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					Research Note for the Enterprise and Lifelong Learning Committee

RN 01/36 15 March 2001

FUNDING HIGHER EDUCATION INSTITUTIONS

The Enterprise and Lifelong Learning Committee has decided to hold a number of hearings into how Higher Education Institutions (HEIs) are funded in Scotland. The decision follows a series of critical media articles and adverse comments from some academics, suggesting that changes proposed by the Scottish Higher Education Funding Council (SHEFC) will lead to funding cuts for certain HEI subjects. This research note describes how the current system of HEI funding in Scotland works; explains how SHEFC proposes to change this system; and examines how these proposals have been received by the wider academic community. THE ROLE OF SHEFC The Scottish Higher Education Funding Council is a non-departmental public body sponsored by the Scottish Executive’s Enterprise and Lifelong Learning Department. SHEFC was established in 1992 by the Further and Higher Education (Scotland) Act 1992, and describes its main functions as follows: to distribute funds to support teaching and research in higher education institutions; to secure that provision is made for assessing the quality of higher education supported by the Council;

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and to provide Scottish Ministers with information and advice relating to all aspects of higher education in Scotland, including the financial needs of the sector.

‘Aiming Higher’ SHEFC’s annual report and accounts for 1999-2000, show that estimated funding received by the Council for this academic year amounted to just over £607 million. Gross income, in terms of grant-in-aid received from the government for distribution to institutions, amounted to just under £600 million. In terms of expenditure, two headings account for the vast majority of spending: ‘Teaching’ and ‘Research’. The main teaching grant amounted to just under £440 million, while the main research grant totalled £110 million. Table 1 shows the overall payments to the 18 higher education institutions funded by SHEFC, and how the main grant for teaching contributes to this overall figure: Table 11: Grants to universities and colleges for academic year 1999-2000 (1)
HIGHER EDUCATION INSTITUTE MAIN GRANT FOR TEACHING (£) University of Aberdeen University of Abertay, Dundee University of Dundee Edinburgh College of Art University of Edinburgh Glasgow Caledonian University Glasgow School of Art University of Glasgow (2) Heriot-Watt University Napier University Northern College of Education University of Paisley Queen Margaret University Robert Gordon University Royal Scottish Academy of Music and Drama University of St Andrews University of Stirling University of Strathclyde Total 33,838,418 12,695,000 28,025,974 5,400,000 62,682,740 34,418,000 5,953,000 65,467,828 19,584,000 28,665,000 5,854,000 21,610,000 9,084,000 22,832,000 3,696,000 15,935,000 16,384,925 46,856,350 438,982,235 TOTAL PAYMENTS (£) 45,725,199 14,032,835 41,230,862 6,702,438 105,502,196 37,688,879 7,227,130 96,626,865 27,886,206 31,810,648 6,813,017 26,346,888 10,290,435 25,700,779 5,622,178 25,557,092 23,350,204 66,226,162 604,340,013

(1) These figures are on an academic year basis and relate to expenditure up to 31 July 2000.
The table was produced shortly after this date, and the figures within it are estimates. Figures for the University of Glasgow include grants to the former St Andrew’s College of Education. Note that figures relating to the construction of the Edinburgh Medical School are excluded from the table.

HOW THE CURRENT TEACHING FUNDING SYSTEM OPERATES Essentially, SHEFC has responsibility for funding higher education institutions in line with overall Scottish Executive policy on higher education. Teaching funding provided by SHEFC to HEIs supports expenditure on items like teachers’ salaries and classroom equipment. This does not equate to all of the money needed to
1

This is an edited version of a table provided in SHEFC’s annual accounts for 1999/2000.

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fund teaching; HEIs also receive money from, for example, the Student Awards Agency for Scotland. At present, there are 22 funding subject groups2, for example clinical dentistry and social sciences. (Appendix 1 gives a full list of the current funding subject groups and shows how these may change under SHEFC’s proposals). Each of the subjects has a ‘cash value’ attached to it reflecting the estimated cost of providing teaching for the subject in that year. SHEFC decides, in conjunction with the HEI, how many student places it intends to fund in each subject, using a formula based on the student places from the previous academic year. SHEFC then provides a block grant to each HEI to fund teaching; it does not allocate money to individual departments or courses within HEIs. When the money is allocated to HEIs, the decision on spending across each department is made at the discretion of the individual HEI, and HEIs can decide to switch resources between departments if they so wish. SHEFC does, however, have the sanction of being able to take back resources if funded student places are not filled, or if the quality of provision is not satisfactory. This annual funding procedure is illustrated in Box 1: Box 1 - The annual funding process Step 1 – SHEFC determines the broad cost of teaching a student, including their fee, for each Funding Subject Group (FSG). This is called the unit teaching resource – ‘a’. Step 2 – The student places that SHEFC will fund in HEIs are called full time equivalent funded places – ‘b’, Step 3 – By multiplying steps one and two together it is possible to calculate gross SHEFC funding: a x b = ‘c’. Step 4 – SHEFC has to take into account the fact that institutions will receive a tuition fee3 for each place that is funded by SHEFC – ‘d’. Step 5 – This figure is subtracted from the gross SHEFC funding: c – d = ‘e’. Step 6 – This sum ‘e’ can be described as the main teaching grant that SHEFC contributes to each institution to purchase student places. To fully understand the process described in Box 1, it is important to describe two key terms: ‘fees-only’ and ‘funded places’. Basically, a funded place is one where SHEFC will provide main teaching grant for an eligible student. Where students are accepted onto courses on what is called a ‘fees-only’ basis, the place does not attract funding from SHEFC’s main teaching grant, the institution receives only the individual’s tuition fee. One consequence is that on a course where there is a large proportion of fees-only students, there will be a lower average revenue per student available for teaching. For example if University ‘A’ had 100 places in
2 3

Some reports quote fewer groups, because subjects are sometimes counted together. For example, from the Students Awards Agency for Scotland.

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Science with 90 places funded by SHEFC and 10 fees-only places; and University ‘B’ had 100 places all funded by SHEFC, then there would be exactly the same number of students. However there would be less money to teach the students in University ‘A’ because they would have more fees-only places which do not attract teaching funding from SHEFC. While the ‘fees-only’ concept is relatively complex, it can essentially be seen as a legacy of an earlier funding situation (from the late 1980s) where the emphasis was on increasing the number of students at marginal cost without necessarily having the resources to pay for all of them at the same level. SHEFC estimates that there are about 10% fees-only places in the system at present. Some of the subjects SHEFC funds are described as controlled, some as priority: Controlled subjects – where the number of funded places are determined by governmental needs e.g. teacher training and undergraduate medicine. Priority subjects – traditionally subjects where the government wanted to increase the number of students coming through, e.g. maths and science Finally, another important factor to consider in terms of overall funding to HEIs, is that institutions also receive a secondary stream of funding from SHEFC, known as the RAE grant: the Research Assessment Exercise-based Grant. This can be seen as a merit-based grant which rewards academic excellence in research. This means that not all institutions have the same funding available, for example, when employing staff who conduct both teaching and research or buying equipment which may be used for both teaching and research purposes. THE NEW PROPOSALS SHEFC is concerned that there has not been a review of its basic funding methods since 1993/4. Changes to this system have been outlined in a consultation document - ‘Review of Teaching Funding: Third Stage Consultation’ - which invites responses by the end of March 2001. One of the main ideas floated in this document is that instead of having 22 subject groups, the subjects should be aggregated into 6 broader groups. SHEFC believes that such a process would be more flexible, simpler, and would lead to greater equity by having the same price for subjects with broadly similar costs. It would be up to institutions to decide how to fund individual subjects within the proposed wider groups. Because subjects have a price value, there will obviously be funding implications if these subjects are now being grouped with other subjects which have disparate prices. In calculating the new price structure, SHEFC provided4 the following explanation:
“The price structure proposed is based on the weighted average of the existing prices for the existing funding subject groups within each broader subject group. “

4

SHEFC Circular Letter No: HE/04/01

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To illustrate, Table 35 shows the proposed new funding group structure, and would appear to indicate a drop in funding for some subjects, particularly in Group 4. However, SHEFC is keen to stress that this effect is largely due to the proposed movement of one funding subject group, Pharmacy, from Group 4 into Group 3, which accounts for 7% of the apparent change in Group 4. Overall, the proposed movement of resources would result in approximately an 8% rise for clinical and veterinary subjects, and an average 1% drop for all other subject groups. Table 3: Proposed Funding Subject Group structure and price relativities, based on funded places for 2000-01 New Funding Subject Groups Price Relative Estimated change price from funding announced for 200001 1. Clinical and Veterinary £12,114 3.29 8.3% Practice 2. Conservatoire Music 3. Subjects requiring significant provision of laboratories or workshops and specialist equipment 4. Subjects generally taught in small groups and requiring access to specialist equipment 5. Subjects requiring access to specialist equipment £10,346 £6,259 2.81 1.70 -1.1% 2.5%

£5,523

1.50

-8.4%

£4,713

1.28

-1.0%

6. Other subjects

£3,682

1.00

-1.2%

All Groups

0.0%

The second major proposal is that the volume of activity funded by SHEFC should be ‘re-based’ to include all the fees-only students. The rationale6 behind this proposal is as follows:
"Most of the ‘fees-only’ student places presently in the system are needed in order to achieve the Scottish Executive’s existing planning targets of total student numbers for the sector as a whole. Therefore, it is appropriate for the Council to consider whether and how to include this provision within the teaching funding
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Table 3 and Table 4 are both detailed in ‘Review of Teaching Funding: Third Stage Consultation’ SHEFC, 08/00. 6 ‘SHEFC supplementary circular 04/01

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method. There are about 10% ‘fees-only’ places in the system. This means there is not a direct relationship between the teaching provision being funded by the Council through the funding method and the provision being delivered by the sector. The Council has decided that it needs to consider whether the relationship between the teaching provision being funded and the provision being delivered should be strengthened so that the funding method can promote policy effectiveness and efficiency in the use of resources."

If, as proposed, funding is now to also include these fees-only places, this would alter the funding structure again, providing a different set of prices to those outlined above. Table 4 details how funding would change. Again, SHEFC stresses that the size of the apparent change in Group 4 is due to the proposed movement of Pharmacy from Group 4 to Group 3, which accounts for about 8% of the change. Table 4: Proposed Funding Subject Group structure and price relativities, based on all students eligible for funding in 1999-2000 (Step 2) New Funding Subject Groups Price Relative Estimated change price from funding announced for 2000-01 1. Clinical and Veterinary £11,628 3.53 8.1% Practice 2. Conservatoire Music 3. Subjects requiring significant provision of laboratories or workshops and specialist equipment 4. Subjects generally taught in small groups and requiring access to specialist equipment 5. Subjects requiring access to specialist equipment 6. Other subjects All Groups £10,442 £6,193 3.17 1.88 -0.1% 4.5%

£4,645

1.41

-9.6%

£4,414

1.34

-1.1%

£3,294

1.00

-4.3% 0.0%

SHEFC is also keen to point out that both of these tables contain only notional figures illustrating the effect if you were applying the proposed changes to prices
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that were paid in 2000-01 and were not making any other changes to the funding method. The additional major factors that will change the outcomes are that: • Any proposed teaching grant changes would not be introduced until academic year 2002-03. By this time, resources for teaching will have risen by around 9% • The amounts of grant per subject and per institution will be different, as they will be based on student numbers at the time of introduction • Other proposed funding changes will affect grant levels, such as introducing a 5% increase in units of funding based on the number of students from areas currently under-represented in higher education • The proposed changes will be influenced by the responses to the consultations • There will if necessary be transitional arrangements to make changes manageable for institutions. SHEFC has not yet made up its mind about these changes – the consultation period runs until the end of March, while, if accepted, changes would not start to come into effect until August 2002. While this note has looked exclusively at the proposed changes to the main teaching grant, there are other higher education issues. For example, SHEFC is also carrying out a separate consultation exercise into the way research is funded, while the Quality Assurance Agency is changing the way it assesses the quality of teaching in the UK. The Council is also currently assessing applications from some Scottish higher education institutions for ‘small specialist institution’ status. This would help offset the effects of the teaching funding proposals by recognising the extra costs involved in small-scale, intensive operations. THE TIMETABLE 1998 – SHEFC decides it is time to review the method of funding teaching provision which has remained largely unchanged since 1993/94. October 1998 - review initiated with the launch of the first stage consultation paper. Circular letter 31/99 - announces the creation of two working groups, including the Prices Working Group (PWG) which is to look at the prices paid for teaching activity. The PWG’s recommendations are informed by a separate independent report by JM Consultants. February 2000 – release of a second consultation paper on teaching funding. June 2000 – SHEFC sets up the Advisory Group on Teaching Funding (AGTF) to consider responses to the consultations and the recommendations of the working group. The AGTF also considers the funding methods used in England and Wales. September 2000 – JM Consultant’s report.
providing research and information services its recommendations November 2000 - AGTF provides SHEFC with to the Scottish Parliament on the revised teaching funding method.
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30 March 2001 – deadline for responses to 3rd stage consultation

THE RESPONSE It is fair to say that SHEFC’s proposals have met with a mixed response, with highly critical comment from some HEI representatives in the national newspapers. For example, Douglas Weir, the Dean of Strathclyde University’s Jordanhill Campus has pointed out that individual courses may be under threat7:
"What is the point in gearing up to take large numbers of extra teachers only to find our funding is to be eroded? My nightmare scenario is teachers come to us to say they want to go on an accredited course for their chartered teacher portfolio and we have to tell them we cannot afford to run the courses."

Meanwhile, Frank Gribben, Head of Planning at Napier University, has warned8 that the Executive’s broader economic strategy may be undeliverable:
“SHEFC's proposed redistribution among subjects will also damage the ability of institutions to support vital sectors of the Scottish economy. Given the importance of business and financial services, tourism, engineering and technology, and the creative and cultural industries to the Scottish economy, it is extraordinary that SHEFC plans to cut over £5m per year from the funding of business studies, £1.3m from tourism and hospitality, more than £3m from engineering and technology, and more than £5m from art, design and the humanities.”

Finally, there have even been warnings that individual institutions may be forced to close. For example, Professor Seona Reid, head of the Glasgow School of Art has claimed that the school could stand to lose more than 14% of its current cash for teaching:
"That could mean that we are so compromised in the quality of our education provision that our governors would have to consider whether we could continue. The last thing we would want to do is to reduce quality."

The Association of University Teachers (AUT) – the union that represents academic staff – has pointed out that:
“Even within a university which is perceived as an overall winner, there will be internal subject winners and subject losers, with major shifts of resources and associated restructuring and job loss.”

While there has been criticism from individual institutions or departments, some of SHEFC’s proposals have also been welcomed. For example Universities Scotland – formerly COSHEP, the Committee of Scottish Higher Education Principals – supports both the principle of moving to a smaller number of funding groups, and the abolition of fees-only students. However, Universities Scotland has also called for greater engagement with the sector on the proposals and the need to have a proper dialogue through the formation of a joint task-force with its members and SHEFC’s. Finally there have been relevant recent PQs on the funding proposals:
7 8

A Denholm, ‘Cash cuts threat to plans for extra teachers’, The Scotsman, 17 February 2001, page 10. th F Gribben, ‘Come clean about these crippling cuts’, The Herald, 6 February 2001, page 19.

th

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Alex Neil (Central Scotland) (SNP): To ask the Scottish Executive whether all information regarding the Scottish Higher Education Funding Council’s proposed funding plans, in particular the amount of money each institution will receive, will be published. (S1W-13215) Ms Wendy Alexander: The allocation to individual institutions of formula-based grants for 2001-02 academic year, which cover the majority of the funding to be allocated, will be published by the Scottish Higher Education Funding Council in March. There will be some further allocations for particular grants throughout the year. In-principle decisions on the total SHEFC budget for 2001-02 were made at the Council's November 2000 meeting and announced in "Highlight" on its website in December. Detailed decisions on the overall allocation of funding made by the Council at its February meeting will be published through the same medium later this month. SHEFC is also currently undertaking a Review of Teaching Funding to inform future years' allocations. Any recommendations for change would not be implemented before 2002/3. A consultation paper was published on 19 December and a further paper was published on 9 February providing the rationale for the Council's proposals and technical descriptions of how illustrative figures were derived to inform discussion and response to the consultation. Mr David Davidson (North-East Scotland) (Con): To ask the Scottish Executive how many Scottish universities had a financial deficit in 1999-2000; how many are currently in deficit, and how many are expected to have a deficit in 2001-02. (S1W-12975) Ms Wendy Alexander: In 1999-2000, nine higher education institutions recorded an operating deficit, six of which recorded a historical cost deficit. Finalised accounts are not available for 2000-01 and 2001-02. Mr David Davidson (North-East Scotland) (Con): To ask the Scottish Executive what steps it is taking to address any financial difficulties in the higher education sector. (S1W-12976) Ms Wendy Alexander: At almost £660 million, planned funding for 2001-02 is some 8% (5.6% in real terms) above this year's allocation and our spending plans for higher education. This is a significant investment and demonstrates our commitment to building a learning nation and our belief that a high quality, dynamic and diverse lifelong learning market will help to underpin the developing knowledge economy and secure Scotland's social, cultural and economic prosperity. By the FY2003-04 we will increase the amount available to SHEFC for distribution to the sector to almost £700 million. This results in an extra £108 million being invested in higher education over the next three financial years.

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Appendix 1 - current and proposed funding subject groups
New Funding Groups Existing Funding Subject Groups HESA Classification of disciplines in Education (HESACode)

1. Clinical and Veterinary Practice Clinical Medicine Clinical Dentistry Veterinary Science 2. Conservatoire Music Conservatoire Music W3 Music (this funding subject group is used solely by RSAMD for part of its W3 provision) A3 A4 D1 Clinical Medicine Clinical Dentistry Veterinary Science

3. Subjects requiring significant provision of laboratories or workshops and specialist equipment

Pre-clinical Medicine Pre-clinical Dentistry Science

Engineering & Technology Computing & Information Science BEd Music; BEd Technology BEd Physical Education; PGCE 4. Subjects generally taught in small groups and requiring access to specialist equipment Other Health & Welfare

A1 A2 B2 B3 C D excl. D1 F H, J G5 P2 X (part)

Pre-clinical Medicine Pre-clinical Dentistry Pharmacology Pharmacy Biological Sciences Agriculture & related subjects Veterinary Science Physical Sciences Engineering & Technology Computing Science Information Science Education

Catering & Hospitality Management Art, Design & Performing Arts BEd Primary In-service Teacher Ed & Other Ed 5. Requiring access to specialist equipment Built Environment Maths, Statistics & OR

B excl. B2,B3 L5 N7 W X (part)

Subjects Allied to Medicine Pharmacology, Pharmacy Social Work Catering & Institutional Management Creative Arts Education

Comb Degrees in Ed leading to GTC Regn 6. Other Subjects Business & Admin Studies

K G1 G4 G9 N2 X(part)

Architecture, Building, & Planning Mathematics Statistics Other Mathematical Sciences Operational Research Education

Social Sciences Humanities, Language & Mass Communication

N excl N2 excl. N7 L, M excl. L5 P excl. P2 Q, R, T V

Business & Admin Studies Operational Research Catering & Institutional Management Social Studies Social Work Mass Communication & Media Studies Information Science Languages & Related Disciplines Humanities

Table supplied by SHEFC

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Research Notes are compiled for the benefit of Members of Parliament and their personal staff. Authors are available to discuss the contents of these papers with Members and their staff but cannot advise members of the general public.

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