Uni­ver­si­ties, TfL most vul­ner­a­ble among pub­lic sec­tor en­ti­ties

Financial Mirror (Cyprus) - - FRONT PAGE -

Brexit would have an ad­verse im­pact on the UK pub­lic sec­tor, with uni­ver­si­ties and Trans­port for Lon­don (TfL) fac­ing greater down­side risks through po­ten­tial loss of EU fund­ing and lower own-source rev­enues, Moody’s Pub­lic Sec­tor Europe said in a re­port.

“If the UK were to exit the EU, pub­lic sec­tor en­ti­ties in the UK could be af­fected through lower EU fund­ing or lower cen­tral gov­ern­ment spend­ing transfers. At the same time, rev­enues could face pres­sure from lower eco­nomic growth and any immigration curbs. All pub­lic sec­tor en­ti­ties are vul­ner­a­ble, but to vary­ing de­grees,” said Jen­nifer Wong, a se­nior an­a­lyst at Moody’s.

A UK vote to leave the EU would cre­ate height­ened un­cer­tainty, which would lead to slower eco­nomic growth in the UK over the medium term.

Since the UK cen­tral gov­ern­ment is a ma­jor fund­ing source for the sub­sovereign sec­tor, a down­turn in the UK’s eco­nomic growth could af­fect sub­sovereign bud­gets through both lower gov­ern­ment transfers and weaker own-source rev­enues.

For local au­thor­i­ties and TfL, own-source rev­enues could be af­fected by slower growth in busi­ness rates in­come. Uni­ver­si­ties could face lower in­vest­ment in­come, and, if un­em­ploy­ment were to rise, higher ar­rears and lower rental in­come could weigh on Hous­ing As­so­ci­a­tions (HAs).

Moody’s ex­pects that the UK gov­ern­ment and other sources would make up some of uni­ver­si­ties’ lost EU fund­ing in the event of an exit, but the loss is un­likely to be com­pen­sated in full.

More­over, the rat­ing agency projects that fewer EU stu­dents would choose to study in the UK in the event of Brexit. Those that did, would be charged higher in­ter­na­tional stu­dent fees in­stead of do­mes­tic fees.

Stricter immigration poli­cies could also dam­age UK uni­ver­si­ties’ global rep­u­ta­tion and abil­ity to at­tract in­ter­na­tional stu­dents.

TfL would be ad­versely af­fected by a slow­ing econ­omy. If pop­u­la­tion growth were to be slower than an­tic­i­pated, this would neg­a­tively af­fect rid­er­ship growth and fare­box rev­enues. The op­er­a­tor could also be af­fected by a slow­down in busi­ness rates col­lec­tions due to a Brex­itin­duced de­cline in eco­nomic growth. This is be­cause TfL’s cap­i­tal pro­gramme will be funded through re­tained busi­ness rates in the Lon­don area from 2017-18.

In con­trast, local au­thor­i­ties and HAs would be less di­rectly af­fected.

Some of the lost fund­ing could be re­placed, at least partly, by the UK gov­ern­ment or other sources in case of an exit. Pres­sure on local author­ity rev­enues in the event of Brexit may be partly off­set by re­duced de­mand for ser­vices if immigration slows.

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