Have Universities Massively Diverted Spending Towards Buildings?

I haven’t been reticent in pointing out dishonest behaviour from my employer, which has never retaliated. Believe it or not, I’ve been more reticent in criticising the union, not only because I was a member but also because of the union’s defensiveness: even constructive criticism is met with accusations of treachery. Since leaving UCU it’s become clear that people will assassinate my character no matter what I say. So now it’s open season.

Mike Otsuka has written on the absurd mathematics behind UCU’s claim about pay devaluation — perhaps a mistake at first, but certainly a lie when UCU refused to correct it.

The other day I discovered a falsehood that makes the pay devaluation lie look about as white as Mike and I have been called. If the fun and games with pay devaluation and the Holocaust Memorial Day ‘drafting error’ didn’t make you blush, this will test you further.

This document, many versions of which have circulated leading up to the strike ballot in 2019, propounds a claim that has become very important to UCU’s argument that universities can afford to settle its pay uplift and pensions demands while leaving funds leftover. This is important for the moral legitimacy of the strike. Far fewer people would support a strike that aims to direct funding towards the salaries and pensions of permanent faculty, increasing the benefits as you go up the pay spine, if they thought that doing so would drain scarce funds away from those issues to which UCU is so far only demanding commitments to action: pay equality, casualisation, and workloads. UCU needs to claim that the universities can meet the pay and pension claim without reducing its ability to act on the other issues.

Here is the claim:

The highlighted sentence contains the untruth. If it were true, there would have been a massive expansion of capital expenditure — these shiny new buildings we continue to hear about — which could have been spent on staffing costs. Most people I know on the picket lines are convinced that the universities went on a ‘building spree’, diverting vast proportions of their income to buildings (but not the useful kind! that would ruin the argument!).

Now it is true that the proportion of money spent on staff has fallen by 3.35%, but UCU is judicious enough to construe that as ‘not improved’ rather than a decline — after all there is some fluctuation year to year (see the table below) — a lot of it depends on retirement patterns. But the claim that the percentage spent on capital expenditure has ‘shot up’ by 34.9% is bizarre. Expenditure on capital isn’t counted as part of total expenditure normally, though we can of course treat one as a percentage of the other. If we do, by my calculation, the percentage change is 1.1%.

Before showing you my calculation, let me point out something that isn’t false but is highly misleading in context— the point about reserves. Reserves are (net) assets, some of which are tied to endowments, some fixed and illiquid, and others (cash reserves) that can be quickly sold in times of financial distress. These are held to hedge against risk and increase in times of financial uncertainty; for comparison, FTSE 100 companies increased their cash reserves by £128bn between 2008 and 2013 (yes, I know universities aren’t businesses, but the laws of accounting apply nonetheless). Universities depend on borrowing more since government capital grants have been cut, and more borrowing requires more hedging. Running down these reserves would be financially irresponsible and drive up borrowing costs. That would make it harder, not easier, to meet high staffing costs. It is misleading to suggest that the reserves are available to be spent on pension contributions and salary uplifts.

Now to that 34.9% figure. Although the document links to a HESA 2016/17 report here, you won’t find all the data to support the claim there. You’ll also need the HESA 2009/10 report, and the table on p.12 of the original pay claim submitted (and rejected) before the strike was called. Here is that table:

I’ve highlighted the 34.9% figure. As you can see, it’s the increase in capital expenditure, not the increase in ‘the percentage spent on capital expenditure’. The table leaves us no way to work out how much capital as a percentage of expenditure has gone up, since it (conveniently?) doesn’t tell us total expenditure (which capital expenditure isn’t counted in, but again we can still do one as a percentage of the other). From the HESA reports we find that total expenditure in 2009/10 was £25.86bn and total expenditure in 2016/17 was £34.49bn. So total expenditure went up by 33%; already you can see that a 34.9% increase of capital expenditure isn’t going to be very significant in terms of the percentage.

Now in 2009/10, capital as a percentage of total expenditure was 3.61/25.86=13.96%. The percentage in 2016/17 was 4.87/34.49=14.12%. The change between the two is 0.16 which is 1.1% of the original percentage 13.96%.

There was a slight change in the direction of greater capital expenditure relative to total expenditure. And certainly we’ve all seen building going on around our campuses, once we started to look for it. But there could only have been a massive expansion throughout the sector if building had become much cheaper. The story about massive capital expenditure sucking up huge volumes of funding, which could have gone to staff, is based on a colossal mistake: the inflation of a figure to 32 times its value.

Was it an honest mistake? Some apologists might say that the claim, though often repeated, contained another ‘drafting error’: it said ‘percentage spent on capital expenditure’ when it just meant ‘capital expenditure’. But why would you compare a change in the percentage of total expenditure (on staff) to a change in expenditure? That would tell you nothing useful.

Note, also, how UCU’s own table clearly indicates that the 34.9% figure refers to a change in expenditure, not percentage of expenditure. The drafting errors only enter in all the propaganda making the comparison with the decline in the percentage spent on staff.

The table also seems designed to mislead. Why would you include only the percentage of income spent on staff but the amounts spent on everything else? Well, looking elsewhere in the claim we have this:

Is that clear? How do we compare a percentage to an absolute amount?

Suppose the sentence had begun: ‘With capital expenditure increasing by more than £1.2 billion since 2009/10 and staff costs increasing by £4.23 billion…’ — that doesn’t support the next part of the sentence.

Or how about: ‘With capital expenditure increasing from 13.4% of income to 13.65% of income and staff expenditure decreasing from 56.6% of income to 52.9% of income…’—that at least gets the signs right, but we’re just not getting the sharp departure towards capital expenditure. It takes a pretty dramatic falsehood to get us there. But the supply of those has never been limited, nor apparently is members’ tolerance of them.