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This consultation is now closed.

Executive summary

Purpose

1. This consultation seeks views on proposed revisions to the financial memorandum between HEFCE and institutions.

Key points

2. The financial memorandum between HEFCE and the institutions it funds is the formal accountability mechanism for the grant funding that HEFCE distributes. It derives from the Further and Higher Education Act 1992. HEFCE has reviewed the financial memorandum periodically to ensure it remains fit for purpose. The last revision was in 2010.

3. This latest review is part of that continuing process, but also takes account of the Government’s reforms to the funding of higher education (HE) and how those are being introduced.

4. The proposed changes to the financial memorandum are limited as HEFCE is operating within the existing legislative framework. We have taken the opportunity to reduce the overall length of the document and include only what we consider necessary.

5. The review of and proposed revisions to the financial memorandum have been based on a number of principles. These are:

  • institutional autonomy
  • the collective student interest
  • the public interest and accountability for public funds
  • proportionate accountability
  • maintaining stakeholder confidence
  • minimising burden and removing duplication
  • transparency and openness.

6. There is a history of self-regulation across the sector, and where we have confidence in the institution’s processes we will rely on the assurances that HEIs provide for themselves. From time to time we will validate these assurances. This respects autonomy and limits the cost of regulation.

7. The most significant issue for consultation is what requirements are necessary to manage the risks around financial commitments taken on by HEIs. The current borrowing consent approach, based upon annualised servicing costs, is no longer suitable because banks are now generally lending on shorter timescales, albeit the expectation is that such lending will be renewed. In addition there is greater use of revolving credit facilities, so the distinction between short-term and long-term borrowing is increasingly blurred. There are different views as to what new arrangements we should put in place. We are not indicating any preference but are proposing alternatives (see paragraphs 31 to 60 below). We have not, therefore, included revised text on financial commitments in the draft financial memorandum because we wish to seek views from the sector and, importantly, from banks.

8. Other proposed changes are:

  • Research integrity – in line with the outcome of our consultation on the concordat on research integrity, we are reflecting the HE sector’s agreement that this is a condition of research grant funding.
  • Material adverse events – the current financial memorandum refers to governing bodies being required to inform us about material adverse events. We are not proposing to revise the substance of this, but depending on the views on financial commitments, this could explicitly refer to significant increases in financial commitments.
  • Register of HE providers – The database will provide information for prospective and current students about providers of higher education, including their corporate form and arrangements for quality assurance and student complaints. Where there are concerns that we believe should be brought to the attention of prospective or current students, we intend to flag these in the register. We will work with sector bodies to set out the criteria for assessing when such concerns would lead to a flag in the register.
  • Subscriptions to Jisc – Jisc is now a separate legal entity and is in transition whereby its funding is moving from less grant funding to more subscription income. We are proposing to support this transition by requiring HEIs to subscribe to Jisc for the three years from August 2014 to July 2017.
  • Sustainability assessments – The Financial Sustainability Strategy Group is overseeing the development of sustainability assessments. A pilot scheme has been operating and HEIs are providing these data voluntarily by December 2013. We welcome the Committee of University Chairs’ (CUC’s) willingness to consider including these sustainability assessments in its revised Governance Code of Practice and General Principles. The assessments will be of benefit to HEIs’ governing bodies, and will be valuable assurance to HEFCE and the Research Councils. Adoption within the revised CUC Governance Code of Practice and General Principles would respect the principle of self-regulation and enable the assessments to serve multiple purposes, thus reducing cost.
  • Audit Code of Practice and annexes to the financial memorandum – we are proposing to reduce significantly the Audit Code of Practice (Annex A to the draft financial memorandum) and are also proposing to reduce the total number of annexes because some of these are no longer necessary or can be covered through other routes.
  • Exchequer interest[1] – this is created through the provision of capital grants to HEIs. The current financial memorandum sets out the circumstances that could lead to some or all of this being repaid. One of the triggers that would lead to such repayment is reduction to HEFCE income. With the shift from grant to tuition fees, repayment would be triggered (because of the reduction in HEFCE income) in circumstances not envisaged when the system was created. To prevent this we are proposing to revise the trigger to HEFCE and Student Loans Company income combined.
  • We have made some minor revisions to the institutional engagement and support strategy in light of how this has worked over recent years, and set out more explicitly what actions we might take if circumstances warrant this.
  • We have updated the text and annex to more fully reflect HEFCE’s role as principal regulator for those HEIs that are exempt charities. We have also updated the section on equality and diversity to take account of the requirements of the Equality Act 2010.
  • There are a number of other minor textual changes or updates. We have also re-ordered some sections and brought these together to aid the reader and avoid duplication.

9. The draft financial memorandum forms Annex B to this consultation.

Responding to this consultation

10. The closing date for responses is 1700 on Friday 6 December 2013. Responses should be made using the online form. The consultation questions are throughout the document but are listed at Annex A.

11. We will be holding two consultation events, on 1 November 2013 in Manchester and on 18 November 2013 in London. We are inviting stakeholders to these events. If you have not received an invitation and would like to request a place, e-mail i.lewis@hefce.ac.uk. Please note we may need to limit places. Details about the venues and programmes for the two events can be found at www.hefce.ac.uk/news/events/

Freedom of Information Act 2000

12. All responses may be disclosed on request, under the terms of the Freedom of Information Act. The Act gives a public right of access to any information held by a public authority, in this case HEFCE. This includes information provided in response to a consultation. We have a responsibility to decide whether any responses, including information about your identity, should be made public or treated as confidential. We can refuse to disclose information only in exceptional circumstances. This means that responses to this consultation are unlikely to be treated as confidential except in very particular circumstances. Further information about the Act is available at www.ico.org.uk

Analysis of responses

13. We will commit to read, record, and analyse the views of every response to this consultation in a consistent manner. For reasons of practicality, usually a fair and balanced summary of responses rather than the individual responses themselves will inform any decision made. In most cases the merit of the arguments made is likely to be given more weight than the number of times the same point is made. Responses from organisations or representative bodies which have high relevance or interest in the area under consultation, or are likely to be impacted upon most by the proposals, are likely to carry more weight than those with little or none.

14. We will publish an analysis of the consultation responses and an explanation of how the responses were considered in our subsequent decision. Where we have not been able to respond to a significant and material issue raised, we will usually explain the reasons for this.

Next steps

15. The HEFCE Board will consider a summary of the responses to this consultation, and approve the new version, in March 2014.

16. The new financial memorandum will be effective from 1 August 2014.



[1] When public capital grants are provided to HEIs there is an expectation that the assets created (either partly or fully) with those capital grants remain in use for the provision of higher education. Such assets have lives of many years and should be applied for their intended purpose for the duration of those lives. Should an HEI dispose of an asset created partly of fully with such a capital grant – and the proceeds are not reinvested into another higher education asset – this could lead to that HEI being required to repay some or a proportion of the original capital grant. This is because the purpose for which the capital grant was awarded originally is no longer being met. 

Date: 16 September 2013

Ref: HEFCE 2013/21

To: Heads of HEFCE-funded further education colleges, Heads of HEFCE-funded higher education institutions
Key stakeholders with an interest or involvement in the regulation of higher education

Of interest to those
responsible for:

Vice-chancellors and principals, Governing bodies, Senior management, Finance, Audit, Providers of capital, Student representatives, Other beneficiaries of regulatory assurance 

Enquiries should be directed to:

Ian Lewis, e-mail i.lewis@hefce.ac.uk