Report 98/09

Recurrent grants for 1998-99

Executive summary

Purpose

1. This document summarises our allocations of recurrent funding and maximum aggregate student numbers to institutions for the academic year 1998-99.

2. Allocations were agreed by the HEFCE Board on 26 February 1998. We wrote to all institutions individually on 3 March 1998.

Key points

General

3. All years relate to academic years.

4. We are distributing £3,867 million as recurrent funding in 1998-99. This represents a 2.7 per cent increase in resources compared with the previous year or a reduction in real terms of less than 1 per cent, when volume changes are taken into account.

5. The total includes £2,694 million for teaching, £829 million for research, £334 million for special funding, and £10 million is to help phase in changes to institutions' funding and to provide a flexibility margin.

Teaching

6. In 1998-99 we are introducing our new funding method for teaching, following extensive consultation. Its principles are that similar activities should be funded at similar rates, with variations from these based on previously determined factors; and that institutions should bid for additional student numbers. We are maintaining stability in funding for individual institutions by phasing in change.

7. The total of £2,694 million for teaching for 1998-99 includes the following:

a. £198 million to compensate for changes in the level of fees received by institutions from LEAs and individual students in 1998-99.

b. £26 million for additional funded students, allocated in response to the bids invited in Circular 20/97. The outcome of these bids will be announced later in March 1998.

c. £3 million for restructuring following changes to shorter courses of Initial Teacher Training (ITT).

Research

8. A total of £829.5 million is allocated for research. Of this, £803 million is distributed by reference to quality criteria (QR), and £20 million by reference to generic research activity (GR) carried out in association with users of research. £6.5 million is being set aside to contribute towards an £8 million initiative for project funding in the arts and humanities.

9. The £803 million for QR includes a transfer of £64 million for postgraduate research (PGR) students previously funded through the teaching funding stream, and a transfer of £25 million from special funding for the extra costs of provision in London.

Special funding

10. Most of our grants for teaching and research are allocated by formula. In addition, we distribute special funding for specific purposes. In 1998­99, this funding totals £334 million.

Maximum aggregate student numbers

11. The Government requires us to ensure that the actual number of students does not exceed the target set in its 1997 Budget Statement.

12. To do this we define the maximum aggregate student number (MASN) for each institution. This is the maximum number of students the institution may recruit who either:

• Receive local education authority (LEA) awards or
• (from 1998-99) are in principle eligible for means-tested support for such awards. This includes students who pay the full regulated tuition fee themselves, whether as a result of means-testing or because they did not apply for it, although eligible to do so.

13. The MASNs announced for 1998-99 cover higher education students at institutions funded by the HEFCE and the Teacher Training Agency (TTA).

Action required

14. No action is required.

Elements of recurrent funding

15. The total recurrent funding for distribution to institutions is £3,868 million, allocated as follows:

Funding for teaching

16. In 1998-99 we are introducing our new funding method for teaching, following extensive consultation. The new method is described in detail in Circulars 21/96, 'Funding Method for Teaching from 1998-99' and 10/97, 'Funding Method for Teaching from 1998-99: Additional Decisions'. Two broad principles underlie the new method:

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.

17. Under the new method, we calculate a standard level of teaching resource for each institution, based on its profile of students. This covers both our grant and tuition fees. Students, expressed as full-time equivalents (FTEs), are weighted according to one of four price groups, which reflect the relative costs of provision in different subjects. Further weights are applied for part-time students, mature new entrants, and students on long courses. Institutional factors are also reflected through weights applied to student numbers. These are for the additional costs of provision in London, differences between the Universities and the Teachers Superannuation Schemes (USS and TSS), and for the extra costs of some specialist institutions.

18. For each institution we compare the calculated level of standard resource with the actual level of our funding and an assumed income from student fees. Where the difference from the standard resource is no more than 5 per cent, our core funding will roll forward from one year to the next, so long as institutions remain within that ±5 per cent tolerance band. For other institutions, we will adjust grant or student numbers so that they move within the tolerance band over an agreed period, generally up to three years. We refer to this as migration towards the tolerance band.

19. Our funding method for teaching is designed to operate at the sector level and in broad terms. It is not necessarily appropriate for individual institutions to replicate it when allocating funds internally.

20. The amount of funding for teaching is higher than the total of £2,690 million announced in Electronic Publication 22/97, 'Funding and Student Numbers for 1998-99: Preliminary Decisions'. This is to include a transfer of £4 million from the TTA for provision formerly classified within academic subject category 11.2 (non-ITT education). The allocations for teaching shown in Table 1 total £2,666 million, made up as follows:

21. The balance of the £2,694 million will be made up by funding for the additional student numbers (for which bids were invited in Circular 20/97) and for the additional costs for medical schools in 1997-98 and 1998-99. A full explanation of the data in Table 1 is at Annex A.

22. The allocations given in this document cover all categories of home and EU students who were HEFCE-fundable in 1997-98. From 1998-99, responsibility for funding students on certain courses in the healthcare professions will transfer from the HEFCE to the Department of Health (DoH). HEFCE 97/31, 'Funding of students in healthcare professions', gave details of the new funding arrangements and asked institutions to complete a survey of students on such courses to inform the transfer. Once we have finalised the amounts to be transferred to the DoH, we will reduce the allocations announced here to reflect such transfers for individual institutions.

Funding for research

23. The total funding for research is £829.5 million. Of this, we have set aside £6.5 million for project funding in the arts and humanities. £803 million is allocated as QR, the distribution of which reflects ratings in the 1996 Research Assessment Exercise (RAE). This incorporates a transfer of £64 million for PGR students previously funded through the teaching funding stream, and a transfer of £25 million from special funding for the extra costs of provision in London. £20 million is allocated as GR funding, which is discussed in paragraph 26.

24. The amount of QR funding is higher than the total of £799.5 million announced in Electronic Publication 22/97. This is to include the £3.5 million set aside in 1997-98 for a pedagogic research initiative, which has not yet been spent.

25. Details of the funding method for research were described in Circular 4/97. It explains how the total amounts for each subject (the subject quanta) have been set, and how these amounts are distributed between institutions, taking account of the quality and volume of their research.

26. GR funding allocations are made in proportion to each institution's GR qualifying income. Qualifying income is the amount received from users of research for collaborative projects, where the institution retains the intellectual property and publication rights. For the sector as a whole, GR qualifying income for 1995-96 and 1996-97 totalled £618 million. Table 4 shows GR qualifying income in total and as a percentage of total external research income for each institution.

Special funding

27. The total special funding for 1998-99 is £334 million. Allocations that have been finalised total £48 million and are included in Table 1. The balance of £286 million includes both claims-based elements and allocations that are still to be finalised.

Moderation

28. To help maintain stability, we will continue our policy of phasing in changes by moderating the allocations. No institution will receive a reduction in resource of more than 1 per cent in real terms compared with 1997-98. This represents a minimum increase in cash terms of 1.75 per cent. We review our moderation policy annually.

Profile of grant payments

29. We have revised the profile of monthly grant payments included in Table 1 to take account of the likely pattern of tuition fee payments to institutions in 1998-99. Details of the revised profiles were provided in Circular Letter 33/97, 'Grant Payment Profile 1998-99'.

Maximum aggregate student numbers (MASNs)

30. On 26 January 1998-99 we wrote to all institutions, giving their base MASNs for 1998­99. The MASNs for all institutions are shown in Table 3. These incorporate changes to allow for migration under our new funding method, but exclude MASNs for the additional student number bids which have still to be announced.

31. The MASN represents the student population that is eligible in principle for Government support in respect of fees. We use the base MASN in determining the number of students for whom we are paying fee compensation to institutions, reflecting the change in tuition fee arrangements for 1998-99. However, these new fee arrangements mean that 1998-99 is a transitional year. Institutions should plan on the basis that the MASN will apply to students who either:

a. Receive awards paid by an LEA in England or Wales, or the Student Awards Agency for Scotland (SAAS), or the Department of Education Northern Ireland (DENI), or

b. Under the new tuition fee arrangements, are in principle eligible for means-tested support in respect of awards paid by an LEA in England or Wales, SAAS or DENI.

32. The MASN covers students on programmes funded by both the HEFCE and the TTA. For continuing students -including those accepted for entry in 1998 and who qualify for an award in the same way as 1997 new entrants (such as 'gap-year' students and successful A level appellants) - it covers:

a. All full-time and sandwich undergraduates in respect of whom a mandatory award is paid.

b. Full-time and sandwich undergraduates in respect of whom a discretionary award is paid under the provisions of the Education Act 1962 Section 1(6). This empowers authorities to make an award to a student who attends a designated course but is not personally eligible for a mandatory award.

c. All initial teacher training (ITT) students, including part-time and taught postgraduates, in respect of whom a mandatory or discretionary award is paid.

d. All full-time non-ITT taught postgraduates, in respect of whom a

mandatory or discretionary award is paid.

e. Students undertaking courses leading successively to Parts 1 and 2 of the Royal Institute of British Architects examination, in respect of whom an undergraduate-level mandatory or discretionary award is paid.

33. For new entrants in 1998-99, the MASN relates to all home and EU students who are either:

a. On full-time or part-time postgraduate ITT courses, or other full-time PGCE courses, and who receive awards paid by an LEA in England or Wales, SAAS or DENI, or

b. Who are in principle eligible for means-tested support in respect of tuition fees, and are either full-time or sandwich undergraduates, or undertaking courses leading successively to Parts 1 and 2 of the Royal Institute of British Architects examination.

34. In the context of sub-paragraph 33b., new entrants are only those students for whom the new means-tested tuition fee arrangements apply. They therefore exclude students such as 'gap year' students and successful A level appellants, who are treated as continuing students for the purposes of student support.

35. All other part-time students for whom a mandatory award is paid, or who are in principle eligible for means-tested support for such an award, are excluded from Table 3. Separate provision has been made for them and we expect no increase in new entrants in 1998-99 for this category of student.

36. Students whose fees are paid by sources other than those listed in paragraph 23, such as the Home Office or the Department of Health (including the National Health Service), do not count against the MASN.

37. The student population controlled by the MASN remains broadly the same as for 1997­98. However, the definition and scope of MASNs will be kept under review as the Government's policy on student support is implemented. If necessary, we will modify our monitoring of recruitment against the MASN to reflect any changes in coverage for new entrants.

38. MASNs for both individual institutions and the sector as a whole represent a total for the full academic year, and include students who do not complete their course of study.

39. For institutions that we fund directly, we will continue to monitor their recruitment against the MASN through verified Higher Education Students Early Statistics (HESES) data and subsequent returns to the Higher Education Statistics Agency (HESA). The Further Education Funding Council, on our behalf, will monitor recruitment in those further education colleges which do not receive core teaching funding from us.

40. If institutions recruit award holders in excess of a permitted margin above their MASN, they will receive no financial benefit. In addition, we may reduce the grant for 1999­2000 for institutions which exceed their MASN in 1998-99. For most higher education institutions, the permitted margin is 3 per cent above their MASN. However, for higher education institutions that are more than 5 per cent below the standard resource in our new funding method, the permitted margin is 2 per cent. This is intended to support their migration towards the ±5 per cent tolerance band. The permitted margin for further education colleges is also 2 per cent.

41. Institutions are responsible for managing the recruitment of award holders within their permitted MASN. They should assume that their MASN for 1999-2000 will be no higher than that announced for 1998-99, and should plan recruitment on that basis.

Conditions of grant

42. Our 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 1998-99 are given in the model Financial Memorandum between the HEFCE and institutions (Circular 15/97), published in July 1997.

43. Grants are also conditional upon institutions delivering teaching and research. In July 1998 we will send institutions their funding agreement for 1998-99. This forms Part 2 of the Financial Memorandum between the HEFCE and each institution. It will specify the conditions, in terms of student recruitment levels, which we attach to our allocations of teaching funding. If institutions fail to meet these conditions, we will withhold a proportion of that funding.

44. Institutions that receive Council funding for research in 1998-99 must account for the use of these funds. We will ask for returns in the Research Activity Survey, to be issued in the autumn of 1998.

45. Other conditions of grant are contained in the letters to each institution, dated 3 March 1998, informing them of their grant for 1998-99.

Audit of funding data

46. The allocations of funds for teaching and research are informed by the data we collect from institutions. We will continue to audit these data selectively in this and future funding exercises.

47. We will make a number of audit visits, covering the full range of data provided by institutions to inform the 1998-99 funding allocations. In addition, we may use data which institutions provide to the Higher Education Statistics Agency to verify the data they submit directly to us.

Sanctions

48. Our Financial Memorandum with institutions contains sections on providing information. These are part of the terms and conditions attached to the funding for 1998-99. Details are contained in the letters to institutions, dated 3 March 1998.

Further information

49. Institutions requiring further information should contact their Higher Education Advisers.

Annex A

Column descriptions

Table 1: Resources for academic year 1998-99

Teaching funds

1. 'Core funding' is derived from the previous year's core plus marginal funds. The 1998­99 core funds comprise:

1997-98 total funds for teaching

plus 1997-98 non-consolidated addition to core funding

minus 1997-98 transfer of funding to research for the supervision of PGR students

plus 1997-98 transfer from special funding for teaching element of London extra costs

minus adjustments to 1997-98 baseline due to holdback of funds for under-recruitment in 1997-98

plus miscellaneous adjustments and transfers, including those from the TTA in respect of INSET

plus uplift for inflation at 2.75 per cent.

2. 'Additional funded places' shows funds for ITT structural diversification. We will announce the outcomes of the bidding exercise for additional funded students later in March. They are not included here.

3. 'Adjustments to core' are funds consolidated into the 1998-99 core and include transfers and agreed additions into core funding which do not require adjustments for inflation, or baseline adjustments. They also include changes to funding to support institutions' migration towards the tolerance band.

Research funds

4. Research Funding for 1998-99 amounts to £829.5 million and has been allocated to institutions under two main headings:

a. QR amounts to £803 million (97 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. The total for QR includes transfers of £64 million from funding for teaching for the supervision of PGR students, and £25 million from special funding for the research element of London extra costs.

b. GR amounts to £20 million (2 per cent of total research funding) and aims to encourage institutions to conduct programmes with users of research, the outcomes of which can be used in a range of applications.

5. £6.5 million of research funding remains to be allocated through an initiative for project funding in the arts and humanities

Other funds

6. 'Moderation of teaching and research' is a short-term measure to smooth changes in grant. A threshold of £20,000 has been applied.

7. 'Special funding' covers grant distributed outside the formula allocations for teaching and research. It includes allocations for special initiatives, where they have been agreed, but not claims-based elements of special funding.

8. 'Regulated fee income 1998-99' is the tuition fee for students who receive awards from LEAs in England or Wales, SAAS or DENI, or who are in principle eligible for means-tested support for such awards. It is calculated on the basis of 1997-98 student numbers and excludes fee income for students funded by the TTA.

Tables

Table 1 Resources for academic year 1998-99

Table 2 Comparison with 1997-98 academic year grant

Table 3 Distribution of Maximum Aggregate Student Numbers (MASNs)

Table 4 GR qualifying income (total of two years 1995-96 and 1996-97) in total and as a percentage of total external research income* for each institution

Table 5 Summary of tables 1 - 3 (this table is not available in the printed version of the document.)

* The total external research income excludes income from OST Research Councils, UK-based charities and HEFCE research grants.