1. This document summarises our provisional allocations of recurrent funding for teaching and research, and the setting of student number control limits for institutions, for academic year 2012 13.
2. The overall budget we have set for the 2012-13 academic year is £5,311 million. This budget reflects the first year of the progressive shift of HEFCE grant to the student support budget to meet the cost of increased tuition fee loans under the Government’s new finance arrangements for higher education. The overall level of government support for teaching is set to increase as a result of these higher tuition fee loans, while HEFCE teaching grant is being reduced. The total HEFCE grant comprises:
- £3,213 million for recurrent teaching grant
- £1,558 million for recurrent research grant
- £150 million for knowledge exchange, through Higher Education Innovation Funding (HEIF)
- £390 million for earmarked capital grant and other non-recurrent special funding.
3. HEFCE will invest in the interests of students and for wider public benefit. Our funding will support home and EU students in all years of study: funding for students already in higher education will remain broadly as before, while for new entrants, our funding will increasingly be focused on those costs incurred by universities and colleges which cannot be met entirely by tuition fees. We are maintaining our commitment to funding high-cost and strategically important subjects, widening participation, and small and specialist institutions. In recognition of the importance of postgraduate provision we are also providing additional funding for taught postgraduate students, who are not eligible for publicly funded tuition fee loans. We are committed to ensuring a smooth transition to the new funding arrangements for higher education, including keeping the administrative burden to a minimum.
4. Although HEFCE’s grant for teaching is reducing from 2012-13, this reflects a substitution of income streams for institutions because of the increased tuition fees they will charge. For the large majority of institutions we believe that the regulated fee limits for full-time undergraduates – which are £9,000 for institutions that have an access agreement with the Office for Fair Access (OFFA) and £6,000 for those that do not – will generally be sufficient to allow institutions to maintain or increase their income, even where they face reductions in their student number control limits for 2012-13. The Government’s reforms of higher education therefore allow the sector to remain in strong financial health.
5. We are directly funding an additional 65 further education colleges in 2012-13 as a result of a recent invitation to bid for full-time undergraduate places.
Funding for teaching
6. There are some significant changes to HEFCE teaching grant, following government reforms to the finance arrangements for higher education, and to the way in which student numbers are controlled from 2012-13.
7. The main changes to teaching grant for 2012-13 relate to:
- The phasing out of 'mainstream' teaching grant and employer co-funding relating to students who commenced their studies before 1 September 2012 ('old-regime' students). This results in the most significant change to HEFCE funding for most institutions in 2012 13, although the overall impact will be very different because of the additional tuition fee income they will receive.
- The implementation of a new, interim, teaching funding allocation for students commencing studies from 1 September 2012 (‘new-regime’ students) in high-cost subjects, where higher tuition fees may be insufficient to meet the full costs of provision.
- A review of targeted and other recurrent teaching allocations. Most of these are continuing in 2012-13 and will be paid in relation to both old- and new-regime students, but some are being phased out.
- The introduction in 2012-13 of interim allocations for London weighting and for postgraduate taught students. These allocations broadly maintain our support in these areas at 2011-12 levels.
8. The changes to HEFCE teaching grant will affect institutions in different ways. The speed of transition for individual institutions to the new finance arrangements for higher education will depend on the average length of their courses and the continuation rates of their students: those with shorter average course lengths will move more quickly to the new funding environment. The overall impact on institutions will depend on:
- The extent to which they are able to compensate for the loss of HEFCE grant by charging higher fees (after waivers).
- The extent to which they are able to maintain, or increase, student numbers.
- Their ability to attract funding from other sources, including other HEFCE grants such as for research.
- The strength of their balance sheet, in particular their cash position.
9. The allocations of teaching grant that we are announcing are provisional, and most will be recalculated later in the year. We are adopting a three-stage process to calculate and review allocations in order to balance the need to pay grant from August 2012, before 2012-13 student numbers are known, with the need to ensure, in the interests of fairness and accountability, that allocations finally reflect actual numbers of old- and new-regime students in the year. This iterative process will apply to any allocation that is initially informed by forecast student numbers for 2012-13. Final allocations for 2012-13 will be confirmed in light of the end-of-year individualised student data for 2012-13.
10. Our grant letter from the Department for Business, Innovation and Skills (BIS) of 25 January 2012 gave only indicative recurrent teaching funding figures for the 2013-14 financial year (although the recurrent research and HEIF figures up to 2014-15 were confirmed). In order to announce funding for the 2012-13 academic year, which has a four-month overlap with the 2013-14 financial year, we have assumed that our allocation for the 2013-14 financial year is as indicated in the BIS grant letter. If we receive information regarding our grant for the 2013-14 financial year which suggests this assumption is no longer appropriate we reserve the right to review our recurrent teaching and special funding allocations for the 2012-13 academic year. We would do this to smooth any change in funding for institutions, which might be necessary by 2013-14.
Funding agreement requirements: the student number control
11. Because teaching grant allocations will be recalculated from first principles through the three-stage process, we do not need to have as many funding agreement requirements as in previous years – there is no contract range or student full-time equivalent target, because the grant will be recalculated later to reflect actual student numbers recruited and retained. There are three funding agreement requirements affecting student numbers for 2012-13:
- The student number control, applying to all institutions.
- The medical intake target, representing the maximum intake to full-time undergraduate courses that lead to first registration as a doctor.
- The dental intake target, representing the maximum intake to full-time undergraduate courses that lead to first registration as a dentist.
12. There are a number of important changes to the student number control arrangements for 2012-13, arising from the Government’s desire for a more diverse, responsive higher education system which encourages greater competition and choice for students. For 2012-13, it is doing this in two ways:
- Students with entry qualifications equivalent to, or higher than, grades AAB at A-level ('AAB+ equivalent students') are being excluded from the student number control population.
- A 'margin' of up to 20,000 places is being created by reducing the 'core' residual student number control population (that is, those remaining after removing AAB+ equivalent students). These places are being redistributed only to those institutions charging an average annual net tuition fee (after fee waivers) of £7,500 or less and meeting other criteria of quality and demand.
13. We will monitor each institution’s compliance with the student number control limit that we have specified for them. Where we find that an institution has exceeded its limit this will result in a reduction to grant, which may be applied in the 2012-13 and/or subsequent academic years. We cannot yet specify the rate per excess student at which this grant reduction will apply. However, our grant letter from BIS of 25 January 2012 set out the principles that it will adopt in calculating the rate of grant reductions for institutions for each student recruited in excess of their 2012-13 limit. These will include:
- avoiding unanticipated pressures on government budgets
- removing any financial incentives for institutions to recruit above their permitted level
- recognising the different fees charged by institutions
- recouping an element to cover the costs of providing maintenance support.
14. BIS will provide further guidance to us on this in due course. In the meantime, institutions should plan on the basis that (as currently) the rate of grant reduction for students recruited above the student number control limit for 2012-13 will exceed any tuition fee income associated with the excess numbers. The reduction may be repeated in subsequent years to the extent that we consider the excess students recruited in 2012-13 continue to contribute to excess student support costs at the institution.
15. The medical and dental intake targets are also maxima, not minima: institutions should ensure they do not exceed them. We may take further action against institutions that continue to do so.
16. We will not count students recruited in excess of the student number control limit or medical or dental intake targets towards our funding of 'new-regime' students in high cost subjects: this will apply to all years of study relating to the excess numbers recruited.
Other recurrent grants: research and knowledge exchange
17. The total recurrent funding for research is £1,558 million. The ring-fenced settlement for science and research means that we will be able to maintain overall funding at this level, in cash terms, until 2014-15. This is the same cash total as for 2011-12. The main changes to the research funding method for 2012-13 relate to the weighting of the quality levels in calculating funding for mainstream quality-related research (QR) and changes to the research degree programme (RDP) supervision funding method:
- Following the guidance in our BIS grant letter that we 'should continue to 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', the HEFCE Board has agreed that we should no longer count research activity that was assessed as of 2* (two star) quality in the 2008 Research Assessment Exercise (RAE) in calculating mainstream QR funding. This releases £35 million, which has been used to increase the funding we provide to support RDP supervision. The weighting relativities in our mainstream QR funding for 4* and 3* activity will remain at 3:1.
- We consulted in 2011 on a revised funding method for RDP supervision funding ('Consultation on allocation method for postgraduate research funding from 2012-13', HEFCE 2011/09). Following this consultation we have introduced a new allocation method, which is based on the amount of 3* and 4* activity as a proportion of total activity at 2* quality and above in the 2008 RAE.
18. Funding for knowledge exchange through HEIF remains as last year: the allocations for the four year period 2011-12 to 2014-15 were announced in 'Higher Education Innovation Funding 2011-12 to 2014-15: Policy, final allocations and request for institutional strategies' (HEFCE 2011/16).
19. In previous years we have provided a formula-based allocation of moderation funding to smooth year-on-year changes in total recurrent grant for teaching and research. We did this to ensure that these changes were manageable for institutions. Given the nature of the funding changes this year, the HEFCE Board has decided that we will not provide such a formula-based allocation for 2012-13. As part of our institutional risk monitoring, we will consider, on an exceptional, case-by-case basis, whether any institutions should receive further non-recurrent funding to support their smooth transition to the new finance arrangements. In such exceptional circumstances, the relevant HEFCE regional consultant will contact the institution. In considering the case for such exceptional support, we will be mindful of not undermining competition between providers.
20. No action is required in response to this document.