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Dear Vice-Chancellor or Principal

1. This circular letter announces decisions taken by the HEFCE Board at its meeting on 31 January 2013 on the funding for universities and colleges for 2012-13 and 2013-14. These decisions follow the grant letter from the Department for Business, Innovation and Skills (BIS) of 11 January 2013. The letter also provides some early comment on student numbers in 2012-13.

2. This letter focuses on the funding that HEFCE will allocate to institutions in the 2013‑14 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. The letter also provides information on our approach to recalculating certain teaching grant allocations for 2012-13.

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

4. HEFCE will invest to ensure a high-quality student learning experience. Our funding will support home and European Union students in all years of study: we are continuing to provide funding for students who entered under the previous fee regime (‘old-regime’ students) at broadly the same level as before, while we increasingly focus funding for students under the new fee regime (‘new-regime’ students) on areas where costs incurred by universities and colleges cannot be met entirely by tuition fees or where it is in the public interest that vulnerable provision receives additional support.

5. This circular letter reports on decisions which will affect adjusted teaching grant allocations for 2012-13, reflecting the student numbers that institutions have reported this year and initial allocations for all elements of grant for 2013-14.

6. We will notify institutions on 18 March 2013 of their provisional adjusted teaching grant allocations for 2012-13 and their initial recurrent grant allocations for 2013-14. These allocations will be under embargo until 0001 on 21 March, when the full grant announcement will be published. We will hold a press conference on 19 March.

Funding available to HEFCE by financial year

7. Our grant letter from BIS confirmed that the total HEFCE grant available for the 2013-14 financial year (1 April to 31 March) is £4,847 million. Table 1 shows the funding for 2012-13 to 2014‑15, although figures for 2014-15 remain largely indicative. Our grant letter from BIS also confirmed support for research and knowledge exchange through Higher Education Innovation Funding (HEIF) up to 2014-15, and provided indicative figures for research and teaching capital up to 2014-15.

Table 1: HEFCE grant for financial years 2012-13 to 2014-15 (£ millions)

 Final funding FY 2012-13Announced funding FY 2013-14Indicative funding FY 2014-15
Recurrent teaching 3,815 2,881 1,960
Recurrent research 1,587 1,573 1,573
Higher Education Innovation Funding (HEIF) 119 113 113
Total recurrent grant 5,520 4,567 3,646
Teaching capital 90 59 134
Research capital 195 221 286
Total capital 286 280 420
Total HEFCE resources 5,806 4,847 4,066
Additional ring-fenced allocations to support students 87 137 150
Total funding 5,893 4,984 4,216

8. The overall reduction in resource for HEFCE of £959 million between 2012-13 and 2013‑14 primarily relates to the reduction in recurrent teaching funding, which reflects the anticipated increase in graduate contributions. Although HEFCE funding is reducing, the overall funding for higher education (taking into account the Government’s estimated level of fee income via students who are subject to the regulated undergraduate tuition fee regime) is set to increase.

HEFCE funding to universities and colleges for the 2013-14 academic year

9. 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 2013‑14 academic year is £4,472 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.

10. The total of £4,472 million includes:

  1. £2,325 million for teaching. The overall level of 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, Student Opportunity and specialist institutions will be maintained. There is further information on teaching funding for 2013-14 in paragraphs 11 to 18.
  2. £1,558 million for research. This is the same cash figure as we have provided in 2011-12 and 2012-13: 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 2013-14 in paragraphs 19 and 20.
  3. £160 million for knowledge exchange (HEIF). This includes a supplement of £10 million for 2013-14 and 2014-15, enabling existing knowledge exchange strategies to be enhanced where there is evidence that the current cap on funding is a constraint to institutions’ support of economic growth. Allocations of knowledge exchange funding to higher education institutions totalling £150 million a year 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. £429 million in non-recurrent grant. This comprises £149 million in special funding for national programmes and initiatives, and £280 million in earmarked capital grants. There is further information on non-recurrent grant in paragraphs 21 to 23.

2013-14 Recurrent grant for teaching

11. 2013-14 is the second year of the new finance arrangements for higher education. HEFCE funding for teaching continues to decrease, and universities and colleges will be more dependent on funding from publicly funded student loans. Funding for old-regime students continues at broadly similar rates, but the total allocated is much reduced, because fewer such students will still be studying in 2013-14. The allocation method for this element of funding was determined in 2011, following consultation. During 2012 we consulted on our approach to other elements of 2013-14 teaching grant, including the funding to support new-regime students in high-cost subjects. Information about these changes, including the consultation documents and the reports on their outcomes, is available on our web-site.

12. From 2012-13, we have adopted a three-stage process to calculate and review teaching grant allocations in order to balance the need to pay grant from the start of the academic year, before student numbers are known, with the need to ensure, in the interests of fairness and accountability, that allocations finally reflect actual student numbers in the year. This three-stage process comprises:

  1. An initial allocation in the March prior to the start of the academic year, informed by forecast student numbers for the academic year.
  2. An adjusted allocation in the following March, updated to reflect in-year student numbers submitted by institutions.
  3. A final allocation announced after the end of the academic year, using final student numbers taken from institutions’ final individualised student data.

13. The budget available for teaching for 2013-14 allows for an uplift of 1 per cent to contribute to inflationary costs. This is implemented as a multiplier, or scaling factor, of 1.01 in our funding calculations and ensures that the sum available is fully allocated, given the student data provided by institutions and the rates of grant that apply. This scaling factor will be applied to all elements of recurrent teaching grant in our initial allocations (including for Student Opportunity), with the exception of fee compensation for students on Erasmus years abroad. The latter is excluded because the rate of compensation is fixed to reflect the maximum regulated tuition fee that would otherwise be chargeable. The scaling factor we use may, however, be revised under our three-stage approach to recalculating teaching allocations to reflect more up-to-date data for the year.

14. The Board has also agreed that certain rates of funding that were provided for illustrative purposes in ‘Student number controls and teaching funding: Consultation on arrangements for 2013-14 and beyond’ (HEFCE 2012/04) should be used in our funding for 2013-14, but also subject to an uplift of 1 per cent, to take account of the 1.01 scaling factor. This applies to the rates of funding for new-regime students in high-cost subjects, allocations to support accelerated provision for full-time undergraduates and intensive postgraduate taught courses (see paragraphs 231 and 237 of HEFCE 2012/04) and the London weighting (see paragraph 258 of HEFCE 2012/04). For the last, institutions with provision in more than one of the inner, outer and outside London areas will receive the amalgamated rates previously notified to them, reflecting the proportion of their activity in each area, but also incorporating the 1.01 scaling factor.

15. The initial rates of funding for new-regime students in high-cost subjects are shown in Table 2. The rates of grant for postgraduate taught students consolidate the interim funding provided in 2012-13 for postgraduate taught provision. This broadly maintains rates of grant at 2011-12 levels and should reduce pressure on institutions to increase fees for postgraduate taught provision.

Table 2: Rates of grant for new-regime students in high-cost subjects for 2013-14, including 1.01 scaling factor

Price groupsUndergraduates and postgraduates on courses subject to the undergraduate student support regime (£)Postgraduate taught students on courses not subject to the undergraduate student support regime(£)
A 10,100 11,211
B 1,515 2,626
C1 253 1,364
C2 0 1,111
D 0 0

16. The Board has also agreed funding allocations for individual institutions following responses to ‘Institution-specific funding: Consultation outcomes and invitation to make submissions’ (HEFCE 2012/16). These will be published in March.

17. Table 3 shows the disaggregation of our initial teaching funding allocations for 2013-14 between different elements of grant, reflecting the Board’s decisions. There are some differences between individual figures and totals due to rounding.

Table 3: HEFCE recurrent teaching grant for 2013-14 (£ millions)

Other recurrent teaching allocations

Funding for old-regime students 
Phase-out of mainstream teaching grant 1,420
Employer co-funding 3
Sub-total funding for old-regime students 1,423
Funding for new-regime students in high-cost subjects 330
Student Opportunity funding
Full-time widening access for people from disadvantaged backgrounds 62
Part-time widening access for people from disadvantaged backgrounds 28
Widening access and improving provision for disabled students 15
Improving retention: full-time 174
Improving retention: part-time 54
Sub-total Student Opportunity 332
Other recurrent teaching allocations
Part-time undergraduates 26
Accelerated full-time undergraduate provision 3
Intensive postgraduate provision 36
Specific institutional support 66
Very high-cost science subjects 23
Erasmus fee compensation 14
New-regime students attending courses in London 45
Clinical consultants’ pay 18
Senior academic general practitioners’ pay 1
NHS pensions scheme compensation 6
Transitional funding for equivalent or lower qualifications 3
Sub-total other targeted allocations and recurrent teaching grants 240
Total 2,325

18. The initial teaching grant allocations for the 2013-14 academic year that we announce in March 2013 will be indicative only, because they will be based on forecast student numbers provided by institutions. These initial allocations will inform grant payments between August 2012 and January 2013. We will review the allocations for the whole academic year in March 2014 in light of updated student numbers, which we will receive in December 2013. We will adjust grant payments between April and July 2014 accordingly, correcting for any over- or under-payment made earlier in the academic year. Final allocations for 2013-14 will be confirmed in 2015 in light of the end-of-year individualised student data for 2013-14.

2013-14 Recurrent grant for research

19. The Board has agreed that the total funding for research of £1,558 million should be disaggregated between different elements in the same way as for 2012-13 – that is:

  1. £1,050 million for mainstream quality-related research (QR) funding, including London weighting.
  2. £240 million for research degree programme 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.

20. There are no changes to the allocation methods for research for 2013-14. The stability in the allocation methods and budgets means there will be significant stability in our research funding for individual institutions. For the mainstream element, which accounts for two-thirds of the total, the data that inform the allocation are also unchanged (as they are derived entirely from the 2008 Research Assessment Exercise). This means that mainstream QR funding for each institution will generally be at the same cash level as for 2012-13 (there may be differences in individual cases as a result of transfers of provision between institutions). The same is also true of the QR funding for National Research Libraries, which is informed by a review in 2007. However, updated data that inform the research degree programme supervision, charities and business elements of research funding will result in some redistribution of their fixed budgets between institutions.

Non-recurrent funding

21. The Board agreed special funding for 2013-14 at £149 million. This continues the Board’s intention to limit the amount of funding distributed through this channel. We are planning to maintain investment in Jisc (formerly the Joint Information Systems Committee) and the Catalyst Fund.

22. Earmarked capital totals £280 million, including £120 million for the second year of the UK Research Partnership Investment Fund, £35 million for the Teaching Capital Investment Fund and £89 million for the Research Capital Investment Fund. The BIS grant letter also provides an indicative allocation for 2014-15 of £420 million, of which £160 million represents the third year allocation for the UK Research Partnership Investment Fund. The funding for teaching and research capital investment funding will follow the same allocation process as 2012-13.

23. The Board has maintained its commitment to helping universities and colleges reduce their carbon emissions, by providing a further £6 million of funding for the Revolving Green Fund.

Adjusted teaching grant for 2012-13

24. Our funding agreement with institutions explained that certain teaching grant allocations for 2012-13 that were initially informed by forecast student numbers for that year would be recalculated under the three-stage process, as described in paragraph 12. This applies to the following allocations:

  • funding for old-regime students (mainstream)
  • funding for old-regime students (co-funded)
  • high-cost funding for new-regime students
  • interim postgraduate taught allocation
  • interim allocation for London weighting
  • interim allocation for Open University new-regime students in Northern Ireland.

25. The recalculations of funding for old-regime students will now use 2011-12 rates of grant derived from institutions’ individualised student data for the year, instead of those derived from the aggregate student data submitted in 2011 by higher education institutions in the Higher Education Students Early Statistics (HESES) survey and by further education colleges in the Higher Education in Further Education: Students (HEIFES) survey. The recalculations of all six allocations will use updated student numbers for 2012-13 reported by institutions in their 2012 HESES and HEIFES returns.

26. The Board has decided that in determining the adjusted 2012-13 allocations of funding for old-regime students (mainstream and co-funded) and high-cost funding for new-regime students, we should not apply a scaling factor. (This is equivalent to applying a scaling factor of 1, instead of the scaling factor of 0.99 that was included in our initial allocations for 2012-13.) Funding for new-regime students in high-cost subjects originally used funding rates of £9,804 for price group A and £1,483 for price group B, but these rates were based on applying the scaling factor of 0.99. We therefore propose to uplift this funding by 1 per cent, implying underlying grant rates of approximately £1,498 for price group B and approximately £9,902 for price group A. The scaling factor we use for these three allocations may be revised again under our three-stage approach to recalculating teaching allocations, to reflect more up-to-date data for the year.

27. The 2012-13 interim allocations for postgraduate taught provision, London weighting and Open University new-regime students in Northern Ireland, were not subject to the initial 0.99 scaling factor, because they were all provided to maintain funding at 2011-12 levels or rates. These three allocations are being recalculated to reflect the latest data from institutions, but the methodology remains as before.

28. Other allocations of teaching grant for 2012-13 are not routinely subject to recalculation, though some adjustments may apply in individual cases following data audit or reconciliation. The decisions on the calculation of adjusted teaching grants for 2012-13, and the updated data from institutions, result in the changes to teaching grant budgets set out in Table 4. There are some differences between individual figures and totals due to rounding.

Table 4: Adjusted recurrent teaching grant budgets for 2012-13 (£ millions)

Element of grantBudgets at July 2012Adjusted budgets for March 2013
Teaching grant: elements not subject to routine recalculation 604 604
Teaching grant: elements to be recalculated of which: 2,609 2,627
Funding for old-regime students (mainstream) 2,390 2,431
Funding for old-regime students (co-funded) 14 11
High-cost funding for new-regime students 146 131
Interim postgraduate taught allocation 39 33
Interim allocation for London weighting 19 19
Interim allocation for Open University new‑regime students in Northern Ireland 1 2
Total 3214 3,231

Student numbers

29. In January we announced provisional 2013-14 student number control allocations for institutions. These are provisional because they are subject to appeal, the deadline for submission of appeals being 1 February 2013. We will notify institutions of the outcomes of their appeal in the week beginning 25 February. The limits for all institutions will be published on 21 March 2013, alongside our adjusted funding allocations for 2012-13 and initial recurrent grant allocations for 2013-14.

30. The HESES and HEIFES data recently submitted by institutions provide early information on student numbers for 2012-13, including for part-time and postgraduate students.

  1. We expect full-time undergraduate entrants in 2012-13 to be about 28,000 below the Government’s Spending Review assumptions. Much of this shortfall will be attributable to fewer students in the 2011 UCAS application cycle deferring entry until 2012-13, combined with deferral rates in the 2012 cycle returning closer to normal. This transient effect on deferral patterns arising from the introduction of the new fee regime means that we expect intakes in 2013‑14 to bounce back, at least partially, so that they are closer to the Government’s Spending Review assumptions.
  2. We expect a shortfall in the number of AAB+ equivalent and medical and dental students of about 5,000, compared with our assumption of 85,000. This shortfall will also be attributable largely to changed patterns of deferrals in the 2011 and 2012 UCAS application cycles. The HESES and HEIFES data suggest the shortfall is larger, but we believe this is due to institutions counting too many students against the student number control limit and too few against these exempt categories: this is consistent with the fact that we have been able to find many more students in exempt categories through data linking than were evident from institutions’ own data alone. We will be discussing with individual institutions ways in which they can improve their identification of exempt students in future data returns.
  3. There have been some modest year-on-year reductions in full-time and part-time postgraduate taught entrants in 2012-13. We should not, however, conclude that this is a predictor of a long-term position: there remains a risk that students who complete undergraduate studies under the regulated fee regime introduced last year may in future be deterred from postgraduate study.
  4. There have been very significant reductions in part-time undergraduate entrants in 2012-13.
  5. 2011-12 and 2012-13 were untypical years for recruitment, because of the effect of the introduction of the new fee regime. They cannot, therefore, be relied on to show how demand for higher education may have been affected in the longer term by the new fee regime.

31. In March, we will publish a report providing an early assessment of the impact of the new funding arrangements on students and institutions, which will include a fuller analysis of student numbers in 2012-13.

Next steps

32. The Board will consider the adjusted 2012-13 and initial 2013-14 recurrent grant allocations at its meeting on 7 March. We will confirm student number control allocations, reflecting the outcome of any appeals, in the week beginning 25 February 2013. On 18 March 2013 institutions will be able to download their recurrent grant letters from the HEFCE extranet; these will set out initial funding allocations for 2013‑14, and adjusted teaching funding allocations for 2012-13. The content of these documents will be embargoed until 0001 on 21 March 2013: we will publish full information about our allocations to all institutions on that day.

33. In recent years, we have published the individual grant tables for each institution in March. We propose to continue this practice for the 2012-13 adjusted grant tables. However, we are concerned that publishing individual institutional grant tables relating to 2013-14 may affect competition, because they include institutions’ forecasts of their recruitment in that year (used to inform the funding for new-regime students in high-cost subjects). To avoid institutions monitoring one another’s recruitment plans for 2013-14, we intend to publish initial allocations for 2013-14 in October 2013 (by which point most recruitment for 2013-14 will be complete). Summaries of our 2013-14 funding and student number control allocations for each institution will still be publicly available from March, however.

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

Yours sincerely


Sir Alan Langlands

Chief Executive


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Date: 7 February 2013

Ref: Circular letter 04/2013

To: Heads of HEFCE-funded further education colleges, Heads of HEFCE-funded higher education institutions

Of interest to those
responsible for:

Finance, Planning

Enquiries should be directed to:

HEFCE institutional teams