HEFCE letter confirms some tough years ahead for teaching funding

HEFCE's 2016-17 grant letter was published on Friday 4 March 2016 which is late for these sort of documents, though earlier than last year's revised grant letter (published in July 2015 following some post-election spending cuts). The letter is also longer than normal and contains a large number of instructions from ministers to the funding council. There are good articles on the length of the letter on WonkHE and on the politics of quality assessment in the Times Higher. The financial aspects of the letter are worth a look. Here's why: the letter sets out HEFCE's budget for the next two years (2016-17 and 2017-18) and, at first sight, the changes looks fairly modest. Total funding via HEFCE (line h) will be cut from £4,010 million this year to £3,476 million. The letter suggests this cut will be offset by an increase in the fee income charged to students. However Note 2 to the letter explains that the fee income estimates are a year old. Application data reported by UCAS for 2016 entry suggests that application numbers may no longer be rising this year and that if it wasn't for an increase in EU entries, there would be a fall (there is a 1% fall in entrants from England). HEFCE and UCAS data also show that there are some universities and colleges are expanding their entry numbers whereas others are experiencing decreases. even if there is an increase in the money available for HE teaching (fee income plus HEFCE grants), the increase is minor compared to the substantial growth experienced between 2012 and 2015 as a result of increases in average full-time fees towards £9,000 and the growth in overall student numbers. The next few years see the fee cap effectively fixed and a reduction in the population of young adults. Institutions will need different strategies to maintain or expand income - this is the business case for widening participation. while the income available per student is effectively fixed, costs continue to rise because of pressure to keep pay competitive and because of higher national insurance and higher teacher pension contributions. The higher minimum wage will also add to staff costs though spending here is justifiable. The grant letter notes the "substantial upward drift of the salaries of some top managers" which is perhaps less easy to explain. the squeeze on institutional income comes at a time when students themselves will feel under more financial pressure because of the decision to end HE maintenance grants and to require students to take higher loans to fund maintenance costs. This was the biggest spending review decision in the Department of Business Innovation Skills because it moves almost £2 billion from the revenue budget to the loans budget. It is interesting that there is no mention of this issue - or the implications for universities - in the letter. the biggest cut in volume terms in the HEFCE budget is the 50% saving to the Student Opportunity Fund (for a good explanation of how this £380 million budget works, see the presentation on this Universities UK blog). The grant letter asks HEFCE to retarget this spending on government priorities, including "institutions with higher proportion of at risk students from disadvantaged backgrounds" and to support students with the potential to succeeed in "areas where there is evidence that entry rates are below expectations". It is unclear yet how HEFCE will interpret this brief or how much of a cut it will make to 2016-17 student opportunity allocations given that it is already late to make this sort of decision. Colleges received £39 million from this budget in 2015-16 which reflects their current work in widening participation and the location of some in low participation areas. Colleges should be slightly more protected than universities from the forthcoming SOF cuts though this depends on the details. the letter confirms (again in a note- this time note vi) that HEFCE will be expected to use its diminishing teaching budget to pick up additional costs related to the transfer of nursing, midwifery and allied health spending from the Department of Health to BIS. We won't know the full consequences of the grant letter until HEFCE publishes 2016-17 allocations and its plans for future teaching and student opportunity funding. The letter itself gives HEFCE a budget for two years (up until March 2018). By then we could be in a very different world. The odds now seem to be in favour of HE legislation in the next 12 months (including the "creation of an Office for Students and Research UK" - paragraph 2). The UK may have voted to leave the EU - or may have a different relationship under a new prime minister. Despite the best intentions, budgets set out in the 2015 spending review might - by 2018 - be up for grabs in a new review. Presentation slides on the higher education funding context for colleges used at the AoC HE conference are available here. aoc he funding context julian gravatt 8 March 2016.pptx aoc he funding context julian gravatt 8 March 2016.pptx (PPTX,622.91 KB)