Dear Vice-Chancellor or Principal
1. This letter invites responses to a consultation on the final part of the Higher Education Innovation Fund (HEIF) 2011-2015 method and the introduction of an external income threshold for HEIF allocations; it also provides indicative HEIF allocations for the period, to illustrate the distributional effects of the threshold allocation policy and for planning purposes.
2. Responses to this consultation should be made by Friday 15 April 2011, using the form at Annex A.
Background to the policy
3. HEFCE's over-arching policies for HEIF were set out in 'Higher Education Innovation Fund round 4: Invitation and guidance for institutional strategies' (HEFCE 2008/02). The Council's aims are that:
- Knowledge exchange (KE) should be an established mission of higher education (HE), alongside and intertwined with research and teaching.
- Knowledge exchange should be supported by a long-term, dedicated third stream of funding: HEIF.
- HEIF should support all forms of knowledge exchange (including enterprise) which lead to economic and social impact, and should be allocated through a relatively low-burden formula and against a high-level strategy for KE and plan for use of HEIF.
- Higher education institutions (HEIs) should have discretion to innovate and respond to new opportunities to support growth through using funds for forms of KE beyond those that can be captured in the formula, and through being able to use funds flexibly over years, making changes to their initial plans.
4. We set out in HEFCE 2008/02 that our long-term objective, following HEIF round 4, was that HEIF should move towards performance as the basis for allocating funds. This reflected that HEIF had developed through rounds of project funding that supported innovation and demonstrated good practice in KE, then through a formula that included a capacity-building element (calculated on staff numbers), and therefore the time would come when the focus should shift towards delivery, and rewarding and incentivising performance. We also set out in HEFCE 2008/02 that we would move in future to use all years of data from the HE-Business and Community Interaction (HE-BCI) Survey to inform funding.
5. The Government set out its views on reform and funding of HEIF in our grant letter of 20 December 2011 and in the Government's allocation of science and research funding for 2011-2015. The Government endorsed the formula approach developed through previous rounds of HEIF and asked that reform should focus on incentivising performance, moving away from the capacity-building element, increasing the maximum level for allocations and ensuring that only the most effective performers are funded. Funding only effective performers would be achieved through introducing an external income threshold, whereby only HEIs that exceed a threshold through their performance metrics would receive an allocation.
6. Funding for HEIF has been maintained by the Government at the cash level from HEIF 4 particularly to support HE’s contribution to economic growth through knowledge exchange. This reflects the importance of the knowledge base as a national asset for economic and social development.
The method for HEIF 2011-2015
7. In the light of the grant letter, the HEFCE Board confirmed at its meeting in January 2011 that £150 million per year should be allocated through HEIF over 2011-2015. We set out the Board’s decisions on the method to be used in allocating these funds to institutions in February 2011: 'Higher Education Innovation Fund 2011-2015: Board decisions on method and funding' (HEFCE Circular letter 04/2011); these are summarised at Annex B.
8. Following Circular letter 04/2011, some HEIs have asked us for more details about the operation of the cap (of £2.85 million) and moderation (which restrains increase or decrease in an institution’s allocation from the last year of HEIF 4) to the formula. The cap and the results of moderation apply to all four years of funding as the HEIF allocation is a fixed four-year allocation.
Relative weights to data years
9. We said in Circular letter 04/2011 that we would use three years of data in calculating HEIF 2011-2015 allocations, and we would announce the relative weights to be attached to data years in this circular letter.
10. We have now decided to use the ratios 1:2:7 to weight the three years (2007-08, 2008-09, and 2009-10 respectively), reflecting that we wish all years to have some influence on funding, but that the last year of data gives the most up-to-date reflection of the state of KE capacity and performance, to inform funding for four years into the future.
Consultation on a threshold allocation
11. Addressing the Government's advice in HEFCE's grant letter that only HEIs that can demonstrate the most effective performance should receive funding, we also said in Circular letter 04/2011 that we would consult on the proposal that we should apply an external income threshold allocation, whereby only HEIs that exceed a threshold through their performance metrics will receive an allocation. The Board agreed that that we should consult on this proposal in the context of providing indicative allocations to HEIs, driven by external income earnings which generate, by applying the formula, an institutional HEIF allocation formula of £250,000 or more as the threshold level.
12. In HEIF rounds 3 and 4, we provided a universal HEIF allocation for all HEIs, reflecting that the focus was on exploring potential and building capacity. However, as set out in HEFCE 2008/02 on HEIF 4, our objective was always to move towards allocations based on performance, to deliver maximum external impact.
13. We presently use external income as a proxy for impact. External income gives hard evidence that the KE activity has a beneficiary outside of the HEI, and that this beneficiary believes the KE is of value – in other words, that it will produce some useful impact in the longer run. We recognise that income is an imperfect proxy for impact, but it is a relatively reliable and comparable measure that can be collected in a fairly low-burden way.
14. We have always recognised that there are KE activities whose volume and impacts cannot be adequately measured by income. This is why we enable HEIs to use HEIF for a wider range of KE activities than are included in the formula, through our consideration of HEIs' HEIF strategies. These non-monetised benefit KE activities include student, staff and social enterprise, enterprise education, and public policy and public engagement.
15. Since a formula was devised in 2005 for HEIF 3, there have been discussions about how measurements of the volume and impact of KE could be improved. However, despite much effort, from us and HEIs, there have not yet been breakthroughs. We will continue to seek new metrics that would pass the standards of rigour expected in ensuring value for money from public funds in a time of pressure on public spending and that would be of reasonable burden to collect and use.
16. This consultation invites views on whether new metrics are available. Such new metrics would need to be suitable to collect in a low-burden way, and should not duplicate activity that is already the focus of mainstream research and teaching.
17. Our proposal then, on which we are consulting following government advice, is that we should introduce a threshold to allocations based on external income: HEIs would only receive an allocation where they can demonstrate a critical mass of beneficiaries and impact, as measured by external KE earnings performance. In applying this proposal we will calculate the threshold to allocations so that those HEIs that could not achieve an allocation of £250,000 through their earnings performance after application of the formula, would get no allocation at all. We believe that earnings of the level to generate an allocation of £250,000 provides a reasonable level of assurance that we are funding only the most effective performers, as stressed by the Government.
18. We stress that £250,000 relates to the generated HEIF allocation needed to achieve an allocation at all, and not to the level of external income earnings. The level of external income earnings needed to achieve a HEIF allocation of £250,000 will vary, reflecting the earnings performance of the sector as a whole.
19. HEIs that do achieve an allocation would still be able to use HEIF for a broad range of KE activities, including for KE that leads to non-monetised benefits. It is important that HEIs continue to innovate, and to explore and expand the full potential of KE. Through their actions, we may thereby over time improve our understanding of and means to measure KE, making a higher-value overall spending case for HEIF and making our metrics for funding more sophisticated.
20. We expect that information collected through institutional strategies and the HE-BCI Survey will continue to be major sources of evidence for policy development related to HE’s contribution to the economy and society, for both HEIF and other core funds. Returning data to the HE-BCI Survey will continue to be of highest importance and a condition of HEFCE grant.
21. Following advice from Government, we believe that in these tougher fiscal times we must focus funds on performers that can already demonstrate a threshold level of performance. HEIs that did not receive an allocation under our proposal might of course choose to continue to do embedded KE and to return this to the HE-BCI Survey, and would thereby contribute to the future evidence base and policy development.
22. The questions to which we seek response in this consultation are:
- Consultation question 1: Is our proposal of a threshold HEIF allocation a satisfactory and appropriate response to the need now to focus HEIF on the most effective KE performers?
- Consultation question 2: Are there additional metrics available now that capture the breadth and benefits from KE activity, including activity primarily leading to non-monetised benefits, and that could be used to demonstrate the effectiveness of KE performance and could be collected in a fairly low-burden way?
- Consultation question 3: Do you have any other comments on any aspects of the policies, method and funding for HEIF 2011-2015?
23. Please provide your institutional response to this consultation by Friday 15 April 2011, using the form at Annex A.
24. The HEFCE Board agreed that we should provide indicative institutional allocations for HEIF 2011-2015 in this consultation. The allocations at Annex C have been calculated using the method described in Annex B, including using the threshold allocation proposal set out in this letter. Annex C is also calculated using the latest HE-BCI Survey data, 2009-10, and the relative weights of 1:2:7 to the three years of data that will be used in final allocations. We are providing these data now in order to illustrate the distributional effect across HEIs of introducing a threshold allocation.
25. We are fully aware that institutions need to plan ahead now for the start of new allocations from August 2011. Planning may include reprioritising or significantly changing capacity and activity, or scaling up operations to new areas. We are also therefore providing indicative allocations now to inform HEIs’ planning for the start of the next period of funding. The decision on a threshold cut-off to allocations affects a relatively small proportion of the total HEIF funding available. So for the vast majority of HEIs, other than those affected by the threshold allocation decision, the indicative allocation will be near to the final allocation and can be used by the HEI for planning purposes to prepare for the start of new allocations in August 2011.
Process and timetable for implementation
26. In Circular letter 04/2011 we gave a timetable for implementing HEIF 2011-2015 allocations, which is provided in more detail at Annex D .
27. We will provide a more extensive account of the Council’s and the Government’s long-term policies on KE and HEIF in the full HEIF guidance that we will publish in May 2011. This guidance will include: the results of the consultation; the decision on the final aspect of the method; the threshold allocation; and final institutional allocations. The guidance will also call for institutional strategies for KE, including plans for use of HEIF. We will also publish a separate summary of the consultation responses.
28. As in HEIF 4, release of HEIF allocations will be conditional on our acceptance of the institution’s strategy (see paragraph 31 below), and we will reserve the right to reduce or withdraw funding in the light of our assessment of the strategy. Given the development of KE in the sector, we expect to operate a lighter-touch approvals process for strategies in this round, and hence changes to funding would be considered only in exceptional circumstances. However, individual institutional strategies have been an important part of our evidence of the benefits and use of public money (which can inform future spending decisions) and it is therefore vitally important that strategies are very high quality, and that these feed into a research overview report summarising all strategies, as in HEIF 4.
29. We are working to improve the template used for HEIs’ strategies in HEIF 4 for this next round of funding, so that it can provide better evidence to Government on the effectiveness of KE performance and use of public funds, and better demonstrate ongoing achievements in higher education KE for communications purposes. The new template will, though, ask for similar information to that asked for in HEIF 4 (though structured differently) and hence HEIs may wish to look at the HEIF 4 template as the basis for planning to prepare their strategy for 2011-2015.
30. We wish to give HEIs sufficient time to produce high-quality strategies, and to give ourselves sufficient time to examine these with expert researchers and produce the research overview report. We therefore intend to run the strategy assessment process over a longer period than we used for HEIF 4, with strategies submitted by the end of July. We will then work over the summer on feedback and any revisions to strategies, which may include minor drafting clarification to aid the work of the researchers to aggregate information across all the strategies. Our aim is to confirm all strategies, and hence funding, and publish the overview report, in autumn 2011.
31. Given this longer timetable for assessing strategies we will make HEIF allocations for 2011-12 unconditionally in the May guidance. We then only expect to change funding following consideration of the strategy in exceptional circumstances, and after discussions with the HEI, from the second year of funding, 2012-13. HEIF allocations for 2012-2015 will therefore be formally conditional on acceptance of the strategy and will be confirmed in autumn 2011.
32. We will give more detail on the process and timetable of submitting, approving and analysing strategies and producing the overview report in our May guidance.
Sir Alan Langlands