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Dear Vice-Chancellor or Principal

1.   This circular letter announces decisions taken by the HEFCE Board at its meeting on 27 January 2012 on the funding for universities and colleges for 2012-13. These decisions follow the grant letter from the Department for Business, Innovation and Skills (BIS) of 25 January 2012.

2.   This letter focuses on the grant funding that HEFCE will allocate to institutions in the 2012-13 academic year. In addition, universities and colleges will receive increased income through publicly funded student tuition fee loan payments, reflecting the Government’s changes to the finance arrangements for higher education.

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

4.   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. 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 recognise the importance of postgraduate provision, and we are therefore providing additional funding for taught postgraduate students, who are not eligible for publicly funded tuition fee loans. HEFCE is committed to ensuring a smooth transition to the new funding arrangements for higher education.

5.   Universities and colleges will be told their provisional grant allocations for 2012-13 on 19 March 2012 under embargo until 0001 hours on 22 March, when the full grant announcement will be published. We will hold a press conference on 21 March.

Funding available to HEFCE by financial year

6.   Our grant letter from BIS confirmed that the total HEFCE grant available for the 2012-13 financial year (1 April to 31 March) is £5,780 million. Table 1 shows the funding for 2011-12 to 2013-14, although figures for 2013-14 remain largely indicative. Our grant letter from BIS also confirmed funding for research and knowledge exchange (through Higher Education Innovation Funding, HEIF) up to 2014-15 and provided indicative figures for research capital up to 2014-15.

Table 1 HEFCE grant for financial years 2011-12 to 2013-14 (£millions)
 Final funding 2011-12Announced funding 2012-13Indicative funding 2013-14
Total government funding for HE9,3099,4609,829
Recurrent teaching 4,645 3,815 2,883
Recurrent research 1,549 1,587 1,573
Total recurrent grant6,1945,4024,456
Teaching capital 95 90 59
Research capital 204 175 101
Total capital299*265160
HEIF 113 113 113
Total HEFCE funding6,6065,7804,729
Additional ring-fenced allocations 103 80 100
BIS loans for graduate contributions 2,600 3,600 5,000

*Total capital funding for 2011-12 has increased by £76m to reflect £26 million increase and £50 million re-profiling of capital across financial years.

7.   The overall reduction in resource for HEFCE of £826 million between 2011-12 and 2012-13 arises from the transfer of recurrent teaching funding to provide increased loans to meet the upfront cost of graduate contributions. As Table 1 illustrates, although HEFCE funding is reducing, overall government funding for higher education (taking into account BIS loans to cover the upfront cost of graduate contributions) is set to increase.

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 2012-13 academic year is £5,311 million. This is lower than the 2012-13 financial year total, because it incorporates some of the further reduction arising in the 2013-14 financial year.

9. The total of £5,311 million includes:

  1. £3,213 million for teaching. The overall level of government support for teaching is set to increase through higher tuition fee loans as part of the new finance arrangements for higher education. HEFCE teaching grant is being reduced accordingly but our commitment to funding high-cost and strategically important subjects, widening participation and small and specialist institutions will be maintained. There is further information on teaching funding for 2012-13 in paragraphs 10 to 15.
  2. £1,558 million for research. The ring-fenced settlement for science and research means that we will be able to maintain overall funding, in cash terms, until 2014-15. There is further information on research funding for 2012-13 in paragraphs 16 to 19.
  3. £150 million for knowledge exchange. This has also been maintained in cash terms. Allocations of knowledge exchange funding to higher education institutions for the period 2011-12 to 2014-15 have already been announced in ‘Higher Education Innovation Funding 2011-12 to 2014-15: Policy, final allocations and request for institutional strategies’ (HEFCE 2011/16).
  4. £390 million in non-recurrent grant. This comprises £125 million in special funding for national programmes and initiatives, and £265 million in earmarked capital grants. There is further information on non-recurrent grant in paragraphs 23 to 28.

Recurrent grant for teaching

10.   New funding arrangements for universities and colleges will begin for the new intake of students in 2012-13. HEFCE funding for teaching will start to decrease and universities and colleges will be more dependent on funding from publicly funded student loans. During 2011, we consulted on changes to our teaching funding method for 2012-13 to reflect the first year of the transfer of HEFCE grant to student support budgets. Information about these changes, including the consultation document and the report on the outcome of the consultation, is available.

11.   The Board has considered the commitments it has, arising from its previous decisions on the funding method for 2012-13 and the student data reported by institutions, against the funding it has available. It has decided that:

  1. The rates of funding per full-time equivalent student in high-cost subjects commencing study from 1 September 2012 ('new-regime' students) will be £9,804 for price group A and £1,483 for price group B. These have been calculated, as explained in paragraph 98 of 'Teaching funding and student number controls: Consultation on changes to be implemented in 2012-13' (HEFCE 2011/20), to reflect average 2011-12 funding rates, subject to a reduction equivalent to the 2011-12 funding rates for price group C. They also incorporate the scaling factor explained in paragraph 11d below.
  2. As a first interim step for 2012-13, pending further consideration in the review of our teaching funding method from 2013-14, we will provide additional funding for new-regime postgraduate taught (PGT) students in price groups A to C, amounting to £1,100 per full-time equivalent student. This is in addition to any funding provided through the funding method for new-regime students in high-cost subjects in price groups A and B and is a new stream of funding, in addition to those previously agreed as part of last year’s review of our teaching funding method. This decision reflects the guidance in our latest grant letter from BIS that we should ‘take steps as far as possible to support postgraduate provision' and recognises that the scope for institutions to increase PGT tuition fees may be limited because publicly funded loans are not generally available to meet upfront costs. The rate of funding reflects the basic rate of grant for PGT students in price group C provided for 2011-12 and will help to ensure that funding for PGT provision in 2012-13 is broadly maintained. We expect the cost of this interim allocation to be some £39 million.
  3. As an interim measure for 2012-13 only, we should provide additional funding for Open University new-regime students in Northern Ireland. We are currently responsible for funding taught Open University students in England, Northern Ireland and other EU countries (those in Scotland and Wales are funded through the devolved administrations). The fee regime in Northern Ireland is not changing in the same way as in England: in particular, Northern Irish students will not be able to access tuition fee loans for part-time study and so the university has limited scope to increase its fees for them. This interim approach for 2012-13 will allow more time to review respective funding responsibilities for Open University students between government departments in England and Northern Ireland.
  4. Other elements of teaching grant will be scaled back by 1 per cent. This is because there is a requirement for BIS to establish a Departmental Unallocated Provision. It has met this requirement for the 2012-13 financial year from budgets that do not affect HEFCE recurrent grant, but this may not be possible in later years. This implies the possibility of a further reduction in teaching grant in the 2013-14 financial year which will affect the available teaching grant in the 2012-13 academic year.

12.   Table 2 shows the disaggregation of our teaching funding for 2011-12 and 2012-13 between different elements of grant. The figures for 2011-12 incorporate expected adjustments to grant arising from institutions’ student numbers in the year, but excluding those arising from their recruitment against the student number control.

Table 2 HEFCE recurrent teaching grant for 2011-12 and 2012-13 (£millions)
 2011-122012-13
Total4,3203,213
Funding for old-regime students (phase out of mainstream teaching grant) 3,631* 2,391
Funding for new-regime students in high cost subjects N/A* 145
Targeted allocations and other recurrent teaching grants
Widening access for people from disadvantaged backgrounds
Full-time 61 60
Part-time 68 67
Widening access and improving provision for disabled students 13 13
Sub-total Widening participation142140
Improving retention
Full-time 173 171
Part-time 53 53
Research-informed teaching 9 5
Institutional learning and teaching strategies 28 14
Sub-total Teaching enhancement and student success (TESS)264243
Part-time undergraduates 66 52
Accelerated and intensive provision 40 40
Institution-specific targeted allocation 47 46
Maintaining capacity in strategically important and vulnerable subjects (SIVS) following the equivalent and lower qualification (ELQ) policy 28 14
Additional funding for very high cost and vulnerable science subjects 23 23
Erasmus fee compensation N/A* 11
Interim London weighting supplement N/A* 19
Interim Postgraduate taught supplement N/A* 39
Interim supplement for Open University students in Northern Ireland N/A* 1
Co-funded employer engagement 33 15
Clinical consultants' pay 18 18
Senior academic general practitioners' pay 1 1
NHS pensions scheme compensation 6 5
Transitional funding for ELQs 23 11
Sub-total other targeted allocations and recurrent teaching grants283294

* A number of new allocations are being introduced for 2012-13, some as first interim steps for that year, pending further consideration in the next phase of the review of our teaching funding method from 2013-14. Equivalent sums for 2011-12 for these allocations are shown as N/A (not applicable) in Table 2, but they were provided within the £3,631 million total 2011-12 mainstream teaching grant.

13.   The allocations of teaching grant that we announce in March 2012 will be indicative only, because they will be based on forecast student numbers for 2012-13 provided by institutions. These initial allocations will inform grant payments between August 2012 and January 2013.

14.   We will review the allocations for the whole academic year in March 2013 in light of the final individualised student data for 2011-12 and updated aggregate student numbers for 2012-13, which institutions report in December 2012. We will adjust grant payments between April and July 2013 accordingly, including correcting for any over- or under-payment made earlier in the academic year. Final allocations for 2012-13 will be confirmed in 2014 in light of the end-of-year individualised student data for 2012-13.

15.   The decisions on teaching funding announced in this letter apply to 2012-13 only. We will consult soon on our approach to funding teaching from 2013-14.

Recurrent grant for research

16.   The Board has agreed that the total funding for research of £1,558 million should comprise the following elements:

  1. £1,050 million for mainstream quality-related research (QR) funding, including London weighting.
  2. £240 million for research degree programme (RDP) supervision funding.
  3. £198 million for the QR charities element.
  4. £64 million for the QR business element.
  5. £6 million for National Research Libraries.

17.   These totals incorporate a shift of £35 million from mainstream QR to RDP supervision funding. 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 Board has agreed that activity with a quality rating of 2* (two star) in the 2008 Research Assessment Exercise should no longer be counted towards mainstream QR funding. This releases £35 million which will be 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.

18.   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). Further information about this consultation and its outcomes is available.

19.   The budgets for the QR charities element, the QR business element and for National Research Libraries remain at the same cash level as for 2011-12.

Moderation funding

20.   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. This has been to ensure changes remained manageable for institutions. The Board has decided that we will not provide such a formula-based allocation for 2012-13.

21.   In the context of our institutional risk monitoring, we will consider, on an exceptional, case-by-case basis, whether there is a case for any institution to receive further non-recurrent funding to support its 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.

22.   The Board decided that a formula-based allocation of moderation funding is not appropriate because significant changes in HEFCE recurrent funding will result from the progressive shift of HEFCE teaching grant to meet the increased cost of publicly funded loans for higher tuition fees. The speed of transition for individual institutions will depend on the average length of their courses: those with shorter average course lengths will move more quickly to the new funding environment. The overall impact on institutions will depend on:

  1. The extent to which they are able to compensate for the loss of HEFCE grant by charging higher fees (after waivers).
  2. The extent to which they are able to maintain, or increase, student numbers.
  3. Their ability to attract funding from other sources, including other HEFCE grants such as for research.
  4. The strength of their balance sheet, in particular their cash position.

Non-recurrent funding

23.   The Board agreed special funding for 2012-13 at £125 million. This is significantly less than the previous years (£208 million in 2011-12 and £330 million in 2010-11), and continues the Board’s intention to channel funding through core routes wherever possible.

24.   Despite these reductions we have maintained investment in museums, galleries and collections and in the Joint Information Systems Committee, and have made available discretionary funding for the new Catalyst Fund.

25.   Earmarked capital has been increased by £76 million for 2011-12 from £224 million to £299 million. This includes an additional £26 million for High Performance Computing and £50 million brought forward from later years to enable universities and colleges to accelerate their investment in their research infrastructure.

26.   Universities and colleges were informed of the amounts of Research Capital Investment Fund (RCIF) being re-profiled into 2011-12 in ‘Bringing forward Research Capital Investment Funding (RCIF2) from 2012-13 to 2011-12’ (HEFCE Circular letter 01/2012). Our grant letter from BIS also confirms other changes to the profile of research capital which impact on the RCIF: an overall increase of £20 million in 2012-13 and reductions of £53 million in 2013-14 and £17 million in 2014-15. However the total amounts allocated to RCIF have not changed. We will inform universities and colleges separately about changes to the timing of future payments over 2012-13 to 2014-15.

27.   The Board agreed to increase the funding in 2012-13 for the Teaching Capital Investment Fund from £53 million to £57 million. Universities and colleges will be advised of changes to their allocations and profiles shortly. The Board will consider in March how it intends to utilise the very limited teaching capital funding of £59 million indicated for 2013-14.

28.   The Board has maintained its commitment to helping universities and colleges reduce their carbon emissions, by increasing the funding for the second round of the Revolving Green Fund to £6 million.

Student numbers

29.   In January we announced provisional student number control limits for institutions. These are provisional because they do not incorporate places to be awarded from the 20,000 ‘margin’ (for which we invited bids in ‘Student number controls for 2012-13 - Invitation to bid for student places’, HEFCE 2011/30), and because they remain subject to appeal.

30.   The HEFCE Board agreed allocations to be made from the margin at its meeting on 27 January and we are writing separately to individual institutions to notify them of the outcome.

31.   Institutions wishing to appeal for a change to their student number control limit (whether relating to the provisional limits announced in January, or the places to be awarded from the margin) have until Wednesday 8 February 2012 to submit their appeal. We will notify institutions of the outcomes of their appeal in the week beginning 27 February. The limits for all institutions will be published on 22 March 2012, alongside our funding allocations for 2012-13.

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

Yours sincerely

Sir Alan Langlands
Chief Executive

Date: 1 February 2012

Ref: Circular letter 03/2012

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

Of interest to those
responsible for:

Finance, Planning

Enquiries should be directed to:

HEFCE institutional teams