Dear Vice-Chancellor or Principal
Recurrent teaching grant from 2015-16
1. This circular letter sets out our proposals to simplify our recurrent teaching funding methods and processes for our allocations for the 2015-16 academic year onwards. We do not require a response to this letter, but welcome any comments you may wish to make on it. Any comments or questions should be addressed to the Learning and Teaching Policy team, e-mail firstname.lastname@example.org, by Friday 10 January 2014.
2. We will confirm the arrangements for 2015-16 in early 2014, once our Board has finalised them, in the light of any responses from the sector to this letter.
Summary of proposals
3. We propose that our funding allocations for 2015-16 should:
- No longer be subject to the ‘three-stage recalculation process’ that has applied for 2012-13 to 2014-15. Instead, they should be informed by student numbers in 2014-15.
- Include a main allocation for high-cost subjects and a supplementary allocation for London weighting that treats all students as if they were ‘new-regime’.
- Include a transitional allocation to be phased out based on forecasts of old-regime student numbers, and using rates of grant that reflect the difference between the current old-regime and new-regime rates for each institution.
4. These proposals will:
- Provide earlier certainty to institutions about their HEFCE teaching grants, because allocations will be informed by student numbers in the previous rather than the current academic year.
- Still allow for significant dynamism in institutions’ income for teaching, as the bulk of that income will be derived from the tuition fees paid by students in the year.
- Reduce the accountability burden on institutions arising from the current three-stage recalculation process.
- Help us to simplify our aggregate student numbers surveys: the Higher Education Students Early Statistics (HESES) survey for higher education institutions and the Higher Education in Further Education: Students (HEIFES) survey for further education colleges.
- Establish a funding system that reflects a ‘steady-state’ position in terms of the categorisation of students. This is a prerequisite for any move away from historical definitions and classifications of students, which may be desirable in future.
- Not affect the arrangements relating to student number control (SNC) allocations.
5. The proposals in this letter relate to the process and method for calculating recurrent teaching grants, but cannot provide guarantees about the levels of those grants. All recurrent funding allocations are conditional upon affordability in the light of our annual grants from the Government. Our Board may need to review spending priorities in the event of significant changes to our budget.
6. For the academic years 2012-13 to 2014-15 our approach to teaching funding has been designed to manage the progressive transfer in higher education finance arrangements, with successive cohorts of students, from HEFCE grants to students’ tuition fees. The total HEFCE teaching budget is reducing by about £1 billion a year during this period, as students who entered before the introduction on 1 September 2012 of the new regulated tuition fee regime complete their studies (‘old-regime’ students, for whom HEFCE grant rates have been higher), and as new student cohorts enter after that date (‘new‑regime’ students, for whom HEFCE grant rates are reduced). (The terms ‘old-regime’ and ‘new-regime’ apply to all categories of students, not just those subject to regulated tuition fees.)
7. Given the very significant reductions to HEFCE grant during this period, we have sought to ensure that our allocations for each year reflect the changing numbers of old- and new-regime students in those years. However, this has required an iterative process of recalculating and adjusting our grants as we gain more certainty about these student numbers. We need to start paying grant for the academic year from August, before student numbers in the year are known, but can finalise it only when we have the individual student data reported at the end of the academic year. This has involved a three-stage process to finalise our allocations.
- An initial allocation, based on institutions’ own forecasts of their student numbers in the coming academic year. For 2013-14, this was first announced in March 2013 and informed by forecast student numbers submitted in Table 7 of the 2012 HESES and HEIFES surveys.
- An adjusted allocation, based on institutions’ in-year return of student numbers. For 2013-14, this will first be announced in March 2014 and be informed by 2013 HESES and HEIFES data returned in Tables 1 to 4.
- A final allocation, based on end-of-year individualised student numbers. For 2013‑14, this will first be announced in March 2015 and be informed by individualised student data reported to the Higher Education Statistics Agency (HESA) by higher education institutions and to the Data Service’s Individualised Learner Record (ILR) by further education colleges.
8. These arrangements were introduced following extensive consultation with the sector.
- In ‘Teaching funding and student number controls: Consultation on changes to be implemented in 2012-13’ (HEFCE 2011/20), we sought views on our proposed allocation methods for 2012-13 and for the phase-out of our 2011-12 mainstream teaching grant from 2012-13 onwards. The outcome of that consultation was reported in ‘Teaching funding and student number controls from 2012-13: Summary of responses to consultation and decisions made’ (HEFCE Circular letter 26/2011).
- In ‘Student number controls and teaching funding: Consultation on arrangements for 2013-14 and beyond’ (HEFCE 2012/04), we sought views on our proposed allocation methods for 2013-14 onwards. This did not include the continuing phase-out of our 2011‑12 mainstream teaching grant, as that was addressed in HEFCE 2011/20. The outcomes of our second consultation were reported in ‘Student number controls and teaching funding in 2013-14 and beyond: Summary of responses to consultation and decisions made’ (HEFCE 2012/19).
9. A significant number of respondents to HEFCE 2011/20 expressed concern about the complexity, burden and planning uncertainties associated with our three-stage recalculation process (see, for example, the summary of responses to Question 1 in Annex B of HEFCE Circular letter 26/2011). We acknowledged these concerns when we launched our second consultation, in which we committed to simplifying our funding approach once the year-on-year funding changes became smaller (see paragraphs 170 to 173 and 338 to 341 of HEFCE 2012/04). We believe 2015-16 is the year in which to make this simplification, given the significantly fewer old-regime students who will continue to be studying at universities and colleges, and this letter sets out how we intend to do it.
Ending the three-stage recalculation process
10. The three-stage process applies to the following allocations of teaching grant for 2013-14:
- funding for old-regime students (mainstream)
- funding for old-regime students (employer co-funded)
- funding for new-regime students in high-cost subjects
- funding for new-regime students attending courses in London.
11. It exists as a consequence of determining funding for an academic year precisely from the student numbers in that same year. If we want to bring it to an end, we need to base funding on more historical data. We have not considered this appropriate between 2012-13 and 2014-15, because of the significantly different rates of grant that apply to old- and new-regime student numbers, and the need to reflect how the balance between these categories has been changing each year.
12. By 2015-16, however, the old-regime category will in general apply to students in year 5 of their course or later, such as students on full-time undergraduate courses in clinical subjects or architecture and part-time students on undergraduate degree courses. Such old-regime students will not be evenly distributed across the sector – some institutions will no longer have any.
13. If we were to roll forward the existing types of allocation for old- and new-regime students, but using data for the previous year, then the calculations for 2015-16 funding would significantly overstate old-regime and understate new-regime numbers, resulting in an inappropriate distribution of grant between institutions. We therefore need a way of distributing grant that reflects how we expect the balance of students to change in 2015-16, but which can be based on historical data and keeps the accountability burden to a minimum.
14. Our proposals for dealing with this are to move in 2015-16 to a steady-state position for our funding for students who are studying high-cost subjects or attending courses in London. For these allocations, all students will be treated as ‘new-regime’, irrespective of when they started their courses. As these allocations will count students in all years of study, they can be based on the student numbers for the previous rather than the current year.
15. We recognise that these allocations in themselves would provide insufficient levels of grant for old‑regime students. We therefore propose to provide a supplementary allocation to top up the rate of grant for them. This would be calculated for each institution and each combination of price group, mode and level as follows:
- 2013-14 old-regime grant rate (mainstream)
- 2013-14 new-regime grant rate for high-cost subjects
- 2013-14 new-regime grant rate for students attending courses in London.
16. To avoid a three-stage recalculation process in 2015-16 for this supplementary allocation for old-regime students, it will not be determined by the precise numbers of old-regime students in that year. We propose instead that it should be based on a forecast of those numbers that we will calculate from HESA and ILR data for 2013-14 and earlier years. We will give institutions an opportunity to comment on our forecasts before finalising them. Having determined these numbers and their associated rates of grant as described above, this supplementary allocation will then remain fixed – it will not be recalculated later to reflect the actual numbers in the year.
17. This supplementary funding for old-regime students will be phased out over time. We propose to determine similar allocations for 2016-17 and 2017-18 (based on our forecasts using HESA and ILR data up to 2013-14), and that the final allocation will be made in the 2017-18 academic year. We reiterate, however, that all recurrent funding allocations are conditional upon affordability in the light of our annual grants from the Government, and that our Board may need to review spending priorities or scale back allocations in the event of significant changes to our budget.
18. The phase-out of this supplementary funding for old-regime students is very similar to the process adopted from 2008-09, when we had to phase out transitional funding for students aiming for an equivalent or lower qualification (ELQ). The declining allocations for ELQ students who started before 2008-09 were calculated for each year at the beginning of 2008. They were informed by historical HESA and ILR data, and institutions had an opportunity to review and comment on them. The allocations were, however, then fixed for the duration of the phase-out period (2008-09 to 2013-14) and generally not recalculated other than for annual pro-rata adjustments such as inflation. For this supplementary allocation for old-regime students, a similar approach will apply. We expect the allocation for 2015-16 to be substantially smaller than the total transitional ELQ funding provided in 2008-09. Phasing out funding for old-regime students so that there is a final allocation in 2017-18 will mean the overall length of the transition period (from 2012-13) is the same as applied for the ELQ policy.
Funding for students attending courses in London
19. The institutional rates of grant that we have provided for old-regime students include funding to reflect the London weighting that applied in our mainstream teaching grant in 2011-12. Additional funding for new-regime students attending courses in London is provided through a separate targeted allocation based on 2011-12 grant rates for London weighting. Under our proposals for 2015-16, this targeted allocation will apply to all HEFCE-fundable students attending courses in London. To avoid duplicating the funding, we therefore need to deduct it in calculating the supplementary transitional allocation for old-regime students.
20. Employer co-funding is phasing out much faster than the mainstream teaching grant from 2011-12: the total allocation for 2013-14 is only £3 million. We therefore propose that 2014-15 will be the last year in which we calculate a separate allocation of funding for old-regime students who are co-funded by employers. After that date, we will cease collecting separate data on such students. Students on courses that were previously employer co-funded may instead be recorded as HEFCE-fundable, if they meet all the relevant criteria for that status, and hence may attract funding under the allocation methods for new-regime students.
Implications for other recurrent teaching grants
21. Paragraph 10 identifies the recurrent teaching grants that are subject to our three-stage recalculation process for 2013-14. The proposals in this circular letter are designed to bring that three-stage recalculation process to an end. Other recurrent teaching grants are either already based on historical student data (this applies, for example, to student opportunity funding) or are not recalculated each year using student numbers (as with, for example, the targeted allocation for institution-specific high-cost distinctive provision). The allocation methods for these other recurrent teaching grants are not affected by the proposals set out in this letter.
Implications for HESES and HEIFES
22. We believe our proposals will enable us to reduce the amount of data we collect in HESES and HEIFES from 2014, as follows.
- We will remove Table 7 from HESES14 and HEIFES14. A forecast of student numbers in 2015-16 will not be required to inform initial grant allocations for that year.
- We will remove the separate collection of (old-regime) employer co-funded students from HESES15 and HEIFES15.
- We will remove the disaggregation of HEFCE-fundable students between old-regime and new-regime from HESES15 and HEIFES15. (It will still be required in HESES14 and HEIFES14, to inform our calculations of adjusted teaching grant for 2014-15.) Our 2015-16 allocations for students in high-cost subjects will be based on the sum of the old- and new-regime students reported in HESES14 and HEIFES14. It should be noted that the identification of students as old- or new-regime in HESA and ILR returns will still be necessary for other purposes, such as monitoring fee charging.
- The attribution of students to price groups from HESES15 and HEIFES15 will be based solely on the arrangements that apply to new-regime students. This is a consequence of no longer identifying old-regime students separately in those surveys. For HESES14 and HEIFES14 (only) we will ask for a disaggregation of students, separately for old-regime and new-regime, between the following price groups: A (for higher education institutions only); B; C1; C2; D; Media Studies; Sports science and leisure studies; Initial Teacher Training (Qualified Teacher Status); INSET (Qualified Teacher Status). The separate collection of price group C numbers for old-regime students will not be required. This disaggregation will ensure we are able to count students appropriately for the 2014-15 allocations for old- and new-regime students, and for the main 2015-16 ‘steady-state’ allocations for new-regime students.
23. Although allocations for 2015-16 will be informed by HESES and HEIFES data for 2014‑15, we will continue to check the data reported by institutions for funding purposes, and may adjust funding where we find that the data do not reflect the final outturn for the year. Our arrangements for this may include selective audit of data returns and reconciliation between HESES and HESA data and between HEIFES and ILR data.
Implications for student number controls
24. Our proposals for teaching grant from 2015-16 do not affect our arrangements for setting and monitoring recruitment against SNC allocations. Table 6 will continue to collect information on the relevant categories of students who count against the SNC or are exempt from it. This will be used to make a first assessment of whether there has been over-recruitment, and thus to calculate any grant adjustments that may apply. It will also be used to inform the calculation of SNC allocations for the following year, reflecting the arrangements for flexibility as outlined in ‘Student number controls: Consultation on arrangements for 2014-15 onwards’ (HEFCE 2013/10). We will use HESA, ILR and other data sources to verify the data reported to us in HESES and HEIFES, and may make further adjustments where we identify discrepancies.
Responses and further information
25. The proposals in this letter are an evolution of the teaching funding arrangements that we introduced from 2012-13 and are designed to address the concerns institutions have raised with us, initially through responses to our consultation in HEFCE 2011/20, but also in subsequent consultations and in dialogue. We are not holding consultation events on these proposals and we do not require a response to this letter, but we do welcome comments on it. Any comments or questions should be addressed to the Learning and Teaching Policy Team, e‑mail email@example.com, by Friday 10 January 2014.
26. We will confirm the arrangements for 2015-16 in spring 2014, once our Board has finalised them, in the light of any responses from the sector to this letter. During summer 2014, we will launch a web facility that will produce various statistical summaries derived from institutions’ HESA and ILR data for 2013-14. This will include details of our estimation of the numbers of old-regime students who we expect to be continuing at the institution in 2015-16 and later years. Institutions should use the web facility to help ensure that their HESA and ILR data are correct. They will also have an opportunity to comment on our forecasts during autumn 2014.
27. The grant announcement in March 2015 will include the following.
- Our allocations of teaching grant for 2015-16 based on HESES and HEIFES data for 2014-15, and our forecasts of any continuing old-regime student numbers they may have.
- Our adjusted allocations of teaching grant for 2014-15, following our three-stage recalculation process. These will also be based on HESES and HEIFES data for 2014-15.
- Our final allocations of teaching grant for 2013-14, following out three-stage recalculation process. These will be based on institutions’ HESA and ILR data for 2013-14.
Interim Chief Executive