Request 99/30

Respond by 23 July 1999

1999 Annual operating statement, planning return and financial forecasts

Executive summary

Purpose

1. This document asks institutions to send us updated planning and operating information, including the financial forecasts for the period up to 2002-03.

Key points

2. The information requested will:

Action required

3. A list of the information required is given in paragraphs 16 to 17. Institutions should send all documents, and the completed disk, to their HEFCE higher education adviser to arrive by 23 July 1999.

4. Institutions that offer initial teaching training should also make returns to the Teaching Training Agency by 23 July 1999 (see paragraph 18).

Background

5. In February we issued HEFCE Circular letter 3/99 ‘Corporate planning’, which gave notice of how we propose to take forward our approach to corporate planning in higher education.

6. The main elements of the approach are:

Annual operating statement

7. This framework for corporate planning will take some time to bring fully into effect. Meanwhile, it remains important for the Council to get summary statements from HEIs which indicate their strategic direction and priorities for action, and their own assessment of progress against objectives. This is necessary to give the Council a broad understanding of institutions, both to provide the context for discussions about specific HEFCE initiatives and funding programmes, and so that we can carry out our function of providing informed advice to the Secretary of State. It also provides the context within which we can assess institutions’ financial forecasts, to gauge consistency between the forecasts and the institution’s assessment of its strategic position.

8. We therefore need annual operating statements from all institutions. Whereas a full corporate plan looks forward 5-10 years or more, and represents a fundamental review of the institution’s circumstances, and aims and direction, the annual operating statement is more of a snapshot, summarising the current position and prospects. We would therefore expect it to be a great deal shorter than the full corporate plan.

9. Institutions carry out corporate planning primarily for their own purposes, not the HEFCE’s. So far as possible, we will leave institutions discretion to determine the content and structure of their plans and operating statements. But some consistency of coverage is necessary if we are to be able to derive valid judgements about trends and developments across the sector.

10. We should be happy to receive whatever annual operating statements institutions prepare for themselves. But in all cases, we need the following information, either contained in the annual operating statement or in a supplement to it:

11. As a guide, we would not expect such a statement to be longer than five pages, but it is for the institution to determine what is useful for its own purposes.

12. As noted in paragraph 6 above, there are some key strategic themes which we expect to see in future corporate plans, and to discuss with institutions. These have been identified as issues which should be of concern to all institutions, and which are sufficiently important to each institution’s development to warrant inclusion in the corporate plan. Given the shortness of notice, we will not expect this year’s operating statements necessarily to cover all those themes, although where an institution chooses to do so, that will be welcome. We will expect the operating statements which we commission this time next year to cover those themes.

13. As foreshadowed in Circular letter 3/99, we shall from next year be using annual operating statements as the vehicle for tracking progress against the objectives which each institution sets for itself in relation to some key special funding initiatives. This is designed both to reduce the burden of unco-ordinated monitoring activity for different programmes, and to encourage greater coherence between initiatives. The initiatives concerned will include:

14. The proposed arrangements for these funding programmes are set out in separate HEFCE documents. But in each case, we shall be asking institutions which receive funding under the various initiatives to propose measurable and quantified performance indicators against which progress can be tracked through subsequent annual operating statements. We shall look out for other funding programmes which it would be helpful to administer in the same way.

15. We are currently consulting on detailed definitions for estate statistics which could be used on a sector-wide basis. Once again, for the annual operating statements we commission this time next year, we envisage that estate data returns will be collected in conjunction with the statement, to promote coherence between the estates context and the other aspects of the institution’s strategic and financial development.

Returns to the HEFCE

16. All institutions should send the following to their higher education adviser by 23 July 1999:

17. We need three copies of all the documents.

Returns to the Teacher Training Agency (TTA)

18. The Chief Executive of the TTA has the Lead Accounting Officer role for the following five colleges:

These colleges should also send a copy of all the information requested in paragraph 16 to:

Frank Martin
Teacher Training Agency
Portland House
Stag Place
LONDON
SW1E 5TT.

Data

19. To help us analyse the finance-related data, and report back to the sector, information should be provided in a consistent format, following the guidance in Annexes A to D.

Late returns

20. Some institutions may have meetings of their governing body to approve the budgets and financial forecasts shortly after the return date of 23 July 1999. In such cases, we will consider submission of draft documents before 23 July, accompanied by a request for a limited extension to the deadline. Institutions should contact their HEFCE finance adviser as soon as possible, and write to us asking for a late submission, with the date of the meeting and the date we will receive the forecasts.

Confidentiality

21. We will treat institution-specific information as strictly confidential. However, we will issue summary analyses of the data provided.

Annex A

Financial forecasts 1999: guidance notes

Introduction

1. Financial forecasts represent the strategic plan in financial terms and are integral to it. They should be institutions’ own forecasts, based on their assessment of the most realistic assumptions over the period covered by the strategic plan and/or annual operating statements.

Objectives

2. Our objectives in requesting financial forecasts are:

3. In addition, we will take the forecasts into account when formulating our advice to the Secretary of State for Education and Employment on the financial needs of the higher education sector.

Accounting conventions

4. The main tables of financial forecasts follow the format of the ‘Statement of Recommended Practice: Accounting in Higher Education Institutions’ (SORP), introduced from 1 August 1994. The forecasts should therefore comply with all Financial Reporting Standards effective as at 31 July 1999. Where more detailed information is required, the form of the ‘Finance Statistical Return 1996-97’ (FSR), published by HESA, has generally been adopted. In particular, institutions should apply the Definition of Terms in Part 2 of the SORP, paragraphs 8 to 21, when completing the return.

5. Individual institutions may not be affected by all Financial Reporting Standards but every institution will need to comply with FRS 12, ‘Provisions and Contingencies’. As institutions may have residual provisions complying with FRS 12, Table 6b ‘Analysis of Provisions’ is retained within the forecasts.

6. It is not necessary to restate data for 1997-98 to comply with Financial Reporting Standards that became effective after 31 July 1998. Where the effect of a change is material to an understanding of the forecasts it should be noted in the commentary.

Consolidation

7. The financial forecasts should cover the institution and all its subsidiary undertakings. If an institution has subsidiary undertakings, the financial forecasts should be consolidated in accordance with ‘Financial Reporting Standard No 2: Accounting for Subsidiary Undertakings’ (FRS 2). Student Unions should be consolidated where this is the agreed treatment for that institution.

Rounding

8. All money should be shown in units of £1,000 and where necessary be independently rounded to the nearest £1,000.

Tables to be completed

9. The forecasts cover a six-year period starting with the last completed and audited year, then the current year and then the next four years. They comprise the following tables:

Commentary

10. Institutions should also provide a commentary on the financial forecasts using the template shown at Annex B. This can be found on the disk in Word version 6 and WordPerfect 5.1. Guidance on what to include under each heading is given in Annex B. The commentary should explain how the financial forecasts represent the institution’s strategic plan in terms of its financial policies and the strategies for achieving them, and provide supporting information on the financial forecasts.

Queries

11. Institutions should address questions about completing the financial forecasts to their HEFCE finance adviser:

Guidance on tables

Table 1: Income and Expenditure Account

Heads 1 to 6

12. These are calculated automatically from Table 2a and do not require input.

Head 7: Staff Costs

13. Staff costs should cover all and only those full-time and part-time staff who hold contracts of employment with the institution. Payments to non-contracted staff or individuals should be included in Other Operating Expenses.

Head 8: Depreciation

14. Depreciation should cover all buildings and items of furniture and equipment that are capitalised and depreciated in accordance with the institution’s depreciation policy.

Head 9: Other Operating Expenses

15. Other operating expenses should cover all other non-pay costs incurred, except for depreciation and interest payable which are shown separately, and should include:

• payments to non-contracted staff or individuals

• expenditure on equipment which has not been capitalised

• restructuring costs

• long-term maintenance expenditure.

Head 12: Exceptional Items

16. Exceptional items should be included only where they meet the definition of exceptional items set out in Financial Reporting Standard 3 paragraphs 5, 19-20 and 46-47. Further information on the nature of exceptional items should be provided in the commentary.

Head 13: Surplus/(Deficit) after Depreciation of Assets at Valuation and before Tax

17. This will be calculated automatically.

Head 14: Taxation

18. This should be the estimated liability for taxation of the institution and its subsidiary undertakings.

Head 15: Minority Interest

19. This should be the proportion of the surplus or deficit attributable to the minority interests in subsidiary undertakings.

Heads 16 and 17: Surplus/(Deficit) after Depreciation of Assets at Valuation and Tax

20. This is calculated automatically.

Head 18: Difference Between a Historical Cost Depreciation Charge and the Actual Depreciation Charge for the Year Calculated on the Revalued Amount

21. This will apply when depreciation is calculated on assets included on the balance sheet at valuation or revaluation, rather than historical cost.

Head 19: Realisation of Property Revaluation Gains of Previous Years

22. This will apply when a revalued asset is sold or is expected to be sold over the forecast period.

Head 20: Historical Costs Surplus/(Deficit) after Tax

23. This is calculated automatically.

Table 2a: Analysis of Income

24. Table 2a provides analysis of the five main income headings in Table 1, with totals transferred automatically to Table 1.

Head 1: Funding Council Grants

Sub-head 1a: HEFCE Teaching

25. Heading 1a, i. should be the total block grant for teaching, as in your annual grant letter or additional grant letters from the Council (including additional student numbers awarded in 1999-2000). Do not include non-consolidated additions to core funds or reimbursement of inherited liabilities under this head: these should be under sub-heads 1c and 1e respectively. Any increase in forecast teaching grant for future years should only reflect the impact of inflation, reductions in the unit of funding, and any Council agreed migration strategies; it should not include any assumptions about growth in student numbers in future years.

26. Heading 1a, ii. Where institutions wish to incorporate assumptions about growth in student numbers for 2000-01 to 2001-02 in the light of the Government’s announcement about additional places in further and higher education by 2002, these should be included under head 1a ii. Please note that you should make realistic assumptions about your institution’s share of any assumed growth in the HE sector and these should be priced at the average for the price groups.

Sub-head 1b: HEFCE Research

27. This should be the total block grant for research as shown in the annual grant letter or additional grant letters from the Council. It is not necessary to distinguish between the different components of research funding.

Sub-head 1c: HEFCE Special Funding

28. This should include all elements of special funding as shown in the annual grant letter, together with non-consolidated additions to core funding (for 1997-98 and 1998-99 only). Additional non-formula funding and funds arising from special initiatives should be under sub-head 1e.

Sub-head 1d: HEFCE Release of Deferred Capital Grants

29. Amounts under this sub-head should relate to either estate project funding or specific capital grant which has been used to purchase a capitalised asset. The release will be over the lives of the assets and will offset the depreciation charge on those assets.

Sub-head 1e: HEFCE Other Grants

30. Amounts under this sub-head should be any other grants that have not been dealt with in any of the above sub-heads. They will include:

Sub-head 1f: FEFC Recurrent Grants

31. This should include all recurrent grants provided by the FEFC.

Sub-head 1g: TTA Mainstream ITT Funding

32. This should contain the TTA formula funding to support initial teacher training, as shown in the annual funding allocations letter or additional grant letters from the TTA. It is not necessary to distinguish between recurrent and capital funding.

Sub-head 1h: TTA INSET Funding

33. This should include TTA funding provided to support the continuing professional development of existing schoolteachers with qualified teacher status (QTS).

Sub-head 1i: TTA Partnership Funding

34. This should include any earmarked funding to support partnership arrangements with schools.

Sub-head 1j: Other Funding

35. This should include any other TTA earmarked funding.

Head 2: Academic Fees and Support Grants

36. This is all fee income from both public and private sources, including short courses and self-financing full-cost courses. It should include income from courses provided for other bodies where the institution charges either a block fee to cover a specified number of students or a fee per individual student. Income relating to teaching NHS personnel, such as nursing or midwifery courses, should be included.

37. Where fees are wholly or partly waived, the income due though not received should be included, that is the income should be gross and not net. The costs of any waivers falling to institutions should be shown under Other Operating Expenses. Payment from an outside fund to meet the cost of fees, for example from the Overseas Research Students Awards Scheme (ORSAS), should be shown as if it were fees income.

38. Credit-bearing continuing education (CE) courses should be treated as part-time or full-time credit-bearing courses, as appropriate.

Sub-head 2a: Full-time UG Home and EU Students

39. This should only cover full-time and sandwich students for full-time undergraduate degree, diploma or similar award-bearing courses.

40. It should include all fees for UK domiciled students charged at the undergraduate mandatory home fee rates; and all fees for non-UK domiciled students, including EU students, charged at the undergraduate mandatory home fee rates. In both cases this is regardless of whether the fees are paid wholly or partly by the local education authorities, and includes PGCE students.

Sub-head 2b: Full-time PG Home and EU Students

41. This should include all fees for full-time postgraduate students whether from public or private sources.

Sub-head 2c: Part-time Fees

42. This should include fees for Home and EU students who are charged part-time fees (but are not overseas students). It will encompass fees for degree, diploma or other HE credit-bearing courses, including postgraduate courses.

Sub-head 2d: Overseas Students

43. This should include all fees for students who are charged overseas fees for either full-time or part-time provision including students from the Channel Islands and the Isle of Man.

Sub-head 2e: Fees from NHS Contracts

44. This should include income from Department of Health or regional health authorities or NHS Trusts in respect of courses provided for NHS personnel. It will include fees paid in respect of nursing and midwifery training and other subjects and professions allied to medicine funded by the NHS.

Sub-head 2f: Other Fees and Support Grants

45. This should include:

Head 3: Research Grants and Contracts

46. This should include all income from externally sponsored research carried out by the institution or its subsidiary undertakings.

Sub-head 3a: Research Councils

47. This should include income from research grants and contracts from the Research Councils.

Sub-head 3b: UK-based Charities

48. This should include income from research grants and contracts from charitable foundations and charitable trusts that are based in the UK and registered with the Charities Commission, and from exempt charities.

Sub-head 3c: Other Research Grants and Contracts

49. This should include income from research grants and contracts from sources other than Research Councils, UK-based charities and exempt charities.

Head 4: Other Operating Income

Sub-head 4a: Other Services Rendered

50. This should show all income from services rendered to outside bodies, including the supply of goods and consultancies. The Integrated Graduate Development Scheme, European Social Fund Grants and Teaching Company Schemes should be included under this head. It should also include validation fees for courses such as those run by other institutions.

Sub-head 4b: Residences and Catering Operations

51. This should include the gross income from residences and catering operations, including conference lettings.

Sub-head 4c: Income from NHS contracts

52. This should include all income received from UK regional health authorities or NHS Trusts to fund employees of the institution, including academic teaching posts, funded under contracts for teaching NHS personnel such as contracts for teaching nursing and midwifery. It should also include income received to provide premises or facilities in relation to such contracts. This sub-head should not include those elements of income relating to the provision of a service (sub-head 4a) nor funding of NHS clinical posts in teaching hospitals (sub-head 4d).

Sub-head 4d: Other Operating Income

53. This should show all operating income not specifically included elsewhere, such as:

Head 5: Total Endowment Income and Interest Receivable

54. This should include three elements:

Head 6: Total Income

55. This is the total of heads 1 to 5. It is calculated automatically and linked to Table 1.

Table 2b: Analysis of Separable Activities

56. This table analyses the income and contribution to indirect costs generated from separable activities. The table should be completed for all activities that generate more than 5 per cent of the institution’s total income. Institutions should complete a sensitivity analysis in Table 7 for activities flagged in this table.

57. The income figures are imported automatically from Table 1. These will generate a flag identifying those activities which require more information. Expenditure attributable to each of the activities should be input, showing all direct expenditure including staff costs and other operating expenses as well as attributable depreciation and interest.

Table 3: Balance Sheet

58. Access funds received and paid should not be included in the income and expenditure account, but the balance should be included in the balance sheet.

Head 1: Fixed Assets

59. This should include land, buildings and equipment which are expected to have a useful economic life of more than 12 months from the date of acquisition, and which meet institutions’ capitalisation thresholds. The assets should be stated at cost or valuation. Donated assets should be included at open market value at the time of acquisition.

Sub-head 1a: Tangible Assets

60. This should include land, buildings and equipment in use in the institution or its subsidiary undertakings. The value is calculated automatically from Table 6d.

Sub-head 1b: Investments

61. This should include investments made by the institution or its subsidiary undertakings out of funds other than endowment funds, and which are not intended to be realised within the next 12 months. Amounts as at 31 July 1998 should be stated at market value. Investments in subsidiary undertakings will be eliminated on consolidation.

Head 2: Endowment Asset Investments

62. This should include investments made out of restricted or general endowment funds. Investments as at 31 July 1998 should be stated at market value. The total for each year should agree with the total endowment funds recorded at head 12.

Head 3: Current Assets

Sub-head 3a: Stocks and Stores in Hand

63. Stocks and stores in hand should be recorded where practical to do so and where the amounts involved are material. They should be included either at cost or net realisable value, whichever is lower.

Sub-head 3b: Debtors

64. This should include all amounts due to the institution as a whole, less any provisions for bad and doubtful debts. The current portion of any long-term loans should be included under this head. Pre-paid costs should be included to the extent that the cost relates to expenditure in the following academic year.

Sub-head 3c: Investments

65. This should include investments and other liquid resources (excluding any short-term endowment asset investments), which the institution intends to realise within 12 months. Investments held as current assets should be shown at cost or net realisable value, whichever is lower.

Sub-head 3d: Cash in Hand and at Bank

66. This should include all accounts held in the form of cash, including bank accounts, but excluding any cash relating to endowment assets. The definitions of cash should be as in Financial Reporting Standard 1 (Revised 1996) that is, it should only include cash and deposits which are repayable on demand or within 24 hours. Deposits which are recoverable after more than 24 hours should be included under head 3c. Bank overdrafts should not be netted off against positive balances but should be shown separately under current liabilities, head 4c.

Head 4: Creditors: Amounts Falling Due Within One Year

67. This should include all liabilities which are payable within 12 months. Provisions should not be included under this head, but disclosed separately under head 8.

Sub-head 4a: Creditors

68. This should include all amounts due within the next 12 months, or income received in advance.

Sub-head 4b: Current Portion of Long-term Liabilities

69. This should include the portion of long-term liabilities, whether reimbursable by the Funding Council or not, that is due to be repaid within the next 12 months.

Sub-head 4c: Bank Overdrafts

70. This should include all bank overdrafts, which should not be netted off against cash in hand and at bank.

Head 5: Net Current Assets/(Liabilities)

71. This is calculated automatically.

Head 6: Total Assets Less Current Liabilities

72. This is calculated automatically.

Head 7: Creditors: Amounts Falling Due After More Than One Year

73. This should include all amounts outstanding on external borrowings at each year-end and which are due for repayment more than 12 months from the balance sheet date. The portion due within 12 months should be included under sub-head 4b above.

Sub-head 7a: Reimbursable by the Funding Council

74. This should include outstanding debts with local education authorities which are expected to be reimbursed by the Funding Council through its funding for inherited liabilities.

Sub-head 7b: External Borrowings

75. This should include all other debts, including Business Expansion Schemes (BES) and finance leases.

Sub-head 7c: Other Long-term Creditors

76. This should include all long-term creditors that are not regarded as borrowings, such as deferred payments for contractual obligations. Items included under this sub-head should be detailed under head 8 in the commentary. Finance leases and other forms of borrowing should not be included under this head.

Head 8: Provisions for Liabilities and Charges

77. This is calculated automatically from the data in Table 6b.

78. Details of all provisions should be disclosed in the commentary. Only provisions that comply with FRS 12 should be made.

Head 9: Total Assets Less Liabilities

79. This is calculated automatically

Head 10: Deferred Capital Grants

80. Capital grants received from the Funding Council and other organisations in respect of assets which have been included within fixed assets should be shown under this head and released to the income and expenditure account over the estimated useful lives of the assets. The balance will represent the unreleased portions of the capital grants received.

Head 11: Total Net Assets

81. This is calculated automatically.

Head 12: Endowments

Sub-head 12a: Specific Endowments

82. This should include endowments where the donor has specified how the capital or income should be used. Income on the investment of such endowments should be included under this head, and released to the income and expenditure account as necessary to match the specific expenditure for which the endowment was provided.

Sub-head 12b: General Endowments

83. This should include endowments where the institution has the discretion as to how the capital or income is used. Income on the investment of such endowments should be included in the income and expenditure account in full.

Head 13: Reserves

Sub-head 13a: Revaluation Reserve

84. Where fixed assets are included at valuation, or revaluation, the difference between the valued or revalued amounts and the historical cost of the assets should be shown here, as well as the capital element of the reimbursement of inherited liabilities.

85. The movements on the revaluation reserve should be detailed in the commentary.

Sub-head 13b: Minority Interest

86. This is the value of any minority interests in subsidiary undertakings.

Sub-head 13c: Income and Expenditure Account

87. This is the total of all other reserves of the institution and its subsidiary undertakings, plus the annual surplus or deficit on the income and expenditure account before transfers. Details of reserves and reserve movements should be included in the commentary.

Table 4a: Cash Flow

88. This should be completed in accordance with ‘Financial Reporting Statement 1 (Revised 1996): Cash Flow Statements’. Items included in sub-heads 2e, 4h, and 8d should be explained in the commentary.

Sub-head 4a: Payments to Acquire Tangible Fixed Assets

89. This is calculated automatically from the data in Table 6c.

Sub-head 4d: Receipts from Sale of Tangible Fixed Assets

90. This is calculated automatically from the data in Table 6c.

Table 4b: Reconciliation of Surplus

91. This should provide a reconciliation between the operating surplus/(deficit) and the net cash flow.

Table 5: Major Assumptions

92. This table asks for the main assumptions underpinning the financial forecast. The information on pay inflation (sub-head 1a), incremental drift (head 2) and staff numbers (head 3) should explain the year-on-year movements in total staff costs in Table 1. Where there are other factors affecting the projected staff costs and year-on-year movements, these should be explained in the commentary. Similarly, if there are other elements of income or expenditure which are not explained by the factors included in this table, further information should be given in the commentary. Contribution rates should be calculated with reference to relevant expenditure.

Tables 6a-6g Supporting Data

93. These tables provide further information to support the income and expenditure account and balance sheet.

94. Maintenance expenditure reported in Table 6a should be the amount charged to the income and expenditure account in compliance with FRS 12.

95. Provisions disclosed in Table 6b should comply with FRS 12.

96. Table 6d is intended to provide a reconciliation of fixed asset movements and highlight profits and losses arising on disposals. The net book value of tangible fixed assets as at 1 August 1997 must be input manually under sub-head 1a.

97. Table 6e gives details of long-term borrowing: further guidance on how to calculate the annualised servicing costs for long-term borrowings is given in Annex C of HEFCE Circular letter 39/98 ‘1997-98 Financial statements’.

Table 6f: Long-term Operating Expense Commitments

98. This should include PFI contracts or long operating leases and any inherited lease whose reimbursement by HEFCE has been rolled into core funding. The information is split into those commitments which expire up to 2007-08 (section a) and those commitments which expire after 2007-08 (section b). For commitments expiring after 2007-08, the date when the commitment ends should also be stated.

Table 6g: Analysis of PFI Projects

99. Table 6g requires further analysis of PFI contracts, whether on or off balance sheet. A brief description of each project is required, giving details of the capital value of the project, the annual cost, and the start and end dates, and whether the contract is on the balance sheet or not. The annual cost should be that for 1999-2000, unless the contract does not start until later in the forecast period, when the costs of the first full year should be used.

100. The return also requires institutions to specify the inflator used to adjust the contract payments year by year. A typical PFI contract will normally express such an inflator in relation to a generally accepted index such as RPI. For the purposes of this return, institutions should interpret the inflator in terms of the percentage which they are using in their own internal financial planning.

Table 7: Sensitivity Analysis

101. The purpose of the sensitivity analysis is to indicate the financial effects of a number of scenarios on the overall forecast financial results of institutions. Details for scenarios 1 to 8 are automatically updated from the information contained in preceding tables. Scenarios 9 to 13 will require manual input.

102. Scenarios 1 to 4 cover the cumulative impact of annual changes which would compound over the forecast period if no action were taken; scenarios 5 to 7 cover the cumulative impact of step changes in 1999-2000 if no action were taken in that or subsequent years.

103. Scenarios 9 to 13 only need to be completed where income from that source represents more than 5 per cent of the institution’s total income. This will be indicated in the table itself based on the information contained in Table 2a.

104. The commentary should include a summary of the implications of each scenario and a description of the actions which would be taken if these scenarios came about, either individually, in combination, or collectively. It would be helpful to separate the actions into those which relate to the compounded annual changes and those which relate to the step changes from 1999-2000.

Tables 8a and 8b: Performance Indicators

105. These are calculated automatically.

Tables 9a to 9f: Student Numbers

106. The tables are designed to be consistent with the HESES98 survey, which institutions completed in December 1998, and to keep the data requested to a minimum. For definitions of price groups, mode of study and level of study please refer to that survey (HEFCE 98/48). None of the student number data will be used for funding purposes.

Students to be Counted

107. Institutions should, in the first instance, refer to Annexes C and D of HEFCE 98/48 for details of which students are to be included in this return. They should include HE students at associate colleges and those who are franchised out.

108. Consistent with HESES98, this return counts all years of programme of study for students studying towards qualifications and not full-time equivalents. The data should include those students who do not complete their year of program of study, equivalent to columns 1 plus 2 of the HESES return.

109. NHS students should only be those for which income is received from the Department of Health, regional health authorities or NHS Trusts in respect of courses provided for NHS personnel. Students receiving nursing and midwifery training should be included.

110. Students recorded under initial teacher training (ITT) should be all and only those on courses which lead to qualified teacher status upon successful completion. Institutions should enter details of ITT student numbers on Tables 9d and 9e only. ITT student numbers on Tables 9a and 9b do not require input, as these will be calculated automatically from the data recorded on the separate ITT tables.

111. Medical and dental students should be only those on programmes of study that would normally lead to a first registrable medical or dental qualification.

Annex B

Financial forecasts 1999: commentary guidance notes

Institutions should provide a detailed commentary on their forecasts which covers the following areas.

1. Introduction

This gives the context in which the forecasts have been prepared. It should also describe the institution’s financial strategy, policies and targets (such as levels of surplus, cash balances and reserves), its plans for achieving them, and how they are reflected in the forecasts.

2. Exceptional and unusual items

Where exceptional items have been included in Table 1 head 12 in any year of the forecasts, details of the exceptional items should be provided. If material unusual transactions have been included in other items of income or expenditure they should also be disclosed here. This applies particularly to:

3. Major assumptions

Table 5 contains the major assumptions for each academic year. Where the assumptions relating to a specific line of income or expenditure (or in the case of staff costs the combined impact of the relevant assumptions) do not fully explain the year-on-year changes, further details of what else has led to these changes should be provided.

If there are any other key assumptions, not included in this table, which underpin the information included in the financial forecasts, further details should be provided here.

Institutions should include in this section of the commentary details of:

• the assumptions underpinning student number forecasts

• the correlation of student numbers with fee income

• the assumptions regarding holdback and achievement of migration strategies.

4. Specific actions taken to ensure continued financial viability

This provides an opportunity for institutions to set out the actions that they have taken or expect to take to ensure that expenditure does not exceed income, taking one year with another, as required in the Financial Memorandum with the HEFCE. They should indicate not only the impact on the figures, but the consequences for staff and the student experience, and the effect on teaching and research provision and the institution’s estate.

5. Changes in significant areas of separable income/expenditure (Table 2b)

Table 2b identifies the significant income-generating activities and the related expenditure in order to demonstrate how much these areas contribute to the overall surplus of the institution. For each area which has been flagged please comment specifically on:

• significant year-on-year changes in income and expenditure

• the assumptions underlying these changes

• any other changes in these activities (such as major developments or initiatives).

6. Details of other significant increases or decreases over the forecast period

These should link back to the assumptions made in preparing the forecasts, and cover any other significant changes in income, expenditure, assets and liabilities, not identified above.

It is particularly important for institutions to highlight in the commentary the steps they will take to ensure achievement of efficiency gains. These gains will generally imply increased income, to be discussed in section 5 above, or reduced staff costs and other operating expenses. Such savings should be disclosed here, together with clear indications of the methods by which the institution will achieve the savings in question.

We recognise that achieving savings in the later years of the forecast may require abnormal expenditure in the earlier years, such as:

• reorganisation costs

• redundancy costs

• systems development costs.

Such costs should also be disclosed here where they are material to an understanding of an institution’s affairs.

7. Analysis of reserves and reserve movements

Any movements on the income and expenditure account reserve as shown on the balance sheet, that do not relate to the surplus/(deficit) for the year, or transfers from the revaluation reserve, should be described in detail in the commentary.

8. Other long-term creditors

Table 3 head 7c gives the total of long-term creditors that are not regarded as borrowings. Details of these balances should be provided.

9. Sensitivity analysis

This should detail the implications of each of these scenarios and the actions which the institution expects to take if scenarios 1 to 8 on Table 7 come about, either individually or in combination. Institutions need only provide comments on scenarios 9 to 13 where they are flagged.

10. Cash flow statements

Details of other items, at heads 2, 4, and 8 of Table 4a, should be provided as set out in the template.

11. Commentary approval

The commentary should be signed and dated by the institution’s director or head of finance.

Commentary template

1. Introduction

2. Exceptional and unusual items

Items included in Table 1 head 12 are:

3. Major assumptions

4. Specific actions proposed to ensure continued financial viability

Actions already taken:

Planned:

5. Changes in significant areas of separable income/expenditure (Table 2b)

6. Details of significant increases or decreases over the forecast period

Other significant increases or decreases in income, expenditure, assets and liabilities, and the reasons for these changes are:

Efficiency gains will be secured by:

7. Analysis of reserves and reserve movements

8. Other long-term creditors

9. Sensitivity analysis

If any of the scenarios in Table 7 occurred, individually or in combination, the following actions would be taken:

10. Cash flow statements

The items included as Other Items on Table 4a heads 2, 4 and 8 are:

Head 2

Head 4

Head 8

Signature .......................................................

[Name]

[Title]

[xx] July 1999

Annex C

Financial forecasts 1999: funding guidance

1. This annex gives guidance on funding which institutions may wish to take into account in preparing their financial forecasts; and the latest forecasts of changes in the GDP deflator. The assumptions on funding are not statements of HEFCE or TTA policy, but are provided solely to help institutions prepare their forecasts.

GDP deflator

2. Changes in GDP deflator:

Assumptions about HEFCE funding

Baseline funding levels for teaching and research

3. In December 1998 the DfEE announced the funding to be provided for higher education for the financial years 1999-2000 and 2000-01. The Council has announced funding for the academic year 1999-2000. For subsequent years institutions should assume real terms reductions in unit funding of up to 1 per cent for core teaching and research: that is in resource terms (grant and fees combined). Within this overall assumption the £1,025 tuition fee should be maintained in real terms.

Funding for teaching

4. Recurrent grant Table B, issued on 2 March 1999, or as subsequently revised, sets out institutions’ recurrent funding for teaching for 1999-2000 and their percentage difference from standard resource. Institutions should reflect any agreed migration strategies in their assumptions about funding for teaching, student numbers and fee income.

5. Only full-time postgraduate research students in year 1 and part-time postgraduate research students in years 1 and 2 are funded through the funding method for teaching. As for 1999-2000 funding, full-time postgraduate research students in years 2 and 3 and part-time research students in years 3 to 6 in departments rated below 3b in the 1996 Research Assessment Exercise will not be counted in the teaching model. Baseline teaching funds associated with such students from the 1998-99 teaching allocations will be subject to the rules of migration.

6. Institutions should include funding for additional student numbers for 1999-2000. The Government has announced an additional 24,000 places for higher education in 2000-01. Institutions should make a realistic assumption about their own share of those higher education numbers, taking account of the DfEE’s guidance that most of these will be at sub-degree level and located in FE colleges. Additional student numbers should be priced at the average for the price groups.

7. For the purposes of preparing the forecasts only, institutions may assume that the transfer of funding to the Department of Health for certain students in the health care professions will have a neutral impact on their overall income.

Funding for research

8. Institutions should assume, for the purposes of preparing the forecasts only, that:

Special funding

9. Allocations which have been announced for 1999-2000 or subsequent years should be included.

10. Joint Information Systems Committee (JISC) allocations should only be included if institutions have been told that they will receive them.

Inherited liabilities

11. For the purposes of the forecasts only, institutions should assume that we will continue to reimburse:

Capital projects

12. Specific capital grants should only be included where we have already agreed the funding.

Assumptions about TTA funding

ITT

13. The TTA has already announced funding for ITT in 1999-2000. Gains and losses resulting from the introduction of the price tariff in 1997-98 will continue to be capped at 5 per cent per year until 2000-01.

14. Intake targets for primary ITT are planned to remain at 12,000 from 1999-2000 to 2001-02. Intake targets for secondary ITT are planned to be 16,610 between 1999-2000 and 2001-02. Institutions should give details in the financial forecast commentary of any assumptions made for changes in intakes to primary and secondary ITT.

15. The transfer of resources to partner schools associated with the shift to schools-based training of teachers should be included, and disclosed separately in the commentary to the forecasts.

INSET

16. The TTA has already announced allocations of INSET funding for 1999-2000 under its competitive bidding mechanism. This funding consists of the following elements:

a. Guaranteed funding. Under the transitional arrangements, institutions funded in 1997-98 will receive 50 per cent of the funding they would otherwise have received under previous arrangements.

b. Bid-related funding, which is funding allocated to successful bidders in the main bidding round in February 1998 and/or in the interim bidding round in February 1999.

17. Holdback arrangements will apply to all allocations.

Capital funding

18. Capital funding for both ITT and INSET is subsumed in the TTA’s ITT and INSET budgets; its distribution reflects the pattern of ITT and INSET allocations for 1999-2000.

Annex D

Financial forecasts 1999 tables 1 - 9

These tables are not included in the web version of this document.