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Executive summary

Purpose

1. This publication consults on our proposals for streamlining the requirements of the Transparent Approach to Costing (TRAC), and for providing greater transparency on the costs of higher education (HE) activities.

Key points

2. The Transparent Approach to Costing is an activity-based costing approach designed with and for UK higher education institutions (HEIs). TRAC supports long-term financial sustainability by providing costing on a ‘full economic cost’ basis that allows for maintenance of capital infrastructure and the development of the next generation of academics. It supports the understanding and management of financial sustainability of higher education, and helps provide accountability for the public support provided to HEIs. It also provides cost information for HEIs’ own use, including for benchmarking purposes. One of its aims is to minimise burden by meeting the needs of a wide range of stakeholders through a single system.

3. The introduction of TRAC in 1999 was in response to concerns about a cumulative degradation of the sector’s capital infrastructure and about the financial sustainability of university-conducted research. It followed the 1998 Comprehensive Spending Review which reintroduced capital funding. Following TRAC, the 2004 Science and Innovation Investment Framework reinforced the need to ensure that research in HEIs was financially sustainable. In return for additional investment in the UK HE sector of over £1 billion per year by 2007-08, the Government required assurance that the HEIs had costing and pricing systems in place to ensure that they could better manage their resources and price activities appropriately to ensure the financial sustainability of teaching, research and infrastructure, and that the sector would then operate sustainably.

4. The Government’s 2011 White Paper, ‘Students at the heart of the system’ (June 2011), invited HEFCE to consult the HE sector on ‘radically streamlining the reporting requirements of TRAC’. This recognised the importance of costing and pricing systems to the sector, as well as the need for HEFCE to have a means of determining the costs of higher-cost subjects to inform the funding of HE teaching, and for a costing tool to support the allocation of publicly funded research grants. The White Paper also invited HEFCE to consider how TRAC data might be used to both promote greater transparency and help inform the choices of prospective students, recognising the increasing accountability to students under the new arrangements for funding higher education.

5. To pave the way for such a consultation, HEFCE initially undertook a review of TRAC. In developing that review, HEFCE has been advised by the TRAC Review Group. This group is chaired by an independent HEFCE Board member, with members drawn from across the key stakeholder groups. The group defined the scope of the review by considering a number of fundamental questions about the rationale for the current TRAC arrangements given the changing higher education environment in England resulting from the Government’s White Paper.

6. As part of HEFCE’s review of TRAC initiated by the 2011 White Paper, it commissioned consultants KPMG to gather evidence from the many stakeholders and to provide analysis of the current TRAC arrangements. The review also drew heavily on evidence in ‘Review of time allocation methods: A study for the TRAC Development Group’. This consultation presents the findings of the review and asks the sector for input on the key issues.

7. The review of TRAC has been structured under four themes, and this consultation is structured in the same way:

  • Theme 1: The needs of stakeholders, now and in the future
  • Theme 2: Burdens and benefits of TRAC as a costing system for the HE sector
  • Theme 3: Opportunities to improve and streamline TRAC and the associated reporting requirements, and to secure better use of TRAC information
  • Theme 4: Providing greater transparency for taxpayers, students and prospective students.

The inherent challenge set by the White Paper is to provide increased transparency on HE provider costs while seeking to streamline requirements and reduce the burden of the reporting requirements on HEIs.

Theme 1: The needs of stakeholders, now and in the future 

8. The review identified multiple uses of TRAC that meet a variety of stakeholder needs. The system provides consistent and comparable information that is reconciled to institutions’ annual accounts. The consultation responses to the Government’s White Paper and HEFCE’s consultation on the future arrangements for funding teaching showed widespread support for the continuation of TRAC.

9. Although the review team did not identify a viable alternative to TRAC, either in the UK or overseas, we invite consultees to present any alternatives that we should consider.

Theme 2: Burdens and benefits of TRAC as a costing system for the HE sector 

10. Our review has sought to evaluate the burden caused by the TRAC requirements, recognising that TRAC is only one component of the data and accountability burden on HEIs and their staff from across a range of regulators, including the Quality Assurance Agency for Higher Education, the Research Councils and HEFCE itself.

11. The review found that the costs of operating TRAC are low and would be incurred by many institutions in any case when they evaluate costing for their own purposes. KPMG’s work for this review estimated HEIs’ staff input amounted to just over two hours a year on average for each academic staff member to complete time allocation schedules, with central costs of operating TRAC of between £25,000 and £80,000 for each institution. Combining these figures, the total annual cost of TRAC for the sector in England is therefore estimated at £13.6 million, representing 0.06 per cent of total income, equivalent to approximately £100,000 per institution on average.

12. We ask HEIs and others to tell us if they think their costs are very different from our estimates.

13. The benefits of TRAC are wide-ranging. HEIs use TRAC to inform decisions such as amounts to charge in fees, to carry out benchmarking exercises, and inform strategic decisions on their teaching and research portfolios. TRAC is not valued universally however – 35 per cent of HEIs reported in their 2010-11 annual TRAC return that they did not use TRAC data to provide management information or to support decision-making processes. We are interested to understand why some feel that TRAC is not useful for these purposes, and to identify what improvements might be made to overcome any barriers or provide greater utility from TRAC as a costing tool.

Theme 3: Opportunities to improve and streamline TRAC and the associated reporting requirements, and to secure better use of TRAC information 

14. We have identified a range of options for improving the balance of burdens and benefits of TRAC, by streamlining the minimum TRAC requirements; streamlining the reporting requirements; or by making TRAC more useful to HEIs. Our proposals for reducing the administrative burden include:

  1. Increasing the threshold for dispensation to allow more institutions with relatively low levels of publicly funded research activity to be exempt from compliance with the full TRAC requirements.
  2. Bringing together the submission dates and sign-off processes for the annual TRAC return and TRAC(T) return by combining them as a single return with the requirements for management and board review, and head of institution sign-off incorporated into the annual accountability framework.

15. We do not know whether such proposals would secure significant operational efficiencies or reduce burden for institutions. Institutions that contributed to the review estimated potential savings at between 5 and 20 per cent – up to £20,000 on average for HEIs that are not currently eligible to claim dispensation from compliance with the full TRAC requirements, with potential for greater savings for HEIs that become eligible for dispensation.

16. We do not seek to consult on the technical details of these options, but to gather high-level feedback on the priority areas for revision of the TRAC requirements.

Theme 4: Providing greater transparency for taxpayers, students and prospective students 

17. In recognition of the huge investment in higher education by students and taxpayers, there is a clear need for assurance they are obtaining value for money, by providing information about how funding is spent within HEIs.

18. Our proposals include options for presentation and publication of TRAC data to aid transparency on costs incurred by HEIs. We also consider options for greater disaggregation of TRAC data to produce data on HEI costs at course level. However, there is a cost associated with providing more information that must be justified by a benefit, and changes to existing processes must conform to the principles of better regulation.

19. In 2010 research was carried out on the information needs of students, to inform the content of the new Key Information Set (KIS) on the Unistats web-site as the primary source of essential information for prospective students. This is its first year of operation, and it will be reviewed in 2013-14 and 2014-15. Our discussions suggest that the KIS focuses on the right areas to support prospective students in their choices about what to study and where to study, and that course costing information by HEIs is not a priority for students.

20. We understand that some HEIs are voluntarily providing information for their students at an institutional level that describes how tuition fees are spent. This would satisfy, at minimal cost, an accountability need of both students and taxpayers. A further enhancement could be a comparison of costs by discipline at a sector level.

21. We propose exploring the development of good practice in presenting this information to reinforce the confidence of stakeholders.

22. We invite views on the options for providing greater transparency on how public funding for higher education is spent, what forms are suitable to meet student and the public interest, and how we avoid influencing market behaviour, as well as having regard to the costs of providing such information.

Action required 

23. Responses to this consultation should be made by noon on Friday 11 January 2013 using the online form which can be accessed alongside this document.

24. We welcome views from anyone with an interest in financial management of higher education and transparency and accountability for public and student investment in higher education.

25. Students and prospective students, their parents and advisers are particularly encouraged to respond. The issues of most interest to them are covered under Theme 1 (paragraphs 78 to 83) and Theme 4 (paragraphs 163 to 168) and questions 10 and 12.

26. We recognise the UK-wide interests in TRAC, though this consultation makes proposals only in respect of universities and higher education colleges in England that are funded by HEFCE. However, we will take into account the view from HEIs outside England, and other HE providers.

27. We are aware that HE staff interest in TRAC extends across the institution. Therefore we encourage heads of institutions and senior managers to ensure their responses are informed by a wide range of views. We also welcome individual responses from academic and administrative staff in HEIs.

28. We will hold consultation events on 8 and 16 November. Details of these events have been communicated to HEIs, and further details of how to book a place are provided on the HEFCE web-site.

Next steps

29. Responses to this consultation will be considered by the TRAC Review Group in early 2013, which will then make recommendations to the HEFCE Board in spring 2013. It is envisaged that implementation plans will be taken forward in collaboration with the HE sector and other stakeholders.

Date: 25 October 2012

Ref: HEFCE 2012/28

To: Heads of HEFCE-funded further education colleges, Heads of HEFCE-funded higher education institutions
Heads of alternative providers of higher education in England

Of interest to those
responsible for:

Senior managers; Finance; Planning; Governing bodies;

Academic and administrative staff with an interests in TRAC or provision of information for students

NUS, Student representative bodies, students, prospective students and advisers to students

Enquiries should be directed to:

Heather Williams, tel 0117 931 7113, e-mail h.williams@hefce.ac.uk