HEFCE Circular 21/96
Funding Method for Teaching from 1998-99
| To | Heads of HEFCE-funded Institutions Heads of DENI-funded Universities |
|
| Of interest to | those responsible for Funding and Finance | |
| Reference | 21/96 | |
| Publication Date | November 1996 | |
| Enquiries to | Regional Team Managers: | |
| Wendy Rigby | North East, North West, Yorkshire, North Midlands and Northern Ireland | |
| David Noyce | Midlands, Home Counties, South Coast and South West | |
| John Walker | Greater London | |
Executive Summary
1. This circular summarises responses to the consultation on the funding method for teaching, describes the new method to be implemented in 1998-99, and outlines areas for further consideration and consultation.
2. The two broad principles underlying the Council's proposed new teaching funding method are:
- a. That similar activities should be funded at similar rates, with variations from these based on previously determined factors.
- b. That institutions should bid for additional student numbers.
3. To fund similar activities at similar rates the Council will:
- a. Establish a standard price for a full-time equivalent student in each of four price groups.
- b. Allow rates of resource to vary within a band to enable institutions to manage their student numbers.
- c. Attach an additional premium weight to part-time students, to recognise the additional costs of providing for them.
- d. Attach an additional premium weight to students with disabilities, mature first-time undergraduate students and undergraduate students with non-traditional entry qualifications.
- e. Undertake further work to establish definitions for these non-standard students and set in hand data collection.
- f. Consider further whether students from lower socio-economic groups should be included in the definition of non-standard students.
- g. Decide what if any weight to attach to postgraduate students when it considers its response to the Harris Review of Postgraduate Education next year.
- h. Divide the funds for extra costs in London, currently provided by non-formula funding, between inner and outer London, and distribute them through premium weightings applied consistently to all eligible institutions in each area.
- i. Establish groups to advise on the need for and size of premium weightings for specialist institutions.
- j. Apply a discount weight to FE colleges on a sliding scale in relation to the proportion of HE provision in each college.
- k. Recognise the differences between the employers' contributions to the USS and TSS pension schemes through an institutional premium weighting for USS institutions.
- l. Fund student numbers on a full-time equivalent basis, regardless of mode or level.
4. The actual rate of funding per student for each institution will be compared with the standard amount calculated by the new method. Institutions will be free to vary their rates of funding (for example by recruiting additional or fewer students) so long as they remain within a tolerance band.
5. From 1997 the Council will discuss with institutions that fall outside the band, how they can move within it - by adjusting grant or student numbers - generally over a three year period.
6. The Council will apply a single, uniform baseline adjustment (efficiency gain) each year.
7. The Council will so far as possible, ensure that year on year changes are kept at a manageable level, to avoid undue financial instability.
8. In future, institutions will be invited to bid for additional student numbers. The method and criteria for allocating student numbers will be developed further and institutions will be consulted on this in 1997.
9. The Council will no longer make separate formula funding allocations for capital funding: from 1997-98 these funds will be incorporated in the recurrent funding allocations for teaching and research.
Introduction
10. The Council's teaching funding method has been under review since autumn 1995. Following an evaluation of the existing method, undertaken by Coopers and Lybrand, it has been the subject of extensive consultation. In July 1996 the Council issued Consultation Paper CP 1/96 outlining the proposed new teaching funding method.
11. Following the Board's consideration of the responses to CP 1/96, on 7 November 1996 the Chief Executive wrote to all institutions informing them that the present teaching funding method would be retained for 1997-98 and a new method would be implemented from 1998-99. This will enable the Council to take full account of the findings of the National Committee of Inquiry into Higher Education, chaired by Sir Ron Dearing.
12. This circular describes the new method which the Council intends to implement from 1998-99, and the areas for further consultation.
Aims and Key Features
13. The aims of the new teaching funding method are:
- a. To make the best possible use of public money provided for higher education so as to enhance the learning experience for students.
- b. To recognise and encourage diversity in the provision and delivery of higher education, and in the range of students.
- c. To respond to the interests of employers and the Government.
- d. To promote quality in teaching and learning.
14. The key features of the method will be:
- a. Openness. The funding method will be clear and public. The data on which allocations are based will be auditable and, wherever possible, public.
- b. Predictability. The method and its parameters will be predictable, so that an institution knows how decisions it might take, and changes in its circumstances, will affect its funding.
- c. Flexibility. The method will be flexible enough to respond to external policy changes, and particularly to developments in the Council's own policies.
- d. Fairness. Differences in funding between institutions will be for good and justifiable reasons.
- e. Efficiency. The funding method will impose as small a burden as possible on institutions, consistent with the principles outlined above.
New Teaching Funding Method
15. There are two principal elements of the new funding method:
- a. The rate of funding.
- b. The distribution of additional student numbers between institutions.
The Rate of Funding
16. As proposed in CP 1/96, the Council will establish four price groups, with a standard level of resource (standard price) for each:
- a. Clinical disciplines
- b. Laboratory-based science, engineering and technology disciplines
- c. Other high-cost studio and part laboratory-based disciplines.
- d. Classroom-based disciplines.
17. The standard level of resource covers both tuition fees and Council grant. The four price groups are described in Annex A. Since the total funding is fixed, the eventual prices will depend both on the amount available for teaching and on the premium payments required for special factors.
18. In responses to the consultation, there was considerable discussion about the association of particular subjects to price groups. The Council will periodically review the mapping of subjects to groups, and will consider further the initial mapping following responses to this circular.
19. The price for each group will be the standard price for a full-time equivalent (FTE) student in that group, regardless of mode or level. Variations from the standard price will be based on a number of student-related and institutional factors which will attract premium weightings.
Student-related factors
20. The Council has decided, as proposed in CP 1/96, to attach weights to a number of student-related factors which justify variations in funding. It will consider the precise weights for each factor, taking into account responses to this circular, in the autumn of 1997.
Mode
21. There was wide support in the consultation for a premium weight for part-time students: the Council intends to implement this proposal. However, following the consultation, the Council has reconsidered the proposal to differentiate distance learners from other part-timers. The Council accepts that, in the absence of any firm evidence that distance learning is cheaper than other provision, it should not give a lower weight to distance-learning students.
Student characteristics
22. A small number of respondents queried whether a premium weight for non-standard students was justified, since they doubted that such students cost more to provide for. However, the majority welcomed this proposal. There was a consensus in favour of including students with disabilities, mature undergraduate students and students with non-traditional entry qualifications, all of whom could be defined, measured and audited. Further work will be undertaken in 1997 to establish satisfactory definitions and identify relevant data sources so that data collection can be set in hand. Institutions' representative bodies will be consulted in this process.
23. Some institutions questioned whether students from lower socio-economic groups should have premium weights. As noted in the Council's report, 'Widening Access to Higher Education', this group is not easily defined. Therefore, further work will be undertaken to consider whether a satisfactory definition and data source can be established and whether such students should attract a premium. The Board will make a decision when this work has been completed in 1997.
24. The definitions of non-standard student discussed here are non-exclusive: one student could satisfy all the definitions. Therefore, each factor will be a qualifying condition to attract a single premium: a mature disabled student will not attract twice the weight of a young disabled student.
Postgraduates
25. The initial proposals did not suggest attaching a premium weight to postgraduate students (taught or research). However, strong representations were made that postgraduate students cost more than undergraduate students to provide for and should attract a weight. Most postgraduates are present in an institution for much longer during the year than undergraduates. On the other hand, postgraduate provision encompasses a wide range. So, although many are more expensive to provide for, some are not.
26. The funding of postgraduate students was one of the subjects of the Harris Review of Postgraduate Education. Once the Board has considered responses to the Harris Report, a decision will be made on the funding of postgraduate students, including the extent to which their numbers should be constrained. This is expected to be early in 1997.
Institutional factors
27. CP 1/96 proposed that the total student-related funding for each institution should be adjusted by additional weights for institutional factors, to reflect the special costs associated with certain types of institution.
28. As proposed in CP1/96, the Council, like many other public bodies, will continue to recognise the additional costs of operating in London.
29. The current arrangements, where additional allocations are made through non-formula funding, will be replaced by premium weights. At present 59 institutions, including some outside London, receive varying amounts of non-formula funding for London extra costs.
30. From 1998-99, the total for teaching currently provided for London extra costs from non-formula funding will be divided between inner and outer London. These sums will be distributed between institutions with standard premium weightings applied consistently to all. The weightings for inner and outer London will reflect the different extra costs of each. A list of institutions in inner and outer London is at Annex B.
31. Some institutions operate in both inner and outer London boroughs, and some operate both in London boroughs and beyond the London area. In such cases, the amount of London weighting will reflect the proportion of provision in the respective areas. The Council's officers will consider the details of this with the institutions concerned.
32. The London extra costs element for research will be covered by with in the Council's review of its funding method for research.
Specialist institutions
33. Some specialist institutions make provision which is more expensive than that in multi-disciplinary institutions. The Council will consider providing a premium rate for these. For this purpose, it will define specialist institutions as those with over 60 per cent of their provision in one or two cost centres. Although the nature of these institutions and the range of costs vary widely, many have similar characteristics: for example, music conservatoires, art colleges and performing arts institutions.
34. The Council will establish a number of advisory groups in 1997 to advise it on the need for and size of weightings for specialist institutions. In some cases, the advisory groups may wish to distinguish between different institutions in the same category, in terms of their eligibility for a weight or the amount of the weight. Some specialist institutions are unique. The Council will seek independent advice on each case. In providing advice the groups will, if possible, take account of the cost of similar specialist institutions overseas.
Further education colleges
35. The consultation paper proposed that a discount should be applied to FE colleges because the Further Education Funding Council (FEFC) is responsible for their infrastructure, capital and non-staff-related overheads. Most FE colleges are small-scale providers of HE and have funding levels for HE 25 per cent less than the average. However, the Council has recognised the argument made by many FE colleges in their responses that HE is a significant part of the provision of some colleges, and places demands on their infrastructure that are not met by the FEFC. Therefore, this will be reflected by applying the discount on a sliding scale: from 20 per cent, for those with 10 per cent HE provision or less, to 5 per cent, for those with 35 per cent HE or more.
Pensions
36. The employers' contributions to the Universities Superannuation Scheme (USS) and the Teachers Superannuation Scheme (TSS) pension schemes differ significantly. The USS is fully funded but TSS is in part financed through tax revenues. A number of replies pointed out that the Council's present funding method recognises these differences and argued that the new method should do so too. USS contributions add 6 per cent to an institution's academic staff costs, compared to TSS, and this equates to 4 per cent of recurrent resource. The Council has decided to incorporate an institutional weight of 4 per cent for institutions which are part of the USS scheme to reflect the scheme's additional costs.
Student volume
37. The Council has confirmed the proposal in the consultation paper to fund full-time equivalent student numbers regardless of mode or level (subject to the discussion about student-related weighting factors). This was welcomed by many respondents as an important step towards greater equality of treatment between full-time and part-time students. It is proposed to count for each student, the proportion of the eventual qualification taken in the year in question. This builds upon the method already adopted for part-time students. The HESES survey will provide information which will enable funding to be related to FTEs.
Implementation of the New Method: Transition
38. The Council will apply the new method to establish the standard amount of funding due to each institution, and will compare this with the funding actually received. From these figures, average standard and actual rates of funding per FTE student can be calculated. The consultation paper proposed that institutions should move over a period of time towards a rate of funding plus or minus 5 per cent of the standard rate. Many respondents argued for a wider band initially; the Council will review the width of the band during the coming year. For institutions outside the band, the necessary movement could be achieved either by adjusting the amounts of funding or the number of students provided for, or both.
39. Most institutions accepted in principle this aspect of the proposed funding method. However, those with low units of resource tended to react against the suggestion that their rates of funding might be increased by reducing student numbers. Others reacted strongly to the prospect that institutions which rapidly increased student numbers and so reduced their units of resource might benefit from additional grant. On the other hand, those with high units of resource argued that they should be able to reduce their units of resource by taking additional students without additional grant.
40. From 1997, the Council will discuss with individual institutions that have rates of funding beyond the band what approach should be adopted to bring them within it, before making decisions about this for 1998-99. In general, the Council intends that the application of the new method should be more or less neutral in terms of the total resources of an institution. Thus, in general, for institutions with low units of resource, it will seek to reduce student numbers, but will provide additional grant to compensate for the loss of fees associated with the students withdrawn. Similarly, for institutions whose rate of funding needs to be reduced, to the extent that student numbers are increased to achieve this, grant will be reduced to reflect the additional fee income which will follow. The Council recognises that such an approach will not be possible or appropriate for some institutions, and it will discuss each case individually.
41. Annex C shows for universities, general colleges, specialist institutions and further education colleges separately the effect of applying the standard funding rates. It indicates the wide variations which exist between institutions. For illustrative purposes, it also shows the effects of applying a number of different premium weights for some student and institution related factors. Assumed weights have been used and not all factors have been included.
Implementation: Implications for the Control of Student Numbers
42. To maintain rates of funding within the stated band, institutions will need to manage their student numbers; the Council will take action against those which exceed or undershoot the margins. Institutions which exceed the margin will have done so because of under-recruitment. and, as at present, the Council will use holdback. Where institutions over-recruit, thereby depressing their average unit of resource below the margin, the Council will withhold grant in the following year and require a proportionate reduction in student numbers.
43. Although, under the new method, institutions towards the bottom of the range will have to manage student numbers more closely, there will be compensating freedoms because the distinctions between mode and level are being reduced. The rates of resource may be varied within the range, allowing institutions to manage their student numbers without the Council's detailed control. However, while the Government policy of consolidation of student numbers continues, the Council will allocate MASNs for full-time and sandwich award-holders.
44. In their responses, a number of institutions sought clarification about the implications of the new method for recruiting full-cost students. Where students pay a fee equivalent to the average amount of resource, the average rate of funding per student is not affected. The Council has therefore decided that where institutions assure the Council that students pay a fee no less than the average rate of funding per student for that institution, such students will not be taken into account in the calculations for funding purposes.
Baseline Adjustments ('Efficiency Gain')
45. As proposed in the consultation paper, and generally supported by respondents, a single, uniform, baseline adjustment will be applied annually to all institutions. This is a logical consequence of the decision to have greater uniformity in funding rates between institutions.
Distribution of Student Numbers
46. A significant majority of institutions supported the proposal that additional student numbers should be the subject of a bidding exercise. However, they expressed concern that there were no details about the panels to advise the Council on the distribution of student numbers - their nature, method of appointment and precise criteria for assessing bids. The overall criteria initially proposed - quality, demand and national policy, regional need and strategy - did not themselves give rise to a great deal of comment.
47. The Council will consult further during 1997 about the method for allocating student numbers, and will provide further details about the proposal before its implementation in 1998-99.
Formula Capital Funding
48. From the 1996 Budget Statement the DfEE is no longer identifying funds for capital separately. The consultation papers on teaching and research funding asked for comments on the proposal that the Council too should no longer make separate funding allocations for capital, but should incorporate these in the recurrent funding allocations for teaching and research.
49. This proposal was broadly accepted, and the Council intends to implement this from 1997-98.
Annex A
Establishing the Price Groups
1. The price groups will be defined in terms of the 35 academic cost centres. This provides a link between the qualification aim of the student, the academic discipline, the departments in which they are being taught and the costs of teaching. A cost centre defines where the teaching activity is actually taking place and HESA collects information that maps students, staff, and finance to the 35 academic cost centres.
2. The price groups will be constructed according to academic discipline and relative cost. The proposed approach is to classify the cost centres by academic discipline into the following groups:
- Clinical Disciplines
- Laboratory based Science, Engineering and Technology Disciplines
- Other High Cost Studio and Part-Laboratory based Disciplines.
- Classroom Based Disciplines.
3. Finance and student related information by cost centre will be used to determine the relative cost of teaching between the price groups. The absolute prices will be conditional on the available resources from one year to the next and the various institutional factors and student weights being applied.
4. The following table is a preliminary assignment to the price groups based on departmental expenditure from the 1994-95 HESA finance return. Relative expenditure per FTE has been calculated with reference to the Humanities cost centre and is based on the reported departmental expenditures minus HEFCE Research funding. These cost relativities should be interpreted with caution as they are likely to include some expenditure against general income from the NHS and other bodies. Further work will be undertaken to ensure that the relative prices associated with the four price groups relate only to HEFCE funded teaching activities.
| Departmental Academic Cost Centre | Relative Departmental Expenditure per FTE | Price Group | |
| 1 | Clinical Medicine | 8.03 | Clinical Medicine |
| 2 | Clinical Dentistry | 8.04 | Clinical Medicine |
| 3 | Veterinary Science | 3.63 | Clinical Medicine |
| 4 | Anatomy and Physiology | 2.10 | Laboratory |
| 5 | Nursing and Paramedical Studies | 2.37 | Other high cost |
| 6 | Health and Community Studies | 1.72 | Other high cost |
| 7 | Psychology and Behavioural Sciences | 1.38 | Classroom |
| 8 | Pharmacy | 2.26 | Laboratory |
| 9 | Pharmacology | 3.05 | Laboratory |
| 10 | Biosciences | 2.41 | Laboratory |
| 11 | Chemistry | 2.52 | Laboratory |
| 12 | Physics | 3.45 | Laboratory |
| 13 | Agriculture and Forestry | 2.42 | Laboratory |
| 14 | Earth, Marine and Environmental Sciences | 2.51 | Laboratory |
| 15 | General Sciences | 1.42 | Laboratory |
| 16 | General Engineering | 2.38 | Laboratory |
| 17 | Chemical Engineering | 2.49 | Laboratory |
| 18 | Mineral, Metallurgy and Materials Engineering | 3.58 | Laboratory |
| 19 | Civil Engineering | 2.39 | Laboratory |
| 20 | Electrical, Electronic and Computer Engineering | 2.45 | Laboratory |
| 21 | Mechanical, Aero and Production Engineering | 2.64 | Laboratory |
| 22 | Other Technologies | 2.12 | Laboratory |
| 23 | Architecture, Built Environment and Planning | 1.88 | Other high cost |
| 24 | Mathematics | 1.28 | Classroom |
| 25 | Information Technology and Systems Sciences | 1.78 | Other high cost |
| 26 | Catering and Hospitality Management | 2.47 | Other high cost |
| 27 | Business and Management Studies | 1.64 | Classroom |
| 28 | Geography | 1.43 | Classroom |
| 29 | Social Studies | 1.14 | Classroom |
| 30 | Librarianship, Communication and Media Studies | 1.33 | Classroom |
| 31 | Language Based Studies | 1.29 | Classroom |
| 32 | Humanities | 1.00 | Classroom |
| 33 | Design and Creative Arts | 2.00 | Other high cost |
| 34 | Education | 1.71 | Classroom |
| Departmental Expenditure | FTE | £ per FTE | Relative Cost | |
| Clinical Medicine | £237,355,672 | 21724 | £10,926 | 5.73 |
| Science and Engineering | £720,107,414 | 207841 | £3,465 | 1.82 |
| Other High Cost | £618,637,006 | 221165 | £2,797 | 1.47 |
| Classroom | £1,034,275,276 | 542488 | £1,907 | 1.00 |
Note: These costs do not include central administration or academic services.
5. The standard prices will be set taking account of the relative costs per FTE in each of the price groups. The exact derivation of the standard prices will depend on the final shape of the model including the proposed institutional and student-related factors together with estimates of the total resource attributable to HEFCE funded students at an institutional level.
Annex B
Classification of Inner and Outer London Institutions
1. Institutions have been assigned to Inner and Outer London according to the Department of Environment standard boundary definitions. Some of the institutions listed also have provision elsewhere.
Inner London
Birkbeck College
Central School of Speech & Drama
Charing Cross & Westminster Medical School
City University
Cordwainers College
Goldsmiths College
Hammersmith & West London College
Imperial College
Institute of Education
King's College London
London Business School
London Guildhall University
London Sch of Economics & Political Science
London Sch. of Hygiene & Tropical Medicine.
Newham College of Further Education
Queen Mary & Westfield College
RCN Institute
Roehampton Institute
Royal Academy of Music
Royal College of Art
Royal College of Music
Royal Free Hospital School of Medicine
Royal Postgraduate Medical School
Royal Veterinary College
School of Oriental & African Studies
School of Pharmacy
South Bank University
St George's Hospital Medical School
The London Institute
Trinity College of Music
United Medical & Dental Schools
University College London
University of London - Senate
University of North London
University of Westminster
Westminster College, London
Outer London
Brunel University
Croydon College
University of East London
Havering College of FHE
Kingston University
Middlesex University
Ravensbourne College
Rose Bruford College
St Mary's College
Thames Valley University
The College of North West London
University of Greenwich
West Thames College
Wimbledon School of Art
The following institutions received some non-formula funding for London Extra Costs and will not be eligible for the additional London weight.
Outside Greater London
Anglia Polytechnic University
Berkshire College of Art & Design
Bracknell College of HE
Brooklands Technical College
Buckinghamshire College of HE
Chichester College of Arts, Sci & Tech
Crawley College of Technology
Guildford College of FHE
Harlow College
Royal Holloway, University of London
Surrey Institute of Art and Design
Thurrock College
University of Hertfordshire
Annex C
Modelling of the Proposed Funding method
1. The model will operate on aggregations of student load within cost centres. At present there is insufficient data available to model institutional allocations on this basis. Therefore, for the purposes of illustrating institutional allocations under the new model, student loads have been calculated using data from the 1995-96 Higher Education Students Early Statistics (HESES) returns and the 1996-97 funding announcement.
2. For modelling purposes, the assignment of Academic Subject Categories (ASCs) to price groups was made according to the following subject definitions:
| Clinical Medicine | Laboratory Based | Other High Cost | Classroom |
| Clinical Medicine | Pre Clinical Medicine | Subjects Allied to Medicine | Business & Management |
| Clinical Dentistry | Pre Clinical Dentistry | Built Environment | Social Science |
| Veterinary Science | Science | Maths & Computing | Humanities |
| Engineering | Art & Design |
3. The table at the end of this Annex presents the outcome of this modelling in terms of the percentage difference between the total Actual Resource and the total Standard Resource that would be allocated to each institution under varying assumptions. These simulations are presented for illustrative purposes in order to show the underlying variation in resource per student FTE, the cumulative effect of including some of the proposed factors and the sensitivity of the model in terms institutional outcomes.
4. The student FTEs were modelled using counts of fundable student FTE from HESES Column 4 together with any additional student numbers allocated for 1996-97. The computation of FTEs followed that used to determine the funding allocations for 1996-97.
5. The average fee income per full-time undergraduate student was computed for each price group by institution and for the sector as a whole. The sector average fee per price group was assumed to apply if there was insufficient information to derive an average fee for the institution. Fees for part-time undergraduate students were assumed to be at the same rate per FTE as for full-time undergraduates. A fee of £2,350 was assumed per postgraduate FTE student. These rates were applied to the student FTE within each price group and summed to give the total estimated fee income relating to HEFCE fundable FTEs per institution. The standard resource per institution represents the outcome of institutions being funded at a similar rate of resource per weighted student - at current levels of funding this equates to around £2,600 per weighted student FTE. Using the weights derived in Annex A, the underlying rates of resource per student are approximately
| £11,700 | Clinical Subjects |
| £5,200 | Laboratory Science and Engineering Subjects |
| £3,900 | Part-laboratory and High Cost Subjects |
| £2,600 | Classroom based subjects |
Note that these rates will vary according to the weights applied in the model. The final weights will be decided by the Board in 1997.
6. The table shows the cumulative effect of including the following factors:
| Column a: | A weighting of student FTE's according to subject, and including a factor of +4% to represent the additional USS employers pension contributions relative to the TSS scheme.
4.5 - Clinical Subjects |
| Column b: | Inclusion of London Extra Costs. A factor of +8% for institutions located in Inner London and +5% for those located in Outer London. |
| Column c: | A variable discount factor of between -5% and -20% applied to FE Colleges according to the proportion of total teaching activity that relates to HEFCE funds. |
| Column d: | A weight of +5% for Part-time students. |
| Column e: | A weight of +10% for post graduate activity |
| Column f: | A weight of +25% for post graduate activity. |
Note: The weightings used for this modelling are arbitrary. Final weightings will be decided by the Council during 1997.
Table showing percentage difference between the total Actual Resource and total Standard Resource: Available as a comma-separated file.
Example grant calculation: Available as a comma-separated file.