Report 00/31

Holdback of HEFCE grant 2000-01

Executive summary

Purpose

1. We have a funding agreement with each institution that we fund, which specifies the targets relating to student numbers that we expect it to meet. This document explains what action we will take if institutions do not meet their targets for 2000-01.

   Key points

2. There are five constraints on recruitment within the funding agreements, although not all apply to every institution. They are:
   1. The contract range. Under our funding method for teaching, we calculate a standard level of resource for each institution, and an assumed resource (actual HEFCE teaching grant plus an estimate of income from fees). The percentage difference between assumed and standard resource for the academic year 2000-01 must be within a given range – known as the contract range.
   2. The maximum student number (MaSN). This is an upper limit for the student numbers on full-time undergraduate and all initial teacher training courses.
   3. Funding conditional upon delivery of growth. This only applies to institutions that are expected to increase student numbers in 2000-01 as a result of a successful bid for additional funded places. Funding for those places is contingent upon institutions actually recruiting students to fill the places.
   4. The sub-degree target. This only applies to institutions that have been funded for additional places below degree level for 1999-2000 or 2000-01. Its purpose is to ensure sufficient increases in total student numbers below degree level, as planned by the Government.
   5. The contract full-time equivalent (CFTE) number for students on undergraduate medical and dental courses to which a quota applies, setting minimum numbers.
3. These measures are designed:
   1. To ensure that public expenditure on higher education remains within the overall spending limits set by the Government each year.
   2. To maintain broadly comparable resource levels per student so that the quality of the student experience is not put at risk.
   3. To ensure that funds allocated for expansion do indeed deliver additional places and, within that, to encourage the expansion of higher education below degree level.
   4. To ensure that the intended number of medical and dental students required to meet national needs is delivered in return for the exceptionally high level of funding provided for such students.
4. To achieve these objectives we will withhold grant from an institution which:
   1. Is found to have assumed resource above its contract range.
   2. Recruits more than a permitted margin above its MaSN.
   3. Does not deliver the growth expected in 2000-01 arising from a bid for additional funded places.
   4. Under-recruits against its CFTEs for medicine and dentistry.
5. In cases where an institution:
   • is found to be below its contract range, or
   • does not recruit sufficient student numbers on courses below degree level

   we will want to discuss the reasons with the institution, and to receive an action plan setting out how the institution will achieve the relevant target. We expect that institutions will then take the necessary action to bring numbers into line with their targets.

6. In relation to paragraphs 4 and 5, before taking any action, we will give institutions an opportunity to tell us about any material changes in definitions or mitigating factors.

   Action required

7. No response is required.

   Background: the funding agreement

8. We expect each institution to provide a certain level of teaching activity in return for our funding. We therefore specify in an annual funding agreement certain targets that we expect the institution to meet. These targets set overall controls on its student numbers.
9. There are up to five separate targets specified in the funding agreement, although not all apply to every institution. These are shown in Table 1.

   Table 1 Targets for student recruitment

   Target	Applies to:
   Contract range	All higher and further education institutions directly funded by the HEFCE
   Maximum student number (MaSN)	All higher and further education institutions directly funded by the HEFCE
   Funding conditional upon delivery of growth	Only those higher and further education institutions that are expected to increase student numbers in 2000-01 as a result of a successful bid for additional places
   Sub-degree target	Only those higher and further education institutions funded for additional places below degree level for 1999-2000 or 2000-01
   Medical and dental contract full-time equivalent (CFTE)	Only those higher education institutions with medical or dental schools

10. If an institution does not meet one or more of its targets, we may withhold some of its grant. This is known as holdback.
11. Institutions should read this publication alongside their funding agreement. The latter explains how we monitor whether institutions are meeting these targets, and the students who may count towards them. Individual students may count towards more than one target and this means that there is an interaction between the different targets. To take account of this interaction, we will monitor against the targets in the following order:
    1. MaSN
    2. funding conditional upon delivery of growth
    3. medical and dental CFTE
    4. contract range
    5. sub-degree target.
12. We will take account where appropriate of adjustments to funding arising from institutions’ recruitment against one target before we make further adjustments because of their recruitment against a subsequent target.

    The MaSN

13. The Government requires us to control the numbers of full-time undergraduates and initial teacher training students that institutions may recruit. This is because those students may qualify for student support, and the number of qualifying students has to be managed in order to maintain budget control. We therefore set each institution a MaSN, plus a small additional margin up to which they may recruit. Recruitment above the MaSN plus margin will result in holdback in 2000-01, unless the institution provides evidence that the excess is wholly attributable to students who are funded from public sources other than the HEFCE or the Teacher Training Agency (TTA) – for example those funded by the NHS. The reduction in grant in 2000-01 will be based on the tuition fee income attributable to the excess numbers, at a rate of £1,050 for each full-time student and £520 for each sandwich year-out or part-time student. The holdback will not be consolidated into institutions’ baseline funding for 2001-02.
14. We will not apply a financial penalty solely because an institution recruits below its MaSN in 2000-01, although this may be taken into account when determining future MaSN allocations. Under-recruitment could lead to holdback, if it results in an institution not meeting other resource or student number targets.

    Funding conditional upon delivery of growth

15. In January 2000, we announced that we proposed to introduce measures that could lead to holdback of grant in 2000-01 if institutions did not deliver the growth expected of them as a result of a successful bid for additional student numbers. We invited bids for additional places for 1999-2000 and 2000-01 in HEFCE 98/56 and HEFCE 99/56 respectively.
16. Institutions that have still to deliver the growth expected from an allocation of additional places for 1999-2000 have a second opportunity to do so in 2000-01. These institutions fall into two categories:
    1. Some have already had a reduction in funding for 2000-01 arising from the shortfall in 1999-2000. These institutions will be able to recover any funding already deducted for 2000-01 to the extent that they deliver the growth now required.
    2. Other institutions may not yet have had a reduction in funding despite under-recruitment in 1999-2000. These institutions will be liable to holdback if they do not recruit the growth required in 2000-01.
17. All institutions that have been awarded additional places for 2000-01 are expected to deliver corresponding growth in their total student recruitment, and will be liable to holdback if they do not. Growth in individual programmes offset by reductions in recruitment to other programmes is not sufficient: the growth must be additional to the institution’s previous total student numbers.
18. The funding agreement specifies two FTE targets for institutions that are expected to deliver growth in 2000-01.
    1. The first target shows the minimum FTEs required to avoid holdback. Also shown is the maximum funding that may be held back, and the rate of holdback per FTE, for shortfalls against the target. Any shortfall against this first FTE target will lead to holdback of grant at this rate per FTE and up to the maximum level specified in the funding agreement.
    2. The second target shows the FTEs required to recover in full any 2000-01 funding already deducted owing to under-recruitment in 1999-2000. Also shown is the total funding that may be recovered, and the rate per FTE for any recovery of funds. Institutions will only be able to recover funds already withheld if they meet the first FTE target (referred to in paragraph 18a). The recovery of grant for recruitment above that first target will be at the rate per FTE and up to the maximum level specified in the funding agreement.
19. Any holdback or recovery of funds will be effected in 2000-01 and consolidated into institutions’ baseline funding levels for 2001-02. For the future, we will continue to set FTE targets for those institutions that are expected to deliver growth as a result of a successful additional student numbers bid. Institutions that are awarded additional funded places will need to show an appropriate increase in total FTEs, otherwise they will be liable to holdback.

    The medical and dental CFTE

20. The Government expects the HEFCE to control student numbers in medicine and dentistry because of the exceptionally high cost of the programmes. For this reason, we will continue to set a separate target for students on quota-controlled undergraduate medical and dental courses. This is expressed as a minimum FTE, recruitment below which will lead to holdback of grant.
21. Any shortfalls against the medical and dental CFTE will be subject to holdback at an average rate based on the standard five-year medical course. This is calculated as two-fifths of the standard price for price group B, and three-fifths of the standard price for price group A, minus £1,050 fee income. The rate for 2000-01 is therefore £8,509. Any holdback will not be consolidated into institutions’ baseline funding for 2001-02.

    The contract range

22. Our funding method for teaching is designed to fund similar activities at similar rates across the universities and colleges we fund. To do so, we calculate a standard level of resource for each institution and compare it with the resources that the institution receives (actual HEFCE teaching grant plus an estimate of income from fees). The method is designed to ensure, for all institutions, that this 'assumed resource' comes within a tolerance band of ±5 per cent of the standard. Where institutions fall outside the band, they are expected to move within it over an agreed period. The funding agreement seeks to support this objective.
23. The funding method regulates the resource per student. Resources will vary according to the mix of students between subject, mode and level of study. This means that we cannot ensure similar levels of resources for similar activities merely by setting a minimum number of FTEs to be taught by each institution.
24. Instead, we set a target that specifies an acceptable percentage difference between an institution’s assumed and standard resource. This is known as the contract range. For many institutions, this will be the same as the tolerance band, that is, between -5 per cent and +5 per cent of the standard. However it may be extended for those institutions that are moving towards the band.
25. To monitor institutions’ positions against their contract range, we will recalculate assumed and standard resource for each institution, using 2000-01 FTE data returned in our December 2000 aggregate student recruitment surveys. The funding agreement explains in detail how we calculate these resource figures, and which students are counted towards them. We express assumed resource as a percentage of standard resource. We expect this percentage difference to come within the institution’s contract range.
26. Our web-site contains templates that calculate standard and assumed resource for 2000-01. These are blank forms of the individual recurrent grant tables for teaching, separately for higher education institutions and for further education colleges, and may help institutions to assess the effects of different recruitment patterns. The templates can be found at http://www.hefce.ac.uk/, under ‘Learning and teaching’.
27. In recalculating assumed resource, we will incorporate any holdback, or any recovery of funds, arising from institutions’ recruitment against their FTE targets for funding conditional upon delivery of growth, or against their medical and dental CFTE. This is to ensure that we do not penalise institutions twice for a single instance of under-recruitment, or that institutions’ ability to meet their contract range is not affected by the growth that we expect them to deliver to recover funding previously withheld. We will also exclude any recruitment above institutions’ MaSN plus margin from our resource calculations.

    Institutions with small numbers of HE students

28. We recognise that for institutions with only a small amount of funded HE provision – notably further education colleges with few HE programmes – small changes in recruitment can have a significant effect on their percentage difference from standard resource. To allow for unpredictable variations in recruitment, we will allow a further margin around their contract range calculated as being equivalent to 10 FTE students (reflecting the average mix of students at the institution between price group, mode, level and course length, and the institution’s own part-time load factors). This margin will apply to institutions with 400 or fewer FTEs funded by the HEFCE. As long as institutions’ percentage difference from standard resource comes within their contract range or this additional margin, then no further action will be necessary.

    Institutions above their contract range

29. If, when we recalculate assumed and standard resource using 2000-01 FTE data, the percentage difference is above the contract range (plus additional margin for those with small numbers of HE students), institutions will be liable to holdback. This will be calculated as the variance between the percentage difference and the contract range, multiplied by the recalculated standard resource.

    Example

    • an institution has a contract range between –5 and +5 per cent
    • its assumed resource is found to be 6.3 per cent above the standard (the percentage difference is +6.3 per cent)
    • therefore holdback equals the difference between 6.3 and 5 = 1.3 per cent of standard resource (the variance multiplied by the institution’s standard resource).

30. Any such holdback will be effected in 2000-01 and consolidated into institutions’ baseline funding levels for 2001-02. The reduction in 2000-01 grant will be subject to the current moderation rules that limit the year-on-year reduction in overall funding, so that no institution is required to make unmanageably large short-term cuts. No institution will receive a reduction in resource (HEFCE funding for teaching and research plus regulated tuition fee income) in 2000-01 of more than 2 per cent in real terms (0.5 per cent increase in cash terms) compared to the equivalent figure for 1999-2000.
31. We will not withhold grant from an institution which exceeds its contract range if the reduction in funding would be less than £50,000, or 10 per cent of total funding for teaching, whichever is lower.

    Institutions below their contract range

32. We will not apply holdback in 2000-01 to institutions below the contract range. We will, however, want to discuss with them why they have not met the contract range, and what action they will take to ensure they meet it in future. So long as the institution provides a credible action plan setting out how that will be done, and comes within the contract range set for the following year (2001-02), no further action will be taken. In the unlikely event that an action plan is either not provided, or not implemented, we reserve the right to take appropriate action at that stage.

    Migration trajectories

33. The funding agreement with each institution also identifies a ‘migration trajectory’. This sets the provisional contract range (subject to annual review) for each year up to 2003-04 and shows how we expect institutions, which were originally outside the ±5 per cent tolerance band when the funding method was introduced, to move to within it over an agreed period. The trajectories will only be extended in exceptional circumstances. Institutions that are currently migrating from a position below the tolerance band should bear in mind that if they come below their contract range in 2000-01, they will need to migrate even further the following year. For example:
    1. An institution’s assumed resource is currently 20 per cent below the standard (–20 per cent). It has a migration trajectory as follows:

       Academic year	Contract range (provisional from 2001-02)
       2000-01	–15% to +5%
       2001-02	–10% to +5%
       2002-03	–5% to +5% (the tolerance band)

    2. When resource levels are recalculated based on actual recruitment in 2000-01, the assumed resource is found to be still at –20 per cent (5 per cent below the contract range) and the institution is therefore required to submit an action plan. This will need to show how it will migrate by 10 per cent to achieve the contract range of –10 per cent to +5 per cent for 2001-02.
34. Funding for migration will not be more than the amounts originally determined for each institution when the funding method was first applied, and will end as soon as the institution reaches the ±5 per cent tolerance band.

    The sub-degree target

35. Institutions that have been awarded additional funded places below degree level for 1999-2000 or 2000-01 have been given a sub-degree target, expressed in FTE terms. This is to ensure that any additional places below degree level are truly additional, and thereby help to expand sub-degree numbers, as planned by the Government. The sub-degree target represents minimum recruitment levels, and the funding agreement specifies which students are counted towards it and how.
36. For 2000-01 we will not hold back funding from institutions merely for coming below their sub-degree target. This is because the FTE targets for funding conditional upon delivery of growth should be sufficient to ensure institutions deliver the additional places that we have awarded. However, we will continue to monitor student numbers below degree level. If we find that in 2000-01 sub-degree places have not increased sufficiently, we may introduce measures that could lead to holdback of grant in 2001-02 if institutions do not meet their sub-degree target. Institutions should expect that their sub-degree target for 2001-02 will not be less than for 2000-01.

    Verification

37. Where our calculations suggest that grant should be withheld, we will notify institutions of the amount. We will give them the opportunity to verify the data used, and to tell us about any material changes in definitions or mitigating factors that may have influenced the calculated level of holdback. Changes in definitions could mean that the student data collected in 2000-01 for monitoring compliance with the funding agreement are not entirely consistent with the way the various resource and student number targets were set. Where any such definitional changes result in an increase in the calculated level of holdback, we will accept them as grounds for mitigating holdback.