The Rt Hon Vince Cable MP 
Secretary of State for Business Innovation & Skills

The Rt Hon David Willetts MP
Minister of State for Universities and Science

24 June 2010

Dear Tim,

HIGHER EDUCATION FUNDING 2010-11

This revised grant letter provides details of the additional funding the Department for Business Innovation and Skills is making available to the Council compared to its grant issued on 22 December 2009 and instructs you to issue 10,000 extra student places for entry in Autumn 2010.

It is a high priority for the Government to rebuild the economy and secure sustainable growth. Universities and colleges have a central role to play in that. Our future prosperity depends on the creation, transmission and application of new knowledge, ideas, creativity and innovation. The Coalition Agreement makes clear that we will continue to invest in Higher Education (HE). So, we are increasing funding for teaching by £50m and overall funding for the sector by £70m compared to your December settlement.

We remain committed to supporting extra university places for 2010/11. To achieve this, we would like you to refocus the University Modernisation Fund (UMF announced in the Budget in March 2010) in line with the advice you have offered, on the highest quality proposals the Council has already received for this scheme. We are making £152m available to support the UMF, realising a saving of £118m compared to original plans.

We want the Council to use £132m of this to meet the teaching costs of issuing 10,000 extra student places in 2010/11 (compared to the position as set out in your Grant Letter of 22 December 2009) and securing savings in future years to support these places for the duration of the course without extra teaching grant from the Government. Approximately 8,000 of these places should be full time and 2,000 part time. As you know, bids for these extra places were sought in economic priority areas such as Science, Technology, Engineering and Maths (STEM) and the higher skill priorities identified in the Skills Audit. The Council should only approve bids where institutions have robust plans to drive modernisation and efficiency. FE colleges providing higher education should be eligible for this funding.

We are fully committed to the shared services element of the UMF. We are maintaining this £20m budget to be invested in delivering economies through the increased use of shared services, particularly in support functions, and collaborative procurement.

We fully recognise the importance of investment in science and research as the economy continues to recover. We are protecting spending in these areas and the Council's recurrent and capital budgets here should remain at previously planned levels.

As you know, on 24 May, the Chancellor of the Exchequer announced £6.2bn of in year savings across Government. These are necessary to help reduce the deficit and ensure a successful economy for the future. This Department’s contribution to these savings is £836m. It is right that Higher Education contributes its fair share to these overall savings.

As a result, we are making a reduction of £82m in the baseline you were issued in your grant letter of 22 December 2009. It is, of course, for the Council to decide on how this reduction is delivered. But we look to you to do this in ways that protect the front line activities of teaching and research whilst promoting more vigorous activity to increase efficiency and value for money. We appreciate that these efficiency savings will have implications for allocations in academic year 2009/10. We are requesting that the savings are split between a £52m reduction in the teaching grant and a £30m reduction in teaching capital. We expect the Council to be able to demonstrate clearly that splitting the savings in this way meets the priority of delivering a more efficient HE system.

BIS and its partner organisations have also been asked to find extra savings of £100m in 2010-11, which equates to an 11% reduction in running costs. We expect HEFCE to play its full part in achieving this target. We will discuss with you the composition of these savings and their implications. Your baseline in the attached annex does not take account of these additional savings and so remains provisional at this stage. The annex details all the other changes we are making to your funding with this letter.

The financial settlement for the HE sector for 2010-11 enables a positive response to continued buoyant demand for university and college places by supporting additional, sustainable growth in student numbers. It also protects investment in science and research. These will play an important role in economic recovery. The settlement will require universities, colleges and the Council to adopt a renewed and strengthened focus on efficiency and securing the greatest possible value for public money including on salaries and pensions. But we believe that is both right and fair in the wider economic climate.

Annex A Revised provisional grant settlement June 2010

This table shows the changes in funding to HEFCE since the December 2009 grant letter and the March 2010 Budget, following the savings announcements on the 24th May 2010.		December 2009 2010-11 allocation	Revised allocation after Budget March 2010	Revised 2010-11 allocation
a	Recurrent funding for Teaching	5027	5277	5107
	o/w University Modernisation Fund		250	132
b	Recurrent Resources for Research	1618	1618	1618
	Total (a + b)	6645	6895	6725
c	Total Capital Grants	404	404	374
1	o/w Teaching and other capital	237	237	207
2	o/w Research	167	167	167
d	Science and Research Funding	271	271	271
	o/w HEIF	113	113	113
	o/w RCIF and SRIF Transitional	158	158	158
e	AME Provisions and release (formerly Non-cash budgets)	−29	−29	−29
f	University Modernisation Fund – shared services		20	20
Sub total funds for teaching (a+c1)		5264	5514	5314
Total grant (a+b+c+d+e+f)		7291	7561	7361
Additional Funding
g	Voluntary Matched Giving	62		62
h	FE ITT funding			8
i	Access to Learning Fund			40
Growth in Core Funded Students (FTEs in thousands)		40		40
Employer co-funded provision (FTE) numbers		15		15

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.
2. Recurrent funds for teaching have been increased from the figure of 5,027 set in the 22 December Grant letter to 5,107. This represents the net effect of two changes since December 09. First, the recurrent funding for teaching heading now includes the distinct £132m teaching element of the University Modernisation fund (UMF). This element is to pay for the teaching costs of 10,000 extra student places in 2010/11 and efficiency activities that mean that these places can be delivered for the duration of the course without any further teaching contributions from government. Second, there has been a £52m reduction in the recurrent funding for teaching baseline to reflect the need to contribute to the BIS wide savings announced on 24 May.
3. Teaching capital has been reduced from the baseline set in December 2009 by £30m to reflect the need to contribute to the BIS wide savings announced on 24 May.
4. The FE ITT budget of £8m is to fund the continuing recruitment of FE teachers to shortage subject areas. The requirements of this funding will be set out in a separate Service Level Agreement with HEFCE.
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.
6. The AME budget for provisions represents the gross amount of provision to be released in 2010-11. There are some elements of unwinding that will need to be taken into account in this budget during 2010-11 and these will be agreed between BIS and HEFCE during the year.

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