Report 98/38

Holdback of HEFCE grant 1998-99

Executive summary

Purpose

1. This document explains how we will monitor whether institutions have complied with their funding contract with the Council, and the action we will take if they fail to do so.

Key points

2. For higher education institutions the process is different to that used in 1997-98 because of the introduction of the new funding method for teaching. The new method controls resources per student, not student numbers. For further education colleges the process is similar to that used in 1997-98.

3. For higher education institutions:

a. Under the new funding method, we calculate a standard level of resource for each institution, and an assumed resource (actual HEFCE teaching grant plus an estimate of income from fees). The percentage difference between assumed and standard resource must be within a given range - the contract range.

b. In addition, we will set a minimum contract full-time equivalent (CFTE) number for students on quota-controlled undergraduate medical and dental courses.

c. We will withhold grant from a higher education institution which:

1. Is found to be above its contract range.
2. Under-recruits against its CFTEs for medicine and dentistry.
3. Recruits above its permitted maximum aggregate student number (MASN) plus margin.
   

d. We may withhold grant from a higher education institution which:

1. Is found to be below its contract range and has not provided an acceptable action plan for meeting the contract range in the following academic year.
2. Does not provide evidence of satisfactory progress in delivering additional funded student numbers awarded in response to Circular 20/97.
   

4. For further education colleges:

a. We will continue to set a contract expressed as a CFTE.

b. We will withhold grant from a further education institution which:

1. Under-recruits against its CFTE.
2. Recruits above its permitted maximum aggregate student number (MASN) plus margin.
   

c. We may withhold grant from a further education college which does not provide evidence of satisfactory progress in delivering additional funded student numbers awarded in response to Circular 20/97.

Background

5. We require each institution to provide a certain level of teaching activity in return for Council grant. In addition, because public expenditure for higher education is limited, the Government sets overall targets each year for the maximum number of full-time undergraduates who are eligible for awards from local education authorities. We translate this total into a maximum aggregate student number (MASN) for each institution we fund.

6. We monitor recruitment within these limits, and may withhold grant if an institution under-recruits or over-recruits. The details of this funding contract are set out in Part 2 of the Financial Memorandum between the HEFCE and institutions, or in the funding agreement.

7. For 1998-99 we have introduced a new method for funding teaching in higher education institutions. This is designed to fund similar activities at similar rates throughout the sector. To do so, we calculate a standard level of resource for each institution and compare it with the resources that the institution receives (actual HEFCE teaching grant plus an estimate of income from fees). One objective of the method is to ensure, for all institutions, that this 'assumed resource' is within a tolerance band of ±5 per cent of the standard. Where institutions fall outside the band, they are expected to move within it over an agreed period (although adjustments to this are made to meet the special funding requirements of certain institutions). The funding contract seeks to support this objective.

8. For 1998-99, funding contracts for higher education institutions and further education colleges will differ. Higher education institutions should refer to paragraphs 9 to 26 and 32 to 39. Further education colleges should refer to paragraphs 27 to 39.

Arrangements applying to higher education institutions

The funding contract

9. In the past, we expressed the funding contract in terms of a minimum number of full-time equivalent students to be taught by each institution - the contract full-time equivalents (CFTEs). This will no longer apply because the new funding method controls the resource per student, not student numbers. Resources will vary according to the mix of students between subjects, and mode and level of study.

10. For 1998-99 and beyond, therefore, we will express the funding contract in terms of the percentage difference from the standard resource. We will set a range for each institution, referred to as the contract range. For most institutions, this will be the same as the tolerance band, that is, between -5 per cent and +5 per cent of the standard. However it may be larger for some institutions that are moving towards the band.

11. To monitor compliance, we will calculate both 1998-99 standard resource and 1998-99 assumed resource for each HEI, using the FTE data returned in the 1998-99 Higher Education Students Early Statistics Survey (HESES98). The funding agreement defines the FTE measure.

Calculation of standard resource

12. Standard resource is calculated by multiplying the weighted FTEs for each institution by the base price. FTEs are weighted by subject-related price group, and by a variety of student-related and institutional premiums. The student-related premiums apply to those on long courses, mature full-time undergraduate new entrants, and all part-time students. Institutional premiums apply to those in the Universities Superannuation Scheme, those in London, and some specialist institutions. Annex C of the funding agreement details the weights which apply to FTEs at each institution.

13. The base price for 1998-99 is £2,662.

Calculation of assumed resource

14. Assumed resource comprises actual HEFCE funding for teaching, plus an estimate of fee income. We estimate fee income by multiplying the assumed fee rates by the FTE data returned in HESES98. The funding agreement defines the assumed fee rates.

15. On our website there is a template with the calculations for teaching funding for 1998-99. This presents a blank form of the individual recurrent grant tables for teaching, and may help institutions to assess the effects of different recruitment patterns.

Holdback of grant for institutions above the contract range

16. We express assumed resource as a percentage of standard resource. Where the percentage is above the contract range, institutions will be liable to holdback. This will be calculated as the difference between the assumed resource and the resources implied by the upper limit of the contract range. For example:

• an institution has a contract range between -5 and +6.7 per cent
• its assumed resource is found to be 8 per cent above the standard (+8 per cent)
• therefore the holdback will be the difference between 8 and 6.7 = 1.3 per cent of standard resource.
  

17. An institution's 1999-2000 baseline funds will be reduced by the total amount of holdback for exceeding the contract range. The reduction in 1998-99 grant will be subject to the current moderation rules, so that no institution will receive a reduction in resource (HEFCE funding for teaching and research plus regulated tuition fee income) of more than 1 per cent in real terms.

18. We will not withhold grant from an institution which exceeds its contract range if the reduction in funding would be less than £50,000, or 10 per cent of total funding for teaching, whichever is lower.

Holdback of grant for institutions below the contract range

19. For institutions found to be below their contract range, the calculation of holdback is similar. It will be the difference between the assumed resource and the resources implied by the lower limit of the contract range. For example:

• an institution has a contract range of -8 to +5 per cent
• its assumed resource is found to be 8.9 per cent below the standard (-8.9 per cent)
• therefore the holdback will the difference between 8 and 8.9 = 0.9 per cent of standard resource.

20. However, we will not apply holdback automatically to institutions below the contract range. We will ask such institutions why they have not met the contract range, and to provide us with an acceptable action plan specifying how they intend to meet the range in future. Subject to this condition, holdback will be deferred for a year. If such institutions then come within the contract range set for the following year (year 2), we will waive the deferred holdback from year 1.

21. If, however, institutions also fail to meet the contract range set for year 2, we will apply in year 2 the deferred holdback from year 1. This may be applied in whole or in part, according to how far outside the range they fall. In this case, holdback for missing the contract range in year 2 would operate in the same way, with conditional deferment to, and possible mitigation in, year 3.

22. Any holdback applied for falling below the contract range will be an in-year reduction in grant only; it will not affect the calculations of funding for subsequent years. As institutions will have an opportunity to avoid such holdback by providing an acceptable action plan and meeting the following year's contract, there will be no minimum threshold level for this holdback. The reduction in grant will not be subject to any further moderation.

Calculating holdback against the medical and dental CFTEs

23. We have a responsibility to control student numbers in medicine and dentistry. For this reason, we will continue to set a separate contract for students on quota-controlled undergraduate medical and dental courses. This is expressed as a minimum CFTE, recruitment below which will lead to holdback of grant.

24. Any shortfalls in the medical and dental CFTEs will be subject to holdback at an average rate based on the standard five-year medical course. This is calculated as two-fifths of the standard price for price group B and three-fifths of the standard price for price group A, minus £1,000 fee income. The rate for 1998-99 is therefore £8,317. Recruitment will be monitored using data returned in HESES98. Any such holdback will be an in-year reduction in grant only; it will not affect the baseline funding for the following academic year.

Additional student numbers awarded in response to Circular 20/97

25. In Circular 20/97 we invited institutions to bid for additional student numbers. Successful institutions will need to make a separate monitoring return. If an institution fails to provide evidence of satisfactory progress in delivering the additional funded student numbers, we may withhold some or all of the grant allocated through this initiative.

Over-recruitment against the MASN

26. Paragraphs 32 to 39 explain what happens if institutions exceed their MASN margin.

Arrangements applying to further education colleges

The funding contract and calculation of holdback

27. For further education colleges the contract is still expressed in terms of minimum CFTEs.

28. Any shortfall against the CFTE will be subject to holdback at the average rate for the institution. This is calculated by dividing the 1998-99 HEFCE funding for teaching by the CFTE, and is shown on Table B of each institution's individual grant tables. The funding agreement defines the FTE measure.

29. We will not withhold grant if shortfalls in recruitment against the CFTE would lead to a reduction in funding of less than £50,000, or 10 per cent of total funding for teaching, whichever is lower.

30. A college's 1999-2000 baseline funds will be reduced by the total amount of holdback for recruiting below the CFTE. The reduction in 1998-99 grant will be subject to the current moderation rules, so that no institution will receive a reduction in resource (HEFCE funding for teaching and research plus regulated tuition fee income) of more than 1 per cent in real terms.

Additional student numbers awarded in response to Circular 20/97

31. In Circular 20/97 we invited institutions to bid for additional student numbers. Successful institutions will need to make a separate monitoring return. If an institution fails to provide evidence of satisfactory progress in delivering the additional funded student numbers, we may withhold some or all of the grant allocated through this initiative.

Arrangements applying to all institutions

Holdback for recruiting above the MASN margin

32. Table B of the funding agreement shows each institution's MASN and permitted margin. Recruitment above the MASN plus margin will result in holdback. The funding agreement defines which students count towards the MASN. As in previous years, we will assume that a proportion of the forecast student numbers will count towards the MASN. The MASN represents a total for the full academic year and includes students who do not complete their course of study.

33. If any institution recruits above the MASN plus margin given in Table B, we will reduce its grant for 1998-99. The reduction will be based on the amount of tuition fee income attributed to the excess numbers, at a rate of £1,000 for each full-time student and £500 for each sandwich year-out and part-time student.

34. The reduction in grant will be applied by us or the Teacher Training Agency (TTA) or split to reflect the extent to which the over-recruitment is attributable to initial teacher training.

35. We will not reduce an institution's grant in 1998-99 if it under-recruits against the MASN. However, we may take into account such under-recruitment when determining future MASN allocations.

Verification

36. Where our calculations suggest that grant should be withheld, we will notify institutions of the amount. We will then give them the opportunity to verify the data used, and to tell us about any material changes in definitions that may have influenced the calculated level of holdback. Changes in definitions could mean that the data collected in the HESES survey for monitoring compliance with the contract is not entirely consistent with the way the contract has been set. For example, there could be changes to:

a. The eligibility of students at further education colleges on HNC and HND programmes to count as HEFCE-fundable.

b. The assignment of departments to cost centres and, therefore, to price groups.

c. The classification of students between price groups, particularly in cost centres that have been under review.

d. The types of student meeting the definition of the sandwich year-out mode of study, used in the calculations of standard and assumed resource.

37. Where any such changes result in an increase in the calculated level of holdback, we will accept them as grounds for mitigating holdback.

Effect on grant

38. We will make adjustments to the 1998-99 grant in four instalments between April and July 1999. Any institution which would not be paid sufficient funds during these months to cover the holdback will be invoiced for the balance.

Further information

39. Institutions should address enquiries to their Higher Education Adviser.