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Any feedback or questions should be addressed by email to by 1700 on Friday 1 May 2015.

Dear Vice-Chancellor or Principal

Review of institution-specific funding

1. This letter requests feedback on HEFCE’s approach to the review of institution-specific funding. Any feedback or questions should be addressed by email to by 1700 on Friday 1 May 2015.

2. Institution-specific funding is additional and discretionary funding currently provided by HEFCE to a sub-set of HEFCE-funded higher education institutions (HEIs). It is intended to recognise the higher cost and distinctive nature of small and specialist higher education providers, and the public value that these institutions bring to the sector.

3. In 2012, the last review of institution-specific funding, chaired by Professor Dame Shirley Pearce CBE, recommended that a fundamental re-examination of this targeted allocation should take place in 2015. The HEFCE Board has agreed the principles and framework for a new review, to affect eligibility for allocations for 2016-17 onwards.

4. This letter sets out our initial proposals for the processes that will underpin the distribution of this fund from 2016-17 onwards. We do not require a response to this letter, but welcome feedback on our approach. We intend to publish full details of the review guidance, and to invite submissions, in June 2015. This letter includes a provisional timetable for this process, to enable institutions to plan for the development of their submissions.

5. While we believe that there is a strong case for this stream of funding to continue, we cannot presume that this area will be identified as one of a future Government’s priorities, nor that funding will be available. We will therefore need to develop detailed proposals for funding levels once we know the Government’s priorities and the budget for higher education spending in 2016-17. We expect to be able to develop proposals towards the end of 2015 or early 2016 after a Spending Review.

6. The HEFCE Board has agreed that the purpose of institution-specific funding should be to support and enhance specialist institutions where they are providing world-leading teaching. The review will consider evidence in three areas. Firstly, evidence of the specialist nature of an institution’s provision. Secondly, the extent to which the whole institution faces significantly higher teaching costs. These criteria will determine eligibility to submit. Thirdly, where an institution can provide evidence of the above, it will have the opportunity to make a case that its teaching and the impact of that teaching is world-leading. 

Eligibility to submit to the review of institution-specific funding

7. We propose that the following eligibility criteria, in combination, must be satisfied to apply to the review of institution-specific funding:

Criterion A: The proportion of an institution’s provision that is focused in one Higher Education Statistics Agency (HESA) academic cost centre should be 60 per cent or higher.

Criterion B: There should be evidence that the costs of their teaching across the whole institution are significantly, and justifiably, higher than the typical costs for those academic cost centres.

Criterion C: There should be evidence of measures taken to manage teaching costs effectively (for instance through collaboration).

8. Table 1 describes these eligibility criteria, the method for providing evidence against them, and the rationale.

Table 1: Proposed eligibility criteria for submission to the review of institution-specific funding

Criterion A: Cost centre concentration



At least 60 per cent of an institution’s activity should be concentrated in one HESA academic cost centre.

Source and assessment


Average proportion of activity returned to largest academic cost centre should be 60 per cent or higher (based on data derived from HESA student data for 2012-13 and 2013-14).

Where institutions do not have the relevant HESA data, we expect to use comparable information about concentration of provision.

HEFCE will identify the institutions that meet this criterion, and these will be listed in the submission guidance published in June 2015. An institution with questions about this list can ask to be provided with its data, and may make a case that HEFCE’s data analysis is incorrect, which we will then assess.


Concentration in a single academic cost centre (rather than in two or three cost centres) will allow a focus on institutions with highly specialised provision.

Provision across two or more academic cost centres increases institutions’ ability to cross-subsidise, and therefore does not imply specialist provision. The two years from which we will derive an average are the most recent data available. Revisions to academic cost centres in 2012-13 mean comparison with earlier years is not possible.   

Criterion B: Evidence of higher costs


Annual Accountability Returns, and in particular value for money reports (where they have been provided), will be reviewed. In addition, we will make use of Transparent Approach to Costing data to provide additional evidence about the institution and some broad cross-sector comparisons.

Source and assessment

Institutions that meet Criterion A should provide their latest value for money reports, together with any other evidence of significantly higher teaching costs. These will be reviewed and assessed by HEFCE staff, and assessments shared with the institution.


Any case for making additional public funds available to meet higher teaching costs needs to be clear that these costs do not simply reflect inefficient models of delivery, but rather necessarily high input costs. This gives further confidence in the specialist nature of institutions to be reviewed.

Criterion C: Evidence of efforts to manage costs effectively


An institutional self-assessment should provide evidence that all reasonable efforts to collaborate and explore options for shared services (for example teaching space) have been and will be taken.

Source and assessment

Institutions that meet Criterion A will be asked to provide a short self-assessment setting out examples of steps they have taken to reduce costs or increase delivery, and an indication of future plans in this area.


This will provide confidence that specialist institutions have taken all steps possible to manage costs effectively. Since there are no existing external data to provide this reassurance, an assessment of cases made by institutions is required.

9. Alternative options for eligibility criteria were considered. For example, eligibility for the review could have been based on self-selection, or different thresholds could have been applied. However, no other option was judged to provide the required confidence that the funding would meet its intended purpose, in a way that was practical within the resource constraints for administrating the review.

Assessment of submissions from institutions that meet the eligibility criteria

10. In addition to the evidence noted above, institutions will be required to submit evidence of their world-leading teaching and the world-leading impact of their graduates in the specific specialist areas.

11. Institutions deemed eligible based on the above criteria will subsequently be asked to provide evidence that:

  1. They are world-leading, and require this support at least to maintain this position, but ideally to improve it further.
  2. The knowledge and skills of their graduates, and the impact they have on the professions and industries for which they have been prepared, are recognised by comparable institutions, employers, external funders and others to be world-leading. We expect evidence that these institutions, and their graduates, are making crucial contributions to maintaining world-leading developments in their particular specialisms, or creating the new industries or art forms of the future. 

12. Submissions will take the form of a critical self-evaluation against a range of elements related to the themes above. The format for submissions will be published with guidance in June 2015, but we do not wish to be unduly prescriptive given the diversity of institutions that may form part of this review.

13. The HEFCE Board will make final decisions about the allocation of institution-specific funding. To support the Board’s decisions, a review panel will be established to provide independent and international expert review of institutions’ submissions. The review panel’s recommendations will be informed by the outcome of an internal, technical review, international benchmarks and the co-opting of subject-matter experts as appropriate. We intend to convene the review panel at an early stage, to ensure its influence on the indicators and format used for submissions.

14. Professor Sir Christopher Frayling has agreed to chair the review panel. Other members will be drawn from those with experience of leading specialist institutions outside England, and those with an international overview of the fields in which these institutions operate.

15. The formal guidance will outline a process by which institutions may appeal against the outcomes of the review.

Funding outcomes

16. Following the outcome of the review, and confirmation of the total funding available for institution-specific allocations, we will determine the levels awarded to each successful institution. We anticipate that this will involve moving away from the system whereby allocations are based on historic funding.

17. Although we cannot presume that funding will continue to be available to support this area, we intend decisions to affect funding from 2016-17 onwards. Subject to money being available for this purpose, we expect institutions to be notified of funding allocations in March 2016.

Summary of review process

18. In summary, the review will proceed as follows:

  1. HEFCE will develop detailed guidance for institutions in the light of any comments received in response to this letter. We will identify those institutions that meet the academic cost centre concentration criterion (Criterion A), and these institutions will be eligible to submit a case for review.
  2. Eligible institutions will be invited to make a submission to the review of institution-specific funding, in guidance to be published in June 2015.
  3. HEFCE will review the submissions on cost (see Table 1, Criteria B and C). Institutions that do not meet Criteria B and C will be eliminated from the review.
  4. The review panel will carry out an international expert review of the submissions addressing world-leading status.
  5. The review panel will recommend to the HEFCE Board which institutions should qualify for institution-specific funding.
  6. Qualifying institutions will be awarded institution-specific funding on the basis of an agreed formula, provided money is prioritised by the new Government for this purpose.


19. The final timeline for the review will be published with the formal guidance in June 2015. Table 2 provides our draft timetable to allow institutions to plan the development and submission of their bids.

Table 2: Indicative timeline for review of institution-specific funding



24 March 2015

Circular letter outlining approach and criteria

1 May 2015

Deadline for comments on our proposed approach

April to May 2015

HEFCE considers responses and develops final proposals

June 2015

Publication of invitation to submit against final criteria

End September 2015

Deadline for submissions

October to November 2015

Submissions considered by HEFCE and review panel

December 2015 or January 2016

Institutions notified of review outcomes

March 2016

Subject to funds being available, institutions notified of funding allocations

Yours sincerely

Professor Madeleine Atkins

Chief Executive


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Date: 24 March 2015

Ref: Circular letter 06/2015

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

Of interest to those
responsible for:

Senior management, Finance, Planning

Enquiries should be directed to:

Derek Hicks and Oliver Watson, tel 0117 931 7459, email