that will make affordability even more difficult and bring extra pressures for institutions and for our staff, because it will be very hard for us to get anywhere close to the rate of inflation in the paydeals that we are able to afford to offer. Not in any way diminishing the financial challenges. Is there more that universities can do to support staff through this and to support them as they deliver that increased support to, for example, the widening access students that you have mentioned? We are all in constant discussion with our trade union colleagues and staff more broadly about how to adjust workloads in order to relieve the pressures, but the greatest difference that we can make to workloads is to have more people to share the work. The argument here is exactly the same as on pay. With flat cash funding, it is correspondingly more difficult to recruit more staff. I do not love Karen Wish to say anything on those matters. It is a very difficult one, because as a funding body employer, employee relations are not our thing, but we do look very carefully at the cost pressures. From a point of view of sustainability and looking at the future, we do look very carefully at how that is working across each institution. There are clearly big pressures around the cost of living, pensions and salaries that we look at on an on-going basis to look at what effect does that have overall on the sustainability of an institution. It is a very difficult time. We had a series of college principals in front of us last week, and they were telling us that the Scottish Funding Council was asking them to assume for a 2 per cent uplift in pay. You are talking about monitoring. In the view of everyone, that is deeply unrealistic. It is not happening. You are not making the same assumptions about universities, are you? I watched the session with college principals and I did hear them talk about our unrealistic assumptions. For us, particularly with colleges and universities, we work with college finance staff and principals to agree on what kind of assumptions they should put into their forward projections. That 2 per cent at that time—we are talking probably summer time—was what we agreed with the sector. However, they are modelling more significant and different kinds of assumptions now. The projections that we will get in in the next few weeks will have a range of different scenarios. That is clearly our expectation that there will be more cost pressures and other kinds of constraints in terms of pay and pensions that all institutions will be dealing with. We have looked again at our work with institutions on the kind of assumptions that are underpinning, given the shift in cost assumptions. That is incredibly important. It is a very dynamic and fluid situation. If you were to ask me at the start of the summer, where I thought some of the assumptions might lie and now they would be quite different, so that is why we work very closely with each institution. It is also the case that we are looking at what that might mean in the longer term if it is a flat cash settlement. We have those assumptions, but we at this point in time do not yet know how the Government will come to its range of pressures. We will only know that over the next few weeks. We have an emergency budget situation coming up after the UK Government's fiscal event, so we will see what comes from that. Clearly, then, there is a normal budget setting. In pushback on one, not that emergency by the sounds of things. Then there is the usual annual budget settlement, and we will recalibrate as we go. Thank you very much for those responses. Can I move on to some questions from Bob Doris now, please? Thanks, convener. I do want to touch on funding later on in my questioning, but I say that at the start because I appreciate the significant challenges that are there in asking this question. Ruth Maguire and my colleagues spoke about the widening access agenda, and there is a good news story to tell. I gave the figure in the last session that 18-year-olds in the most deprived backgrounds are up 32 per cent additional offers since 2019. That is a staggering figure. Obviously, they will all take those, but it means that we are now well ahead of our target to get 20 per cent from the most 20 per cent SIMD deprived areas in university as a proportion of students. We are at 16.7 per cent, where we meet our 2021 interim target early, so lots of good news stories there. Of course, the concern is that those from the most deprived backgrounds may be the most susceptible to the cost of living crisis. I wonder what can be done to identify those young people—without stigmatising them, of course—but to identify those young people and, through their learning pathway, offer whatever support you can. I appreciate that TickWalk's first outcome is that we are getting more from deprived areas into universities for a first again and full-time basis, but the outcome that we want to see is to graduate and be successful learners and enter into really positive careers going forward. That is only half of the story—the input and the real outcome is the successful securing of the degree. I wonder if Professor Boyd can say a little bit more about what support is, despite financial challenges, and what support is being used and deployed right now? Across the sector, we provide support with transition to university, and our widening access students potentially benefit from that. In addition, and you are quite right that it is really important not to stigmatise the widening access students by separating them out, but we know on our systems who they are, so we try to ensure that they get the right pastoral support, as well as educational support through their degrees. That does again link nicely to the previous points that we have been discussing, but, of course, that requires extra resource to provide the extra support. We are happy to do that, because we are delighted to be on track towards the widening access target, but there is extra resource required in order to ensure that they progress, that they continue and complete their degrees successfully. I say that as someone who was a widening access student decades ago, first in family, to go to university. I understand what it is like, perhaps, to need to work part-time in order to complete a degree successfully. I welcome on to funding, but I am interested in what the car and what reflections are on that success story and how we offer that important support through the learning journey. Any comments you have on that would be very welcome. What monitoring might take place through the course? I am sure that a successor committee of this will want to know four years' time all those young people entering the SIMD-20 this year. What percentage of them successfully graduated vis-à-vis the average graduation levels? That is the kind of thing that we are going to want to look at to see if it has been a real, actual success. I think that you are touching on a hugely important and significant aspect of this. I think that the achievement of the interim target is phenomenal. I think that that is fantastic. We know that the outgoing widening access commissioner said that the next bit is the hard bit and that there is significant work still to be done. In our funding, we have premiums and additional support that we put into our funding model to support widening access students. Whether or not that is sufficient is another question, but we recognise that there are additional costs, not just in supporting students from more deprived areas while they get to university, but in the journey to accessing that opportunity. We spend a lot of time and effort and we have at least £35 million of programme money wrapped up into how that senior phase transition works and those pathways through into college higher education. While we are focusing on widening access for university students, there is clearly a significant amount of students who go through a college route, who access higher education and get extremely good quality higher education at college and who then can transition into a university either year 2 or year 3. It is those points of transition that we are interested in. How successful are they? What is the success rate longer time? We will be tracking that. There will be a new widening access commissioner who will work very closely with us on how we monitor that proportionately, but to get those outcomes and to know how that is really working. Karen, it is almost like you anticipated my final question. I would be glad to hear for time constraints, but we are currently conducting an inquiry into college regionalisation, the successes thus far and the next steps. You are right to mention colleges in relation to widening access. I think that 40.9 per cent of all full-time first degree students are either studying in colleges or came through a college pathway into a university education. College principals have told us that that HNCHND year 1, year 2 equivalence for university education, the reimbursement rate that they get for those students is less than universities get. You will understand that they are seeking a parity of financial support. I want to address that question to Professor Boyd, because I do not expect him to be arguing for a smaller slice of the cake going to universities, but it is a very real issue for college principals, and they might not think that there is an equitable system in relation to— I am very happy to pick up that issue, perhaps, not quite in the way that you are anticipating, because there is something really important here, which is that the funding per student in almost every part of the Scottish education system has gone up in real terms, including colleges, secondary schools and primary schools. The only part of the Scottish education system that has seen a real terms cut per learner is higher education. Professor Boyd, that is helpful, but within that answer that still acknowledges that there remains a gap between the funding at university and the funding at college. I am not trying to create a division. I am merely mirroring the comments that we have heard from college principals, which is reasonable to do as part of our inquiry into that overall budget scrutiny in relation to the sector. Karen, what is that narrowing of the gap deliberate to make sure that it is the end point going to be parity of funding? We did a review of tertiary education and research over the last couple of years. We explored all the different options for how we fund. Again, it is an on-going dynamic for us just now that we are looking at quite closely. When we fund colleges and universities, we are clearly looking not just at the funding per student but at the infrastructure that supports that quality of learning and teaching. In some universities, it is more expensive because there are lab costs and a variety of different infrastructure costs. Our funding partly recognises those different infrastructure costs, but it is clearly something that we are working very closely with colleges on when we review our funding models, for example. There are opportunities to look at that again, but I would not want us to lose sight of the fact that there is an incredibly important role that colleges are playing in higher education in ways that provide pathways to university or into a job at a kind of below-degree level or at a higher national qualification. Those qualifications are going to be increasingly important for the economy. When we look at our funding formulas, we are very aware of the pressures in colleges and we are open to looking at how we fund in the future. When you look at that, colleges talk about the infrastructure costs of doing a lot of community work to bring those roles that are always likely to ever set foot in any forum of further or higher education settings into that setting in the first place, and that is a significant cost that they bear to get people into the system in the first place. When you look at that wider infrastructure and additional costs that sometimes universities have, are you looking at those same wider infrastructure costs that community colleges also have? I would say that, in our funding, we recognise that there will be programmes for people that need to, if you like, get that first step across a threshold to even get into some form of education. We recognise that there will be funding that is required, and part of our funding goes into that and acknowledges that. However, if you are looking at parity of esteem, we are talking about a much broader set of issues than the funding model. We are looking at how parents think about colleges and how students come to it, and we are looking at how employers value different kinds of qualifications that come out of it. However, you are right to say that we are looking at all of our funding just now, and we will be looking at that in the light of not just the budget and the spending review but in terms of how we help pathways between colleges and universities and that form of collaboration that we are encouraging at a regional level. Thank you, and perhaps you are here next week, Karen Watt, so we might get the chance to investigate that further with the college inquiry hat on. Can I move on to questions now from Graham Day, please? Thank you, convener. Good morning. I've got two questions, one for each of the witnesses. The first one is for Karen Watt. Budget scrutiny time in variably parliamentary committees are confronted with elisted demands from various stakeholders and dire warnings about the consequences of not having those asks met. I'm really looking to get a feel from you, Karen Watt, assuming that you've come at this from a balanced perspective. Professor Boyne earlier said that, given the flat cash settlements that are being predicted, the universities will be unable to continue to thrive. Is that a fair assessment? I wouldn't want to minimise the challenges that are being faced here and the squeeze that is going on and the cost of living crisis, both for staff, students and what that means for institutions. I think that we are living in an incredibly pressured time for colleges and universities. If you were to ask me about the last set of accounts, for example, or consolidated accounts that we had from universities, if we looked at the academic year 2021-22, we would see a huge underlying operating surplus, something like £370 million. That might give you the impression that we have an extremely well-placed university sector, but everything is what happens below the line. Two universities, Edinburgh and Glasgow, make up the vast majority of that surplus. We know that there are probably half a dozen universities that are looking at underlying declines in their surpluses and their posting deficits. We know that the surplus that I just quoted there of £370 million is going to decline very sharply. We have projections that we have just had in from all Scottish universities and that those surpluses are going to go down quite significantly because of staff pay, pension costs, because big capital projects where universities have funding for them are going to start spending out city deals, whatever it is. The trends are looking like there will be a tighter squeeze. That is absolutely our judgment on all things. At this point in time, we have a remarkably resilient sector. When you look back even two years to the Covid period, we genuinely thought at the start of the Covid period that we would see a fairly significant, not just shock in the university finance system, but we thought that there might be some kind of chaotic collapse. We were genuinely so concerned because we had no international students coming in, conference stuff stopped, the residential model is based on students coming and staying, and labs stopped doing research in the way. Of course, that shock to the system was significant. We did put additional money in and we worked with the sector on all of this, but universities adapted astonishingly well in a very difficult situation. I do not for a second suggest that there is not a very difficult set of spending review and budget and public expenditure issues coming up. All I would say is that there is a very significant track record of universities being rather brilliant at adapting to difficult circumstances. Although, in the interest of balance review, there is always a limit to the resilience that they will show. I think that that is for us the issue about how we run close to the assumptions that institutions are making and why our advice to government matters around how much public money is required at different points in time for the university sector. University of Scotland, in the submission that we received, indicated that it was looking for a minimum £171.7 million. The only identification of where that might come from was a fleeting reference to some small Barnett consequentials. You have heard my questions in the previous panel, and I am sure that you know exactly where I am going with that. Not in any way diminishing the validity of what you are looking for and why you are looking for it, where do you suggest, in the current very difficult financial circumstances, that the Government ought to find the sums that you argue for? We have already heard about the situation with the colleges as well who have a claim on any income that any money could be generated. Are we talking about having you identify something in the education portfolio budget that you think could be redistributed? Are we talking about reading other budget lines? I mean, UCU, to be fair, they talked about adjusting the taxation system and looking at the small business bonus. David Least made suggestions. What would you say to me on that? Two points about that. First of all, what we are asking for is investment, because universities produce a fantastic rate of return on the money that is funded in them already and would produce an even better rate of return if our budget ask is met. You have mentioned the Barnett consequential and we have included figures in the paper for the rate of return to Scotland. If that Barnett consequential comes through to universities, there is a fantastic rate of return to the Scottish economy because we are able to pool in more money from UKRI and other funders, so extra money comes into Scotland because that Barnett consequential comes through to us. That is about investment in our students, in our staff, in the rate of return for the Scottish economy and for society in Scotland. That is my first point. Secondly, in a large budget, there is always some flex and room for focusing on priorities. I will give you just one example of that. We heard earlier in the previous session about the 10 per cent extra for PGR students, PhD students coming from UKRI. Not all of our PhD students are funded by UKRI, so what we have done in the University of Aberdeen is to match that for all our PhD students. That has taken out of my fixed budget roughly the same percentage that we are asking for from the Scottish total budget, because we felt that it was appropriate to invest in our PhD students, in their future, in their contribution to science, in their contribution to discovery, in their contribution to Scotland. We found that money. A tiny percentage of my budget, equivalent to a tiny percentage of the total Scottish Government budget, is what we are asking for. There is always flex. In other words, somebody needs to look down the back of the sofa to find this ask that you have made. Or achieve some efficiency gains elsewhere. You will appreciate, Professor Boyne, that everyone will be making that argument. At a time of straight and financial challenges, everyone can make a case. You make a valid case. It is not as easy as that when it comes to finding the monies that you are looking for. I have complete confidence that the Scottish Government will look at value for money in the investments that it makes. At our case, it is very close to the top of the list, if not at the top of the list, in terms of the return on the investment. Very well argued. Thank you very much, Professor, for that. Can I hand over to questions from Ross Clear now, please? We are continuing the question on finances. The challenge, of course, is that I accept absolutely the economic and social return on investment in universities. The Scottish Government is currently quite rightly under pressure to expand free school meals, to increase devolved social security payments to something approaching the level of inflation, to keep public sector pay up in line with inflation. The Scottish Government is experiencing all the pressures in a situation where it is a flat cash settlement for the coming years. Finance committee yesterday, we had eight organisations around the table who collectively asked for billions of pounds in spending, and all of them had a very, very good case to make. Going back to the questions that I asked in the last panel, how can we justify giving Glasgow and Edinburgh universities large sums of public money when their reserves are not only considerably larger than what the Scottish Government is even allowed to hold in its reserves? Glasgow has got a billion pounds in its Scottish Government reserves capped at £700 million—not that there is anything in it at the moment. Edinburgh has got £1.8 billion in its unrestricted reserves, £2.8 billion in total. Glasgow's reserves went up about £150 million in the last report. Edinburgh is about £240 million. Why should we give Glasgow and Edinburgh universities the same amount of money per student? In the period of spending, long-term, I accept that it is not sustainable and fair to give them less than other universities, but for the period of spending, while the Government has got flat cash, it should be really be giving every university the same amount of money per student when some universities have so much down the back of their own sofa. I will comment on the reserves issue first. The reserves are not free money. I will not comment on Edinburgh and Glasgow specifically, but for the sector as a whole, we hold reserves as a buffer against a rainy day, and there have been a few of those in the last few years, so it is important to have any well-run organisation holding reserves to deal with uncertainties that may arise. In addition, we held back a lot of our operational spending during Covid in particular as an extra buffer against the difficulties that we were facing. Some of that operational spending will be released now, but it cannot all happen quickly. Thirdly, money has been borrowed for big capital projects, but not yet spent. A lot of that money is committed. You have described some of it. It is uncommitted. I cannot really check that without looking at the detail of Edinburgh or Glasgow's finances, which I do not intend to do. I need to clarify very quickly. A lot of that money is already committed to stepping back up the operational spend as a buffer against further turbulence or to major capital projects that are in the pipeline have not yet started and which, in fact, will cost a lot more at current prices than was originally envisaged, so you may find that those reserves diminish deplete very quickly. However, there is a second argument that I want to bring in here. Every Scottish undergraduate student deserves to be fully funded, regardless of where they study. We should not distort their choices by deciding to fund some undergraduates at some institutions to a higher level than in other institutions. I think that we need fairness, parity and for every Scottish undergraduate to receive the same support regardless of where they study. That is perfectly compelling. You are right that the overall picture reserves, substantial sections of those, are restricted. Adam has got £1 billion of restricted reserves, because it has £1.8 billion of unrestricted reserves. Do you accept the principle of what I am saying here that, when the Scottish Government is under so much financial pressure across the board, but particularly on cost of living pressure on families at the moment, it is a big ask for the university sector to be asking for a substantial amount of additional money when there are some organisations in the sector that hold in their bank account far more than what is available to the Scottish Government in terms of discretion and respect? The point of the ask is the rate of return on that investment, as I have explained, and I am going to absolutely hold to the position that every Scottish student deserves to be treated equally. Does the SFC do any monitoring of university reserves? Does that come under your remit? We generally look at the financial health of an institution, and we have a range of indicators that we look at, including what we loosely term financial ballast, so that kind of that hinterland of reserves. George is right, quite a lot of those reserves are held for particular purposes and all the rest, but your question is a very fair question to ask at a time of extreme and difficult financial pressures. In a way, I think that it is very difficult for us as a mass funder of education not to have some kind of transparent funding algorithms that we use, that we adjust every year. What we do not do at the minute is that we do not mean test, for example, each individual university and try and get a kind of negotiated outcome with that university for a certain number of funded places. That would not only be extremely complex to achieve, but I think would be extremely untransparent about how we actually fund. I think that there are real challenges to the point that you are making, but I think that the general point about how do we engage collectively at a time of peak challenge around public investment, around holding the balance of demands and desires that we have for the system to achieve what it needs to achieve. Therefore, you might assume that we would not be looking to increase some of our funding prices at this particular time. We may well hold to a position that we still want a significant number of Scottish students to be funded at the level that we are currently funding, but to mean test on the basis of individual institutional financial viability is extremely complex and possibly not quite philosophically a fair approach to take. I take the challenge in the round about how do we hold all of the different competing budget challenges. Just one final question for Professor Boyne. You have heard in the last session discussion about my questions to the panel about working conditions in universities, so I think that it is only fair that you have the opportunity to lay out university Scotland's position on that as well. Why do you think that it is the case that there is this relatively high prevalence of casualisation in zero hours contracts, short term contracts, et cetera, within the sector? It looks to me that the figures are not that different from elsewhere in the UK, but if there is increasing prevalence over time, that is because of the uncertainty associated with the funding flows from international markets, which makes it more difficult to commit to a particular level of long-term investment. If we had more stability in the revenue arrangement, that would make it easier to be able to plan further ahead and know what our funding would be. I have a quick question that is round about capital funding, because we have heard from Professor Boyne there about reserves. We heard this morning about Glasgow University having to use a cinema for lecture theatres, and we have also heard about increasing student numbers. The investment that is required in capital to facilitate that. I am just curious to hear your comments around the pressures on your capital budgets and how that might not support the increase in numbers that we are looking for in terms of the sector. What we have done to respond to those pressures in recent years is to borrow money to fund our capital programmes. I think that that will become increasingly difficult as interest rates go up, so the capital programmes will be under pressure and under threat. We borrowed when interest rates were low, for the most part, across the sector. To be able to maintain that level of investment through borrowing will now be conventionally more difficult. Very briefly, I think that there is a real squeeze on capital more generally. We fund a certain level of infrastructure capital funding for universities, but it is relatively low at around £37 million. That is to cover some of the research infrastructure. We also have what we call financial transactions, which are low-cost capital loans into universities—very, very low-cost. Those are around, at the minute, I would say that we have about £30 million worth of that, but of course those are loans that are very, very low interest rates, and they are for particular purposes, particularly helping universities to think about their green energy low-carbon transition costs. It is an ongoing challenge around how infrastructure works for universities in the run, not just physical but digital, and all that supports the kind of modern university environment. Thank you very much for those responses. Can I move on to questions now from Cokab Stewart, please? The research excellence framework of 2021 results showed that Scotland's universities presented research judged to be world-leading or a four-star quality, and 86 per cent that was submitted was world-leading or internationally excellent. Could either or both of you share some examples of good practice and what has led to that success so that we can learn on that and build upon that? If there is anything that can be done better, then that would also be helpful for us to hear. I would say that one of the fundamental success factors is clearly the long-term investment that we have made in the research base in Scotland. You would expect a funder to say that, but we fund currently around £247 million in our funds going to university research and we topped that up with post-grad grant and university innovation funds, so it takes it to just shy of £300 million. That infrastructure investment then enables universities in Scotland to bid for research projects in the dual funding system that we have into research councils and UKRI and INVATE UK. Scottish universities have been very successful in securing that additional funding. They have been extremely good at raising that research money per researcher per head of population. Scottish universities are extremely successful. The outcome of the research excellence evaluation process shows excellence not just world-leading but world-leading in every single one of our institutions. That, again, is not similar to some elements of the rest of the UK system, so it is phenomenal for Scottish institutions to be at that level of true excellence. I think that what we have seen is a brilliant ability to attract excellent researchers because research is done by people as well as shiny labs and equipment and all the rest. We have been extremely good at attracting good quality researchers. We have been good at pulling the thread through undergraduates into post-graduates and supporting people into early research careers. We have increasingly been good at looking at how we use that infrastructure investment for bringing that research into impact and usefulness more generally. However, I think that we need to think quite carefully about how that research money works in future because our funding is still relatively flat and we still need to make sure that there are competitive aspects of this. We would like to see more collaboration in the research field. Institutions are very good at collaborating together. We need to see scale and funding bids coming in that are going to really keep attracting that level of money. We have just launched a cross-disciplinary alliances for research challenge, which in a small way is again pump priming that ability to get large-scale bids into charities with industry and to research councils to keep pulling that money in. However, it is a very successful research evaluation process and universities have done extremely well. George, have you got anything to add to that? Yes, happy to. First of all, I agree with everything that Camden has just said. Especially that research is a long game. It takes long-term investment to generate these outstanding results, as you have pointed out. It can take 20 or 30 years to produce the research results, the impact and the quality of publications that are reflected at the very top grades in the ref. The results that we are seeing now, which were measured in 2020, reflect the work that was done in previous decades and the funding available in previous decades. The risk for us at this point is will that funding continue and will it still be sufficient to produce that world-leading research? If over a five-year period inflation continues to run high, none of us want that, of course, but should that happen, we are looking at our SFC funding reducing from about a third of our total revenue to 16 or 17%, will it still be possible to support the really high-quality research that Scottish universities have undertaken? We know that, despite the UK and the EU trade and co-operation agreement included provisions for the UK to keep participating in some of the EU programmes, such as Horizon Europe for research and Copernicus for space. The horizon 2020 has been worth 711 million euros to Scottish organisations since 2014. We know that no agreement has been reached so far since the TCA was put in in January. Has this impacted research already? Do you anticipate that it will impact and what can be done to get that moving? The short answer to that is a deal with the EU in Northern Ireland. If that could be resolved, then everything else would move. Clearly, that is beyond our remits or indeed the discussion that we are having today. That is a much larger issue. There is a plan B from the UK Government to provide approximately the same level of funding as from Horizon Europe. The university sector would prefer to remain in Horizon Europe for the European connections that provides to us for the quality of the collaborations that we are able to access through that funding, so our first choice is still to be in Horizon Europe. Thank you. Do you have anything to add to that? The amount of money that came in from EU funds was quite significant into the Scottish sector, so we would be concerned if we were not seeing those funds continuing. Importantly, some of the research that was being done through the EU funding was particularly relevant to medical research, to engineering, bioscience and some of the arts and humanities. It would be a significant gap, but beyond the funding, the issue is one of partnership and collaboration. That had been an invaluable part of that. Universities are still reaching out, they are still part of European networks, but there is still a significant risk to that funding that we are keeping a very close eye on. Can it be a short question for the two more people? It is specifically for Karen, regarding a quote that I have got here from the report from the Scottish Funding Council. It was regarding the research council funding share and whether we should consider whether we are positioned appropriately to win new types of funding from the UKRI. How can we be better positioned? Part of what we are trying to do in small ways, like our alliances for research, where we are pump priming about 600,000 for four projects over four years, is to encourage cross-collaboration, cross-disciplinary research alliances that can then provide bigger bids into research councils. I would say, however, that while we are quite good at getting money from research councils, our share has gone down. I know that we need to think about that with universities. The one part of the UKRI's family structure that we could still do much more around is Innovate UK, where we are not getting a significant enough share of that money. In a small way, I think that this is about how we understand the changes that are happening in UKRI, how we position with universities, how we make sure that there is funding to enable those bids to happen, and I think that keeping close on networks of influence around how UKRI is proceeding. However, I think that we need a more collaborative concerted effort around how we put consortium bids together. Thank you. We have two more contributions, so I am going to ask the members to ask their questions with no preamble. Michael Marra. Very keen on this focus on the long term. You just mentioned the issue there about the research capture from UKRI. The trend in that is not going in the good direction, it is going down, isn't it, Professor White? It has gone up very slightly in the most recent figures, but the long term trend is down. I suppose that what we are hearing is a lot of very concerning issues. We could talk about almost the crisis. The peak challenge, frankly, the Bank of England has just had to step in to bail out the UK pension funds, so it is getting worse, but the long term, I want to ask what you see is the prospects if we continue on the current path. That is what is causing me, because I think that we have to be concerned about, convener. It is the long term, the current path. Where does that leave us? I think that we have become more reliant on international student recruitment as our primary source of revenue for higher education in Scotland, with all the geopolitical and economic risks that that involves. It will make it more difficult for us to plan for the long term, because of the turbulence and uncertainty in those income streams. You can, but it is short, please. It is short. On the ref, in essence, the England is improving at a faster rate than Scotland. The great results for Scotland, but again, the long term trend is not good. Well, I guess you could look at it in a number of different ways. I think on the funders, from a funders perspective, what I'm interested in particularly is the increase in money for research England, and whether or not some of that comes across as consequentials, and therefore whether we can put that back into the research base in Scotland. The recipe for sustainability long term cannot simply rest on increased public money. It has to be a rounded view about what the sector will look like, including, I think, how universities and colleges work together around the nature of provision for learning and teaching, the nature of collaborations, and we are testing some of that in the north-east and in the south of Scotland. But long term, I think that we need to look at coherent provision, I think that we need to look at sustainability in a much broader way, and it needs to be whole sector, whole system, as well as institution. I want to ask Willie Rennie for a very quick and final question this morning. I'm afraid it does, again, reflect complacency, when we have seen a massive reduction in the share of the UK research funding that we get for Scottish universities from roughly 15 to 12.5, 2.5 per cent drop, £1.8 billion that we've lost. Of course, we're not, we shouldn't be wholly dependent on the public sector, but surely it's an indication of the fact that we haven't been funding in recent years to the same extent that they are in England. So why aren't you telling Government that bluntly that the brilliant Scottish universities with brilliant research are in decline? So our review was very clear that we needed to not only protect what we had but to grow the research base. So our review is very clear, it makes significant recommendations about this. So I think that if we're looking at the future we would like to see increased funding in the research base, that's undoubtedly true. We would also like to see industry and charities fully funding some of the research that is being conducted so they make assumptions about whether the full cost is recovered or not. And I think we need to work out collaboratively how we put together compelling investment propositions for additional research that's coming through the councils. But I completely agree that there is a concerning trend and there's no complacency. There are recommendations about how we do this and about how we manage that inflow of additional funds where we possibly can. And through Covid the Government actually stepped in with around £75 million of additional capital to protect essential research. While we were going through a very significantly difficult period we would like to see significant funds being available for research in the future. Anything else? Okay, that's fine. That concludes our session this morning. I want to thank everyone for your time today. We will have a brief two-minute suspension now till our witness to leave. I will be leaving the chair and handing over to my deputy convener, Colcab Stewart, to convene the remainder of the meeting. Thank you very much. Welcome back. Our next item on the agenda is to consider a piece of subordinate legislation. The Children's Hearing Scotland Act 2011 rules of procedures in children's hearing. Amendment rules 2022. This instrument is subject to the negative procedure. It seeks to ensure that the rules regarding the composition of pre-hearing panels are consistent with the Children's Hearing Scotland Act 2011. Does anybody have any comments to make on this SSI? Nobody has indicated that they wish to make any comments. Is the committee agreed that