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January 20, 2011

How to read HEFCE's funding letter from BIS

Vince Cable and David Willetts are trying to steer universities in a new direction. So the ministers at the Department of Business Innovation and Skills gave the Higher Education Funding Council for England unusually extensive and detailed guidance in the annual grant letter they sent at the end of December. What follows is the full text of that letter with annotations by me in red that are intended to explain, interpret and comment on what the government is doing.

The first response from Hefce is due at the end of January, when we can expect indications of the strategic direction they are following. Detailed allocations to universities on the big budget lines should follow in February.

Comments are very welcome. And if you find this useful, there's more from me every two weeks in Research Fortnight.

***

20 December 2010

Dear Tim

HIGHER EDUCATION FUNDING FOR 2011-12 AND BEYOND

Introduction

1) This letter provides details of the allocations that the Coalition Government will make to the Higher Education Funding Council for England (HEFCE) for 2011-12 and the priorities we are setting. It also gives indicative funding totals for 2012-13 and the main budget aggregates for the remaining years of the Spending Review, with confirmed allocations for science and research resource funding for four years. We are providing these indicative future figures in order to assist the sector with forward planning, and to show how increased tuition income routed through students will substitute for reduced HEFCE grant funding over the period. Allocations are made subject to the financial delegations and information requirements that will be set out in a Management Letter to the Council in early 2011, and the Secretary of State's approval of HEFCE's Key Performance Targets by spring 2011.

The guidance on future income for the sector is welcome - so far as it goes. The worrying thing here for universities is what is actually going to happen with students and tuition fees. The ministers say the figures in the document represent what universities "will" get from tuition fees. But, even allowing for their indicative quality, there are many twists and turns left in the policy story before that conviction can be justified. It's all part of the single biggest problem universities have right now - uncertainty.

2) Our universities and colleges are hugely important to this country, and our world class HE system is a great asset. We affirm our commitment to some of the key features of that system; in particular, the independence and autonomy of institutions. We need higher education to flourish, in the interests of economic growth, social mobility and of course because of its inherent worth.

Autonomy. At about the same time as this letter was written, the government was appointing one of its most senior politicians (Simon Hughes) to second guess the Office for Fair Access and root around in the admissions decisions of universities. That is not more autonomy. It is increased, nakedly political, interference.

3) This is the first full Grant Letter this government has sent you. We are setting some new directions for higher education, signalled in the Comprehensive Spending Review, and our response to Lord Browne’s report on Higher Education Funding and Student Finance. We will set out our overall thinking and plans for HE in more detail in a White Paper, and will value your advice in preparing it. Taken together, this grant letter and the White Paper will supersede all previous directions to the Council about policy objectives. In particular, the White Paper will set out our intentions for the future powers and functions of the Council. For 2011-12 and 2012-13 though, we expect the Council will continue to perform its current role on its existing statutory basis.

"Supersede" nicely reminds everyone that we have new masters now.

The Whitehall government will go into policy purdah in early April because of the elections in early May for Scotland and Wales. Hence the White Paper needs to be published by early April at the very latest. One big decision that has to be taken by then is how radical to be on the constitutional issues - is the future of Hefce and the other statutory HE bodies on an evolutionary path, or a revolutionary one? The super-regulator mooted by Browne got a cool reception, so what now? One option is to pull a lot of powers back into Whitehall. Adrian Smith, the key civil servant at BIS, has a large team of civil servants who are already second guessing Hefce on many things. Why not give them, or rather ministers, if not full responsibility then much more responsibility. That's what we are seeing in other areas such as food safety since the bonfire of the quangos. If ministers opt for revolution, then their white paper gets much bigger and more complex, will take longer to draft and see through Parliament, offers greater scope for tripping up - and hence the uncertainty for universities increases again.

Preparing for change in 2012/13

4) Since taking office, our overriding priority has been to reduce the fiscal deficit. Higher Education, like other areas of public spending, has had to take its share of savings, and this will continue in 2011-12. Nevertheless, it will continue to receive significant public funding during this CSR period, with the new feature that more funding will be provided directly to students, including part-time students, as up-front tuition loans, which higher earning graduates will over time repay. Less funding will be routed to institutions as grants via the Funding Council. These changes will contribute to eliminating the structural deficit over the lifetime of this Parliament. They will also support a more diverse sector, where the choices of informed students provide a constant drive towards high quality teaching and efficient use of resources.

The trouble with trying to score partisan points in a letter like this is twofold. It tells us that the authors are still trying to win an old argument - which in turn tells us that they feel they lost that argument. And it provokes a response from people like me who don't like to let something misleading pass. So a reminder - as HEPI has pointed out, "reducing the structural deficit" does not equate to "less borrowing". This bit of political self-congratulation depends on an accounting trick that HEPI has described as "smoke and mirrors".

I like the sound of "choices of informed students providing a constant drive towards high quality teaching and efficient use of resources" but am skeptical. These are some of the classic benefits of a market, but the government still hasn't figured out how to make the market it dreams of a reality, and consequently we don't yet know about what the downsides might be. And last time fees went up universities promised a better deal for students - but didn't deliver.

5) These new arrangements will come into force from the academic year 2012/13. This means that 2011-12 will be a year of transition, where institutions will be preparing for change. In allocating resources for the 2011/12 academic year, we would like you to focus in particular on supporting a smooth transition for all institutions to the new arrangements. There are a number of areas that we think are particularly important.
6) Social mobility, fair access and widening participation should be a key strategic objective and you should continue to require an annual Widening Participation Strategic Assessment (WPSA) from all institutions. This should cover not only young people from low income backgrounds but all those from groups under-represented in HE, taking into account issues facing disabled students, ethnic minorities, part-time and mature students.

"Social mobility, fair access and widening participation" are the mood music that Lib Dems hope will allow them to rekindle their love affair with students (and academics). Hence they have become not just a policy objective but a political necessity. Hence Simon Hughes' appointment as the Coalition's "access advocate". Universities must watch out. A huge amount of political capital is being laden onto a small boat. If it capsizes, they will be the ones swimming for their life.

The language here is a significant, er, widening of the widening participation agenda. It dilutes the focus on poverty and strengthens the position of other target groups, such as the disabled. Tackling the needs of these groups may be a good thing in principle. But the consequence may be that nothing really changes for students from poor families. If universities have a wide range of "access indicators" to aim for, then they can probably satisfy the government by hitting four of the six targets, even if the poverty target - probably the most intractable - is the one that keeps getting missed.

This all reminds me of GCSEs under Labour. I fear the success rates will keep going up, while actual attainment (at least on the poverty front) goes down. Remember, the Institute for Fiscal Studies concluded that the government's reforms will leave students from the poorest 30 per cent of households worse off.

Your continued support to the sector on widening participation will be particularly important as you manage the move away from the Aimhigher programme towards a new and improved approach to outreach, disseminating lessons learned from that programme and looking at improved targeting of outreach.

That is "new and improved" as in "with less money".

You should continue to work closely with the Office for Fair Access to ensure that the WPSA and the Access Agreements are as integrated as is possible. New guidance is being issued to the Director of Fair Access, setting out tough conditions for institutions wishing to set graduate contribution charges above £6,000 from autumn 2012, including an agreed programme of progress each year against a university’s access measures and benchmarks. Your work with the sector on improving the Performance Indicators and the institutional benchmarks takes on even greater importance in this context. I also look forward to working with the Council and others to develop and implement the new National Scholarship Programme.

One of the problems that is going to come up is the idea of universities having to make "progress" on access targets. As a sector, that's fine. But it could be deeply unfair to some individual universities. Take Queen Mary's. Deep in London's East End, it already has great programmes and results. Why should it suffer if it fails to improve its stats when other unis that have done nothing for years make easy progress?

7) A renewed emphasis on teaching quality is fundamental to our vision for Higher Education. Your work with the sector and the Quality Assurance Agency, to ensure strong quality assurance arrangements are in place for the start of the 2011/12 academic year, will be very important. We need a regime that is built around assuring and improving the experience of the
student.

I'm a cynic and don't think anything will change.

Student choice will be a key long term driver of quality, and to support that choice we have committed to improving the information available to prospective students, so that applicants can make well informed choices between the range of programmes and institutions, and students can hold institutions to account for the quality and cost-effectiveness of what they provide. The Council is leading on key work strands in this area, including the consultation on the required publication by institutions of a standard set of information for each course. We want the Council to give this work a high priority, encouraging institutions to publish full information about their courses as soon as they can and pursuing the publication of information about graduate salaries as a matter of urgency.

Good. This information really will be useful to prospective students, whatever you think of the market rhetoric.

8) Universities and colleges will need to become even more responsive to the changing demands of students and employers for high level skills and employability, to ensure they remain competitive as providers in the new funding environment. We very much welcome the Council’s recent report setting out the challenges and opportunities for flexible and innovative provision. We hope it will be widely studied in the sector and published in due course. Two year degrees, and other intensive forms of degree, offer an attractive option for many students, as does flexibly delivered provision that allows students to achieve Higher Education qualifications in the workplace. Universities will also want to reflect the importance of enhancing progression opportunities for learners within the FE sector, or in employment as Apprentices or otherwise.

In time, this is surely going to be a big deal. England is about to get the least subsidised HE system of any country we'd want to compare ourselves to. If, with living costs, it is going to cost me £15,000 a year to get a degree, why not get it in two years? Far off I hear a demonical laugh of, "At last! Universities will become degree factories! Ha ha ha ha!"

Research and Economic Growth

9) Our world class science and research base is inherently valuable, as well as being crucial in supporting the economy to recover from the downturn. The UK research base has excellent capabilities in higher education institutions with the critical mass to compete globally and the expertise to work closely with business, charities and public services.

In actual fact, the number of universities with both "the critical mass to compete globally" and "the expertise to work closely with business, charities and public services" is probably quite small. But don't read too much into this wording. This is similar to the kind of language Hefce has been seeing from the government for years (and is repeated below in the capital section).

Your research funding is particularly significant in sustaining capability in the arts and humanities and in social science, which currently amounts to around a third of total mainstream QR research funding.

Yes, because in the hard sciences the research councils provide a much bigger share of state research support. It's good to see recognition of that when so many in these disciplines are jumpy about the impact of higher tuition fees. But the government's decision (below) to ring fence funding for science disciplines at a time of cuts, means the arts, humanities and social sciences are in for a big squeeze.

The ring fenced settlement for Science and Research resource means that we can continue to support those subjects throughout the four years of the spending review period. Funding allocations for HEFCE for research, knowledge exchange and research capital for the period 2011-2015 are set out in the Annex. This funding over four years will enable you to deliver our agenda for research and economic growth. Research capital is not ring fenced. Research capital allocations are indicative for 2012-13 onwards.

In other words, take inflation and capital into consideration and even science and engineering are going to be squeezed a bit.

Capital allocations won't be considered by the Hefce board until March.

10) You should take forward funding both for research and for support for the next generation of researchers, by selectively funding on the basis of only internationally excellent research, and protecting funding leveraged from external sources such as the charitable and business sectors. You should work with Research Councils and the National Academies to address collectively issues such as health of disciplines and research careers.

There are two very important points here: QR - the funding Hefce provides for research; and PhD training funds. Both are critical to the ability of universities to build up their research capacity.

On QR, "Internationally excellent research" in the Research Assessment Exercise designates work that is rated 3* or above. So this is really a coded directive to Hefce to eliminate the current funding for 2* work from its QR funding formula. This is not a surprise. Vince Cable floated this as a mechanism for implementing cuts in QR last September. I even modelled the effects then. And it can be argued persuasively that it is the least damaging move. But it is a big deal. New universities that were polytechnics until 1992 will lose out disproportionately.

Back in the autumn, David Willetts and Universities UK floated the rival idea of making the cuts by concentrating funds on departments with a critical mass of top researchers. This would be even worse for new universities (and better for the Russell Group). So does this letter mean defeat for Willetts and that the prospect of sharply increased research concentration is now over? Not so fast. I am told that within Hefce there are still some arguing for more severe concentration than is directed here. But that - important - debate aside, there's enough guidance here to pretty accurately estimate the allocations universities can expect for next year.

On QR, "Internationally excellent research" in the Research Assessment Exercise designates work that is rated 3* or above. So this is really a coded directive to Hefce to eliminate the current funding for 2* work from its QR funding formula. This is not a surprise. Vince Cable floated this as a mechanism for implementing cuts in QR last September. I even modelled the effects then. And it can be argued that it is the least damaging move. But it is a big deal. New universities that were polytechnics until 1992 will lose out big time.

Back in the autumn, David Willetts and Universities UK floated the rival idea of making the cuts by concentrating funds on departments with a critical mass of top researchers. This would be even worse for new universities (and better for the Russell Group). So does this letter mean defeat for Willetts and that the prospect of sharply increased research concentration is now over? Not so fast. I am told that within Hefce there are still some arguing for more severe concentration than is directed here.

On PhDs, the 1994 Group and others have been lobbying to restrict the range of universities that can be allocated funding for PhD training. This would be to the disadvantage of the new universities. This language about the "next generation of researchers" seems to be a step towards that, restricting PhD funding (like QR funding) to those departments with superior RAE profiles.  

11) It continues to be important that universities and business work more closely together. We welcome the Council’s commitment to HEIF which we would expect to continue at current levels. This means that the total funding of HEIF will continue at £150 million per year over the four years of the spending review period including £113 million per year specifically included from within the Science and Research budget. This will allow you to take forward reforms of HEIF rapidly, based on the current formulaic approach, which will provide greater incentives to HEIs to increase interaction with business and other users, through a focus on performance (moving away from capacity); and will also incentivise the highest performing institutions further and ensure that only the most effective performers are supported, through introducing a minimum qualifying level of external income necessary to gain an allocation.

HEIF was set up a few years ago to build up the capacity of universities to exploit their research expertise. It is widely seen as a success, so it's good that it is being continued with. But there's an important shift here. From now on, funding will be based on performance. To the winners, the spoils. Fine by me, though I've had tweets suggesting this will lead to problems for knowledge transfer work in the arts, humanities and social sciences. It's all going to depend on how Hefce defines "performance".

The decision to continue with HEIF, and with "impact" assessment in the next Research Assessment Exercise (sorry, REF), and with reng-fencing science and engineering QR allocations, and to guarantee science and engineering funding for years to come - these decisions show that for all the upheaval of tuition fees, in important ways the new government's approach is indistinguishable from the old government's. From universities, politicians of all hues want more economic bang for their buck.

The Government is also committed to provide incentives which enhance the economic and social impact of research. The progress that you have made with developing the Research Excellence Framework is most welcome. You should continue to implement the REF over the next four years to recognise impact only from excellent research. You should work with the Research Councils to ensure that the overall impact agenda is delivered coherently.

"Excellent research" in the RAE denotes work that is rated 2* or above. So this is ministerial approval for Hefce's proposal to limit the financial benefits likely to flow from high "impact" scores in the next RAE to departments already doing 2* work. Willetts evidently has concluded that the plans are not "clunky".

Funding and Student Numbers

12) The annex to this letter gives details of the confirmed funding we are providing for science and research resource for the whole of this Spending Review period. It provides confirmed figures for the Council’s teaching budgets for 2011-12 and indicative figures for 2012-13. The Council’s administration budget will be notified separately. The Council's overall settlement for 2011-12 represents around a 6% reduction in teaching grant against the comparable figure for 2010-11. However our funding reforms mean that, by 2014-15, the BIS loans outlay to HEIs for the up front costs of graduate contributions is projected to rise by some £4 billion in total (from around £3 billion in 2010-11 to around £7 billion by 2014-15). Meanwhile, HEFCE’s revenue teaching grant is projected to reduce in cash terms to around £2 billion. Putting together funding for recurrent grant for Teaching and Research and the BIS loans outlay to HEIs on the upfront costs of graduate contributions, the aggregate effect could be that this total BIS investment in HEIs in England would rise in cash terms from around £9 billion in 2010-11 to around £9.5 billion in 2013-14 and £10 billion in 2014-15, whilst broadly maintaining existing levels of participation, an increase of nearly 10% in cash terms. Figures for 2012-13 to 2014-15 are indicative and subject to refinement as the student and HEI response to the new HE funding package unfolds.

Here we are given the best guidance yet from the government on the future undergraduate income the sector can expect, combining both Hefce teaching grant and student fees. The indicated rise from £9bn in 2010-11 to around £9.5 billion in 2013-14 and £10 billion in 2014-15 is roughly flat in real terms (though there's a dip in the coming two years). At a time of the deepest cuts in public spending for generations, many vice chancellors will call this a good result. The debate on tuition fees last year would have been a lot clearer if BIS had released these figures then.

In the short term, the 6 per cent teaching cut next year is manageable. Universities have been planning for it for some time and should not cause huge disruption. Leeds for example responded by telling its staff, ""This letter from BIS gives us no reason to look for any further savings: the economies exercise target of £35m remains valid. So far, around two-thirds of the savings have been identified. The remaining savings will be found through this year's planning exercise."

13) Over the past decade, the sector has benefited greatly from public investment in closing capital backlogs. Given this, and the public spending climate, we are now reducing the amount we invest in teaching capital, to a figure of £96 million in 2011-12, as set out in the Annex. It will be for you to allocate this budget, in line with priorities you identify, and we are grateful for your work in developing a new approach to its allocation. Our steer to you is that this settlement requires resources to be focused on achieving key strategic priorities.

The deep cut in capital spending is no surprise, and won't do huge damage provided spending is restored in three or four years time. The focus on strategic priorities is of a piece with  language elsewhere. A lot of the Labour mechanisms were quite diffuse, and a fair bit of money ended up in humble institutions. This government seems keener on getting a visible bang for its buck. That seems to me to favour the big, glamorous places.

We are also making £128 million available for research capital for 2011-12, with indicative allocations for subsequent years shown in the table. You should ensure that research capital is focussed on maintaining excellent departments with the critical mass to compete globally and the expertise to work closely with business, charities and public services.

Again, the ambiguity mentioned above - and big consequences follow from the interpretation intended.

14) We want to ensure that students who have the ability and motivation to gain a higher education qualification can do so. We believe that the changes we are making from autumn 2012 will facilitate this, by reducing the overall costs of higher education that fall directly on the public purse.

Put together, these two sentences form one of those non-sequiturs that can only be written by people who have drunk deep from the cup of ideology.

However, for 2011-12 the system is unchanged and we face extremely challenging public spending constraints. So we have to control public expenditure costs by controlling student numbers. Even so, our budget assumptions, including funding for student support, are that entrant places into higher education for autumn 2011 remain at the level on offer in autumn 2010. This means continuing to make provision for the 10,000 additional entrant places made available to the sector through the University Modernisation Fund in May 2010, so that those additional places can be carried forward for a further year. It is for you to decide whether a reallocation of places between institutions is appropriate, given that very specific conditions were tied to the UMF places, and these conditions applied to them alone. As a provisional planning assumption, universities and colleges should work on the basis that this pulse of additional entrant places will not be repeated in 2012/13 and so the 10,000 extra places will not be repeated.

No surprises here.

15) For 2011/12 we must ask you to keep in place your mechanisms to minimise and preferably eliminate over-recruitment. Any over-recruitment in the coming year could result in a transfer of HEFCE grant back to this Department in that or future years, in order to meet the consequent unanticipated student support costs. You should also make appropriate adjustments to the allocations of any institutions that have over recruited in 2010/11 at a rate of £3,750 per full time, under graduate and PGCE student recruited above the permitted level. This figure represents the average cost to the Government of providing student support.

I don't know if these penalties are more severe than in the past.

16) Our policies for the long term lay stress on choice for students. In the forthcoming HE White Paper, we will discuss proposals to enable universities to respond flexibly to demand. Institutions which are chosen by students because they offer better quality, responsiveness and value for money should be able to grow if they wish and - if necessary - at the expense of those that perform less well. We expect new providers to enter the sector, provided they can offer cost-effective teaching to the high standards students will want. Similarly, we see potential for further education colleges to contribute to the diverse provision of cost-effective, locally accessible programmes. There will, of course, be an overriding need to manage within public expenditure constraints, given that the student finance regime will continue to be subsidised from public funds. This will require developing a new approach to constraining Government financial exposure at the sector level, without restricting student choice of institutions. Lord Browne offered one imaginative solution; we are considering other possibilities and will say more in the White Paper. Meanwhile, we would welcome the Council’s active engagement and ideas for how our policy goal can be achieved in 2012/13 and beyond.

Here we see the central conundrum of the coming white paper. Ministers want a market in undergraduate students. But they need a mechanism to control spending on student support. The current mechanism - student quotas for universities - is anti-market. The question is, can they come up with something that not only sounds better in theory but actually works?

There are three big factors that need to be taken into account - the number of students, the level of tuition fee they pay and how much they receive in other forms of support, such as maintenance loans. Here are four options:

A) Browne's suggestion of limiting funding only to those students who exceed a threshold in terms of the grades scored in their A-levels. The single biggest barrier to this is practicality. Many students don't apply with A-levels (eg those from the EU who legally must be considered for support on an equal footing with UK students). Creating a system to handle all students is the work of several years, I am told. Hence the system would have to go live in 2012 on some other basis.

B) Use the university's success in widening participation to control not only the fees it can charge but also the number of students it can take. The problem? It's not really a market either, is it? And even though I'm a zealot for getting more poor students into university, even I think that balancing the entire system of undergraduate university finance on access questions would be to make the tail wag the dog. If Oxford fails to meet its targets, do we really want to halve the number of students going there?

Just to sketch out what would be required in terms of bureaucracy is to make the anti-quango brigade faint. The biggest chunk of university income would in future depend on assessments made by the Office for Fair Access. Currently OFFA is staffed by Martin Harris (its boss), two men and a dog. But to manage billions of pounds of cash each year, it would have to discuss, approve, supervise, review and mark access agreements from every university. It would operate under tight legal obligations and could require 100 staff. With so much riding on the verdicts, every university, too would have to employ sizeable teams of people to manage the process.

C) Base it on applications. The more students who want to go to a university, the more places it gets. The problem? The inevitable avalanche of spending on TV advertising by university marketing departments is probably more like a real market than ministers have in mind...

D) A revised, semi-quotas system. In this institutions would be allocated a core quota of places and left to compete (in some unspecified way) for the rest. Never bet against a fudge.

In general, you can measure the performance of a university with a spread of indicators and then use a formula to turn those numbers into a quota of students. Or you can limit the students, again based on some objective criteria. The student-based route appears to offer a more realistic market, but is it doable? And are ministers really ready to live with the consequences? How many voters in how many towns really want to see their university close?

17) Within its overall settlement, we want the Council to re-examine the balance of funding between what is allocated through general formula funding and what is allocated through more targeted allocations. Our aim is that, taken in the round, special grant should be targeted on promoting policy priorities and meeting unavoidable costs. For 2011-12 the top policy priorities for targeted funding should be supporting widening participation and fair access, and ensuring adequate provision of Strategically Important and Vulnerable subjects.

So Hefce has to prioritise widening participation within its budget. This is universities paying to salve the wounds of the Lib Dems over tuition fees.

During 2011-12 we would like you to consider what subjects, including arts, humanities and social sciences subjects, should in future be within scope. There may continue to be a need to support the additional costs of specialist provision including that delivered in small and specialist institutions, and to recognise that efficient part time provision may nevertheless have some additional costs.

Welcome recognition that some specialist things - eg music - are expensive to teach and that institutions that specialise in them have no way of cross-subsidising them. And I'm also glad to see support for part-timers. But this just isn't a market, is it? In a market, customers have to pay more for things that cost more.

Whilst it is for the Council to take decisions on the detail of its allocations, we would hope that it will continue to make dedicated funding available in all of these areas for the foreseeable future, while recognising that the Council’s future methods for allocating grant will need to be fundamentally reviewed and revised as a consequence of the wider funding reforms being introduced from autumn 2012. We will say more in the White Paper about our priorities for targeted funding and would welcome the Council’s advice on the focus and extent of targeted funding over time and on the mechanisms for supporting institutions to adapt to any changes. Subject to these priorities, we look to the Council to continue to allocate grant funds in such a way as to maximise the proportion of funds allocated to front line delivery of teaching and learning.

"Front line" irks. Ministers are creating massive uncertainty in the HE sector. For example, universities now have to guard much more carefully against the risk of going bankrupt. The only rational response for universities is... more management, and hence more managers.

18) To ensure the maximum possible resource goes to providing public services, this Department is not retaining any departmental unallocated provision for 2011-12. So it is essential that you continue to manage the Council’s activities within existing budgets, including the knock-on consequences of over-recruitment for the student finance budgets.
Efficiency and Sustainability
19) The public sector is facing an extremely challenging spending environment. We welcome the action the Council has already taken on efficiency and particularly the £2 million saving it is delivering in its own administration costs for 2010-11 to meet the efficiency targets being applied across the public sector. As you will be aware, institutions in receipt of public funding are being asked to make efficiency savings. The Spending Review set challenging efficiency targets for all departments and public sector bodies over the next four years, with spending on
administration and back office costs falling significantly across Government.
20) It is right that the HE sector should secure comparable efficiencies and I am sure that the Council will build on its constructive work to date with institutions to maximise the proportion of grant reductions which are achieved through efficiency savings, including those from sharing services. We are continuing to look at ways to incentivise greater use of such arrangements.

A big issue here for universities here is VAT. If they share services, the providing entity has to charge them VAT. Which, unlike businesses, they can't get back. Hence a shared service starts off 20 per cent more expensive than an in-house service. Ministers are looking at it. If they can't force HM Revenue and Custom into softening it's line, then they'll have to stop banging on about this.

[Note: I've now had an email telling me I'm out of date on VAT and that sophisticated unis have concluded that by setting up a special purpose vehicle for joint ventures and careful tax planning they can avoid the problems. I'm trying to get a full description of how this works]

21) We expect universities and colleges to continue to deliver efficiencies, in all elements of teaching, research and administrative activity, over the coming years. Students and the public have a right to expect that the HE sector will be rigorous in controlling its costs and improving value for money, as one important way of holding down the graduate contribution charges that institutions set. Last year, we made specific funding available to support efficiency savings through the University Modernisation Fund. We look to the Council to ensure that those savings are delivered in full, and that good practice lessons are learnt across the sector.

22) The action that the University Superannuation Scheme is proposing to control pension costs is a good first step. It is also essential that the sector exercises pay restraint, at a time when there is a pay freeze in place across other sectors in receipt of public funding.

Why? If their undergraduate income is going to rise by 10 per cent in the coming years, universities have got plenty to spend on higher salaries.

23) On research, you should deliver efficiency savings from Quality Related (QR) recurrent research funding of £16 million in 2011-12, £45 million in 2012-13, £73 million in 2013-14 and £104 million in 2014-15 to be reinvested within QR. You should work with the Research Councils to ensure that institutions take forward actions recommended by the Wakeham review to reduce indirect costs associated with research and related postgraduate training. In achieving these efficiencies you should incentivise HEIs to collaborate for example through greater sharing of research equipment and infrastructure.

The key word "reinvested" means these efficiency savings are not a cut but an area where Hefce has to compile a report showing changes in university activity that have made them more efficient.

24) We support the voluntary giving scheme, which has seen Government funding being used as an effective lever to generate additional income and the sector taking responsibility for prioritising and utilising these funds. This was always meant to be a time-limited scheme in order to build capacity within the sector. We are fully honouring the commitments previously given for this initiative and would like to see the Council continue to work with the sector to put in place sustainable systems for the longer term. Ministers have announced a cross-Government review of incentives for philanthropic activity, reporting in spring 2011.

The big win would be US-style tax incentives for universities. Over there, the income a university receives from its investments is tax free. As a donor, your money therefore goes a long way in a university.

25) We welcome the positive engagement of the sector over recent years in environmental sustainability. Even in fiscally challenging times, we remain committed to achieving the targets for carbon reduction and making progress on the wider sustainable development agenda. We hope you will continue to support the sector in its efforts here.


Managing expenditure and commitments throughout SR10

26) In light of the tightening fiscal environment over the next four years, the Council itself must expect to comply with more stringent spending controls in relation to its own expenditure, including continuation of those in place in 2010-11. You will need to monitor carefully the legal and financial commitments you enter into during the SR and provide regular commitment information to the Department. Further guidance will follow on this.

"provide regular commitment information to the Department" - presumably BIS doesn't want to abolish Hefce in the white paper and then discover it is lumbered with contracts it doesn't want. That's completely understandable. But it's an unpleasant intrusion into Hefce's autonomy. A more trusting approach would be just to ask Hefce to avoid unnecessary commitments.

27) The whole of the ring-fenced science and research resource funding has now been allocated by Ministers for the 4 years of the SR10 period. We will continue to look to you, together with the Research Councils and the UK Space Agency, to work co-operatively with BIS to manage any pressures within the Science and Research budget which might arise where it is neither appropriate nor reasonable to expect the pressure to be contained within the allocation of an individual partner organisation. We would expect such situations to be exceptional but they could, for example, arise in relation to the uncovered exposure to currency movements.

Currency movements? BIS has in theory found a solution elsewhere to the endless STFC problems with these and international subscriptions. So why does it need to drag Hefce into it?

Condition of Grant on Regulated Tuition Fees

28) Under Section 23 of the Higher Education Act 2004, the Secretary of State has imposed a condition on grants to HEFCE, and to the Training and Development Agency for Schools (TDA), requiring them in turn to impose a condition on financial support given to the governing body of a relevant institution. This condition requires the governing body of each institution to ensure that the fees payable for a course of higher education by a student who is eligible for financial support under the Student Support Regulations do not exceed either the basic amount specified in the Education (Student Fees) (Amounts) (England) Regulations 2004, as amended (being £1,310 for the 2010/11 academic year) – or, where the institution has in force an Access Agreement approved by the Office for Fair Access (OFFA), the higher amount specified in those Regulations as amended. Regulation setting the amounts for 11/12 will be laid before Parliament for approval in the usual way. As you know, we have also decided the new basic and higher amounts for students starting courses in the following academic year, that is 2012/13: the basic amount will be £6,000 and the higher amount £9,000.

No mention there of the word "exceptional", as in universities will only be allowed to charge fees of £9,000 in exceptional circumstances. This was the promise made by Vince Cable in the House of Commons. But since the vote was passed on tuition fees, no document or speech has mentioned the word. I have spent almost a week in correspondence with the BIS press office trying to get it to confirm that "exceptional" is still part of its policy. It has declined to do so - and I smell a rat.

VINCE CABLE DAVID WILLETTS

Annex: Funding for the HE sector via HEFCE and BIS Loans for 2011-12 and 2012-13

I found this annex quite confusing and needed expert help to get through it. This first table is what Hefce is setting out as "Funding for the HE sector via HEFCE and BIS Loans for 2011-12 and 2012-13". The notes and the additional table below are all notes to this table.

Three things I discovered. The note at the top of column 2 only make sense when you take into account the additional detail set out in the notes below. Line b here is almost entirely QR (see my notes below). Hefce has to supply £37m to HEIF each year from its other budgets.

Picture 2

Notes
1) The amounts set out above are the Council's resource and capital budgets. They represent the maximum amount of resource and capital that the Council may consume in pursuance of the priorities agreed with the Department for the Spending Review period. Figures may not sum due to rounding. Funding must not be moved between the recurrent, capital and non-cash resource lines, without explicit agreement from BIS.
2) Recurrent grant for teaching excludes £132 million one-off funding provided for 2010-11 through the University Modernisation Fund. This is because the funding was allocated as a single sum in 10-11 covering the full duration of the additional courses. The government expects entrant numbers to be maintained at 2010-11 levels (which included UMF places); however, the UMF funding was provided for 2010-11 only. It also excludes £24 million representing the administrative budget of the Council after allowing for the additional savings in 2010-11 and the reclassification to administrative budgets of expenditure previously charged to programme budgets.

It seems to me it would be more accurate to include the University Modernisation Fund in the total for 2010-11. It's very weird to exclude from these figures completely. And after all, that was money universities did get that year. That makes the cut for 2011-12 bigger - up from 6.0 per cent according to BIS to 7.2 per cent in my books.

3) See note 2 above for explanation of the Council’s administrative budget. HEFCE will receive a separate letter detailing their administrative budget for 2011-12 but they should expect to make further contributions in subsequent financial years to the Department’s overall real terms reductions in administrative budgets by 2014-15.
4) Arrangements for the FE ITT Bursary budget for 2011-12 will be notified separately.
5) The Access to Learning Fund is to provide financial assistance to those students experiencing hardship whilst at university. This fund will be administered by HEIs and a separate letter to HEIs will make clear the priorities and operation of this fund for the next financial year. Future years funding will be confirmed in subsequent years grant letters.
6) The settlement provides for the Voluntary Giving scheme to be funded in full with the residual £115 million of the £200 million scheme provided over the 2012/13 academic year.
7) Although it is not part of the Council’s settlement, the figures also show the anticipated level of BIS loans outlay in each of the financial years in question on the up front costs of graduate contributions arising from regulated tuition fees for full-time UK/EU undergraduates whose fee support is provided through the Student Loans Company.
8) The table below shows the 4 year allocations for Science and Research resource along with indicative allocations for Science and Research capital for 2012-13 onwards.

Picture 3

9) HEFCE will maintain total funding for HEIF at £150 million per year over the four years of the spending review period, including £113 million per year specifically from within the Science and Research funding.

The line named "Recurrent grant for Research" is almost entirely QR. Out of this is taken a small contribution to various special funding streams - in past years £15m. So in 2010-11 the headline figure was £1618m, of which £1603m was allocated to QR.

Also note that these are financial year figures, not academic year figures. Hefce has to do the conversion between the two. So 40 per cent of the 2010-11 academic year funding has to come from the 2011-12 financial year - for which Hefce now has less money than was budgetted for when it set the QR figure at £1603m.In other words, there's a (smallish) hole in the budget that Hefce has to plug somehow. In the past it has had the same problem with teaching funding and if it takes the same approach with research funding now then its solution will be a small cut in the already announced QR allocations to universities for 2010-11, the better to smooth the impact of the cuts.

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Comments

Great post, thank you. I love the "how to read..." posts on this blog, few people realise how much information you can get from close reading policy documents. I've blogged a bit about this at:

http://dkernohan.posterous.com/how-to-read-a-funding-council-grant-letter-an

With reference to paragraph 7 in the BIS letter to HEFCE, The latter is currently consulting (deadline 7th March) on the key information to be provided to prospective students as part of the new fees regime.
http://www.hefce.ac.uk/pubs/hefce/2010/10_31/

This anticipates an enhanced role for the National Student Survey and refers back to an earlier report from August 2010 on enhancing the NSS (linked at the bottom of this webpage: http://www.hefce.ac.uk/pubs/rdreports/2010/rd12_10/)

Recommendation 7 of this report indicated that the NSS was not fit for the purpose of making comparative judgements: "The design of the NSS means that there are limitations on its use for comparative purposes ... In particular, its validity in comparing results from different subject areas is very restricted, as is its use in drawing conclusions about different aspects of the student experience. One issue to be borne in mind is that, in most cases, the differences between whole institutions are so small as to be statistically and practically insignificant."

Although providing students with the information necessary to an informed choice would be valuable, the NSS is not the instrument to do it.

John, Hefce has also just released a consultation on the graduate salary bit at http://www.hefce.ac.uk/pubs/circlets/2011/cl03_11/ (thanks to http://twitter.com/#!/universityboy).

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