Report 98/10Funding of specialist institutions:Report of the advisory panel chaired by Sir Stewart SutherlandMarch 1998 Executive summaryPurpose 1. This paper provides advice from the Specialist Institutions Advisory Panel (SIAP) to the Higher Education Funding Council for England (HEFCE) on the most effective way for the new funding method for teaching to be implemented in specialist institutions. Key points 2. The HEFCE has accepted the SIAP's recommendations on how to implement the HEFCE's teaching funding method from 1998-99 in specialist institutions. The main recommendations are:
3. A major factor shaping the panel's recommendations has been recognition of the important role played by the specialist institutions in the sector as a whole, and the need to modify the general teaching funding method for many of these institutions. 4. At the time of publication, there is one institution where the HEFCE is still in discussion as to the best way forward. For the remainder, however, the impact of these recommendations on institutions is outlined in Annex D. Background 5. The HEFCE has developed a new funding method for teaching to be implemented from 1998-99 onwards. HEFCE Circulars 21/96 and 10/97 outline the broad aims and underlying principles of the new method. 6. The HEFCE recognised that additional information was required to implement the new model in some institutions with highly focused provision. It therefore established the Specialist Institutions Advisory Panel (SIAP). Annex A shows the membership of the panel. The panel worked within an overall framework based upon the broad aims and principles of the new method. Two principles were especially important in guiding our recommendations: supporting diversity across the sector; and funding similar activities at similar rates, with variations from these based on previously determined factors. In addition, we noted the needs of the country in terms of the range, type and level of provision available, and the affordability of such provision. Key aims and objectives 7. We agreed the following aims and objectives: a. To review the levels of funding in all specialist institutions. b. To identify the nature of extra costs in specialist institutions. c. To recommend to the HEFCE the size and extent of any premium weightings to account for these extra costs. d. To commission a limited number of special studies of very high cost institutions in order to identify the extent to which very high cost provision is taking place, and to use these to inform recommendations on the need for, and size of, any premium weightings for the relevant institutions. e. To recommend to the HEFCE how any changes in funding and student numbers for specialist institutions should be implemented. Annex B outlines how the panel undertook the work. A common framework 8. Our key task was to advise on the most effective way for the new funding method for teaching to be implemented in the specialist institutions. Taking this as our starting point, we tried to use the same general principles for applying the new teaching funding method to specialist institutions as agreed for non-specialists. These general principles include: a. Funding all institutions within a tolerance band of + or - 5 per cent of a standard rate of funding generated under the new model for each institution. b. Establishing a margin of 3 per cent to + or - 8 per cent, within which changes would be made to institutional funding and/or student numbers to bring institutions into the tolerance band within three years. (The process of moving to the tolerance band will be referred to as 'migration'.) 9. We noted that the model for funding teaching was not designed to accommodate the particular funding issues affecting specialist institutions. It does not have the necessary sensitivity to reflect all elements of the additional costs often incurred in small specialised institutions. Nor does it recognise the difficulties in reducing student numbers in small institutions. Consequently, the general principles would have to be modified in some cases. Modification would offset the effects that application of a general method might have on certain specialist institutions. Such effects might include reductions in funding that threatened the viability or well-being of an institution or additional funding that could be questioned as excessive. 10. We noted that, although there was a wide variation in the funding levels of specialist institutions under the new teaching funding model, the number of significant outliers was relatively small. We tried therefore to draw up recommendations that would provide stability for the majority of specialist institutions and would result in manageable changes for the outliers. 11. Taking these factors into account we divided the specialist institutions into four broad groupings: a. Those falling within + or - 5 per cent of the standard rate of funding, where no migration or premium was required. b. Those falling within ±5 per cent to ± 8 per cent of the standard rate of funding. c. Those more than 8 per cent below the standard rate of funding d. Those more than 8 per cent above the standard rate of funding. We then developed recommendations for institutions within each of these groupings consistent with the overall framework outlined above. 12. A key element in our general approach was to agree significant modifications to the general migration principles only where institutions identified specific outcomes against which these could be monitored. This was the case, for example, where we recommended that migration be achieved primarily through increases in funding. A single general premium 13. From the wide range of evidence that we considered we were able to identify a typical set of factors contributing to higher cost provision. These factors usually operated in combination, preventing a meaningful disaggregation. The most common factors identified included the following: a. The very specialist nature of provision, often more expensive than the price group average, which restricts the potential to spread costs over a number of cheaper cost centres. b. Specialist teaching methods including a significant amount of small group and one-to-one teaching, low staff to student ratios, and intensive, practically focused provision. c. Space and equipment needs relating to the practical element of provision. d. Diseconomies of scale because of the small size of many institutions. e. A significant proportion of postgraduate level provision. 14. One way of recognising the additional cost factors would be to apply a premium to the estimated standard rate of resource (that is, the rate of resource generated by applying the new teaching funding model). Such a premium would reduce or eliminate the migration required by 'expensive' specialist institutions. The premium would act to reduce the difference between the estimated standard rate of resource and the estimated actual rate of resource of these expensive institutions. 15. We agreed that any premium recommended should be a recognition of identifiable additional costs incurred in delivering specialist provision. It should not reward institutions operating inefficiently. Nor should it be automatically awarded to all institutions falling within the specialist institution definition. We required each institution to demonstrate the need for any premium in respect of the additional costs incurred in delivering their provision. 16. We further agreed that institutions in the +5 per cent to +8 per cent band did not require a premium as the migration changes implied for this small group would generally be manageable. 17. We also considered the duration of the premium. As the premium was partly an aid to migration during the three to five year period of funding convergence, we thought that it should be allocated initially for three years. During this period the HEFCE should monitor the funding position of the institutions receiving the premium and ensure that a continued allocation was appropriate. At the end of the three-year allocation period a further review of specialist institutions should take place. That review should be based on similar principles to this study and should seek, where appropriate, to confirm the allocation of premium funding for certain specialist institutions. 18. Taking all these factors into account, we agreed that a single general premium set at 10 per cent would be appropriate for the great majority of expensive institutions that could justify a premium. This balanced the need to meet the majority of any additional costs within the institution with the overall funding across the sector as a whole. Special studies 19. In reviewing the range of specialist institutions it was clear that a small number appeared to have costs where the application of a 10 per cent general premium would not allow an effective migration strategy to be developed. In these cases more detailed investigation was undertaken. These institutions were:
20. To carry out this further investigation, four special studies were commissioned: one each for Cranfield University, ULIE and the Royal College of Art; and a fourth looking at the music conservatoires individually and as a group. The study teams comprised a consultant, a representative of the relevant academic community, and one or more representatives of the relevant professional community. The task of these teams was to identify the factors contributing to additional costs of provision, and to provide advice to the panel on the need for and size of any additional specialist institution premium. The membership of these special study teams is given in Annex C. 21. A significant amount of background research was undertaken for each of these studies, drawing on information provided by the institutions and also data available from the HEFCE and the Higher Education Statistics Agency (HESA). The study teams also met or visited each of the institutions. Based on this work the panel was able to develop recommendations. 22. The studies clearly showed that each of the institutions has a unique place within the higher education sector, making high quality, highly specialised provision. In each of the studies the consultants were able to identify significant factors that either contributed to additional costs of provision or prevented the institution from reducing costs. For example, some of the institutions currently have severe capacity constraints, preventing any significant increase in student numbers. This is often coupled with issues to do with the demand for the highly specialised graduates produced. Other factors highlighted include:
23. In two cases the consultants also identified that the institution had greater potential to generate its own income and, where this was the case, it was reflected in our recommendations. Institutions less expensive than average 24. We have outlined our view that the main purpose of recommending a premium is to offset the additional costs currently incurred by specialist institutions. With this in mind we could not justify applying a premium to specialist institutions with an estimated standard rate of resource greater than the estimated actual rate of resource currently allocated. To do so would increase the difference between the actual and standard levels of resource. This would increase the reduction in student numbers required for migration purposes under the new teaching funding method. Given this we agreed that no premium should be applied for any institution lying beyond -8 per cent. 25. Even without a premium, we identified that the student number reductions required for migration purposes in some institutions within this grouping would be substantial. We therefore looked at particular migration strategies for these institutions, taking account of their strategic priorities and direction. We also considered factors such as the impact on regional provision, where appropriate. In certain cases migration periods of up to five years were agreed to give the institutions additional time to re-align their provision. General recommendations 26. These recommendations are based on the general principles we believe should be adopted in implementing the new funding method for teaching in the specialist institutions. These should be seen as interim solutions to the issues surrounding the funding of such institutions. They are designed primarily to ensure that the new funding method for teaching can be applied to these institutions during the forthcoming period of institutional funding convergence, likely to last for three to five years. 27. In drawing up these recommendations, we recognise the important role of the specialist institutions in the sector as a whole. In light of this, we believe that there will be a continuing need for the HEFCE to make appropriate funding arrangements that ensure these institutions continue to play their full part in a vibrant and diverse higher education sector, beyond the initial three to five year period. 28. The impact of these recommendations on the specialist institutions is shown in the table at Annex D. a. Variations in funding of between + and - 5 per cent of a standard rate of funding (the tolerance band) should be acceptable for specialist institutions in the same way as for multi-faculty institutions. b. Migration from ± 8 per cent to the tolerance band (± 5 per cent) should normally be achieved through alterations in funding or student numbers over three years, as for the multi-faculty institutions. c. For institutions that are between +5 per cent and -5 per cent there should be no adjustments to the standard or actual rate of funding or to student numbers. d. Based on the evidence of additional costs submitted, a single premium on standard rates of funding to recognise the additional costs of provision in specialist institutions should be applied to all the institutions beyond +8 per cent. Where the application of the premium does not bring an institution within the tolerance band or the margin, migration to the margin should be achieved by increasing student numbers over three years, where practical. e. The premium on the standard rate of resource for these institutions should be 10 per cent and should be allocated for three years. f. The migration strategies at Annex D should be implemented for those institutions that are beyond +8 per cent. The strategies should bring these institutions into the tolerance band within three to five years. g. The HEFCE should mount a study of the costs associated with some courses within the design and creative arts cost centre. The focus for the study should be courses that prepare students for the professional performance world. Specific recommendations 29. This section contains our specific recommendations about the size of premiums and specific migration strategies for particular institutions. Annex D contains further details. Cranfield University 30. The special study team agreed that Cranfield had a significant strategic role in making very specific and highly specialised provision, and that it produced graduates who entered key areas of the economy. However, the panel also felt that there were both capacity and demand constraints in some areas of the university's provision. These prevented any significant increase in student numbers being a viable option in developing a migration strategy. 31. The university made a good case about the high costs of much of its provision. A significant reduction in HEFCE support would therefore be inappropriate (even though the university has an excellent track record of generating additional income). We therefore recommend a premium that reduces HEFCE funding to 95 per cent of its current level. University of London Institute of Education 32. The conclusions of the special study team were clear: any reduction in current levels of teaching funding would seriously damage provision at the institute. In considering the report of the special study team, the panel also recognised that the HEFCE was to undertake a review of the education cost centre. The outcomes of this would have an impact on the Institute's funding position. 33. Taking these factors into account, we recommend that a premium sufficient to maintain the current levels of funding should be provided for the institute, pending the outcome of the education cost centre review. The level of this premium should be reviewed in the light of the cost centre review. Royal College of Art 34. The conclusions of the special study team were that the RCA has a unique place within the HE system. It provides distinctive courses exclusively at postgraduate level. It has an excellent track record of graduates entering directly related areas of employment. The college has developed substantial flexibility in contracting teaching staff but it also faces major capacity constraints resulting from its site, together with a growing set of health and safety requirements. The special study team did, however, also identify that the college had some scope to improve its income-generating capacity. 35. Taking these factors on board, we recommend that a premium should be set to reduce the RCA's HEFCE funding to 95 per cent of its current level. We recognise that this is a significant reduction, and therefore recommend that current levels of funding should be maintained for 1998-99. This will allow the college to plan for the new funding levels. Again, we believe that these recommendations provide the basis for developing a manageable migration strategy while recognising the necessary additional costs incurred by the institution. Royal Academy of Music, Royal College of Music, Royal Northern College of Music, Trinity College of Music 36. Although we grouped the music conservatoires together for the purposes of this report, we recognise that there are significant differences between them. The special study made it clear that none of the institutions could make any significant reductions in its current costs. Neither is there any real option to increase student numbers. This conclusion builds on the recommendations contained in the Conservatoires Advisory Group report prepared by Sir John Tooley, and published by the HEFCE. 37. We therefore recommend that premiums should be set for each institution to maintain their current levels of HEFCE funding for the next three years. During this period we would expect the HEFCE to work with the institutions in developing a long-term funding strategy, taking account of the Tooley report. St Martin's College and Cumbria College of Art and Design 38. We noted that formula migration under the new funding model would require both of these institutions to lose substantial numbers of students (approximately 195 FTEs each year for three years). We agreed that this impact should be moderated in some way. In developing our recommendations for these institutions we took account of regional developments and the potential for further regional collaboration. 39. We recommend that Cumbria College of Art and Design should migrate through funding increases alone over the next three years. We recommend that St Martin's should migrate primarily through increases in funding over a five year period. This should be coupled with some reductions in FTEs over three years. 40. These recommendations would result in significant investment in these institutions. We therefore expect progress in developing the collaborative initiatives outlined in their submissions to be monitored closely by the HEFCE. The level of funding made available should be dependent on success in taking forward these initiatives. General comments 41. We acknowledge that some of the specialist institutions would be unable to achieve significant convergence to the standard rate of funding without substantially changing the nature of their provision. We believe that it is important for the HEFCE to recognise this situation. We would expect the HEFCE to work with these institutions to develop longer-term funding options that will provide them with the stability needed for their strategic and planning purposes. 42. We did not suggest longer-term solutions to the particular funding requirements of specialist institutions. This was not in our remit. However, we note some diseconomies of scale associated with the academic and administrative costs of very small institutions. We suggest that serious consideration has to be given to the minimum number of FTE students that can constitute an efficiently run free-standing institution. This consideration has to be weighed against the HEFCE's wish to preserve a diverse range of institutions. We suggest that, in the longer term, the HEFCE works with one or two of the very small specialist institutions to explore options that would maximise efficiencies and economies of scale, including the possibility of mergers and forming closer collaborative links with other institutions. 43. We have not been asked to consider the quality of provision at the specialist institutions. However, we would expect that all specialist institutions receiving premium funding would be able to demonstrate provision that is of high quality and that may be unique within the sector. We also believe that we have begun to identify some of the features associated with delivering special and high quality provision, and we hope that the HEFCE will develop this work in the future. 44. We have not made recommendations about funding levels for particular subjects; we were not asked to. Neither have we made recommendations designed simply to equalise funding levels between institutions. Again, this was not part of our purpose. However, where we were presented with evidence from institutions that specific subjects within their provision are higher cost, we recommend that additional detailed work should be undertaken. For example, we believe there is a need to undertake a more detailed study of performing arts training in the specialist institutions. 45. The purpose of allocating a premium is to recognise additional reasonable costs, not to offset inefficiencies caused by poor management. The panel expects that the HEFCE will ensure that all institutions in receipt of a premium have efficient management procedures. It hopes that the HEFCE can promote good practice between small, specialist institutions, in order to encourage efficiencies. 46. Finally, we believe that the special studies commissioned as part of the panel's work have identified valuable information concerning good practice in teaching and learning, providing a high quality learning experience and maximising income generation. We hope that this information can be disseminated to institutions. Annex AMembership of the Specialist Institutions Advisory Panel (SIAP)
Annex BWorking practices1. Specialist institutions were defined as institutions having 60 per cent or more of their provision in two or fewer of the academic cost centres. (The academic cost centres define where teaching activity is taking place and are used by HESA for collecting student, staff and finance data). Based on this definition, 46 institutions were initially identified and these provided the focus for the panel's work. 2. The panel met four times between June and December 1997. These meetings were supplemented by other work undertaken directly by panel members either as part of the special studies or through visits to some of the institutions. 3. We drew on a wide range of evidence in carrying out our work including:
4. In examining the evidence we tried to understand both the issues arising from the specific institutional context and those from the broader sector-wide context. We were anxious to make recommendations that individual institutions would be able to manage in practice. We therefore acknowledged the differences between the specialist institutions. For example, the simulated range of deviation between the current rate of funding and the standard rate of funding generated under the new model went from -22 per cent to +128 per cent. The size of institutions, although predominantly small, ranged from over 6,700 FTEs to just under 160. 5. We also aimed to keep institutions informed of the panel's thinking throughout the process. Annex CMembership of SIAP special study teams
Annex DSummary of panel recommendationsSpecial Studies
Migration to + or - 5% of standard resource
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