HEFCE Circular 4/96
Recurrent and Formula Capital Grants for the Academic Year 1996-97
To Heads of HEFCE-funded institutions
Heads of FEFC-funded institutions in receipt of HEFCE Core Funding
Heads of DENI-funded Universities
Summary The allocation of recurrent and formula capital grants to institutions for the Academic Year 1996-97
Reference 4/96
Publication Date February 1996
Enquiries to Regional Officers
1. Institutions were informed on 27 February 1996 of their allocations of recurrent and formula capital funding and maximum aggregate student numbers (MASNs) for 1996-97.
2. This Circular summarises the allocations agreed by the Board on 21 February 1996. Unless otherwise stated, all years relate to academic years.
Summary
3. The key points set out in this Circular and in Circulars 31/95 and 2/96 are:
- General
- - The 1995 public expenditure announcement stated that the funds available to the Council from 1996-97 would be provided as a single undifferentiated grant, with amounts for recurrent and capital purposes identified for information only.
- - The Council will distribute #3,146 million as recurrent funding for 1996-97, and a further #173 million as formula capital funding.
- - Formula recurrent and capital funding for the sector as a whole will be 2.3 per cent lower in cash terms, or over 5 per cent lower in real terms, than in 1995-96.
- - The Council has applied the same real terms reduction of 2.75 per cent to the units of funding for teaching and to the total funds for research.
- - No institution will suffer a cash reduction on its formula allocations greater than 4.5 per cent compared with the equivalent funding in 1995-96. Seven institutions will receive transitional funding to limit their reductions to this level.
- - Institutions will be free to vire between their recurrent and formula capital funds at their discretion.
- Teaching
- - #2,224 million has been allocated for teaching for 1996-97, of which #2,200 million is core funding.
- - Core funding is subject to an average real terms reduction of 2.75 per cent. This has been applied differentially by funding cell within a range of 2 per cent to 4 per cent, depending on an institution's average unit of Council funding (AUCF) in each cell. Institutions with higher AUCFs than average receive a larger reduction, and those with lower AUCFs receive a lower reduction.
- - #24 million has been provided as a non-consolidated addition to core funding for teaching.
- Contract Student Numbers
- - Contract student numbers (CSNs) are the minimum numbers of students institutions are required to deliver in exchange for the funding for teaching. Institutions will be informed of their indicative CSNs for 1996-97 before the end of March 1996. These will be included in their annual funding agreement which will be provided in July 1996.
- Maximum Aggregate Student Numbers
- - As last year, the Government requires the Council to ensure that the planned number of students, and the number of award holders within that total, as announced in the 1995 Budget Statement, are not exceeded.
- - To deliver the Government's policy, the Council defines the maximum number of award holders which institutions may recruit - these are the Maximum Aggregate Student Numbers (MASNs).
- - The MASNs announced for 1996-97 cover award holders on programmes funded by the HEFCE and the Teacher Training Agency.
- - In 1995-96 the Council applied a financial penalty to institutions which recruited more than 1.5 per cent above their MASN. 34 institutions incurred penalties totalling #1.4 million.
- - In 1996-97, institutions will incur a financial penalty if they recruit numbers of award holders more than 2 per cent above their MASN.
- Research
- - The Council distributes the great majority of its research funding to institutions selectively, according to the quality of their research.
- - #638 million has been allocated for research; of this, #602 million will be distributed by reference to quality criteria (QR), #20 million by reference to generic research activity (GR) and #16 million to encourage research development (DevR).
- - In 1996-97 the Council will complete the three-year process of narrowing the difference between the units of funding for each subject to within a band of 15 per cent around the average in each of the three QR subject families.
- - Revised weightings for the headcount of postgraduate students in the QR volume measures, and other data changes within these measures, have led to minor adjustments to the method for moderating the year on year changes in QR allocations.
- Non-formula Funding
- - #270 million has been allocated as non-formula funding. #264.5 million of this relates to existing commitments or announced programmes.
- - #5.5 million has been set aside for new initiatives to be introduced in 1996-97, details of which will be announced shortly.
- Capital Funding
- - #73 million will be distributed as formula capital funding for 1996-97.
- - The Council will provide up to #18 million (up to #10 million in the financial year 1996-97 and up to #8 million in the financial year 1997-98) towards extending Metropolitan Area Networks and Local Area Networks.
- - Funding for existing programmes of capital projects and backlog maintenance will continue, but no further funding will be provided after the final dates already announced or after 31 March 1998, whichever is the earlier.
Elements of Recurrent Funding
4. The total recurrent funding available for distribution to institutions is #3,146 million and will be allocated as follows:
#M
-----------------------------------------
Funding for Teaching 2,224
Funding for Research 638
Non-formula Funding 270
Transitional Funding and
Flexibility Margin 14
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Total 3,146
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Funding for Teaching
5. The allocations for teaching shown on Table 1 add up to #2,196 million. This Table provides details of the core funding for teaching, with a number of additions and adjustments, as follows:
#M
----------------------------------------------------------------
1995-96 Core Funding, less transfer of ASC 11.2
to the Teacher Training Agency 2,192
1995-96 Holdback ( 7)
2,185
Additions to Core
College Fees 3
Pensions for part-time staff 2
Initial Teacher Training restructuring 2
Additional Funded Places
Allocations according to success in recruiting and
retaining full-time Science and Engineering students 2
Pro rata distribution 2
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Total 2,196
6. The following additions to core funding will be finalised shortly:
#M
-----------------------------------------------------------------
Additions to Core
Initial Teacher Training restructuring 1
Additional Funded Places
Retention of full-time Science and Engineering students 2
Allocations according to success in recruiting
and retaining part-time Science and Engineering students 1
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Total 4
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7. Together these total to #2,200 million of core funding for teaching for 1996-97. A full explanation of the data in Table 1 is at Annex A.
8. The non-consolidated addition to the core funding for teaching is allocated pro rata to institutions' 1996-97 core funding for teaching.
Funding for Research
9. The total funding for research is #638 million, an increase of #2 million on the figure previously indicated for 1996-97. #602 million has been allocated as QR, #20 million as GR and #16 million as DevR.
10. On 21 February 1996 the Board decided to adjust the way in which the changes in QR income are moderated. For 1996-97 institutions' changes in QR allocations compared with 1995-96 will be moderated in the following way:
a. Institutions will receive increases up to 15 per cent in full, and will receive half of any increase above 15 per cent. Thus an institution which would have received a 25 per cent increase compared with 1995-96 if the allocations were not moderated will receive a 20 per cent increase.
b. Institutions will incur decreases up to 1 per cent in full, plus half of any further decreases beyond 1 per cent. Thus an institution which would have incurred a 5 per cent decrease compared with 1995-96 if the allocations were not moderated will receive a 3 per cent decrease.
11. In Circular 6/95 the Council confirmed that it would continue to reduce the difference in the units of funding between similar subjects to reduce the range of variations to within 15 per cent of the average within each of the three families. 1996-97 is the final year of this three year process.
12. For the sector as a whole, GR qualifying income for 1993-94 and 1994-95 totalled #520 million. To arrive at the allocations, each institution's share of the #20 million available was calculated according to its percentage share of total sector qualifying income.
13. The qualifying income and percentage for individual institutions is shown in Table 4 and indicates the level of qualifying activity compared with the sector as a whole.
Non-formula Funding
14. The total non-formula funding for 1996-97 is #270 million. This includes some elements allocated to institutions, and others where institutions are required to submit claims. Those allocations which have been finalised total £108 million and are included in Table 1. The balance of #162 million comprises claims-based elements and some allocations which are still to be finalised.
Formula Capital Funding
15. Formula capital funding for 1996-97 is #173 million. This is a combination of two grants (equipment grant and estates formula funding) which, until 1995-96, were allocated separately.
16. The overall reduction in formula capital funding compared with 1995-96 is 29 per cent. The allocations have been combined for each institution and the totals moderated to limit the rate of change compared with 1995-96. Thus no institution receives a reduction greater than 35 per cent compared with 1995-96, and the minimum reduction for any institution is 19.5 per cent.
17. The Council will continue to monitor the use of formula capital funding through quarterly returns. Requests for data will be sent to institutions with the grant remittance advice in the month preceding the due return date.
Transitional Funding
18. The Council wishes to avoid imposing unmanageable rates of change in institutions' funding. It will therefore continue to provide transitional funding.
19. Institutions which received transitional funding in 1995-96, as announced in Circular 25/95, will receive 50 per cent of that value in 1996-97. These amounts are included in the non-formula funding allocations in Table 1 for the institutions affected.
20. Eligibility for transitional funding for 1996-97 is based on the degree of change in an institution's formula recurrent and capital allocations combined. On 21 February 1996 the Board agreed to set the transitional funding threshold so that no institution's 1996-97 funding is more than 4.5 per cent lower in cash terms than the equivalent funding in 1995-96. As last year, however, if the reduction is less than #20,000 no transitional funding will be provided.
21. Table 2 provides compares the grants announced in Table 1 for 1996-97 and the equivalent funding in 1995-96. In deriving the 1995-96 comparative grant, adjustments have been made to reflect the transfer of further funding to the Teacher Training Agency, and other changes in core funding between 1995-96 and 1996-97. A full explanation of the data in Table 2 is at Annex A.
Profile of Grant Payments
22. The Council will send profiles of the payment of all grants in Table 1 to institutions by the end of March 1996. Profiles of other allocation-based grants not included in Table 1 will follow once they have been finalised.
Maximum Aggregate Student Numbers (MASNs)
23. MASNs are set for Home and EC students holding awards paid by local education authorities (LEAs) in England and Wales, or the Students Awards Agency for Scotland (SAAS), or the Department for Education in Northern Ireland (DENI), and cover students on programmes funded by both the HEFCE and the TTA. They include:
a. All full-time and sandwich undergraduate award holders for whom a mandatory award is paid.
b. Those full-time and sandwich undergraduate award holders for whom a discretionary award is paid under Section 16(6) of the Education Act 1962. This empowers LEAs to make an award to a student who attends a designated course but who is not personally eligible for a mandatory award.
c. All initial teacher training (ITT) award holders, including part-time and taught postgraduates, for whom a mandatory award is paid.
24. All other part-time students, including those in ASC 11.2 for whom a mandatory award is paid, do not count against the MASN. Separate provision has been made for part-time non-ITT mandatory award holders; the Council expects no increase in new entrants in 1996-97 for this class of student.
25. Students whose fees are paid by sources other than those listed in paragraph 25, such as the Home Office or the Department of Health (including the National Health Service), do not count against the MASN.
26. Institutions were advised of their provisional MASNs for 1996-97 on 1 February 1996. The MASNs for all institutions are shown in Table 3.
27. MASNs, both for individual institutions and for the sector as a whole, represent the total number of award holders for the full academic year, including those not completing their course of study.
28. The Council will continue to monitor the recruitment of award holders through verified HESES data for institutions directly funded by the HEFCE. The Further Education Funding Council, on behalf of the HEFCE, will monitor recruitment of award holders in further education colleges which do not receive core teaching funding from the HEFCE.
29. If institutions recruit award holders more than 2 per cent above their MASN they will incur a penalty. The penalty will be the average fee for that institution multiplied by the number of award holders recruited above the MASN. In addition, the Council may reduce the grant for 1997-98 for institutions which exceed their MASN in 1996-97.
30. The 1995 Budget Statement assumes that the number of award holders in 1997-98 will be broadly the same as in 1996-97. Institutions should therefore assume that their MASN for 1997-98 will be no higher than announced for 1996-97.
Contract Student Numbers
31. Contract student students (CSNs) are the minimum number of students institutions are required to deliver in exchange for the funding for teaching. Institutions will be informed of their indicative CSNs for 1996-97 before the end of March 1996. These will be included in their annual funding agreement which will be provided in July 1996.
Conditions of Grant
32. The Council's grants to institutions are conditional on the funds being used for the eligible activities set out in paragraph 65(2) of the Further and Higher Education Act 1992. The conditions of grant which apply to funding for 1996-97 are set in the revised model Financial Memorandum between the HEFCE and institutions. This has been the subject of consultation and will be published shortly.
33. Institutions have the freedom to vire between recurrent and formula capital funding.
34. The Council's grants are also conditional upon institutions' delivery of teaching and research. In due course institutions will be sent their funding agreement for 1996-97. This forms Part 2 of the Financial Memorandum between the HEFCE and each institution. This will state the Contract Student Numbers (CSNs) that the institution is required to deliver in exchange for the funding for teaching. If institutions fail to deliver their CSNs the Council will withhold a proportion of that funding.
35. Institutions in receipt of Council funding for research in 1996-97 are required to account for the use of these funds in accordance with Circular 4/94. Returns are due by 31 July 1996.
36. It is a condition of grant that institutions take account of the principles in the Chancellor of the Exchequer's statement of 18 September 1995 on public sector pay, particularly the need to cover higher pay costs by efficiency improvements.
37. It is also a condition of grant that institutions should disclose in their audited financial statements:
a. The emoluments of the head of the institution.
b. The remuneration of senior staff earning #50,000 a year or more.
c. Any severance arrangements for the head of the institution or senior staff earning #50,000 a year or more.
The current form of disclosure is set out in the Council's 1995-96 Accounts Direction, issued on 31 October 1995.
Audit of Funding Data
38. The allocations of funds for teaching and research are informed by the data collected by the Council from institutions. The Council will continue to audit these data selectively in this and future funding exercises.
39. The Council will make a number of audit visits, covering the full range of data provided by institutions to inform the 1996-97 funding allocations. In addition the Council may use data which institutions provide to the Higher Education Statistics Agency to verify the data they provide directly to the Council.
Sanctions
40. The revised Financial Memorandum between the HEFCE and institutions contains sections on providing information. These are part of the terms and conditions attached to the funding for 1996-97 and come into force on 1 August 1996. They state that if institutions fail to provide the data required by the Council for funding purposes by the specified deadline, or if those data are not of a satisfactory quality, some of its funding may be withheld, up to a maximum of 0.1 per cent of its total formula recurrent grant.
41. The data required during 1996-97 will be the 1996 Higher Education Students Early Statistics (HESES) Survey, the 1996 Redistribution Survey and the 1996 Research Activity Survey, or such other surveys as may replace these surveys as a result of the consultation on the Council's funding methods for teaching and research. These data enable the Council to monitor the delivery of teaching and research during 1996-97 and they inform the Council's consideration of funding for 1997-98.
42. If the Council finds that the data on which allocations have been based have resulted in institutions receiving allocations higher than they would have received if the surveys had been properly completed, then the funding for those institutions is likely to be reduced accordingly.
Further Information
43. Institutions requiring further information should contact their Regional Officers.
Annex A
Column Descriptions Tables 1 and 2
Tables are available separately.
Teaching Funding
Core Funding is derived from the previous year's core plus marginal funds for growth and tuition fee compensation. The 1995-96 core funds comprise:
1995-96 Total Funds for Teaching
Minus 1995-96 INSET allocation
Minus Holdback of grant resulting from under-recruitment against contract
Plus Redistribution of Holdback (Pro-rata element)
Plus Miscellaneous adjustments and transfers from Non-Formula Funding
Plus Uplift for inflation
Minus Baseline Adjustments.
Additional Funded Places shows the funding for growth in full-time and sandwich science, engineering and technology student numbers resulting from the redistribution of holdback. In 1996-97 #2.2 million arising from holdback has been allocated to institutions on the basis of recent success in recruitment and retention of science, engineering and technology students. This represents an additional 800 full-time and sandwich funded student places in science, engineering and technology. A further #2 million was allocated in order to assist institutions in restructuring ITT provision.
Additions to Core are funds consolidated into the 1996-97 core and include transfers and additions into core funding arising from College Fees, TSS pensions in respect of part-time employees, and other transfers from non-formula funding.
Research Funding
Research funding for 1996-97 amounts to #638 million and is allocated to institutions under three main headings.
QR amounts to #602 million (94 per cent of total research funding). Fixed sums of money are made available within each subject area (Unit of Assessment) and are then distributed to institutions on the basis of the quality and volume of the research conducted.
DevR amounts to #16 million (3 per cent of total research funding) and aims to encourage the development of research activity by rewarding evidence of research potential in institutions which do not receive substantial research funds.
GR amounts to #20 million (3 per cent of total research funding) and aims to encourage institutions to conduct collaborative research programmes, the outcomes of which can be used in a diversity of applications.
Other Funding
Non-Consolidated Core Funds are short-term allocations to enable institutions to develop their infrastructure and are distributed pro rata to core funds for teaching.
Non-formula Funding includes those elements of funding which are allocated outside the formula allocations for teaching and research. These include the remaining elements of long-term and short-term non-formula funding as set out in Circular 5/94; allocations of special initiatives, where these allocations have been agreed. It also includes 50 per cent of the 1995-96 transitional funding agreed by the Council on 21 February 1996. Claims-based elements of non-formula funding are not included.
Transitional Funding Supplement is additional funding where an institution's teaching and research funding for 1996-97 represents less than a 4.5 per cent cash reduction over the comparable funding in 1995-96, and where this difference exceeds #20,000.
Tables 1-4
Tables 1-4 associated with this circular are available in two formats. If you have a browser that can handle tables you can view:
- Table 1: Recurrent Grant for Academic Year 1996/97
- Table 2: Comparison with 1995-96 Academic Year Grant
- Table 3: Distribution of Maximum Average Student Numbers
- Table 4: GR Qualifying Income
Alternatively, Tables 1-4 are available as separate comma-separated files: