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Introduction

1.   This circular letter:

  • sets out decisions taken by the HEFCE Board at its meeting on 28 January 2011 on the distribution of funding to universities and colleges for 2010-11 and 2011-12. These decisions follow the grant letter from the Department for Business, Innovation and Skills (BIS) of 20 December 2010. This letter focuses on the grant funding that HEFCE will allocate to institutions in the 2011-12 academic year. In addition, universities and colleges will receive public funding in the form of student tuition fee loan payments of some £2,600 million
  • explains the measures that the Council is taking in 2011-12 to support a smooth transition for all institutions to the new student finance and funding arrangements which come into force from the academic year 2012-13
  • looks forward to the Government's forthcoming White Paper and discusses possible implications for policies, funding and student numbers beyond 2011-12.

2.   We do not require a response to this letter.

3.   Universities and colleges will be told their provisional grant allocations for 2011-12 on 14 March 2011 under embargo until 0001 on 17 March, when the full grant announcement will be published. We will hold a press conference on 16 March.

Funding available to HEFCE by financial year

4.   Our grant letter from BIS confirmed that the total HEFCE grant available for the 2011-12 financial year (1 April to 31 March) is £6,530 million. The change compared to 2010-11 is shown in Table 1.

Table 1 HEFCE grant for the 2010-11 and 2011-12 financial years

 Final funding for 2010-11 (£M)Funding for 2011-12 (£M)Change (£M)Percentage change
Total7,2126,530-682-9.5%
Recurrent teaching 4,949 4,645 -304 -6.1%
Recurrent research 1,618 1,549 -69 -4.3%
Total recurrent 6,567 6,194 -373 -5.7%
Teaching capital 207 95 -112 -54.1%
Research capital 167 75 -92 -55.1%
Total capital 374 170 -204 -54.5%
Science Budget:
capital
158 53 -105 -66.5%
Science Budget:
Higher Education Innovation Fund
113 113 0 0.0%
Science Budget:
total other elements
271 166 -105 -38.7%

Notes on Table 1: funding figures taken from the annex to the 20 December 2010 grant letter. They exclude the matched funding scheme for voluntary giving and the Access to Learning Fund, which are BIS budgets that HEFCE administers on its behalf; and for BIS loans to institutions on the upfront costs of graduate contributions, which are expected to total £2,600 million. The 2010-11 comparison figure also excludes £152 million provided only in 2010-11 for the University Modernisation Fund.

5.   The BIS grant letter also provided indicative funding figures for the 2012-13 financial year. These show a further reduction in cash terms of £830 million to recurrent teaching grant, which incorporates the estimated effect in that year of the transfer of HEFCE grant to student support to help meet the cost of tuition fee loans under the new student finance regime being introduced from September 2012.

6.   Further reductions to teaching funding may be needed for 2012-13, beyond the phase-out of funding relating to students who will be subject to the new fee regime. This will not be known until our allocation for 2012-13 is confirmed (this may be subject to review in the light of demands on BIS’s student support budget) and we have received future student data returns from institutions.

7.   The grant letter also confirmed funding for research and the Higher Education Innovation Fund (HEIF) up to 2014-15 and provided indicative figures for research capital up to 2014-15.

HEFCE funding to universities and colleges by academic year

8.   Our grant letter from BIS announces funding by financial year, but we allocate funding to institutions by academic year (1 August to 31 July). The overall budget we have set for the 2011-12 academic year is £6,507 million. This is an underlying reduction compared to the previously planned total for 2010-11 of £685 million (9.5 per cent). In addition, short-term funding of £255 million is ending for some special funding programmes and the University Modernisation Fund (UMF), which was for 2010-11 only. These bring the total reduction to £940 million.

9.   To smooth the transition to the new funding arrangements from 2012-13, we are looking to protect teaching activity as far as possible. We are maintaining funding for widening participation (WP) and improving retention, and reducing other elements of teaching funding pro rata for the academic years 2010-11 and 2011-12. We are also providing moderation funding in 2011-12 to institutions most adversely affected by reductions in their recurrent grant; given the funding constraints this has to be limited but it is an increase on last year, recognising the grant letter’s guidance to help smooth the transition.

10.   The increase in student numbers in 2010-11 is consistent with the growth planned by the Government. In line with the guidance in the BIS grant letter, the HEFCE Board has decided on allocating student number control limits that will allow entrant numbers in 2011-12 to be maintained at the same level as in 2010-11. The Council has written to institutions this week setting out their provisional student number limit for the year.

11. For the spending review period to 2014-15, the Government is maintaining in cash terms the overall ring-fenced research funding made available by BIS through its various partner bodies, including HEFCE. There is, however, a reduction in the research funding available via HEFCE for the 2011-12 financial year because of the Government’s other spending commitments in this area.

12.   In allocating research funding for the 2011-12 academic year, we are taking account of the steer in our grant letter that we should selectively fund on the basis of only internationally excellent and world-leading research. We are increasing the amount of funding allocated in respect of research quality rated 4* and 3*, and reducing that for 2*. The clear implication of the steer in our grant letter is that, by 2012-13, activity rated at 2* should no longer be counted in allocating mainstream quality-related research (QR) grant.

13.   It remains important that universities and business continue to work more closely together so we are maintaining HEIF funding in cash terms. Building on past success, we will be allocating HEIF by formula to the most effective performers and will consult on an eligibility threshold to apply in our allocations.

14.   We are continuing to reduce the proportion of funding allocated outside recurrent grant for teaching and research. Consequently special funding is reducing from £330 million in 2010-11 to £207 million in 2011-12, as previous Board decisions to phase out programmes are implemented and other programmes come to an end. Capital funding is reducing from £532 million in 2010-11 to £223 million for 2011-12, a cash reduction of 58 per cent. Our first priority in allocating capital grants is to meet the commitment to reinstate the funding arising from the £60 million reduction in the Teaching Capital Investment Fund made in 2010-11.

Further reductions to grant for 2010-11 academic year

15.   Some of the reduction to grant in the 2011-12 financial year falls within the 2010-11 academic year, because of the four-month overlap between them: we pay 40 per cent of the total grant for the year in this period. As we warned institutions when we notified them of our allocations for 2010-11, it is therefore necessary to review the allocations that we have previously made for this year. The Board has therefore decided that:

  1. Previously announced allocations of recurrent teaching grant, with the exception of those for WP and the improving retention elements of grant within teaching enhancement and student success (TESS) funding, will be subject to a pro rata reduction of £122 million (approximately 2.8 per cent). We have protected WP and improving retention to recognise the priority given to social mobility, fair access and widening participation in the BIS grant letter. These streams of funding are targeted to recognise the additional costs to institutions of students from disadvantaged backgrounds and those who are likely to need more support to achieve successful outcomes.
  2. Previously announced allocations of recurrent research funding for 2010-11 will be subject to a pro rata reduction of £27.6 million (approximately 1.7 per cent).
  3. Moderation funding for 2010-11 will not be recalculated to take account of these pro rata reductions to teaching and research grant.

16.   The cash value of these reductions for each institution will be confirmed in March 2011, once we have incorporated changes to teaching grant arising from institutions’ student numbers in 2010-11 and from some data audit and reconciliation exercises (which we estimate will result in a further reduction of approximately £40 million for 2010-11). The reductions will be implemented through our monthly grant payments to institutions between April and July 2011.

Funding for the 2011-12 academic year

17.   The Board has decided to allocate £6,507 million for the 2011-12 academic year. This includes:

  1. £4,339 million for recurrent teaching grant (including £142 million for WP and £264 million for TESS). The recurrent teaching grant budget represents a reduction in cash terms of £180 million, or 4.0 per cent, compared to the reduced total for 2010-11. The 2010-11 reduced total already incorporates changes arising from institutions’ student numbers in 2010-11 and the £122 million pro rata reduction set out in paragraph 15, but excludes funding provided only for 2010-11 for the UMF. There is further information on teaching funding for 2011-12 in paragraphs 19 to 21.
  2. £1,558 million for recurrent research grant. This represents a reduction of £17.4 million, or 1.1 per cent, compared to the reduced total for 2010-11, after incorporating the reduction of £27.6 million set out in paragraph 15. There is further information on research funding for 2011-12 in paragraphs 22 to 23.
  3. £150 million for HEIF, maintaining its value in cash terms compared to 2010-11. There is further information on HEIF in paragraphs 24 to 25.
  4. £30 million set aside for moderation funding, to help institutions most adversely affected by year-on-year reductions in grant and smooth the transition to new funding arrangements from 2012-13. The Board will consider at its next meeting in March the basis on which this funding should be distributed.
  5. £430 million in non-recurrent grant. This comprises £207 million in special funding for national programmes and initiatives, and £223 million in earmarked capital grants. Our first priority in allocating teaching capital grants is to meet the commitment to reinstate the funding arising from the £60 million reduction in the Teaching Capital Investment Fund made in 2010-11. There is further information on non-recurrent grant in paragraphs 26 to 29.

18.   The overall budget of £6,507 million is an underlying reduction in cash terms of £685 million, or 9.5 per cent, compared to the previously planned total for 2010-11. In addition, short-term funding of £255 million is ending for some special funding programmes and the University Modernisation Fund (UMF), which was for 2010-11 only. These bring the total reduction to £940 million. The changes to budgets are summarised in Table 2 and set out in full in Table 4.

Table 2 Reductions in funding by academic year

Element of grant2010-11 (£M)2011-12 (£M)Total (£M)
Total-190-750-940
Recurrent teaching grant (excluding UMF) -162* -180 -342
Recurrent research grant -28 -17 -45
Moderation   +11 +11
Sub-total: recurrent grant -190 -186 -376
Learning and teaching capital   -112 -112
Research grant capital   -197 -197
Sub-total: capital grant   -309 -309
Underlying change to recurrent and capital grants -190 -495 -685
University Modernisation Fund   -152 -152
Special funding (excluding UMF)   -103 -103
Sub-total: ending of short-term allocations   -255 -255

* This includes the £122 million pro rata reduction explained in paragraph 15a and the £40 million adjustment explained in paragraph 16.

Recurrent teaching grant for 2011-12

19.   A number of changes to recurrent teaching grant for 2011-12 were previously expected. These include:

  • the withdrawal of the teaching element of the UMF (-£43 million)
  • estimated grant adjustments arising from institutions’ student numbers in 2010-11 and from data audits and reconciliations (-£40 million)
  • the phasing-out of the foundation degree targeted allocation (-£12 million)
  • the continued phasing-out of funding relating to students aiming for equivalent or lower qualifications (ELQs) (-£18 million).

20.   We also need to provide for some additional commitments for 2011-12, including:

  • £9 million for a small number of fully funded and employer co-funded additional student numbers (ASNs) previously committed from earlier bidding exercises. We are not inviting new ASN proposals for 2011-12
  • £4 million for a second round of the initiative to support institutions that are shifting the balance of their recruitment towards science, technology, engineering and mathematics (STEM) subjects and modern languages. We invited bids for this initiative in 'Support for moving full-time undergraduate numbers into strategically important and vulnerable subjects (SIVS) in 2010-11' (HEFCE Circular letter 06/2010) and the outcomes were published on our web-site in June 2010. The provision we are making for 2011-12 will allow consolidation of the allocations for 2010-11, plus a second year’s additional funding. This will enable the successful institutions to maintain their intakes in these subjects at the higher levels that they planned for 2010-11. Again, we are not inviting new bids for funding under this initiative
  • £13 million for institutions recovering funding in 2011-12 by making good shortfalls in student numbers in 2010-11.

21.   Notwithstanding these changes, further reductions to teaching grant are necessary to remain within the funding available. The Board has decided that the £122 million reduction to recurrent teaching grant for 2010-11 (see paragraph 15) will be consolidated into 2011-12 and supplemented by a further reduction of £175 million. As before, this will be calculated pro rata to all elements of teaching grant for 2011-12 with the exception of funding for WP and improving retention within TESS. This is a further 4.3 per cent reduction to those elements of teaching grant, compared to the totals for 2010-11.

Recurrent research grant for 2011-12

22.   The recurrent research grant total of £1,558 million is a reduction in cash terms of £45 million compared to the 2010-11 allocations published in October 2010 ('Recurrent grants for 2010-11: Revised allocations', HEFCE 2010/30). This is a further reduction of £17.4 million after adjusting for the pro rata reduction of £27.6 million for 2010-11 (see paragraph 15). In allocating research funding for 2011-12, the Board has decided that:

  1. There should be a reduction to the weighting in the mainstream QR grant that is given to activity rated 2* in the 2008 Research Assessment Exercise, sufficient to achieve:
    1. The full reduction of £45 million in 2011-12 through mainstream QR and its London weighting; and
    2. Redistribution of half of the remaining funding previously allocated through mainstream QR and London weighting on the basis of 2* activity, towards activity rated 3* and 4*.
    These decisions take account of the request in our grant letter that we should selectively fund on the basis of only internationally excellent and world-leading research. This means that we are maintaining the quality weightings for 4* and 3* quality research at 9 and 3 respectively (though increasing their average rate of funding) and that there is a consequent reduction in the weighting for 2* quality research from 1 to 0.294.
  2. We should continue to provide protection to STEM subjects within the mainstream QR method to ensure that they do not see a reduced share of the total compared to 2008-09.
  3. The other elements of research funding should be maintained in cash terms at the levels provided in October 2010. There is a review of the distribution of QR funding to support National Research Libraries, which the Board will consider at its next meeting in March, but otherwise we are not proposing changes to the funding methods for these other elements of research grant. These decisions take account of the request in our grant letter that we should protect funding leveraged from external sources. By protecting funding for the charity support and business research elements in the grant, we aim to encourage higher education institutions (HEIs) to continue to undertake research in partnership with those sectors.

23.   These decisions mean that the budgets within QR grant will be:

Table 3 Research funding for 2011-12

Element of research grant2011-12 Budget total (£M)
Total QR1,558
Mainstream QR (including London weighting) 1,085.2
QR charity support fund 197.5
QR business research element 63.7
QR Research Degree Programme supervision fund 205.2
QR funding for National Research Libraries 6.5

Higher Education Innovation Fund

24.   We have published this week 'Higher Education Innovation Fund 2011-2015: Board decisions on method and funding' (HEFCE Circular letter 04/2011) outlining the decisions of the HEFCE Board on funding for HEIF, the method to be used to make institutional allocations and the timetable for implementation.

25.   HEIF allocations will not be finalised in time for the March 2011 recurrent grant announcement. We will provide indicative allocations in March, when we will also consult on a proposal for an eligibility threshold to apply to the allocations (based on a minimum level of external income counted in the HEIF formula). This responds to the guidance in the grant letter that HEIF should be allocated only to the most effective performers. We will provide final allocations and call for institutional strategies against which funds are released in May 2011.

Non-recurrent funding

26.   We are continuing to reduce the proportion of funding allocated outside recurrent grant for teaching and research. Consequently special funding is reducing from £330 million in 2010-11 to £207 million in 2011-12, as previous Board decisions to phase out programmes are implemented and other programmes come to an end.

27.   Capital funding has reduced from £532 million in 2010-11 to £223 million for 2011-12, a cash reduction of 58 per cent, significantly more than the overall reduction of one-third in the BIS capital funding budget.

28.   The HEFCE Board decided, after setting aside capital funding for the Joint Information Systems Committee, the Strategic Development Fund, the Open Education Resource programme and for a second Revolving Green Fund, that:

  1. £107 million will be provided to meet the commitment made by the HEFCE Board to reinstate the funding arising from the £60 million reduction in the Teaching Capital Investment Fund made in 2010-11 and for a first year of a second Teaching Capital Investment Fund. We will confirm funding for this second Teaching Capital Investment Fund for 2013-14 and 2014-15 once we have the available funding confirmed.
  2. £6 million will be provided for directly funded further education colleges across 2011-12 and 2012-13. This will reinstate the funding arising from reductions in 2010-11 to the planned capital funding for these colleges and provide an allocation for 2012-13 equivalent to that being provided for HEIs.
  3. £549 million will be provided for a second Research Capital Investment Fund over the four years 2011-12 to 2014-15.

29.   The HEFCE Board will consider how the capital funding in paragraphs 28a to 28c will be distributed at its meeting in March. We will announce the allocations and the basis on which they have been made by the end of March.

Summary of reductions to funding by 2011-12

30.   Table 4 summarises all the changes to grant by 2011-12: items shown in italics apply to 2010-11 grant and are consolidated into 2011-12; the remainder apply additionally from 2011-12.

Table 4 All changes to HEFCE funding by 2011-12

Element of grant£M
Total changes to HEFCE funding by 2011-12-940
Recurrent teaching (other than UMF)
Consolidation of 2010-11 pro rata reduction -122
Grant adjustments arising from student numbers in 2010-11 and data audits and reconciliations -40
Targeted allocation for foundation degrees -12
Reduction in ELQ transitional funding -18
Fully funded and employer co-funded ASN commitments for 2011-12 +9
Provision for recovery of funding in 2011-12 by those with consolidated holdback in 2010-11 +13
Support for institutions shifting the balance of their recruitment towards SIVS +4
Other minor net adjustments -1
2011-12 pro rata reduction -175
Total recurrent teaching funding (excluding UMF) -342
Recurrent research
2010-11 pro rata reduction -28
Further reduction to total required in 2011-12 -17
Total reduction in recurrent research funding -45
HEIF 0
Change to moderation funding +11
Total change to recurrent grant (excluding UMF) -376
Capital
JISC capital budget -9
Funding for Revolving Green Fund -3
SDF capital budget -37
Capital to directly funded further education colleges -8
Teaching Capital Investment Fund -81
Research Capital Investment Fund -171
Total capital -309
Underlying change to recurrent and capital grants -685
Removal of UMF funding -152
Special funding (excluding UMF) -103
Sub-total: ending of short-term allocations -255

Student numbers in 2010-11 and 2011-12

31.   Early aggregate student data returns for 2010-11 show that there has been an increase in HEFCE-fundable full-time equivalent (FTE) student numbers in all years of study of approximately 24,000, largely attributable to increases in full-time undergraduates. This is consistent with the growth in fully funded places of 20,000 planned by the Government (comprising 10,000 FTEs included in our grant letter of 22 December 2009 and the further 10,000 made available through the UMF).

32.   For 2010-11, following a request from Government, we introduced a student number control to reduce the risk that over-recruitment by institutions might lead to a reduction in HEFCE grant by the Government to meet unplanned student support costs. Aggregate student data returns for 2010-11 show that the sector as a whole recruited within the limit set, although, subject to appeal, 37 institutions (15 higher education institutions and 22 further education colleges) have not. As requested in the BIS grant letter of 20 December 2010, we will reduce grant for institutions that have over-recruited at a rate of £3,750 per excess student and this applies also where institutions have not sufficiently offset in 2010-11 the over-recruitment that occurred in 2009-10. Grant adjustments will be confirmed after decisions on appeals have been made.

33.   The BIS grant letter explains that entrant places into higher education for autumn 2011 should remain at the level on offer in autumn 2010. This means continuing to provide for the 10,000 additional entrant places made available to the sector through the UMF for 2010-11 only, so that those places can be carried forward for a further year. We are therefore redistributing these UMF places. Some are accounted for by existing commitments for ASNs for 2011-12: some 600 fully funded and up to 3,800 employer co-funded FTE numbers; the balance will be available to institutions through a pro rata increase of 2 per cent to their student number control limits for 2011-12. We have written to each institution this week to set out their provisional limit for 2011-12. Institutions are invited to respond by 16 February 2011 if they do not wish to receive their full share arising from this 2 per cent uplift, or if they otherwise wish to appeal for a change to their limit.

Implications for 2012-13 and beyond

34.   We anticipate that the Government's forthcoming White Paper will set out its future priorities for HEFCE grant and any changes to the regulatory framework governing higher education that may be necessary to support its policies, ensure public finances are appropriately managed and protect the interests of students.

35.   Our grant letter stated that for 2011-12 and 2012-13 the Government expects the Council will continue to perform its current role on its existing statutory basis. A significant priority for us within the funding we have available in this spending review period will be to support a smooth transition for institutions to the new higher education financing arrangements. We will be working with partners, including BIS and the Student Loans Company, to achieve this, because less funding will be routed to institutions as grants via HEFCE.

36.   In future, we expect that tuition fee income will become the major source of funding and therefore the route for supporting particular institutional developments. As a result, the funding environment for higher education from 2012-13 will be very different and all our approaches to funding will be subject to review. Institutions should not assume that past practices and commitments in relation to recurrent teaching, teaching capital and special funding will continue.

37.   On teaching funding, we anticipate a phase-out of the existing method and its allocations and a phase-in of a new method and allocations. The details of both will be subject to consultation later this year (after the White Paper has been published). Much of this phasing is likely to reflect the changing proportions of students recruited before and after September 2012: those subject to the existing and new fee regimes respectively. However, changes to some allocations may be phased differently. This phasing-out of the existing funding method also has implications for our approach in 2011-12. For example:

  1. Opportunities for institutions to recover funding in 2012-13 if they have consolidated holdback of grant in 2011-12 (whether from shortfalls in the delivery of any remaining ASNs, or contract range holdback) may need to be through tuition fee income rather than HEFCE grant. The recovery of funding generally depends on additional recruitment in the following year, but the availability of funding for that new cohort of students should depend on the new funding regime, not continuation of the old one.
  2. The small number of ASNs originally agreed for 2012-13 through earlier bidding exercises may similarly need to be supported through tuition fee income, rather than HEFCE grant – many may relate to subject areas that we will no longer fund for new students.

38.   On recurrent research funding, the BIS grant letter of 20 December 2010 confirmed our budget for all four years of the spending review period within the science and research ring fence and we are therefore planning on the assumption that QR grant will be held in cash terms at £1,558 million in each academic year 2011-12 to 2014-15. The grant letter provided guidance on research funding priorities; in particular, it stated:

'You should take forward funding both for research and for support for the next generation of researchers, by selectively funding on the basis of only internationally excellent research, and protecting funding leveraged from external sources such as the charitable and business sectors.'

39.   The Board has noted this advice and the clear implication that, by 2012-13, activity rated at 2* should no longer be counted in allocating mainstream QR grant. We will be consulting institutions later this year on the development of our research funding method, with particular reference to our support for the next generation of researchers.

40.   Any questions about this letter should be addressed to HEFCE institutional teams.

Yours sincerely

Sir Alan Langlands
Chief Executive

Date: 28 February 2011

Ref: Circular letter 05/2011

To: Heads of HEFCE-funded higher education institutions, Heads of universities in Northern Ireland

Of interest to those
responsible for:

Planning, finance, student recruitment

Enquiries should be directed to:

HEFCE institutional teams