Report 99/13

Recurrent grants for 1999-2000

Executive summary

1. Purpose

2. This document summarises our provisional allocations of recurrent funding and maximum student numbers (MaSNs) to institutions for the academic year 1999-2000.
3. The HEFCE Board agreed the allocations on 25 February 1999. We wrote to all institutions individually on 2 March 1999.

Key points

3. General

4. All years relate to academic years.
5. We are distributing £4,216 million in 1999-2000. This represents a 2.4 per cent increase in the overall unit of funding compared with the previous year, when student volume changes, transfers and earmarked capital grants are taken into account.
6. The total comprises £2,916 million for teaching, £855 million for research, £435 million for special funding, and £10 million to help phase in changes to institutions' funding and to provide a flexibility margin.

   Teaching

7. This is the second year in which we are funding higher education institutions according to our new funding method for teaching, but is the first year for further education colleges. In addition, as a result of the transfer of funding responsibility for HNDs, HNCs and certain other higher education courses from the Further Education Funding Council (FEFC), we are funding nearly 200 more further education colleges in 1999-2000 than in the previous year.
8. The total of £2,916 million for teaching for 1999-2000 includes the following:
   1. £40 million in respect of higher education provision transferred from the FEFC.
   2. Funding for additional funded students, to be allocated in response to the bids invited in HEFCE 98/56, 'Additional student places and funds'. The outcome of these bids, and the total funding to be allocated, will be announced later in March 1999.
   3. £20 million to support widening participation of under-represented groups (a further £10 million will be allocated through special funding to support widening participation).
   4. £15 million in respect of part of the transfer from the Department for Education and Employment (DfEE) of undergraduate college fees for the Universities of Oxford and Cambridge.

   Research

9. A total of £855 million is allocated for research. Of this, £835 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. Of the total for QR, £6 million relates to part of the transfer from the DfEE of undergraduate college fees for the Universities of Oxford and Cambridge.

   Moderation of teaching and research

10. 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 (teaching and research grant, plus regulated fee income) of more than 2 per cent in real terms compared with the equivalent figure for 1998-99.

    Special funding

11. Most of our grants for teaching and research are allocated by formula. In addition, we distribute special funding for specific purposes. In 1999-2000, this funding totals £435 million.

    Maximum student numbers

12. Our December 1998 grant letter from the DfEE requires us to ensure that the actual number of full-time and sandwich undergraduate students does not exceed the Government's target.
13. To do this we define a maximum student number (MaSN) for each institution. This is a target number of home and EC students (whether fundable by the HEFCE or not) who are on full-time or sandwich undergraduate courses, or on courses of initial teacher training (ITT).

    Action required

14. No action is required in response to this document.

Elements of grant

14. The total distribution to institutions in 1999-2000 is £4,216 million, allocated as follows:

    	£M
    Funding for teaching	2,916
    Funding for research	855
    Special funding	435
    Flexibility margin	10
    Total	4,216

15. The allocations announced in this document are provisional. We will finalise them by July 1999, when we issue each institution's funding agreement. There may be rounding differences between individual figures and totals.

    Funding for teaching

16. Last year, we introduced for higher education institutions a new funding method for teaching. For 1999-2000, we are also applying this method to further education colleges. The new method, as it applied for 1998-99, is described in HEFCE 98/67, 'Funding higher education in England: how the HEFCE allocates its funds'. Two broad principles underlie the method:
    1. That similar activities should be funded at similar rates, with variations from these rates based on previously determined factors.
    2. That institutions should bid for additional student numbers.
17. Under the 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, are weighted according to different price groups, which reflect the relative costs of provision in different subjects. Further weights are applied to reflect a number of student and institutional-related factors:

    Student-related weightings	Qualifying institutions
    Part-time students	Further and higher education institutions
    Students on long courses	Further and higher education institutions
    Full-time undergraduate students who are 25 or over on entry	Higher education institutions only for 1999-2000
    Institutional-related weightings
    Additional costs of provision in London	Further and higher education institutions
    Institutions in the Universities Superannuation Scheme	Higher education institutions only
    Specialist institutions	Higher education institutions only
    Small institutions	Higher education institutions only
    Institutions with old and historic buildings	Higher education institutions only

18. For each institution we compare the calculated level of standard resource with the actual level of our funding plus 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. For other institutions, we will adjust grant or student numbers so that they move within the tolerance band over an agreed period. We refer to this as migration towards the tolerance band. Most further education colleges are starting from a position for their higher education which is well outside the tolerance band, and will therefore migrate towards it over a period of years.
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 £2,869 million announced in Electronic Publication 09/98, 'Funding and student numbers for 1999-2000: preliminary decisions'. This is because of the addition of £40 million transferred from the FEFC, £15 million reflecting part of the transfer from the DfEE of undergraduate college fees for the Universities of Oxford and Cambridge, and £7 million transferred to the Department of Health for certain courses in the healthcare professions. The allocations for teaching shown in Table 1 total £2,833 million, made up as follows:

    	£M
    Core funding	2,790
    Additional funded places (not HEFCE 98/56 bids)	8
    Adjustments to core funding	17
    Widening participation from disadvantaged backgrounds	18
    Total	2,833

21. A full explanation of the data in Table 1 is at Annex A. The balance of the £2,916 million will be made up by funding for:
    1. The additional student numbers, for which bids were invited in HEFCE 98/56.
    2. The additional costs for medical schools in 1998-99 and 1999-2000.
    3. Widening participation from disadvantaged backgrounds (a further provision set aside pending finalisation of underlying data).

    Funding for research

22. The total funding for research is £855 million. Of this, £835 million is allocated as QR, the distribution of which reflects ratings in the 1996 Research Assessment Exercise, and £20 million is allocated as GR funding, which is discussed in paragraph 26.
23. The amount of QR funding is higher than the total of £829 million announced in Electronic Publication 09/98. This is to include an additional £6 million for the Universities of Oxford and Cambridge reflecting part of the transfer from the DfEE of undergraduate college fees.
24. Details of the funding method for research were described in Circular 4/97, 'Funding method for research from 1997-98' and HEFCE 98/67. These publications explain 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.
25. HEFCE 98/54, 'Research funding: introduction of a policy factor' sought views on the value of a policy factor in calculating the distribution of QR funds between subjects. There was little support from respondents to the consultation for such a policy factor, either based on national need or relative international strength. The Board has therefore decided not to incorporate a policy factor into the setting of the subject quanta for the time being.
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 1996-97 and 1997-98 totalled £691 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 1999-2000 is £435 million. The increase compared to the £396 million announced in Electronic Publication 09/98, is because of the removal of negative special funding for undergraduate college fees for the Universities or Oxford and Cambridge (£25 million); the residual funds which are to be phased out, remaining from the transfer from the DfEE of undergraduate college fees for the Universities of Oxford and Cambridge (£11 million); and an additional £3 million in funding for the most talented students at dance and drama schools to succeed the Interim Funding Scheme (the Dearing Report recommendation 77 refers). The allocations which have been finalised total £45 million and are included in Table 1. The balance of £390 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 (teaching and research grant, plus regulated fee income) of more than 2 per cent in real terms compared with the equivalent figure for 1998-99. This represents a minimum increase in cash terms of 0.5 per cent. Any subsequent changes to teaching or research grants for individual institutions, including as a result of successful bids for additional student numbers, will change the provisional moderation shown here. We review our moderation policy annually.

    Maximum student numbers (MaSNs)

29. On 26 January 1999 we wrote to all institutions, giving their provisional MaSNs for 1999-2000. The MaSNs for all institutions are shown in Table 3. They incorporate changes to allow for migration under our funding method for teaching, but exclude MaSNs for the additional student number bids invited in HEFCE 98/56, which have still to be announced.
30. The purpose of the MaSN is to continue to ensure that the planned number of students is not exceeded, as required by the Secretary of State. It applies to:
    1. All home and EC full-time and sandwich undergraduate students (whether funded by the HEFCE or not).
    2. All home and EC students on courses of initial teacher training (whether funded by the HEFCE or not).
    3. All home and EC full-time students (whether funded by the HEFCE or not) on a postgraduate course for which government support is available at undergraduate rates, such as students undertaking courses leading successively to Parts 1 and 2 of the Royal Institute of British Architects examination.
31. MaSNs for both individual institutions and the sector as a whole relate to all relevant students recruited throughout the academic year, and include those who do not complete their year of study.
32. For institutions that we fund directly, we will continue to monitor their recruitment against the MaSN through the verified December aggregate recruitment surveys and subsequent returns to the Higher Education Statistics Agency (HESA).
33. If institutions recruit in excess of a permitted margin above their MaSN, they will receive no financial benefit. In addition, we may reduce the grant for 2000-01 for institutions which exceed their MaSN in 1999-2000. The permitted margin is specified in absolute terms on each institution's individual grant tables, but in general is set at 2 per cent above the MaSN.
34. Institutions are responsible for managing their recruitment to comply with the MaSN control. They should assume that their MaSN for 2000-01 will be no higher than that announced for 1999-2000, and should plan recruitment on that basis.
35. In line with the terms of the DfEE grant letter, we shall also for the first time be monitoring recruitment to sub-degree courses for all those institutions which are allocated sub-degree student numbers through the bidding exercise for additional funded places announced in HEFCE 98/56. This is with a view to ensuring that planned increases in sub-degree provision are delivered. Further details will be given when the additional student number allocations are announced.

    Conditions of grant

36. Our grants to institutions are conditional on the funds being used for the eligible activities set out in section 65(2) of the Further and Higher Education Act 1992. The conditions of grant which apply to funding for 1999-2000 are given in the model Financial Memorandum between the HEFCE and institutions (Circular 15/97), published in July 1997.
37. Grants are also conditional upon institutions delivering teaching and research. In July 1999 we will send institutions their funding agreement for 1999-2000. It will specify the conditions, in terms of levels of teaching activity, which we attach to our allocations of teaching funding. If institutions fail to meet these conditions, we will withhold a proportion of that funding.
38. Institutions which receive HEFCE funding for research in 1999-2000 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 1999.
39. It is a condition of grant that universities and colleges follow public sector pay policy by taking account of fairness; the need to recruit, motivate and retain staff; and affordability within the limits set by the Comprehensive Spending Review in July 1998.
40. The Secretary of State has made it clear that he does not expect institutions to charge 'top-up' fees. Under the Teaching and Higher Education Act 1998 ('the Act'), he has the power to impose a condition on our grant for 1999-2000, requiring us in turn to place a condition on the funding we allocate for 1999-2000 to institutions providing higher education that they should not charge 'top-up' fees. The DfEE has informed us that it is the Secretary of State's intention, subject to Parliamentary approval of the regulations under section 26(4) of the Act, to impose such a condition of grant for 1999-2000. This would require the governing bodies of institutions to ensure that the fees payable to the institutions by prescribed categories of students in connection with their attending prescribed courses should be no more than the maximum amount of fee support that will be available to such students – that is £1,025. The Secretary of State's intention is to prescribe those home and EC students attending full-time undergraduate courses, or courses of initial teacher training whether full or part-time, who are eligible for fee support. This condition of grant is subject to confirmation in the funding agreement to be issued in July 1999, but in the meantime, institutions should assume that it will be applied.
41. The Secretary of State expects us to take action to require institutions to achieve an acceptable state of readiness for the year 2000 date change. This action may include the selective application of conditions of grant to institutions which we consider are not adequately prepared.
42. Our Financial Memorandum with institutions contains sections on providing information. These information requirements are part of the terms and conditions attached to the funding for 1999-2000. Details are contained in the letters to institutions, dated 2 March 1999.

    Audit of funding data

43. 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.
44. We will make a number of audit visits, covering the full range of data provided by institutions to inform the 1999-2000 funding allocations. In addition, we may use data which institutions provide to HESA to verify the data they submit directly to us.

    Further information

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

Annex A

Column descriptions

Table 1: Provisional resources for academic year 1999-2000

Teaching funds

Core funding is derived from the previous year's core, plus marginal funds. The 1999-2000 core funds comprise:

Additional funded places (not HEFCE 98/56 bids) shows funds for:

• ITT structural diversification (£3 million)
• the second, phased allocation of additional funded places awarded following the bidding exercise announced in Circular 20/97, 'Additional student numbers and funds 1998-99: invitation to bid' (£4 million)
• increases in quota-controlled undergraduate medical intakes (£1 million)

We will announce the outcomes of the 1998 bidding exercise for additional funded students (invited in HEFCE 98/56, 'Additional student places and funds') later in March. They are not included here.

Adjustments to core are funds to support institutions' migration towards the tolerance band (£11 million), plus additional funds for small institutions and those with historic buildings (£6 million) to ensure their migration positions are not adversely affected by the new premiums. The funding allocations for migration may change in the light of subsequent changes to our teaching funding or the underlying recruitment data. This includes changes as a result of successful bids for additional funded places made in response to HEFCE 98/56.

Widening participation from disadvantaged backgrounds shows an additional allocation of funding for teaching to recognise the extra costs associated with recruiting and supporting students from disadvantaged backgrounds currently under-represented in higher education. Table 1 shows a total allocation of £18 million. In addition, a further £2 million has been set aside for allocation pending finalisation of underlying data.

Research funds

Research Funding for 1999-2000 amounts to £855 million and has been allocated to institutions under two main headings:

QR amounts to £835 million (98 per cent of total research funding). Funds made available within each subject area (unit of assessment) are distributed to institutions on the basis of the quality and volume of the research conducted.

GR amounts to £20 million (2 per cent of total research funding). This is to encourage institutions to collaborate with users of research, where outcomes can be used in a range of applications.

Other funds

Provisional moderation of teaching and research is a short-term measure to smooth changes in grant. A minimum allocation threshold of £20,000 has been applied.

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.

Regulated fee income 1999-2000 is the tuition fee for students who receive awards from LEAs in England or Wales, the Student Awards Agency for Scotland (SAAS) or the Department of Education Northern Ireland (DENI), or who are in principle eligible for means-tested support for such awards. It is calculated on the basis of 1998-99 student numbers, plus changes in student recruitment levels required for migration in 1999-2000, for whose fee income we have made a balancing adjustment to our grant. It excludes fee income for students funded by the TTA.

Table 2: Provisional comparison with 1998-99 academic year grant

HEFCE 98/41 recurrent and formula grants 1998-99 shows 'Total T funding', plus 'Total R funding' plus 'Moderation of teaching and research', taken from Table 1 of HEFCE 98/41, 'Recurrent grants for 1998-99: final allocations', or as revised for individual institutions.

1998-99 holdback shows any holdback of 1998-99 recurrent funding for teaching, which is to be a consolidated deduction from 1999-2000 core funds for teaching.

1998-99 in-year moderation shows, for comparison purposes, any in-year moderation of 1998-99 holdback to assist institutions to adjust to reduced funding levels.

Transfers into recurrent funds represent other adjustments for comparison purposes for:

• validation fee compensation
• fee compensation for outgoing exchange students
• fee compensation for intercalating medical students
• fee compensation for thin sandwich students
• fee compensation for further education colleges which we did not fund directly in 1998-99
• the £40 million transfer from the FEFC
• the transfer from DfEE into teaching funding of undergraduate college fees for the Universities of Oxford and Cambridge
• other miscellaneous adjustments and transfers, including for the second year transfer to the Department of Health of funding for certain students in the healthcare professions.

1998-99 Regulated fee income 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 1998-99 student numbers and excludes fee income for students funded by the TTA.

Tables

Table 1 Resources for academic year 1999-2000

Table 2 Comparison with 1998-99 academic year grant

Table 3 Distribution of Maximum Student Numbers (MASNs)

Table 4 GR qualifying income (total of two years 1996-97 and 1997-98) in total and as a percentage of total external research income