Secretary of State

Sanctuary Buildings
Great Smith Street
Westminster
London SW1P 3BT
tel: 0870 0012345
dfes.ministers@dfes.gsi.gov.uk
Rt Hon Charles Clarke MP

Mr David Young
Chairman
Higher Education Funding Council for England
Northavon House
Coldharbour Lane
Bristol
BS16 1QD

22 January 2003

HIGHER EDUCATION FUNDING AND DELIVERY TO 2005-06

Introduction

1. This grant letter is sent to the Council alongside the publication of the Government's White Paper on higher education ('The future of higher education') which proposes far-reaching changes for universities and higher education colleges in England over the next 10 to 20 years. The proposals will ensure that our higher education system goes from strength to strength and that the number of students benefiting from higher education increases. Every qualified student - whatever their background - will have the opportunity to gain a higher education qualification; universities will be properly funded so that they can carry out first class teaching and research; and our leading universities will remain among the finest in the world.

2. Some of the changes will not come into effect until after the present spending review (2003-04 to 2005-06): this letter sets out the Government's priorities during the first phase of the strategy. The outcome of the spending review - part of which was announced in the Government's strategy for science 'Investing in Innovation' - is an exceptional increase in funding which will enable the sector to expand and make progress in: widening participation; improving the quality of teaching; supporting high quality research in science, technology and other disciplines; and in knowledge transfer into the economy.

3. The overall publicly planned funding for 2005-06 is 19% higher than the previous plans for 2003-04 (as published in the 2001 Grant Letter). Over the Spending Review period, the Government expects to see, in particular:

improvements in the quality of research and how it is managed;
an expansion in the numbers of students, delivered through an increase in the provision of foundation degrees, and an increase in those from non-traditional backgrounds;
improvements in the quality of teaching and improved rewards for those providing excellent teaching, through the establishment of Centres of Excellence and enhanced human resource strategies; and
increased knowledge transfer and innovation from higher education to the wider community, through the development of Knowledge Exchanges.

4. But generous though this settlement is, the Government recognises it cannot be enough on its own to allow the sector to face the considerable challenges of the future. For this reason 'The future of higher education' sets out a long-term plan for universities and higher education colleges to develop their own distinct missions, coupled with proposals to allow institutions to develop funding streams in addition to those provided by the taxpayer. From 2006, we will give universities the freedom to set their own tuition fee of between £0 and a maximum of £3,000, with deferred payments made through a new Graduate Contribution Scheme. The institutions which take up this option will have to enter into an access agreement approved by the Access Regulator.

Research and Science

5. The Council should continue to work with Government to deliver the commitments set out in 'Investing in Innovation' and in the spending review settlement for science. The Council should work with the HE sector to pilot and evaluate different approaches to bridging the gap between students' prior knowledge and the requirements of higher education study following Sir Gareth Roberts' recommendations on the supply of science, technology, engineering and maths skills.

Support for research

6. It is important to ensure that mechanisms for assessing the quality of research are up to date and effective, and I welcome the Council's decision, together with the other funding bodies, to set up a review of research assessment led by Sir Gareth Roberts. As mentioned in 'The future of higher education', the progress so far, responses to the review's consultation exercise, and likely outcomes are all welcome. I look forward to discussing the best way forward with the Council when the review is complete later this year.

7. The Council will need to do further work to design a funding system which fits effectively with the new system of assessment. It will be necessary to ensure that assessment and funding mechanisms can operate well together within the resources available. In all this, HEFCE will want to consider how to put these principles into practice while keeping bureaucracy to a minimum.

8. The new system of assessment will not be in place before 2008, and we need to do more in the mean time to support continuing improvements in the research base. I am therefore providing extra resources for the Council to increase spending on research by £80 million in 2003-04, £107 million in 2004-05, and £246 million in 2005-06, in addition to the Council's baseline research budget in 2003-04. These sums consolidate the additional £30 million the Department provided to increase quality related research funding in 2002-03. This means that by 2005-06, the Council's research budget will have increased by £270 million from the original plans for 2002-03.

9. The Government's policy programme for ensuring continued improvement in research is set out in 'The future of higher education'. I look to the Council to use this exceptional increase in funding to put that programme into practice.

10. There is a strong case for more discrimination between the best research departments in advance of the new research assessment process. I would like the Council, using the results of the latest Research Assessment Exercise, along with international peer review of additional material, to identify the very best of the 5* departments that have a critical mass of researchers. These should be provided with additional resources to give them an uplift in funding from 2003-04.

11. The Council should promote more concentrated and better-managed research units through providing seed-corn funding to promote the formation of collaborations of the kind set out in 'The future of higher education.' In choosing consortia to support, I expect the Council to take into account the nature of the collaboration and factors such as: the volume and quality of research overall; particular synergies in the pattern of research; arrangements for bringing on new or emerging research areas; and management and governance of research including the strength of the shared arrangements.

12. Separately, the Council should design a mechanism for identifying leading research institutions and providing them with additional capital funding to allow them more flexibility to achieve their institutional goals for research.

13. It is also important to encourage and reward promising departments with comparatively low research ratings, particularly for work in new research areas, so that they have the resources to develop and improve. The Council should look at how funding for departments with lower Research Assessment Exercise ratings can be related to their future potential, alongside the funding of emerging and potentially important areas of research. The Council should take the first steps towards this in 2003.

14. Linked with this work, I would also like the Council to introduce a Promising Researcher Fellowship Scheme, as set out in 'The future of higher education', with a target of 100 Fellows per year by 2005-06.

15. Given the importance of these developments in research funding, the Council should submit its proposals to Ministers before implementation.

Capital for research

16. As announced in the spending review, the Government is establishing a continuing stream of capital funding for science research. The HEFCE funding for the previous Science Research Investment Fund (SRIF) will be increased by £50 million to £200 million per year from 2004-05. Details of how the scheme will operate are set out in 'Investing in Innovation'. In addition to the funding set aside for the Strategic Development Fund (see paragraph 31), HEFCE should retain up to £10 million of this £200 million in each year to fund restructuring of research. This is to be used where extra funding will bring about a critical mass of research excellence that could not be achieved through institutions using their main SRIF allocations. The rest should be allocated via a new SRIF fund, which will also include funding from OST. Institutions' income from arts and humanities research should also be taken into account in distributing HEFCE's share of this SRIF funding.

The Arts and Humanities Research Board

17. The Government and Devolved Administrations have decided that the Arts and Humanities Research Board (AHRB) should become a full Research Council funded by the Office of Science and Technology (OST). The practicalities of this will take some time to complete and it is important that the AHRB receives sufficient funding to sustain and develop its work. The Council will want to take into account the policies for the existing Research Councils set out in the report 'Investing in Innovation', in particular the increased support they will be providing for postgraduates and postdoctoral researchers.

18. The Council should put forward (in discussion with the other funding bodies, including the TTA) funding plans for the AHRB's research programme and postgraduate programme for each financial year to 2005-06. The increase in the Council's contribution should be not less than £1 million in 2003-04, £4 million in 2004-05 and £10 million in 2005-06. The Department will in due course transfer the Council's contribution to the OST. The museums and galleries programme which HEFCE funds via AHRB will not transfer to OST but will remain the responsibility of HEFCE. Our aim is to achieve a fully functioning, statutory Research Council by 2005.

Links with business and the community

19. In order to build on the good progress made in recent years in strengthening links between higher education institutions, business and the wider community, the Government is consolidating and increasing the Higher Education Innovation Fund (HEIF). The Council should continue to provide £20 million per year funding for HEIF to be used together with OST funding. There should be a new round of HEIF worth £171 million in 2004-05 and 2005-06. As set out in 'The future of higher education', HEIF should now be broadened, so that in the new round this scheme has an increased emphasis on supporting non-research intensive university departments in developing both knowledge transfer and skills development. It should support institutions in reaching out to business, to the regional and local economy, and the wider community.

20. To support the development of knowledge transfer and HE institutions' contribution to regional economies, we want to identify best practice and share it across the sector. Therefore as a new strand within HEIF, I would also like the Council to provide funding for a network of up to 20 Knowledge Exchanges as set out in 'The future of higher education'. I expect this programme to be focused on the less research-intensive institutions which are already centres of excellent practice in both knowledge transfer and skills development. They will be funded to share and spread their expertise as well as to strengthen their existing capacity. Funding is provided for this initiative amounting to £6 million in 2004-05 and £10 million in 2005-06. The Exchanges will each be funded for five years.

21. As announced in the 'Excellence and Opportunity' White Paper in 2000, the Council's Higher Education Reach-Out to Business and the Community Fund (HEROBC) forms part of the wider HEIF programme. Of its £20 million per year contribution to HEIF, the Council has some resources available for 2003-04 as HEROBC commitments run down, and before the new round of HEIF begins. I am pleased that the Council is ensuring that £20 million of its funding is budgeted for HEIF in 2003-04 in order to deliver the commitment made in the 'Excellence and Opportunity' White Paper in 2000 to a HEIF (incorporating HEROBC) worth £140 million over three years.

22. The cross-cutting review of science and research identified a need for better and more easily accessible information about research being carried out in the science base, to facilitate knowledge transfer and research collaboration. I would like the Council to work with other providers of this information, such as British Trade International and Universities UK, to produce proposals for improvement.

Teaching Quality and Standards

23. Good quality teaching is something which students have a right to expect and is central to the health and success of higher education. I look to the Council to invest in programmes which will raise the quality of teaching, will reward excellent teaching, and will disseminate best practice widely, benchmarking against the best of international practice. In particular, I expect the Council to introduce a new scheme to reward excellent practice in teaching departments by designating them as Centres of Excellence and to recognise 'commended status' for those departments who do not yet meet the criteria to become a Centre of Excellence. I am making available up to £14 million in 2004-05 and £35 million in 2005-06 to support the establishment of up to 70 centres which will each receive £500,000 for five years. Centres will also be able to bid for capital funding of up to £2 million each to improve their teaching infrastructure and estates.

24. I also expect the Council, over time, to increase the number of National Teaching Fellowships up to 50 and to see better pay differentiation between teachers, with institutions rewarding those who teach well. £5 million, £19 million and £36 million have been set aside over the next three years for these purposes. The National Teaching Fellowship funds will be distributed as under the current arrangements. The residual of the funding above will be used for rewarding teaching excellence and should be added to the funding for the human resources strategies. As with the main human resource strategy funding (see paragraph 47), the money will be added to core funding for those institutions that can demonstrate that they will use it to reward their best teaching staff and earmarked by the Council for others who have yet to satisfy them on that point.

25. I look to the Council to ensure that the good progress made by the ILTHE and the LTSN in promoting and enhancing good teaching will be built upon and developed in future sectoral arrangements for quality enhancement, taking forward the recommendations of the Teaching Quality Enhancement Committee on the establishment of a new unitary body - the proposed Academy for Advancement of Learning in Higher Education. The Council's contribution to the funding of the academy is included within its overall allocation.

26. We have introduced a new quality assurance system for Higher Education, and measures to provide stakeholders in HE with accurate and accessible information on quality and standards. I look to the Council to monitor closely the implementation of the new arrangements to ensure that our objectives for the new systems are met. In particular, the new arrangements should remove unnecessary burdens from institutions, ensure the maintenance of high standards, and make publicly available information on quality and standards including QAA audit reports, summaries of external examiners' judgements and other information which will assist students in making informed choices. I have set out my expectations concerning the new information which should be available to students in 'The future of higher education', and will look to the Council to play a full role in that process, in particular ensuring that the first new national survey of graduates is conducted in 2003, with the costs to be met from the Council's main grant.

27. External examiners carry out a critical role in advising institutions on the comparability of new academic standards, and it is essential that they are well trained and supported. I therefore look to the Council to ensure that improvements are made to the arrangements for the development of external examiners from 2004/05, including institutional arrangements for training and induction and the establishment of a national development programme.

28. It is important that we have robust ways of describing, measuring and recording student achievement which are helpful to the student, the institution, employers and other stakeholders. I ask the Council to review current approaches to ensure these objectives are met. Specifically, I ask the Council to review current methodologies and to develop more sophisticated ways of measuring 'added value'. I also ask that the Council convene a review group with the sector to evaluate recent research on the honours classification system; to consider alternative methods for presenting the overall achievement of students, and to report their findings by no later than the end of 2004.

29. The Better Regulation Task Force report 'Higher Education: Easing the Burden' which was published in July, looked at ways that my Department, the Funding Councils and others could and should reduce bureaucracy in higher education. As a first step to implementing real reform in this area, we have created a stakeholder group, chaired by Professor David VandeLinde, Vice-Chancellor of Warwick University and reporting to Margaret Hodge. We want the group to implement the report's recommendations, and take a wider view of what more needs to be done to streamline processes in the sector. The group should report by October 2003. The Council have agreed to provide secretariat support for the stakeholder group and to take forward the relevant recommendations in the report.

30. I am aware that Higher Education institutions are subject to a range of review and inspection systems, in addition to review by QAA. I look to the Council to work with other agencies, including OFSTED, the ALI, the TTA and professional and statutory bodies to promote the maximum coordination between the agencies and reduction in burdens on HEIs taking account of the work done by Professor Vandelinde's stakeholder group on reducing bureaucracy. I expect the Council to apply similar principles to its reviews of Higher Education delivered in FE Colleges, consistent with ensuring the comparability of standards with those achieved in HE institutions.

Strategic Development

31. We are creating a Strategic Development Fund to support change, which we wish the Funding Council to administer. I am making available £7 million in 2003-04, £13 million in 2004-05 and £13.5 million in 2005-06 as a contribution to this fund. I expect the fund to be used to support structural change including strategic alliances, merger and collaboration between HE and FE, and to provide incentives for institutions to develop innovative and flexible programmes of study, including piloting 'compressed' honours degrees lasting two instead of three years. Paragraphs 33 and 42 below include further details about the use of the fund.

Widening Participation

32. The Government remains firmly committed to widening participation. A step change in ensuring more non-traditional students study in higher education hinges upon raising aspiration and attainment. The Government is therefore establishing a strengthened and unified 'AimHigher' widening participation programme, with the aim of merging existing programmes under this heading by April 2004. Through the Excellence Challenge partnerships, we are already overcoming obstacles in the most disadvantaged areas by building links between schools, colleges and higher education institutions. In future, this will be complemented by nationwide activity to widen and increase participation. I am pleased that the Council has worked closely with the Learning and Skills Council to develop this provision (currently called "Partnerships for Progression") and note that the two Councils have committed £20 million in 2003-04. It is critical that there is coherence between the local and national components of the AimHigher programme and, in particular, that the new national activities support and develop those already underway in Excellence Challenge schools and colleges. Subject to my being satisfied that this has happened in the approval of plans by the Council over the coming weeks, I will make available a further £9 million for P4P in 2003-04. The Council's report to Margaret Hodge, due in March, and feedback we receive from Excellence Challenge co-ordinators, will be taken into account in making the decision.

33. In order to attract less traditional students into higher education it is important that institutions offer opportunities for flexible study. In particular, we want to give these students more chances to study for qualifications and at institutions which they may not have had the confidence to apply for initially. Flexible study arrangements, such as the "2+"model or variations on it, are key to achieving this. The model entails students undertaking the first part of a degree, or sub-degree, such as a foundation degree, HND or HNC at one institution and then having an opportunity to move to another institution to complete a full honours degree. I want the Council to develop pilot partnerships with a view to developing a framework for funding and incentivising this type of shared provision and making the pathways through them clearer and easier for students to understand. Funding for this is included in the Strategic Development Fund (see paragraph 31).

34. I know that the Council has asked institutions to present widening participation strategies. The Council should continue to monitor closely the progress institutions are making towards the targets they have agreed with the Council and I look to the Council to intervene where this is not satisfactory.

35. In the 2001 grant letter, my predecessor referred to the need to establish targets for the sector on both fair access and bearing down on non-completion. I am grateful to Sir Howard Newby for his regular updates to Margaret Hodge on progress in these areas. It is important that my officials continue to work closely with yours to resolve any outstanding issues and I look forward to receiving the Council's firm proposals early in 2003.

36. Performance indicators, and the associated benchmarks, are a useful means of assessing the relative success of individual institutions' widening access policies. I am, however, concerned that the current access benchmarks of low participation postcodes, state school entrants and social class, may not reflect as closely as they should the less traditional groups we want to target. I believe that parental income and parental education, together with attendance at poorly performing schools and colleges are a closer match, and I would like the Council to consult the sector on constructing performance indicators and benchmarks based on these measures so that all the new indicators are in place by 2007 at the latest. The existing indicators will remain until these more robust ones are in place.

37. I recognise that the recruitment and retention of students from disadvantaged backgrounds carries additional costs, and I know that the Council has been reviewing both the methodology and funding level of the postcode premium.

38. I acknowledge the work that has been done in individual institutions and by Universities UK (UUK) on admissions practices. However, I believe more can be done to ensure that across the sector best practice in admissions is shared and followed. I therefore ask the Council, working with UUK, SCOP and UCAS to examine these issues in detail and to consider ways in which best practice might be translated into a flexible framework for admissions processes which would help to ensure fairness and consistency. As set out in 'The Future of Higher Education', from 2004, the Government will set up a new access regulator, working with the Council, to oversee access within the sector, enter into access agreements with universities who wish to vary their tuition fees, and assist universities to cut down on drop-out rates.

39. I welcome the Council's invitation to institutions to bid for courses which include foundation years to boost wider access, through its additional student numbers exercise. I hope that the Council will give this initiative a high priority alongside the need to increase foundation degree numbers.

Foundation Degrees

40. The Council has made an encouraging start in the development of this new qualification which is now being studied by some 16,000 students. As a radical response to business demand for technical skills, we expect it to spearhead the expansion of higher education. Through the new student support arrangements, we are already providing further opportunities for those from disadvantaged backgrounds to benefit from this qualification. This support will be complemented by measures to enable colleges and higher education institutions to become involved in foundation degrees.

41. We shall provide £2.5 million in 2003-04, £3.0 million in 2004-05 and £3.0 million in 2005-06 to enable institutions to develop new foundation degree programmes targeted at the associate professional skills gap. The Council's review of foundation degrees will also inform the unit funding of these courses from 2004-05 and ensure that this provision is appropriately resourced. Further education colleges have already responded well to the development of foundation degree programmes and offer still greater potential for their delivery. We are therefore providing £2.5 million in 03-04, £2.5 million in 04-05 and £3 million in 2005-06 to establish a national network of universities - Foundation Degree Forward - to offer a dedicated validation service. It will also act as a national centre of foundation degree expertise and, in liaison with the Sector Skills Councils and professional bodies, draw up frameworks for foundation degrees.

Credit systems in higher education

42. Credit systems will become increasingly important as the routes into and through higher education become more varied, helping institutions to develop flexible curricula and to recognise learners' achievements as they progress. There are already credit systems operating within many institutions and in consortium arrangements. I ask that the Council, from 2003 onwards, work with partners in the sector to identify and build upon the best current practice, scaling this up so that there is widespread and consistent use of credit across Higher Education. Funding for this work is included in the Strategic Development Fund (see paragraph 31 above).

Partnerships with FE

43. Strong partnerships between FE colleges and HE institutions will be critical in achieving our objectives for participation in Higher Education. I look to the Funding Council to work jointly with the Learning and Skills Council to support these partnerships, to develop integrated approaches to progression from FE to HE and to work together to raise standards and attainment across the two sectors. As part of making it easier to form sensible partnerships across the FE/HE boundary, it will be important to remove unnecessary bureaucracy where provision crosses sectors. I expect the two funding councils to work together to eradicate such bureaucracy and to remove the barriers faced by 'mixed economy' institutions delivering FE and HE, as a consequence of their need to respond to the requirements of two funding regimes. This work should encompass a review of the arrangements for planning, funding, data collection and performance monitoring.

44. FE colleges already play a significant role in delivering Higher Education. It is important that such provision is of the high quality we expect from Higher Education. I expect that structured partnerships between colleges and universities, where the HE provision is funded through a partner HEI, will be the primary vehicle to meet this aim. However, there will be some instances where it is proposed that direct funding of the college's HE provision will be more appropriate - for example where there is 'niche' provision or no obvious HE partner. I ask that HEFCE develop the criteria against which such proposals will be judged, on a case by case basis; and that the criteria include critical mass, track record on quality and standards, and nature of provision. I ask that the Council subsequently issue new guidelines on the supply of places and funding of provision through colleges, for implementation during 2003/04 onwards.

Student Numbers

45. The spending plans set out in this letter assume expansion of student numbers, with an additional 14,000 full-time equivalent places in 2003-04 compared to the plans for 2002-03, and an additional 19,000 and 23,000 in the two subsequent years. Recognising the consequences of earlier student number allocations, for the reasons set out below (paragraphs 40 and 41), I expect these increases to be accounted for by expansion of the number of Foundation Degrees offered by institutions. The additional funding for the development of new courses coupled with the financial incentives for students, upon which we are consulting, will provide a significant impetus to foundation degree growth in the coming years.

46. In February last year, my predecessor wrote to you accepting your Board's advice that the Maximum Student Numbers (MASN) control should be lifted from the start of this academic year. The caveat to that agreement was that the Council should keep the situation under review and if student numbers rise more sharply than expected, the Council should take steps to ensure expansion remains affordable. I look to the Council to maintain that scrutiny for next year.

HE Workforce Development

47. The Government has invested £50 million in 2001-02 followed by £110 million in 2002-03 and £170 million 2003-04 in order to underpin the human resource strategies developed by each HEI and which address issues of recruitment and retention, staff and management development, equal opportunities, rewarding good performance and tackling poor performance. This has begun the process of modernising and investing in human resource management in higher education.

48. The £170 million will be consolidated into institutions' core grants from 2004-05 and, in addition, I am making available an extra £50 million in 2004-05 and £117 million in 2005-06. I expect the Council to make the new funding conditional on universities and colleges continuing to develop and implement their human resource strategies, and in particular on their taking steps to move towards market supplements or other means of recruiting and retaining staff of the right calibre; and committing themselves to rewarding good performance. I am particularly concerned that good teaching should be identified and rewarded. The Council should also make clear that postdoctoral and other researchers should be included in these strategies. Therefore the Council should ask each institution to revise its human resource strategy to focus on these points, and reiterate the need for improvements in equal opportunities for higher education staff. Where the Council is satisfied that the strategy is sound and is being implemented properly, I look to the Council to add the additional funding to that institution's baseline. Where the Council has doubts, the additional funding should remain earmarked until the revised human resources strategy and its implementation satisfy the Council.

49. From 2003-04 onwards, the Council's grant allocation for the human resources initiative takes account of both HEFCE- and TTA- funded student numbers and the Council should allocate the money on that basis in consultation with the TTA.

50. Human resources strategies should also include "golden hellos"to assist recruitment to academic posts in shortage subjects. I expect that three tranches of 1,000 new lecturers will receive "golden hellos"from 2003-04 which we now propose should add up to £9,000 over 3 years service and will be dependent on individuals working in the sector for a period. Evaluation of 'golden hellos' should form part of the evaluation framework for the Rewarding and Developing Staff initiative.

51. Excellent management and leadership will become increasingly important as institutions face the complex challenges of the future. The Leadership Foundation which the Council and Universities UK have proposed will develop models of good practice in leadership and management, identify the sector's needs and provide ways to meet them. In doing so, it will draw on the best international and domestic expertise and work with other partners in human resource development, including the Leadership College for the learning and skills and higher education sector. To establish the Leadership Foundation, I am making available up to £1 million in 2003-04, £4 million in 2004-05, and £5 million in 2005-06.

52. In previous years it has been a condition of grant that the Council enables institutions to meet any additional costs for medical and dental schools arising from the Government's award to NHS clinicians following the Doctors' and Dentists' Review Body recommendations. Officials will write to the Council on this subject once this year's negotiations have been concluded.

53. The Council should ensure that appropriate funding is made available to institutions from April 2003 to cover the increases in employers' pension contributions arising from changes to the Teachers' Pension Scheme, for which additional funds have been made available. The overall settlement also takes account of increases in national insurance contributions.

Student support and tuition Fees

54. Following our review of targeted student support last year, we have announced changes to simplify and streamline the discretionary support currently paid to institutions through the Access and Hardship Funds. Instead of fourteen different funds, there will now be just five. As set out in 'The future of higher education', Opportunity Bursaries will be phased out when we bring in the new grants. We are consolidating access bursaries for student parents into a new statutory Parents' Learning Allowance from 2003/04. From 2004/05 we are replacing Hardship Loans and the Hardship Fund with a new single non-repayable Access to Learning Fund. From the same date, part-time students who are studying for 50% or more of the time that full time students are studying will be entitled to statutory fee support and we are replacing the current £500 loan with a new £250 grant. Also, for the first time, we are introducing discretionary fee waivers and support from the Access to Learning Fund for those studying for less than 50%.

55. The Department has been working with a group of HE administrators to develop new guidelines for the Access to Learning Fund and the Council is also working on a new model to ensure the discretionary funding is allocated more closely to student need. These new arrangements will be in place for the 2004/05 academic year and should ensure that the funding is effectively targeted both to attract and retain vulnerable students.

56. In advance of institutions being free to set their own tuition fees as set out in the White Paper, I do not expect institutions to charge additional tuition fees above the regulated level. Under the Teaching and Higher Education Act 1998, the Secretary of State has the power to impose a condition on the Council's grant, requiring it in turn to place a condition on the funding it allocates to institutions that they should not charge additional fees. That condition will be imposed on the Council's grant for 2003-04.

Other issues

57. HE Students Portal. Subject to approval of your costed proposals, the Funding Council working with others will manage the development, implementation and maintenance of a new HE Students Portal to deliver information electronically to students. The initial development should be operational by August/September 2003 and I look forward to an interim report of progress in Spring 2003.

58. Student Services. I welcome the Council's involvement in the study into effective practices by student services undertaken by Universities UK which recommended that institutions should develop an integrated approach to students' needs and ensure greater co-ordination between different support services. Funding towards the cost of administering financial support for students will continue to be provided at current levels and institutions should be encouraged to concentrate resources more effectively to provide better targeted support services for students. I would be grateful for a report on how the Council proposes to take forward the recommendations from the UUK study addressed directly to them by the summer.

59. Student complaints. Following consultation last Autumn, the sector has agreed to establish a voluntary independent adjudicator to hear student complaints. The aim is for the office of the independent adjudicator to be in place by June 2003 and ready to receive representations and adjudicate from September 2003. There is recognition that ultimately legislation will be needed, but we are currently making arrangements so that the sector can press ahead with a voluntary arrangement.

60. Students supporting teachers in schools or colleges. I am keen to see an initiative that will enable more HE students to undertake paid, part-time roles supporting teachers in schools or colleges and to represent HE life to the young people that they meet. Officials will be in touch with the Funding Council soon to discuss how this initiative might be developed and delivered with £1 million per annum for two years, building on existing schemes in the area and starting from the next academic year, if not earlier.

61. HE Active Community Fund. The Funding Council is currently managing the £27 million HE Active Community Fund, with 50% matched funding from the Home Office over three years to 2004. Once this fixed funding period ends, I shall look to the Council to continue the programme from within its own baselines, at least at current HEFCE funding levels so that the momentum and opportunities created are sustained and developed further.

62. Excellence Fellowship Awards. The first Fellowships began in September and I expect the Council to continue working with the sector and the Department to ensure that implementation progresses in a satisfactory manner. I shall look to the Council to maintain and develop the scheme after the initial pilot phase ends in 2004.

63. European Social Fund (ESF) Application. The Council's administration costs are included in the recurrent provision shown in the annex. Figures for 2003-04 acknowledge that there are potential additional costs associated with the Council's proposed application for ESF funding. Once the outcome of the consultation is known my officials will write separately about the arrangements that will be needed to topslice and account separately for those costs.

64. E-Universities. 2003-04 represents the final year of the £62 million committed to the eUniversities project, comprising £13 million in capital funding and £14 million recurrent. I continue to look to the Council to ensure effective mechanisms are in place to secure value for money and fulfilment of the aims and objectives for which the project was originally set up and to keep me closely informed on progress.

65. Modern Foreign Languages strategy. Baroness Ashton launched our new national Languages Strategy on 18 December last year. We expect universities and colleges to support us in meeting these aims by making a positive contribution towards the strategy.

66. Dance and Drama awards. In future, dance and drama awards in HE will cease to be funded by the Department and funding will be transferred to the Council along with management responsibilities for the HE providers. The Department will manage this transition with HEFCE by September 2004.

Capital initiatives

67. The capital allocations in the annex to this letter should be distributed to institutions taking account of TTA-funded students as well as HEFCE-funded ones and the Council should consult the TTA about the treatment of SCITT courses.

68. As set out in 'Investing in Innovation', resources to start to improve HE institutions' science and engineering teaching laboratories are included within the overall increase of capital funding for higher education. The Council should allocate funding of £20 million in 2004-05 and £40 million in 2005-06 for this purpose, perhaps as part of its wider project capital funding for institutions. This teaching capital should be closely linked with parallel funding for research capital, with flexibility built in to enable institutions to vire between the two streams without limit so long as the original balance is recovered over these two years.

69. I am making available an additional £20 million in each of 2004-05 and 2005-06 for disabled students' access to higher education and helping institutions to meet their increasing obligations as amendments to the Special Educational Needs and Disability Act come into effect.

70. We recognise that continued investment in ICT is crucial to supporting an innovative and efficient higher education sector to ensure it remains a world leader. Priorities are the enhancement of the core resource of digitised material available to HE to support and enrich e-learning and for continued enhancement of the Joint Academic Network to ensure in particular it fully supports developments in e-learning and grid-related research initiatives. Funding for these initiatives should be found from within the overall teaching capital allocation.

HEFCE administration and end-year flexibility

71. The Council's administration costs are included in the recurrent provision shown in the annex. I ask the Council to continue to improve the efficiency and economy of its administration and to seek increased value for money. As usual, the Department will discuss with Council officers the allocation of administration costs in the coming year. Provision for running costs is £14.9 million in 2002-03 and will be £15.3 million in 2003-04.

72. The Council should be aware that the Depreciation and Cost of Capital charges are included in their overall Resource Expenditure Limit for FY2003-04 and subsequent years. Any additional expenditure on capital items will have a double impact on the overall Resource Expenditure. The Resource budget from which the increased capital spending will come is decreased and the Depreciation and Cost of Capital is increased. The Council should agree its capital expenditure plans with the Department.

73. The Department is considering new end-year flexibility arrangements for non-departmental public bodies and will write to the Council in due course setting out any revised arrangements.

Charles Clarke

ANNEX

PUBLICLY PLANNED FUNDING FOR HIGHER EDUCATION IN ENGLAND (£ million)

Financial Year	2002-03	2003-04	2004-05	2005-06
2002-03 grants to HEFCE and TTA	4,822
SR2002 outcome grants to HEFCE and TTA		5,152	5,398	5,837
Public contributions to fees	447	456	467	479
Student contributions to fees	406	431	457	485
OST funding for HEIF	20	40	61	70
Total	5,695	6,079	6,383	6,871
Capital grants for:
IT and other capital	154	206	376	441
Research	154	158	208	208
Cost of capital and depreciation	-25	-12	-11	-10
Access and Hardship funding	106	116	94	89
Total	6,084	6,547	7,050	7,599
Student numbers (FTEs in thousands)	1,101	1,115	1,134	1,157

A copy of the signed grant letter is available to download in PDF format [ 931K ].