9: Funding of Higher Education

The funding of Higher Education comprises two main elements: direct funding through the Office for Students (although this is less a funding council in terms of the nature and quantum than its predecessor, the Higher Education Funding Council for England, or HEFCE) and UKRI (Research England and the research councils), and student loans for maintenance and tuition fees.  The decline in public funding for teaching has been incremental since the government raised the cap on tuition fees, and the 2019-20 total for teaching is 74% below 2011-12 in real terms.

However, the large increase in tuition fee income from home and EU students since 2012 has meant that the total funding for institutions through this fee income and funding has increased in real terms from 2011-12 to 2019-20. From 2020-21, the government is reducing the OfS’s teaching grant. It is perhaps not surprising that value for money for students and the taxpayer is of interest to HM Treasury and the OfS, as well as being a recurrent topic of education and other media. In turn, the Public Accounts Committee is showing increased interest in higher education, whether it be the market (June 2018), alternative providers, or the sale of student loans (November 2018). It is often heads of institutions, NSS, OfS and other bodies who are brought before the PAC.

The OfS receives its ‘grant’ from the Secretary of State for Education, subject to the OfS discharging specific priorities as agreed with the Department. OfS then provides modest funding for registered providers in the following forms:

• recurrent funding for subject areas where teaching costs are particularly high, such as medicine (high cost subject funding)
• teaching capital grant to invest in buildings, equipment or technology, shared out according to weighted FTE students 
• non-recurrent funding for capital infrastructure or national facilities 
• ‘competitions’ to fund enhancement activities and projects and policy initiatives e.g. the National Student Survey; the National Collaborative Outreach Programme (NCOP) which is now in its second phase, bringing universities together in partnership with colleges and schools to deliver outreach to young people aged 9-13 years to seek to reduce the gaps in HE participation between the most and least represented groups.

The teaching and student element of knowledge exchange funding through the Higher Education Innovation Fund (HEIF) is distributed by Research England. Research England provides funding for research and knowledge exchange activities, including the UK Research Partnership Investment Fund (RPIF): £900m into which institutions can bid to support investment in research facilities. York has been a beneficiary of the latter to contribute towards the costs of developing the Safe Autonomy building. Research England also provides a range of other competitive funding streams, such as the Global Challenges Research Fund (GCRF), Expanding Excellence in England (E3) to support the strategic expansion of research units and departments, and capital funding. Research England also oversees the Research Excellence Framework (REF) 2021, the results of which will steer research funding from 2022-23, including £1.6bn QR funding to institutions, allocated on the basis of their performance in the REF and which is payable annually in the intervening years until the next exercise.  Alongside this, institutions can bid for funding via one of the six research councils, under the umbrella of UK Research and Innovation (UKRI) or via Innovate UK for innovative product development with business.

The financial cross-subsidy of programmes or activities, such as research through teaching, is an area of much debate in the HE sector, and one that finance committees and governing bodies should understand more fully when getting beneath the skin of budgeting and long-term forecasts. For example, it is recognised that UK government does not fund the full economic cost of university research, and the shortfall is made up often from (international) tuition fees. Universities as a responsible community may see the value of cross-subsidy between departments and activities, but  increasingly, students are asking questions about cross-subsidy from the perspective of paying fees for a specific programme, rather than to support the wider student experience from which they benefit.