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HEFCE

Higher Education in Further Education Colleges: A Future funding Approach

Reference M 3/96

Published February 1996

Introduction

1. Following the publication in January 1995 of its consultation report "Funding the Relationship" the Council established a working group to take into account responses to that report and consider future approaches to funding HE in further education colleges (FECs).

2. In view of the high level of interest in the issues raised by "Funding the Relationship" the Council has decided to publish the working group's report in order to stimulate further discussion, and particularly the proposal that future funding of HE in FECs should be based on collaborative arrangements with HEIs (see paragraphs 19-27).

3. Responses to this report will be considered by a new joint HEFCE and FEFC Policy Review Group.

Summary

4. The report focuses on the structure and organisation of HE funding in FECs. In summary, it suggests that:

  • a. In the short term, the Council should continue with its essentially market-led approach to funding HE in FECs. This has promoted a rich diversity of provision and productive partnership arrangements between higher education institutions (HEIs) and FECs.
  • b. However, the ever-increasing diversity of HE provision in FECs and in funding arrangements is leading to a more complex and disparate situation. This may hinder the rational and systematic development of HE provision in response to local and regional needs.
  • c. Therefore, consideration should be given to restructuring the organisation of HE funding in FECs in the medium to long term through a framework which is based on collaboration or consortia arrangements between HEIs and FECs.

5. The report also discusses a number of specific issues about funding and quality assurance arrangements and concludes that:

  • a. The HEFCE and FEFC should jointly consider the changes taking place at the HE/FE boundary which affect the funding of prescribed and non-prescribed HE in FECs and examine the scope for changes to the present funding arrangements.
  • b. The past funding arrangements for colleges which received Local Education Authority (LEA) top-up funding should be jointly investigated by the two funding councils in order to identify any scope for joint action.
  • c. Directly funded FECs should be included in some of the HEFCE's non-formula funding special programmes, but only as part of a collaborative proposal with an HEI. This has been agreed by the Council.
  • d. The current arrangements for the quality assessment and audit of HE in FECs should be considered within the current review of the quality assurance arrangements for HE.

Background

6. The consultation report "Funding the Relationship" mapped the nature and extent of HE provision in FECs and the nature of the relationship between FECs and HEIs. It affirmed the importance of FECs as providers of higher education and in particular it noted that:

  • a. In 1994-95 over 36,000 higher education students (8 per cent of total HE student numbers) attended validated and prescribed HE courses in FECs. To this must be added over 40,000 students enrolled on franchised (or similar) courses which were delivered in FECs.
  • b. FECs play an even more significant role in sub-degree provision. The majority of HE students on sub-degree courses, most of which are vocational, pursue them at FECs.
  • c. FECs have a tradition of closeness to the world of work and are the main providers of G/NVQs.
  • d. Most FECs are local and access-oriented. Their location places them well to serve geographically dispersed and educationally marginalised populations. Their access role is reflected in a significant proportion of local, part-time and mature students.
  • e. FECs offer a distinctive HE experience. It builds on FE teaching and learning strategies in an academic environment different from that of many HEIs. This provision enables a degree of continuity for those progressing into HE from FE.

7. The significance and relative distinctiveness of HE in FECs is particularly important at a time when there is increasing emphasis on relating HE provision to the needs of employers and the workforce. HE needs to be increasingly flexible in its nature, location and delivery in order to meet the changing needs of a more diverse student population. Demand is becoming more regionally oriented and HE needs to be more accessible as more part-time and mature students enter the system. FECs clearly have an important role to play in the future development of HE.

8. Against this background the Council needs to consider whether to define and influence further the role for FECs in delivering higher education and whether to influence the structure of the HE/FE interface. Underlying this is the question whether the Council should be primarily concerned with supporting HEIs or whether it should be concerned to fund cost-effective HE whatever its location. These issues are addressed in the following discussion of possible future approaches to the funding of HE in FECs.

Maintaining a Market-Led Approach

9. The Council's market-led approach to funding HE in general has encouraged diversity in both the nature of HE and the providers of HE - which of course includes FECs. Some colleges deliver all-through programmes in their own right as validated institutions; others provide full and partial HE programmes as franchisees for HEIs through a range of partnership arrangements; some have a mix of both types of provision; and others predominantly make low-level provision (years 0 and 1) and Access provision. There is also diversity in the funding of HE in FECs: some colleges are funded directly by the Council for HE provision; others receive HEFCE funding indirectly via their partner HEI; others may receive funding through both routes; and some colleges also receive funding for HE provision from the FEFC.

10. Retaining the current approach to funding would maintain this diversity and would recognise the strengths of HE in FECs. In particular, FECs would continue to develop different forms of HE provision appropriate to their particular circumstances, taking account of, for example, the needs of students and regional needs. The missions and strategies of individual colleges and HEIs influence the nature and type of partnerships developed and the extent to which colleges may seek to develop their own validated HE provision. Therefore, a market-led approach would enable the system to continue to develop in a way which reflected individual circumstances.

11. A number of other factors may support the argument for no significant change to the Council's current funding approach to HE in FE, at least in the short to medium term:

  • a. The final outcome of the Secretary of State's review of higher education on the purpose, shape and size of HE is not yet known. Developing a funding strategy for HE in FECs separately from any future Government policy framework might prove problematic before completion of the second phase of the review.
  • b. The current funding constraints in HE may severely limit the scope for policies which move significantly away from the existing approach to funding HE in FECs.
  • c. The funding situation of the FE sector is at present relatively unstable as the FEFC's current policy of converging the wide differences in costs to a sector average impacts on colleges in different ways. In some cases it may encourage diversification into HE and in others withdrawal from HE if the costs of providing HE leads to an increase in the FEFC's average level of funding. Furthermore, there may be changes in the shape and structure of the FE sector as rationalisation and merger between colleges takes place.

12. The wider policy context is characterised by change, uncertainty and financial constraint. The present arrangements have enabled FECs to develop a successful and diverse range of provision. This suggests that it might well be right to continue the existing approach to funding HE in FECs. The diversity and complexity of the funding arrangements for HE in FECs could make it difficult for the Council to change them but that can only be a consideration in the short term.

13. The market-led approach to funding has disadvantages too. It could mean extending further a disparate and uncoordinated HE system which hinders a rational and systematic development of HE provision in response to regional and local needs. It has been argued that the complexities of the existing funding arrangements result in a haphazard system at a time of rapid change, which should demand greater management. Indeed, many of the responses to the consultation report and meetings with FEC representative bodies have indicated a desire to see a more co-ordinated and ordered system of HE, in which FECs have a clearly defined role. Furthermore, the diversity of funding arrangements constrains the development of HE in FECs and the development of some types of partnership between HEIs and FECs.

14. The wider policy context may lead the Council to modify its approach to funding HE in FECs. The questions which are likely to emerge from the Secretary of State's review of Higher Education relate to: the growing importance of meeting employment needs; the possibility of a shift in the balance away from three-year degree courses towards two-year courses coupled with enhanced opportunities for continuing professional development; and the need to relate the size and scope of HE to the demand for lifelong learning from both students and employers. These questions suggest the need to develop a clearer HE role for FECs and a new funding structure.

15. The above suggests that while there may be pragmatic reasons for the Council to retain the present funding arrangements for HE in FECs, there may be growing pressure to change the nature and funding structure of the HE/FE interface as it becomes increasingly relevant to the future shape of HE, complex in its diversity and in need of a more co-ordinated approach.

Defining an HE role for FECs

16. Changing the approach to funding HE in FECs might require the Council to develop policies which prescribe the nature and type of HE to be located in FECs. "Funding the Relationship" noted the special role which many FECs performed in HE provision: HE in FECs tended to be vocational, local and access-oriented; its emphasis was on progression; it was predominantly sub-degree and in some areas was specialist and unique. The report went on to consider the extent to which the Council might identify the type of HE to be supported and developed in FECs, based on their strengths and distinctive features. This provision could be encouraged, for example, through directing any future funds for growth to vocational sub-degree HE-level work in FECs. The relatively low Average Unit of Council Funding (AUCF) of many FECs directly funded by the Council might suggest that this would be a cost-effective means of provision. Indeed it is already increasingly the norm for sub-degree HE provision to be delivered in FECs, whether through partnership arrangements (franchising, associate college arrangements or two plus two schemes) or directly funded provision.

17. However, differentiating from the centre between HE providers by type and level of HE is a policy option which the Group does not recommend. The Group feared that this might establish a new binary line between HEIs on the one side as the providers of undergraduate and higher level provision and FECs on the other as the providers of lower level HE. Clear distinctions of this nature would be difficult to make, principally because many HEIs share some of the characteristics of FECs - many new universities are also vocational, local and access-oriented - and many would seek to continue providing HE at all levels. Centrally planned differentiation along these lines could restrict the responsiveness of both HEIs and FECs to their respective HE markets and local circumstances.

18. Therefore, the Group recommends that the Council should for the immediate future continue with its existing approach to funding HE in FECs.

Funding a Collaborative Structure

19. Any decision not to introduce change in the short term does not preclude change in the longer term. While it may be inappropriate for the Council to prescribe what it funds in FECs on the basis of level or type of HE, it could consider a funding structure which encouraged HEIs and FECs to co-ordinate and jointly plan their HE provision according to their local circumstances and regional needs. Some trends already support this - for example, a number of bilateral partnership arrangements between HEIs and FECs have developed into multilateral arrangements, often on a regional and complementary basis. Many HEI/FEC collaborative arrangements are deepening through closer links, formal association and even merger.

20. A future approach to funding HE in FECs could be based on a number of key principles:

  • a. A local and regional basis - Encouraging collaboration on a local and regional basis (loosely defined) to ensure a planned and complementary response to local and regional needs particularly where there are few HEIs.
  • b. Progression - Ensuring a coherent and structured framework for student progression through the range of routes (vocational and academic) and levels - for example, where the first year of a degree course or a foundation course may be more effectively provided by an FEC and lead to progression in the partner HEI.
  • c. Quality assurance - Ensuring the quality of student's learning experience through clear and robust quality assurance arrangements between HEIs and FECs.

21. A funding structure for HE in FECs might be built on complementarity and configuration with HE institutions - and possibly other partners such as employers. The aim could be to create a structure whereby HE in FECs would be funded by the Council through an HEI on behalf of a consortium or collaborative agreement, or even through a confederation of institutions which could include one or more HEIs.

22. The collaborative proposal is not far removed from existing associate college arrangements where Council funds are directed to FECs for their HE provision via an HEI. They are often exclusive arrangements and tend to cover most if not all HE provision in the FEC. While the associate college model could be considered for further development, there would be a need to consider the merits of driving regional groupings around one HEI - although in some areas there may be little choice. Experience of partnership arrangements of this type has been mixed (see "Funding the Relationship") so prospective partners would need to be confident that their interests were safeguarded in whatever arrangements were devised. Furthermore, associate college arrangements may not necessarily secure complementarity between providers: course duplication is still possible. Finally, from a funding perspective, associate college arrangements have developed a particular meaning and format, which might require modification to fit in with a new funding structure.

23. An alternative to this approach would be a confederation of HE providers, which might include all providers in a geographical area including more than one HEI. A confederation implies an equal partnership between a number of parties with common goals and interests. However, such a concept would need to be defined further, and the Council would need to consider the extent to which it influenced the definition - for example, whether it would need to prescribe the nature and detail of confederal agreements for funding purposes, or whether it would simply provide guidance on the general principles of confederation. In both cases the Council would need to be satisfied that the structure ensured financial accountability for the use of Council funds and that mechanisms were in place to ensure quality of provision.

24. Both models would enable the nature and level of HE provision in the FECs to be determined according to the particular local circumstances, rather than being centrally prescribed. Attention would be required to avoid undue mission drift, although it is likely that many FECs would be happy to continue providing lower level HE within such a framework.

25. Such a structure to funding HE in FECs would require greater planning, which would take place principally at the institutional and local level, while the Council would need to be more active in steering the approach. Either of the above approaches to funding would result in significant structural change and could also affect the nature and development of HE/FE partnership arrangements. Hitherto, collaboration between FECs and HEIs has been voluntary and planned according to the needs and missions of the institutions involved. A funding structure which essentially prescribed collaboration, and of a particular type, would be counter to the existing experience. However, prescription could be limited to the initial stage once confederations were established and their further development locally planned, the Council might be less inclined to be prescriptive.

26. In pursuing this objective, the Council would need to consider how to move from the existing diverse set of funding arrangements to a new structure. The new arrangements would imply a significant change in funding for some FECs, though for others the relationships described above match those currently in place. One option would be to maintain the existing arrangements for the 70 colleges directly funded for prescribed HE and to introduce the collaborative model incrementally, directing any future growth in HE numbers only to those HEIs and FECs which had developed this type of collaborative arrangement. Directly funded colleges could also be offered the opportunity to move to such an arrangement and possibly be encouraged by particular funding incentives.

27. Many substantial issues would need to be carefully considered in developing such a funding structure. This process could commence through wide consultation on the basis of the above collaborative approach and further examination of possible models which could be introduced in the longer term. Therefore, the Group recommends that the Council should consider the principle of developing a future funding structure for HE in FECs which was based on collaborative arrangements between HEIs and FECs, in particular a model which could be based on regional confederations of institutions. Current funding issues

28. A number of detailed issues arose from "Funding the Relationship" and the subsequent responses. These concern the respective funding responsibilities of the FEFC and HEFCE and current funding and quality assurance arrangements for HE in FECs. These issues and those discussed above are not mutually exclusive.

Consolidating the Funding of all HE

29. The first issue is directly relevant to how the Council might need to structure the future funding of HE in FECs and concerns the changing nature of much of what is HE in FECs. There are two notable factors:

  • a. FECs have been the primary providers of NVQs generally and GNVQs up to level three. They are well placed to develop and deliver higher level NVQs and GNVQ level four if the latter come on stream.
  • b. The previous distinction between prescribed and non-prescribed HE is increasingly anomalous both in academic and policy terms. The rationale behind this difference, set out in the 1987 White Paper "Higher Education: Meeting the Challenge", was to differentiate between national and regional HE: national HE was funded via a national funding body and local HE provided and funded at a local level in response to local considerations (via a college's LEA). Because many professional courses were part-time and directed at local needs these were also funded locally. However, many FECs now argue that in academic terms (curriculum design, delivery, modular and credit structure, level) there is no distinction between the two. Furthermore, while performing essentially a local role, FECs are now funded nationally for their non-prescribed HE by the FEFC (LEA funding having been transferred to the FEFC for this purpose at incorporation). Therefore, the rationale for separate funding councils to fund what is rapidly becoming similar HE provision in terms of level and nature is diminishing.

30. These two factors are related because most non-prescribed HE is HNC and part-time HND-level provision which may be superseded by the development of higher level GNVQs.

31. In their responses to the consultation report many FECs and their representative bodies argued for a clearer demarcation between the FEFC and HEFCE responsibilities for HE provision. There are a number of options:

  • a. Retain the status quo and seek no change.
  • b. Transfer funding responsibility of all HNDs in FECs from HEFCE to FEFC.
  • c. Consolidate the responsibility for funding all higher level work in FECs with the HEFCE.

32. It will be increasingly difficult to sustain the first option as FECs highlight the academic and administrative anomalies of two different funding councils funding the same type of provision differently on the basis of who delivers the provision and whether it is `local' or not. The second option would only partially solve the problem for FECs but it would increase the FEFC's role in funding HE provision. One could extend this option to transfer the responsibility of funding all HE in FECs to the FEFC which would give the FEFC responsibility for funding all provision in FECs. This would be similar to the Scottish model where SHEFC does not fund any HE provision in Scottish FECs.

33. Such an approach would mean that the Council could fully concentrate on funding HEIs, although it would not prevent HEFCE funds being directed into FECs through franchise and similar arrangements. While this option may appear attractive during a period of financial constraint, it would reduce the Council's role in influencing the shape and nature of HE in general, especially at a time when new higher level vocational qualification frameworks are emerging. It could also lead to increasing competition between institutions in different sectors with separate and thus unequal funding regimes.

34. The third option is the most logical whereby the HEFCE takes responsibility for the funding of all types of HE, particularly as past distinctions between prescribed and non-prescribed HE are breaking down and a new framework of qualifications is emerging which may require a clear and rational funding structure. This would clearly result in the Council being concerned with HE in many more FECs.

35. However, the logic of the third option may be undermined by the scale of the consequences of its implementation, for example:

  • a. It would require a PES transfer from the FEFC to HEFCE in respect of around 100,000 student places.
  • b. There would be an increase in the volume and nature of HEFC's funding relationship with FECs with subsequent implications for its quality assessment arrangements. At present the Council funds and assesses HE provision in just over 70 colleges; non-prescribed HE is provided in over 400 colleges.
  • c. The Council would have an increased stake in the financial health of FECs.

36. There would also be legislative implications. The 1992 Education Act defines the respective funding councils' responsibilities for funding HE in FECs - the HEFCE being responsible for the provision by FECs of prescribed courses. Therefore, the definition of prescribed courses would have to be amended to include courses which are currently defined as non-prescribed courses. However, as prescribed HE is defined in statutory instruments secondary legislation would be sufficient.

37. These are significant matters which may make the objective of consolidating responsibility for the funding of HE-level work unrealistic and unmanageable, at least until there is greater clarity about the development of higher level GNVQs and the future of provision at HNC and HND level. Nonetheless, the boundary between the funding responsibilities of the FEFC and HEFCE requires further consideration in relation to the scope for providing a clearer and more rational set of funding arrangements. Therefore, the HEFCE and FEFC should jointly take account of the changes in the nature of provision at the HE/FE boundary, identify how these relate to the current funding arrangements and consider the scope for changes in funding arrangements.

Correcting Funding Disparities

38. HEFCE-funded FECs widely believe a funding disparity exists between HEIs and FECs. Many FECs argued in their responses to the consultation report that the Council should seek to be even-handed in its funding of FECs. There are two elements to this. First, many FECs have experienced a historically determined lower unit of funding for HE than HEIs and as the overall unit of funding for HE has declined they now seek some form of redress. Second, FECs seek to end their exclusion from the Council's non-formula funding initiatives.

39. The generally low unit of funding in FECs is the result of a number of factors including their historical position and recent growth strategies. Prior to incorporation, many FECs received HE top-up funding from their LEA in addition to grant from the funding council. At incorporation, these top-up funds were transferred to the FEFC for core funding. A college with significant HE provision and top-up funding would appear to be relatively high in cost for its FE provision and thus be particularly affected by the FEFC's policy of converging the wide differences in costs to a sector average. As a consequence, it is argued, many FECs expanded their HE numbers rapidly in order to sustain their cash position and secure their HE provision. Government policy to constrain the growth in student numbers in HE has limited this strategy, prompting many FECs to argue that their HE work is now at risk.

40. This is an important issue for many FECs, particularly the large HE providers and those whose HE represents a significant proportion of their total provision - the `mixed-economy' colleges. The Council could choose to correct this historical position, for example either by increasing each college's AUCF to a higher figure (such as the previous year's lowest quartile or average AUCF for the sector) or by simply including a weighted factor in the funding formula for FECs. However, either approach would require the redistribution of funds away from HEIs to FECs, which may be undesirable during a period of financial constraint. Also it would be at variance with the council's current funding method as there is no standard unit of HE funding. Moreover, there is no concept of `even-handedness' within the HE sector itself - many HEIs could themselves construct a similar position to FECs in arguing for an increase in their AUCFs . Such a change would have to affect all directly funded FECs irrespective of their particular historical position unless the Council was able to investigate the details of all past funding arrangements. It would seem undesirable in both policy and practical terms to implement such a change in the funding of FECs.

41. An alternative approach would be to investigate further with the DfEE and FEFC the details of past funding arrangements of individual colleges to establish whether particular cases of top-up funding could be identified. While unpicking the detail of past funding arrangements for individual colleges would be difficult, due to the absence of robust information, a more general estimate of the amounts and types of institutions involved could be established.

42. Joint FEFC, HEFCE action would be appropriate given that the difficulties experienced by FECs has been brought about by both funding councils' policies. The funding outlook for both the HE and FE sectors could well limit the scope for action on even marginal amounts of funding. Nonetheless, the Group recommends that the HEFCE and FEFC should jointly investigate past funding arrangements for FECs, especially the mixed-economy colleges, and consider the scope for any appropriate joint action.

43. In respect of the second element of `even-handedness', the Council may wish to take a more flexible line than that at present which prevents directly funded FECs which are from receiving non-formula funding (NFF) or marginal funding initiatives (unless via an HEI as part of a franchise/associate college arrangement).

44. The nature of NFF funding programmes and special initiatives varies widely but many programmes are often specifically targeted at HEIs to influence behaviour or improve areas of provision. Therefore, the Council may not wish to open up all NFF funding programmes to FECs unless it also seeks to influence behaviour or improve areas of HE provision. There are programmes which relate to supporting and developing the nature of HE provision - for example the Teaching and Learning Technology Programme, the Fund for the Development of Teaching and Learning and Libraries support- where many directly funded FECs may legitimately have a case to compete. While opening up any element of NFF funding to FECs will only dilute the amount available to HEIs, the Council has been selective in most NFF initiatives and successful bidders have been chosen on their merits rather than by institutional type - there would simply be more potential competitors for funding. The amount the Council allocates to such programmes is unlikely to be a significant proportion of total funding, thus reducing extent to which the inclusion of FECs might impact on funding provision at HEIs.

45. The Council could be more flexible in its approach to NFF initiatives by deciding on an ad hoc basis which programmes might include FECs, or it could develop initiatives specifically aimed at influencing the behaviour of FECs at the HE/FE interface.

46. There would be a need to consider which FECs could be included in such funding, for example whether all FECs with HE provision should be included or just those in receipt of core funding from the Council. Processing bids from up to 130 HEIs is itself a significant task and an increasing number of bidders may make such exercises increasingly unattractive to both institutions and the Council. The amount of unproductive speculative bidding would also increase. Opening up selective NFF programmes to FECs, either more generally or even just to directly funded colleges, may not necessarily benefit HE. For example, many FECs with relatively small HE student numbers which could stand to receive additional funding through NFF programmes out of proportion to the size of the their HE provision.

47. To bypass these potential problems the Council could differentiate between FECs on the basis of relative size (determined by HE student numbers) whereby those with, for example, over 500 HE students could bid for NFF funds. The remaining colleges would not be excluded as they could be encouraged to collaborate with both HEIs and larger FECs in joint bids. Differentiating between colleges would be fraught with difficulties: there would be difficulties in establishing robust criteria to differentiate any group of colleges and differentiation could promote academic drift as colleges aspired to meet the criteria for specially treated groups of colleges. This approach would not fully address the matter of even-handedness. Furthermore, there was only very limited support for differentiation between colleges on the basis of size and subject spread of provision in the responses to the consultation report with most HEIs and FECs reluctant to see a new `line' being drawn between types of institution.

48. Instead, the Council could use the inclusion of FECs in selective NFF programmes to promote collaboration between HEIs and FECs by making their inclusion subject to collaborative bids with HEIs. This would encourage partnerships and planned and complementary activity and would reduce any potential administrative burden for the Council, while producing an equitable approach to all directly funded FECs. It could also complement any future wider policy which promoted collaboration (see above).

49. In December 1995 the Council agreed that in future directly funded FECs should not automatically be excluded from special initiatives. Their participation will be considered case by case, and should normally be conditional on collaborative proposals with HEIs.

Quality Assurance

50. The diversity in funding arrangements for HE in FECs has resulted in an equally diverse and complex set of quality assurance arrangements. It has been argued that these arrangements lack coherence: the same type of course in different colleges may be subject to completely different arrangements depending on whether it is FEFC-funded, HEFCE-funded or fees-only. This creates comparability difficulties. However, the Group is aware of the current moves under way to reform the HE quality assurance process and therefore feels that these issues are best considered within that particular review.

Responses

51. Responses to the issues raised in this report, particularly in relation to funding a collaborative structure, should be sent by Monday 29 April 1996 to:

Cliff Allan
Policy Division
HEFCE
Northavon House
Coldharbour Lane
Bristol BS16 1QD.