HEFCE Circular 24/96
Funding for the Academic Year 1997-98: Preliminary Decisions
Funding for the Academic Year 1996-97: Further Announcements
| To | Heads of HEFCE-funded Institutions |
| Heads of DENI-funded Universities | |
| Of interest to those responsible for | Finance, Planning |
| Reference | 24/96 |
| Response | by 31 January 1997 (Exceptional cases for additional student numbers see paragraphs 21 to 23) |
| Publication Date | December 1996 |
| Enquiries to | Regional Officers |
Executive Summary
1. This circular gives preliminary decisions by the HEFCE Board on allocations of funding and student numbers for the 1997-98 academic year.
2. Assuming a GDP deflator of 2 per cent, total resources (grant plus fees) available to the higher education sector for 1997-98 fall in real terms by £38 million compared with 1996-97, and by £263 million over the three years to 1999-2000. The sector will be required to deliver efficiency gains of 7.5 per cent over these three years.
3. Provisional allocations of funds for 1997-98 are: £2,381 million for teaching, £701 million for research, £308 million for non-formula funding, and £15 million for transitional funding and the flexibility margin. No separate formula capital allocation is proposed for 1997-98.
4. The maximum aggregate student number (MASN) target for 1997-98 will remain unchanged for the sector as a whole.
5. While the 1996 HESES returns indicate that the sector as a whole has recruited student numbers very close to the planned total, a number of institutions have exceeded their MASNs while others have under-recruited. As a result, there will be additional full-time as well as part-time student numbers to be allocated.
6. Most of these places will be allocated by formula. However, a limited number of places may exceptionally be allocated on the basis set out in paragraphs 21 to 23 of this circular.
7. £35 million of formula capital funding is to be reprofiled within the 1996-97 academic year.
8. A non-consolidated supplement to core funding of £9 million for the academic year 1996-97 is to be distributed to those institutions where the academic and academic related-staff are predominantly members of Teacher Superannuation Scheme (TSS).
9. A further circular will be issued after the next Board meeting on 21 January 1997.
1996 Budget Statement
Funding
1. On 26 November 1996 the Government announced its public expenditure plans for the three financial years 1997-98 to 1999-2000. The funding available to the Council for 1997-98 is firm, but that for the later years is subject to confirmation in future Budget statements. The grant indicated for 1999-2000 is particularly tentative as this will be influenced by the outcome of the National Committee of Inquiry into Higher Education, chaired by Sir Ron Dearing.
2. As with the 1995 Budget statement, the Council has a single allocation for programme funds, but this year there is no indication of the amounts for capital and recurrent purposes.
Whether separate capital funding should be provided, and if so how much, is therefore a matter for the Council to decide.
3. The Council was awarded additional funding of £100 million each year for 1997-98 and 1998-99. This is welcome, but has to be viewed in the context of cuts imposed in the 1995 Budget statement: cash reductions of £170 million in 1997-98 and £207 million in 1998-99.
4. The total resources (grant plus fees) available to the higher education sector for 1997-98 fall in real terms by £38 million compared with 1996-97, using the Government's GDP deflator of 2 per cent as the measure of inflation; and by £263 million over the three years to 1999-2000. These represent real terms reductions of 0.9 per cent and 6.0 per cent respectively. These changes are summarised in Table 1.
Table 1
| Financial | Year | |||
| 1996-97 | 1997-98 | 1998-99 | 1999-00 | |
| Recurrent resources (£m) | 4,359 | 4,407 | 4,429 | 4,347 |
| Inflation (%) | 2.00 | 2.00 | 2.00 | |
| Adjusted for inflation (£m) | 4,359 | 4,321 | 4,257 | 4,096 |
| Annual reduction (£m) | 38 | 64 | 161 | |
| Annual reduction (%) | 0.88 | 1.47 | 3.78 | |
| Cumulative reduction (£m) | 38 | 102 | 263 | |
| Cumulative reduction (%) | 0.88 | 2.34 | 6.03 |
5. Table 1 is in terms of the total cash available to the higher education sector. Viewed in terms of the resources per student, Table 2 shows that reductions continue, but at a marginally slower pace than expected previously.
Table 2
| Financial | Year | |||
| 1996-97 | 1997-98 | 1998-99 | 1999-00 | |
| Recurrent resources (£m) | 4,359 | 4,407 | 4,429 | 4,347 |
| Inflation (%) | 2.00 | 2.00 | 2.00 | |
| Adjusted for inflation (£m) | 4,359 | 4,321 | 4,257 | 4,096 |
| Student numbers (000 FTEs) | 936 | 934 | 944 | 951 |
| Resources per FTE (£) | 4,657 | 4,626 | 4,510 | 4,307 |
| Annual reduction per FTE (£) | 31 | 116 | 202 | |
| Annual reduction per FTE (%) | 0.67 | 2.52 | 4.48 | |
| Cumulative reduction per FTE (£) | 31 | 147 | 350 | |
| Cumulative reduction per FTE (%) | 0.67 | 3.17 | 7.51 |
6. Consequently the higher education sector still needs to deliver reductions in the unit of resource per student totalling 7.5 per cent over the three years 1997-98 to 1999-2000. These are on top of the very substantial reductions over the past seven years.
7. The reductions will be higher in real terms if inflation is greater than the Government's assumptions. Every half per cent increase in inflation above the assumed levels would impose a further £20 million real terms reduction.
8. The additional sums made available for 1997-98 include £20 million earmarked for the Joint Research Equipment Initiative and £2 million earmarked for VAT on PFI projects. They also include two transfers of funds and numbers from the Teacher Training Agency (TTA) to the Council. The first is an adjustment to the amount transferred to the TTA in 1996-97 when the responsibility for INSET (in service training for teachers) was taken over by the TTA from 1 August 1996. The second adjustment relates to downward revisions by the DfEE, compared with the 1995 Budget Statement, to the intake targets for both primary and secondary ITT. These funds and student numbers remain within higher education and increase the amount available for distribution by the Council.
9. The DfEE Budget letter of 26 November 1996 details specific conditions attached to the funding provided to the Council. The Council must make it a condition of its grants to higher education institutions that they take account of the Chancellor's statement of 17 September 1996 on public sector pay. This states that the Government's approach continues to be that pay increases should be offset, or more than offset, by efficiencies and other economies.
10. The funding announced in the 1996 Budget statement relates to financial years (1 April to 31 March). The Council distributes its grant in academic years (1 August to 31 July). Taking account of commitments for the remainder of the academic year 1996-97, and requirements for capital projects, the available recurrent funding for the academic year 1997-98 is £3,405 million and for the academic year 1998-99 is £3,390 million.
Additional Funds for 1996-97
11. The Budget statement also announced additional funds in 1996-97 of £7 million for challenge funding for research equipment and to meet, as necessary, additional costs for medical schools within 1996-97.
12. The funding of £17.3 million announced on 26 November 1996 for the Joint Research Equipment Initiative took account of this additional challenge funding. It also included some of the earmarked funds brought forward from 1997-98.
13. A separate announcement will be made on funds to meet additional costs for medical schools within 1996-97.
Student Numbers
14. The planned student numbers announced on 26 November 1996, and a comparison with those announced in 1995, are shown in Table 3.
Table 3
| Financial | Year | |||
| 1996-97 | 1997-98 | 1998-99 | 1999-00 | |
| 000s | 000s | 000s | 000s | |
| 1995 Budget statement | 938 | 936 | 949 | |
| INSET adjustment | 1 | 1 | ||
| Reduced ITT intake targets | 2 | 5 | ||
| Other adjustments | -2 | -5 | -11 | |
| 1996 Budget statement | 936 | 934 | 944 | 951 |
15. The Government has asked the Council to continue to ensure that the number of full-time and sandwich undergraduate students in the next three years does not exceed planned numbers, and that planned participation rates are met. Within the planned totals, it is assumed that the participation rate will be maintained at over 30 per cent.
16. Data from the 1996 Higher Education Students Early Statistics survey (HESES), as yet unverified, indicate that for 1996-97 the sector has come very close to achieving its MASN target of 747,000. The Council has, therefore, agreed that the MASN target for 1997-98 should remain unchanged, so the overall intake of full-time and sandwich undergraduate students in 1997-98 is likely to be roughly the same as in 1996-97.
Preliminary Decisions: Recurrent Funding 1997-98
17. On 16 December 1996 the HEFCE Board discussed options for distributing the funding available for 1997-98. The Board had previously decided that funding of teaching in that year would be based on the current funding method, and that it should use the efficiency gain differentially to achieve greater convergence in rates of funding between institutions. The Board also considered the scope for providing additional funds for additional student numbers, and the basis for allocating these.
18. The Board agreed provisionally that:
a. A single allocation should be made, without distinguishing between recurrent and capital grant.
b. The core funding of all institutions which are part of the TSS and Universities Superannuation Scheme (USS) should be adjusted differentially to reflect the net reduction in costs which will result from recent changes to these schemes. This decision reflects the fact that the core funding of institutions has reflected the amounts paid to the TSS and USS schemes.
c. The amount available for non-formula funding will be decided at the January Board meeting. For the present, a maximum of £308 million was set, based on the previous total, plus £15 million to reflect the new research equipment initiative for which specific funding has been provided by the Government, and up to £15 million to enable the Council to introduce a further research funding initiative if it judges necessary on 21 January 1997.
d. Significant changes in total funding for teaching and research, both increases and decreases, should be managed to moderate the effects on institutions.
e. £15 million should provisionally be reserved for the flexibility margin and transitional funding taken together.
f. As in 1996-97, transitional funding should be provided only in response to an agreed plan for its use, which might in some cases include a wider look at the nature and extent of an institution's provision.
g. Total funding for research and the unit of resource for teaching should be given the same percentage increase in cash terms - provisionally set at 1.9 per cent. Total funding for teaching and for research were provisionally set at £2,381 million and £701 million respectively.
h. Marginal funds should be provided for 5,000 additional part-time student numbers.
i. The balance of funds for teaching should be used to increase the core inherited from 1996-97 by as much as possible. As in previous years, this will be constrained by the amount of funding available in 1998-99. In 1997-98 it should be possible to raise the 1996-97 core by 1.5 per cent in cash terms.
j. Some institutions will receive a larger cash increase and others smaller, depending on their Average Units of Council Funding (AUCFs). The range is likely to be between plus 3.5 per cent and minus 0.5 per cent in cash terms for each AUCF.
k. The remaining funds should, as in previous years, be provided as a non-consolidated addition to core funding distributed pro rata to teaching funds to enable institutions to maintain their reserves for investment.
l. Within the funding total for research of £701 million, £686 million should be provided for quality related research funding (QR) and £15 million for generic research (GR). Subject to confirmation at the Board meeting on 21 January 1997, no further funding should be provided for development research (DevR) through the block grant for research. The Board will consider at that meeting whether an alternative research funding initiative is needed using non-formula funding.
m. MASNs should be set for each institution so that the sum of all MASNs is equal to the Government's planning total, but institutions should be allowed to recruit up to 2 per cent beyond their MASN target without incurring a penalty.
n. The funding agreements should state that if institutions recruit beyond the permitted margin, the Council will reduce their grant by an amount equivalent to the student fee in respect of each student over-recruited.
o. The allocation of MASNs to individual institutions should be open to some flexibility, to be exercised by the Council in discussion with individual institutions.
19. These preliminary funding decisions can be summarised as:
| £M | |
| Teaching funding | 2,381 |
| Research funding | 701 |
| Non-formula funding | 308 |
| Transitional funding and flexibility margin | 15 |
| 3,405 |
Preliminary Decisions: Student Numbers 1997-98
20. The HEFCE Board also considered the allocation of student numbers, following provisional analyses of the HESES returns. Although in aggregate the HESES returns indicate that the sector has recruited student numbers very close to the planned total, a number of institutions have exceeded their MASNs while others have under-recruited. As a result, there will be additional full-time as well as part-time student numbers to be allocated.
21. As for 1996-97, most of these places will be allocated by formula based on a proven track record of attracting student demand for part-time places as well as full-time. However, a limited number of places may exceptionally be allocated where it can be shown that institutions have been forced to reduce intakes following the introduction of an additional year in high quality science or engineering courses.
22. The Council may also be able to make a limited response to the need for additional student places in areas of the country that are currently under-provided. This could include, in exceptional cases, students allocated to new satellite or partnership arrangements. However in such cases the Council would not be prepared to consider more than matching numbers provided by a host institution.
23. If institutions believe they may qualify for either of these exceptional allocations, then they should provide a short statement of no more than two A4 pages by 31 January 1997. If the Council judges that any of these should be considered further, then it will seek further evidence as necessary from the institution.
Additional Announcements 1996-97
24. On 16 December 1996 the Board agreed revisions to the profile of formula capital funding for the academic year 1996-97. The reductions in capital funding from 1 April 1996 announced in the 1995 Budget Statement resulted in distortions between financial years in the monthly profile for the 1996-97 academic year. Re-profiling of £35 million of formula capital funding would smooth out these distortions and bring the monthly profile for the academic year 1996-97 in line with that for the previous academic year.
25. The Board also agreed to distribute £9 million to those institutions where the academic and academic-related staff are predominantly members of TSS. This additional funding is a non-consolidated addition to core funding and will be paid between January and July 1997.
26. Revised grant profiles for the academic year 1996-97 will be sent to all institutions separately.
Further Information
27. A further circular will be issued after the Board meeting on 21 January 1997. At that meeting, the decisions taken at the December Board meeting will be refined further and the Board will decide on the funding method for research in the light of the 1996 Research Assessment Exercise. In the meantime, institutions should contact their regional officers for further information.