Funding for universities and colleges in 2010-11

Dear Vice-Chancellor or Principal

1.   On 28 January the HEFCE Board considered the provisional distribution of funding to universities and colleges in 2010-11. This statement sets out the Board's provisional decisions and approach taken in the light of the Secretary of State's grant letter of 22 December 2009^{see note 1}.

2.   Universities and colleges will be told their provisional grant allocations on 12 March 2010 following the Board meeting on 4 March. The full grant announcement will be published on 18 March.

3.   The total HEFCE grant available for the 2010-11 financial year (1 April to 31 March) is £7,291 million compared with £7,809 million in 2009-10. Making like-for-like comparisons between 2009-10 and 2010-11 is complicated by £250 million of capital funding having been brought forward from 2010-11 into 2008-09 and 2009-10.

4.   There is a £449 million reduction in funding for the 2010-11 financial year compared with the previously announced plans^{see note 2} for that year (rather than compared with 2009-10). The Board’s overall approach in managing these reductions in funding is to minimise across-the-board reductions in core funding of institutions so that they have maximum flexibility to pursue their own priorities in accordance with the principle of the block grant.

5.   The Board has also sought to help realise the goals in 'Higher Ambitions: the future of universities in a knowledge economy'^{see note 3}, and to maintain quality of provision, wherever possible. Against this framework the Board has safeguarded funding to support science, technology, engineering and mathematics (STEM) subjects. It has also agreed an approach to increasing the concentration of research, while continuing to fund the very best work, wherever it is found, and now at a higher rate.

6.   The grant letter provides funding by financial year, but we allocate funding to institutions by academic year (1 August to 31 July). Because of this conversion from financial year to academic year the Board has had to make an assumption on the funding available to cover the period from April to July 2011. The Board assumed a ‘flat cash’ level of funding for this four-month period, but recognised the amount will depend on future government decisions. Should this assumption prove to be optimistic it may be necessary to revisit the allocations covering these four months of the 2010-11 academic year.

7.   When compared with the 2009-10 academic year, the 2010-11 allocation represents

• a 0.9 per cent cash increase for recurrent grants (teaching^{see note 4}, research and HEIF)
• a 14.9 per cent reduction in cash terms in capital funding after adjusting for the £250 million of capital funding that was brought forward from 2010-11 into 2008-09 and 2009-10
• a 7 per cent reduction in cash terms in special funding.

8.   The Board recognises that real-terms funding reductions will be challenging to institutions, but acknowledges the work that many are doing in preparing for a more uncertain future. The impact of the grant allocations will affect universities and colleges differentially, but there will be moderation funding to help institutions manage change. We will continue to work with institutions as they adjust their activities to meet growing financial pressures.

9.   We will also continue to make the case robustly for continuing public investment in higher education, recognising, as the Government does, the key role played by universities and colleges in securing a vibrant knowledge economy and just society.

10.   The decisions taken by the Board do not take account of the £600 million reduction in the higher education and science and research budgets by 2012-13 announced in the pre-Budget report on 9 December 2009.

Background to these decisions

11.   There have been a number of announcements by the Government of changes to funding for 2010-11 since the 2007 Comprehensive Spending Review and the 18 January 2008 grant letters.

1. On 29 October 2008 the Department for Innovation, Universities and Skills (DIUS) announced^{see note 5} that growth in additional student numbers (ASNs) for 2009-10 was to be limited to 10,000, rather than the 15,000 originally planned in the 18 January 2008 grant letter. This affects the numbers continuing into 2010-11.
2. On 6 May 2009 DIUS announced^{see note 6} a reduction in funding of £180 million. The HEFCE Board provisionally agreed in May 2009 that this would be split as a £164 million reduction in teaching funding and a £16 million reduction in research funding. This split has now been confirmed by the Government in its 22 December 2009 grant letter.
3. Also in May 2009, DIUS confirmed that growth in ASNs for 2010-11 would be limited to 10,000, rather than the 25,000 originally planned in the 18 January 2008 grant letter. This brings the total reduction in funded places by 2010-11, compared with previous plans, to 20,000. The corresponding reduction in funding is £83 million.
4. On 22 December 2009 the Department for Business, Innovation and Skills (BIS) announced in its grant letter a further reduction of £135 million in addition to the reduction of £180 million, to meet additional pressures, in particular on the student support budget. This reduction was to be met by a further reduction of £51 million in teaching funding and £84 million in learning and teaching capital funding. In addition, BIS has confirmed that our flexibility to carry forward capital balances at year-end has been removed, resulting in a further £51 million reduction.
5. The 22 December grant letter also said that HEFCE should aim to deliver further savings in ways that minimise the impact on teaching and students. He also wished to protect research funding.

12.   These reductions amount to:

* Of which £19 million relates to the consolidated reduction of 5,000 in ASNs in 2009-10 and £64 million relates to the further reductions for 2010-11.

Key decisions taken by the Board

13.   At its meeting on 28 January the Board decided to allocate £7,356 million for the 2010-11 academic year. This includes:

1. £4,727 million recurrent funding for teaching (including £144 million on widening participation and £269 million on teaching enhancement and student success (TESS)). This represents an increase of 0.4 per cent in cash terms, or a decrease of 1.6 per cent in real terms, compared with 2009-10.
2. Within the total for teaching, funding for widening participation and TESS have both been increased by 1.25 per cent in cash terms, which represents a 0.75 per cent decrease in real terms.
3. £1,603 million recurrent funding for research. This represents a £32 million or 2 per cent increase in cash terms (maintained in real terms) on the £1,571 million allocated for the 2009-10 academic year.
4. £562 million in capital funding, which takes account of the £84 million reduction in capital funding announced in the grant letter and the loss of flexibility to carry forward £51 million capital balances.
5. £294 million in special funding for national programmes and initiatives, such as the Joint Information Systems Committee (JISC) and the development fund for employer engagement. This compares with £316 million in 2009-10.
6. The Board looked forward to receiving the review of HEFCE funding for museums and galleries, led by Sir Muir Russell, and made a provisional allocation of £10.6 million for 2010-11 as part of the special funding allocation (compared with a budget for 2009-10 of £10.5 million). The final decision on funding for museums and galleries will be made at a later meeting of the Board.
7. £150 million for the Higher Education Innovation Fund (HEIF), which compares with £134 million in 2009-10, representing an 11.9 per cent increase.
8. £20 million as provision for moderation funding, to ensure year-on-year changes to grant are manageable for institutions.

14.   Further details of the Board’s decisions in these areas are given below.

Teaching

15.   The Board has taken action to minimise the impact of the £215 million reduction in the total available for teaching. This has been achieved by targeting the reductions at specific areas to limit across-the-board reductions for the whole sector.

16.   We are reducing funding by £76 million in 2010-11 in relation to three targeted allocations within teaching grant, as previously notified in 'Changes to teaching funding targeted allocations for 2010-11' (HEFCE Electronic publication 11/2009). We are:

• withdrawing £40 million for old and historic buildings in 2010-11
• withdrawing £24 million related to accelerated and intensive taught postgraduate provision in price band D
• phasing out over two years the additional £24 million funding provided to support foundation degrees.

The allocation will therefore be reduced to £12 million in 2010-11 and withdrawn fully in 2011-12. Thereafter foundation degree students will be funded at the same rate as other undergraduate students.

17.   Further actions to minimise the impact on core recurrent funding have been achieved by reductions in special funding of £32 million. In addition, we are providing a reduced uplift for core recurrent grant. We are proposing to increase the core recurrent teaching funding by 1.25 per cent. This is less than the Government’s revised inflation figure of 2 per cent, so represents a real-terms reduction of £31 million or 0.75 per cent. The reduction in the Government’s inflation figure, from the 2.75 per cent assumed in the January 2008 grant letter to 2 per cent assumed in the 2009 pre-Budget report, accounts for a further reduction of £31 million.

18.   The £65 million reduction in funding announced for 2009-10 has been consolidated into 2010-11 teaching funding.

19.   At the same time the Board has agreed to add £10 million to meet the increased recurrent demands on the Strategic Development Fund (SDF), although this is offset by reductions in SDF capital funding set out in paragraph 29.

Controlling student numbers

20.   Early student number returns for all years of study show that full-time undergraduate student numbers increased by 44,000 in 2009-10, while full-time postgraduate numbers rose by 5,000. Full-time equivalent part-time numbers grew by 3,000. Overall, all-year, full-time equivalent HEFCE fundable student numbers rose by 52,000. The rise in full-time undergraduate intake numbers in 2009-10 was approximately 15,000, and at sector level is consistent with the Government’s control set out in the 21 January 2009 grant letter.

21.   The £51 million reduction in recurrent teaching funding announced in the December 2009 grant letter includes an amount to take account of over-recruitment by some universities and colleges in 2009-10. In 'Higher education finances for 2009-10 and 2010-11' (HEFCE Circular letter 32/2008) we asked institutions to review their planned recruitment for 2009-10 in order to avoid any further increase in full-time undergraduate and Postgraduate/Professional Graduate Certificate in Education (PGCE) entrants above the level of their actual admissions in 2008-09, plus any ASNs allocated to them for 2009 10. Minister of State for Higher Education David Lammy reiterated this position in July 2009. In the 22 December grant letter, the Secretary of State asked HEFCE to make appropriate adjustments to the allocations of those institutions that have over-recruited, at a rate of £3,700 per full-time undergraduate and PGCE student recruited above the permitted level. We are currently in discussion with a number of universities and colleges about this, but we are not in a position to confirm a final figure. However, we have tentatively assumed in our budgeting that we would recover up to £10 million from over-recruitment against the position we set out in HEFCE Circular letter 32/2008.

22.   The specification of the limits on intakes for 2010-11 will be clarified to universities and colleges shortly. We will notify institutions of the maximum number of HEFCE-fundable and employer co-funded full-time undergraduates and PGCE admissions in 2010-11. The numbers will be derived using a baseline from 2008-09 Higher Education Statistics Agency and individualised learner record returns, plus other adjustments, including additional student numbers.

STEM subjects

23.   The 22 December grant letter highlights the need for funding incentives to develop more skilled people in those industries that have the potential to drive future growth in the economy, as signalled in the higher education framework 'Higher Ambitions'. Although the grant letter does not formally expect implementation until 2011-12, in response to this and the latest finding of the Strategically Important and Vulnerable Subjects Advisory Group, the Board has decided to set aside £10 million for allocation in 2010-11 to support institutions that are shifting the balance of their provision towards STEM subjects. This is additional to the £25 million already provided to support very high-cost and vulnerable science subjects. The aim is to meet the growing demand and improvement in attainment in this area. We are still working on the detail of the allocation method, which will be discussed by the Board at its next meeting in March.

Research

24.   The Board decided that the £1,603 million for research should be allocated as follows:

• £1,130 million for mainstream quality-related research (QR), including the London weighting. This is allocated to reflect the quality and volume of research in different subjects and is a cash increase of 2.1 per cent on 2009-10
• £205 million for research degree programme supervision (cash increase of 1.25 per cent on 2009-10)
• £198 million for charities support. This funding has been maintained in real terms (cash increase of 2 per cent on 2009-10). This is allocated on the basis of eligible charity support income, to recognise both the public benefit arising from this activity and the fact that higher education institutions undertake work funded by the charities at well below full economic cost
• £64 million for business and industry research (cash increase of 1.25 per cent on 2009-10) based on the research income institutions receive from UK industry, commerce and public corporations
• £6 million for national research libraries (maintained in cash terms).

25.   The Board decided, in response to the Government's presumption in the grant letter in favour of more research concentration, to introduce a steeper funding 'slope' for all subjects by increasing the weightings for work at different levels from the current 1:3:7 (at 2*, 3*and 4* levels^{see note 7} respectively) to 1:3:9. The effect of the change will provide an initial step towards increased concentration as envisaged in 'Higher Ambitions'.

26.   The Board also agreed to enhance the mainstream QR grant allocated for research in geography and psychology. These subjects did not benefit from the protection for research grant in STEM disciplines introduced in the allocations for 2009-10. We recognise that around half the research activity in these disciplines returned to the 2008 Research Assessment Exercise could reasonably be regarded as more akin to work in STEM disciplines than to that in the other social sciences. We are therefore enhancing the grant in these disciplines in 2010-11 to the extent of 50 per cent of the additional funding that they would have received had there been no protection for STEM disciplines.

Capital

27.   The funding for teaching and other capital of £237 million and for research of £167 million shown in the 22 December 2009 grant letter takes account of £250 million brought forward into 2008-09 and 2009-10. The capital funding for learning and teaching for 2010-11 has then been reduced by £84 million, but the capital funding for research for 2010-11 has not been reduced^{see note 8}.

28.   In addition the grant letter now confirms that the capital balances of £51 million that have been carried forward since March 2008 are now no longer available. This will require us to reduce our capital commitments by a further £51 million, so the total capital reductions are £135 million.

29.   The Board has reviewed all capital programmes to minimise the impact of reductions on the formula allocations to institutions:

• provision was made for additional capital programmes in 2010-11. These will not now happen, with £64 million being released
• reprioritising and rephasing of the funding for JISC, including the open and educational resource programme, will release a further £27 million
• slippage on some SDF capital projects will allow some rephasing of the budget, releasing £10 million.

The above reductions, which total £101 million in capital funding, mean that the impact on institutional allocations is limited to £34 million. Of this, £32.5 million will be applied to balances on the Teaching Capital Investment Fund and £1.5 million to capital allocations to further education colleges.

30.   The Board also agreed that the following capital reductions should be regarded as deferring of capital commitments and should be a first call on capital funding for 2011-12, which will be subject to the outcome of the next spending review:

1. £32.5 million reduction in the Teaching Capital Investment Fund.
2. £1.5 million reduction in capital allocations to further education colleges.
3. £10 million reduction in the SDF.
4. £10 million rephasing of the open education resource programme.

Summary of reductions in funding for 2010-11

31.   The table below is a summary of all the reductions in grant.

Yours sincerely

Sir Alan Langlands
Chief Executive

Notes

1. All grant letters can be read on the HEFCE web-site.
2. 18 January 2008 grant letter.
3. 'Higher Ambitions: the future of universities in a knowledge economy' can be found on the BIS web-site.
4. After taking account of the £65 million reduction in teaching grant for 2009-10.
5. 29 October 2008 letter from the then Secretary of State John Denham.
6. 6 May 2009 letter from the then Secretary of State John Denham.
7. As assessed in the 2008 Research Assessment Exercise.
8. In addition £158 million is provided from the Science Budget to contribute to the Research Capital Investment Fund. Total capital funding is therefore £562 million.