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Dear Vice-Chancellor or Principal

1.   This letter explains changes from 2010-11 in:

  • the way we set and monitor targets for institutions with co-funded employer engagement provision
  • our treatment of co-funded places where institutions do not deliver the required growth.

The changes will align our processes for co-funded places with the way we treat additional student numbers (ASNs) funded through our mainstream teaching funding method. No action is required in response.

Changes to co-funding conditions of grant

Context and rationale

2.   As part of our workforce development policy we have invested in developments across higher education (HE) to significantly increase the scale of workforce development activity – such as recruitment of work-based learners and seeking to achieve co-funding contributions from their employers. We recognise there are challenges for institutions in developing new approaches that respond to the employer market and stimulate employer investment in HE learning for their employees. We also expect that employers' decisions to invest in higher-level skills may fluctuate from year to year.

3.   The approach we have taken to encourage the growth of co-funding has been one of risk-sharing between us and the HE sector in order to support innovative approaches and use of untested models in aiming to fulfil the Government's plans arising from the Leitch review of skills. In recognition of the challenges in this early phase of growth across 2008 to 2011 our approach to dealing with under-recruitment to-date has been to:

  • reduce grant where recruitment targets have not been met in a particular year
  • maintain institutions' funding and targets for future years without consolidating reductions for institutions that have under-recruited in previous years.

4.   This approach has provided flexibility to institutions in the early phase of this new funding mechanism, particularly where institutions are implementing significant change programmes to respond to employers' skills needs. This approach has been particularly important in light of the recession and the increased challenge in seeking continuing commitments from employers to invest in their staff.

5.   The investment over the period 2008 to 2011 has also sought to position HEFCE and the participating institutions for further growth in employer-responsive provision (including workforce development) beyond 2011, with the assumption that the Government will make funding available then. Significant progress has been made across the sector, with over 8,000 additional entrants recruited for 2008-09, against the Government's target of 5,000. Now that momentum is building, and the sector is becoming experienced with the co-funding mechanism, we will bring co-funding into line with our approach for fully funded provision. We will therefore introduce a 'two chance' rule for all our co-funding from 2010-11. This will mean that institutions have two chances (across two academic years) to recruit students up to the agreed target.

6.   We are introducing this change to:

  1. Allocate resource where recruitment is strongest.
  2. Minimise the scale of grant adjustments for institutions.
  3. Help us manage the risks associated with the co-funding budget.

7.   We recognise that challenges will continue. For example, the impact of anticipated cuts in public funding on training and development budgets for public sector employers is uncertain. On the positive side, recent monitoring information from HEFCE-funded projects shows that the HE sector is responsive to economic conditions and able to alter strategies to pursue available employer investment.

8.   Co-funding will continue to be allocated and monitored outside of mainstream funding and targets. We will review the case for mainstreaming co-funding as part of the review of the teaching funding method, which will inform changes to take effect from 2012-13 at the earliest.

Summary of arrangements from 2010-11

9.   The two-chance rule on student recruitment will follow the principles of mainstream funding: each institution will be allocated a core co-funding and student number target, and funding will be adjusted in subsequent years on the basis of any under-recruitment against target and whether the institution has successfully bid for co-funded ASNs. The core itself could change up or down over time based on recruitment success.

10.   For 2010-11, we will present co-funding and full-time equivalent (FTE) targets in the usual way – the July 2010 grant tables will show co-funding and FTE targets awarded up to 2009-10 and separately show ASNs awarded for 2010-11. If institutions do not achieve their overall co-funding FTE target in 2010-11 funding will be held back, and this reduction will be consolidated into the grant allocation for 2011-12. Institutions will then have a second chance to recruit the students in 2011-12 and recover the funding removed from their co-funded core for 2011-12. If, in that year, they do not recruit sufficiently, they would not have a further opportunity to recover the funding.

11.   This means that from 2011-12, our grant tables for institutions will show up to three FTE targets and associated co-funding allocations:

  1. 2011-12 core FTEs and co-funding. This will show the FTEs delivered in 2010-11See note 1, the associated funding at 2011-12 prices (incorporating any pro rata adjustment, such as for inflation or any necessary savings) and the rate of funding per FTE. If institutions do not maintain this level of FTEs, then the core funding will be held back at the rate per FTE shown for each FTE below the target.
  2. FTEs required to recover reduction in core (for under-recruitment in 2010-11). This will show the FTE total required to make good a shortfall in 2010-11, the total funding that may be recovered and the rate of funding per FTE at which we will repay funding for each FTE above the 2011-12 core FTE total. If institutions do not meet this FTE total, there will be no further opportunity to make good the shortfall and recover any residual balance. In future years (from 2012-13) the sum that is recoverable may be a combination of sums held back both for under-recruitment against the previous year's core and for non-delivery of new ASNs awarded for the previous year.
  3. FTEs required to avoid reduction in ASN funding. If we allocate further ASNs in 2011-12, we will show the FTE total required to deliver in full any new ASNs awarded for that year, the associated ASN funding that is conditional on the total FTEs being achieved and the rate of funding per FTE. If institutions do not meet this FTE total, then we will hold back funding at the rate per FTE shown for each FTE below the target and up to the maximum of the associated ASN funding provided.

12.   An example of how this approach will work under different scenarios is provided in Annex A.

Changes to co-funding monitoring arrangements

Current monitoring process

13.   We monitor co-funding for employer engagement to:

  • assess the progress of delivery by institutions of growth in co-funded provision, and to inform adjustments to grant for under-recruitment
  • gather information on the nature of activities being co-funded
  • inform funding allocations for further growth in co-funded student numbers
  • inform the development of our skills policy.

14.   We monitor progress on co-funding through:

  • HESES/HEIFESSee note 2 surveys – Institutions currently record co-funded activity as non-fundable in HESES and HEIFES, but up to 2009-10 co-funded students have not been separately identifiable in the surveys.
  • end-of-year data monitoring return – This co-funded employer engagement (CFEE) monitoring return records actual co-funded student numbers for the academic year. Institutions are asked to complete it annually at the end of August. It provides data according to the definitions and criteria for inclusion set out in HESES and HEIFES. The CFEE also collects information about employer co-funding and the nature of employers institutions are working with.
  • HESA/ILR data – The Higher Education Statistics Agency (HESA) individualised student record and further education Data Service's individualised learner record (ILR) collect data on all students registered in each reporting institution following courses that lead to the award of a qualification or institutional credit. Co-funded students should be separately identified in the HESA/ILR data.

Proposed changes to the monitoring process

15.   The CFEE monitoring return was created because, particularly in the early years of co-funding, it has been difficult to accurately forecast co-funded activity in the HESES/HEIFES surveys submitted early in the academic year. Now that experience of employer co-funding is building across the sector, we think it may now be practical to use the HESES/HEIFES surveys to collect co-funded student numbers, so long as the data are robust, which would remove the need for the CFEE return and reduce the burden on institutions. To test this, for one year only we will ask institutions to identify separately co-funded student numbers for 2010-11 through both HESES10/HEIFES10 and the CFEE returns. We will then compare the two and ask institutions to explain any significant differences. The outcome of this process, and the data audit review of 2008-09 monitoring returns currently under way, will help us decide whether we need to continue to use the CFEE return from 2011-12.

16.   Although we will identify co-funded students in HESES10 and HEIFES10, we will not use these figures for funding purposes for 2010-11. Instead we will continue to monitor achievement of employer co-funded student number targets through the CFEE. If we find that suitably robust data cannot be collected through HESES and HEIFES, we will continue with the CFEE return. The HESES and HEIFES workbooks will, however, show indicative funding implications of the co-funded numbers identified in the surveys, for information only.

17.   If we discontinue the CFEE from 2011-12 we will consider using alternative existing returns (such as annual monitoring statements)/ to capture the additional information on the nature of employer co-funding that HESES/HEIFES could not collect.

18.   Where institutions fail to meet their recruitment targets in 2010-11, the adjustments to grant being consolidated into allocations for 2011-12 need to be reflected in the final issue of the 2011-12 grant tables in October 2011. In order to do this, we will need to bring forward submission of the CFEE return for 2010-11. Table 1 shows the proposed activities and timescale for monitoring co-funded provision in 2010-11.

Table 1 Proposed activities and timescale for monitoring co-funded provision in 2010-11

summary="Proposed activities and timescale for monitoring co-funded provision in 2010-11">

ActivityProposed date
HESES10 and HEIFES10 publication issued Autumn 2010
HEIFES10 submissions from further education colleges 17 November 2010
HESES10 submissions from higher education institutions 9 December 2010
HEFCE invites co-funded institutions to submit CFEE information Early June 2011
Institutions submit CFEE return for 2010-11 plus explanations for differences between HESES10/HEIFES10 and the CFEE return, and submit an appeal against anticipated grant adjustments (if relevant) End June
Reconciliation between HESES10/HEIFES10 and CFEE for 2010-11 and check rationale for differences July 2011
Panel meeting to discuss appeals against proposed grant adjustments Mid-September 2011
Grant adjustments approved Late September 2011
Final grant tables for 2011-12 showing adjustments to co-funding and including second chance to recover core co-funding October 2011
HESA/ILR return period August to October 2011
HESA-HESES and ILR-HEIFES reconciliation Winter 2011-12

19.   Paragraphs 8 and 9 of 'Advance notification of changes to HESES and HEIFES for 2010-11 and later years' (HEFCE Circular letter 10/2010) on provide further information for institutions on the co-funded student data to be identified in those surveys.

20.   The CFEE return for 2010-11 will also collect additional information on the nature of co-funding contributions and information about employers that are co-funding provision. If we decide to discontinue the CFEE from 2011-12, we will consider collecting this additional information through alternative routes (such as the annual monitoring statements).

Yours sincerely

Sir Alan Langlands
Chief Executive


  1. Core FTEs may also be adjusted to reflect agreed transfers or other miscellaneous adjustments requested by institutions.
  2. The Higher Education Students Early Statistics (HESES) and the Higher Education in Further Education: Students (HEIFES) surveys, completed respectively by higher education institutions and further education colleges.

Date: 9 July 2010

Ref: Circular letter 20/2010

To: Heads of HEFCE-funded further education colleges, Heads of HEFCE-funded higher education institutions