Innovation funding to target already successful institutions

The Higher Education Funding Council for England plans to reduce the number of institutions that receive support from the Higher Education Innovation Fund.

Under plans announced on 1 February universities will have to qualify to receive £250,000 or more from HEIF to receive anything at all. A maximum cap on funding to any institute will also be fixed at £2.85m.

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.

Knowledge transfer wins, capital budgets hit in science budget allocations

The government today announced detailed spending plans for the Higher Education Funding Council for England and the seven UK Research Councils for the period 2011-12 to 2014-15.

The plans were unveiled by universities and science minister David Willetts at a briefing in London this morning. As expected, they amount to a 12 per cent budget cut in cash terms over four years.

Almost all of the seven research councils have announced capital spending budgets cuts as much as 50 per cent. The plans also indicate a stronger focus towards funding research that meets UK strategic policy priorities and a move towards yet more concentration.

However, there are rewards for researchers working in knowledge transfer. The Medical Research Council will be able to keep its patent income and there is also protection for the popular Higher Education Innovation Fund. The Science and Technology Facilities Council meanwhile has been able protect its budget for international activities from currency fluctuations.

The STFC’s budget has been split into three streams for the spending review period, meaning that in future its “grants” pot will no longer need to be raided to meet currency-related shortfalls in its international subscriptions.

The Natural Environment Research Council will place less emphasis on participation in international scientific projects, instead devoting much more space to spelling out how the research council will meet national objectives, such as building competitive advantage for the UK.

The Economic and Social Research Council said that it would deal with the cut by scrapping a small grants scheme and concentrating grant support on large projects costing more than £200,000.

The Engineering and Physical Sciences Research Council is concentrating its resources on four main themes—manufacturing, energy, the digital economy and healthcare technologies.

The MRC is the only one of the UK’s seven research councils to receive an increase in funding, which when taking into account inflation should result in a real-terms freeze over the next four years.

The Arts and Humanities Research Council is to address its funding reduction by channelling more money than ever before into cross-council priorities, critical mass within universities and the pursuit of ‘impact’.

Meanwhile, the Biotechnology and Biological Sciences Research Council has confirmed plans to cut its own administration costs by 25 per cent. This will partly be achieved through attempts to reduce demand for grants by capping the number of applications allowed from institutions or departments that “fall consistently below an appropriately modelled percentile,” says the delivery plan. The council says it will seek a reduction in applications of at least 10 per cent.

Cameron's Hauser problem

The Technology and Innovation Centres (or Hauser Centres) that David Cameron is set to announce today as part of the National Infrastructure Plan are a kind of intermediate institution. The idea is to fill a gap between the basic research done in university departments and the concrete product R&D that companies do.

The gap is quaquaversal. It extends in every direction into technologies, industries and scientific disciplines. How a country effectively bridges it is an unending source of discussion to innovation theorists. You can spend a lot of money on it but the impact is hard to measure. The Office of Budget Responsibility will not be issuing any job forecasts to accompany Cameron's announcement.

Under Labour, spending on bridging the gap came through four routes: the Technology Strategy Board, Regional Development Agencies, research councils and the Higher Education Innovation Fund run by the Higher Education Funding Council for England. The RDAs have been spending £300m - £400m a year in this area, the TSB about the same, the spending on these objectives by the research councils is difficult to add up and HEIF's budget is £150m. In round terms, it's about £1 billion a year.

In addition, remember that the point of all this intermediate spending is ultimately to strengthen commercial activity, in particular R&D by British businesses. So we also have to consider the tax credits for R&D initiated by Labour. These cost the government around £700m a year.

What is happening to all this spending totalling around £1.7bn during the deepest cuts in public spending for decades?

Bar the tax credits, all of it is inside the budget of the Department for Business Innovation and Skills. Here, the science budget comprising the research councils, HEIF and QR research spending by HEFCE is flat cash - ie small cuts each year after allowing for inflation. The rest we haven't been told about. But aside from the science budget, we know the BIS budget is subject to large cuts. And the government has already announced that regional spending is to be hacked back severely.

So HEIF looks all right. We have a moderate squeeze on the research councils that could turn into a bigger squeeze on the tech end of their spending. The regional bit is due for a big - possibly huge - cut. The TSB is a mystery. And the tax credits bit is a mystery.

I asked David Willetts about spending at the TSB, in the regions and on tax credits after the spending review. He said he was a big fan of the TSB and left it at that. It doesn't inspire confidence.

So we are probably facing quite substantial cuts overall in that total of £1.7bn. I hope I'm wrong about that. But at the end of the day, the Hauser Centres are just a test of a new mechanism that may or may not work in the UK. To claim that the government is "pro-growth" as Cameron did on Sunday, the Coalition needs to do a lot more than make showy announcements. It needs to tell us what the complete picture is on innovation spending. Otherwise, why should we take it seriously?

The National Infrastructure Plan published by the Treasury this morning helpfully includes a section on "Intellectual capital" and is the kind of place we should find a complete picture. Unfortunately, it is silent on almost all the important questions.

See also Why Cameron lacks credibility on growth, and, for the good news about Coalition policy on innovation, Today I gave David Willetts flowers. Have I gone mad?

As the dust settles

Overall, the tone of the reaction today - emphasised off the record - is that most readers have found the review worthy but dull. I seem to find it more interesting than most (see Sainsbury's new ideology), but am also more sceptical about the likelihood of the important bits being implemented.

I started the day wondering how it would compare with Ian Taylor's task force report for the Conservatives. The answer is, it's a dead heat: they've both come up with a headline promising £1bn for their preferred hi-tech funding agency, the Technology Strategy Board in Labour's case and the Innovative Products Agency in Taylor's.

Universities I think will be most directly interested in the HEIF language. We've known for a long time that a switch from competition to formula was coming, but now we have a political steer on the kind of formula to expect.

The review invents a new category of institution, the "business-facing university". No vice-chancellor these days is going to accept that theirs is anything but a BFU, and Universities UK has politely pointed this out already. But the language is still significant. Basically, I think it means that the cap limiting how much the Russell Group can get will remain, ensuring that smaller but increasingly respected places such as Hertfordshire, De Montfort and Manchester Met will get strong support. HEIF will remain a broad church with around 75 per cent of institutions getting significant funding. My bet is that the Comprehensive Spending Review on Tuesday will push HEIF's budget to around £150m by year three.

I'm extremely dubious about the schools agenda, and find it depressing to see the BBC and other media going with the flakiest part of the whole thing. Action's needed no doubt, but I don't think the government has the teachers or schools to do it. I'd like to see a survey of timetables in one or two inner city areas this year to see how many actually are offering the triple science option ministers have promised to any of their pupils.

I hope you've found Day 1 of our blog interesting. Check back next week for the big spending decisions, and reports from Laura Hood at the big Lisbon conference on the European Research Area. Meanwhile, why not add your own thoughts on the whole thing using the Comment option below?