By Grant Smith, education reporter

DUNDEE UNIVERSITY will have to make savings of more than £3 million over the next two years, staff have been told.

Sir Alan Langlands, university principal, blamed the combination of a worse-than-hoped-for funding package and the need to meet national pay awards.

It was confirmed last month that more than 108 members of staff had volunteered either to quit or cut their working hours in return for a pay-off as part of a long-term programme to improve the institution’s finances.

The aim is to achieve a 3% budget surplus by 2010/11, compared to the present position of substantial operating losses being offset only by the sale of property, mostly former student residences.

In a message to staff Sir Alan said, “The challenge is to continue striving for excellence in learning and teaching and research through a significant period of financial restraint.”

Achieving the surplus was “essential” to support new academic initiatives and maintain the university’s physical and technological infrastructure.

“Given the disappointing outcome from the Government’s comprehensive spending review and pressures on pay, pensions and utility budgets, the action taken following the university’s own sustainability review and delivery of targets set out in our strategic framework will move us towards a break-even position.”

Sir Alan explained that, once inflation was taken into account, the effect of the “poor spending settlement” would be a real terms cut in university funding of 0.2% in the 2008/09 financial year, followed by rises of 1.4% and 1.7% in the following two years.

The university had based its own forecasting on an average real growth rate of 1.5% over the period, meaning its income would now be lower than expected.

Pay rises were adding to the burden. As part of the national pay agreement of 2006, there was due to be a 3% increase in May, which was already factored into the budget.

A further increase was due in October, however, and this would be paid at the rate of either 2.5% or the equivalent of the retail price index, whichever was higher.

RPI was currently 4%, so that could add to cost pressures.

“The prospect is that the university will need to identify additional savings of £1.9 million in 2009/09 and £1.2 million in 2009/10 to keep on track.

“This puts a premium on achieving savings through voluntary severance and generating additional income through improved research overhead recovery and the expansion of taught postgraduate provision.

“Action in these three areas is already resulting in significant improvements to the university’s financial position and this will continue into the future,” Sir Alan said.

The university’s senior management team and its leading academic body, the senate, will both be considering these issues during the early part of the year.

The voluntary severance scheme will have a significant impact on the under-lying financial position, with full-year savings of around £3.3 million anticipated.

Most of these have come from reductions in support staff, although academic posts account for over a third of the total saving.

The university court—the institution’s governing body—has advised management to ensure the appropriate cover is maintained in areas where there have been a number of successful applications.

More than 160 people were not accepted onto the scheme and the court has also called for management to pay particular attention to their morale.

Sir Alan added that financial sustainability was a means to an end, but the success of a university could never be determined solely by its balance sheet.

“It is for this reason that some of the more uncomfortable financial decisions have to be set alongside many successes which pave the way for future growth and development.”

The recent Discovery Days lecture series had introduced 31 new professors, many of the new taught Masters programmes were showing early signs of success and research income had improved, with significant grants coming from research councils and the major biomedical charities, he said.