11.1 In Chapter 1, we set out our view that higher education in the United Kingdom (UK) must undertake research which matches the best in the world and make its benefits available to the nation. In this chapter we address the principle in our terms of reference that: ‘higher education’s contribution to basic, strategic and applied research should be enhanced and maintained, particularly in subjects where UK research has attained international standards of excellence or in Technology Foresight priority areas.’

11.2 Within the aims and purposes of higher education, which we set out in Chapter 5, there were four main roles for research and reasons for supporting it in higher education institutions:

  • to add to the sum of human knowledge and understanding;
  • to inform and enhance teaching;
  • to generate useful knowledge and inventions in support of wealth creation and an improved quality of life;
  • to create an environment in which researchers can be encouraged and given a high level of training.

11.3 All of these roles for research are important, and historically, when pressure on research funds and demands for accountability were not as intense as today, it did not prove necessary to distinguish between them. Now, given the importance of research to the economy and to society, the extreme pressure on the available funds for research, and the importance (and desire) for higher education institutions to be involved in research, there is a need to recognise the different roles of research and support them appropriately.

11.4 Public funding for research comes to institutions from two main routes: the Research Councils and the higher education Funding Bodies. This is the ‘dual support’ system of research funding. There are important differences in the ways in which the two organisations allocate funds. The Research Council funds are essentially prospective and are earmarked: the Councils respond to proposals or design programmes to carry out future work and their funds are allocated to a particular researcher. In contrast, the Funding Bodies provide research funds selectively on the basis of performance over the previous four years as measured by the Research Assessment Exercise (RAE). Block grants from the Funding Bodies allocated to institutions contain a research component that is retrospective and not earmarked.

11.5 A key question facing us was whether, in relation to its contribution to national competitiveness, sufficient funds are available for research in higher education and whether research infrastructure1 is adequate to support it. Although the funding needs of the various purposes we have identified differ, without adequate funding and provision for infrastructure none of the purposes can be properly achieved.

11.6 As we have shown in Chapter 3, public expenditure on research in higher education has hardly risen over the past decade, and internationally, expenditure on research in the UK compares unfavourably with competitor countries. The lack of increased investment by Government in research is surprising over a decade when the opportunities for discovery and technological progress have continued to expand rapidly and global competition has increased.

11.7 Despite the lack of investment, the international standing of UK research, as measured by the frequency with which it is cited by others, has remained competitive.2 It is likely, however, that the UK’s recent success in scientific research reflects past levels of expenditure. Recently, the UK has seen a decline in its share of world publications and citations which indicates that it may be falling behind.

11.8 In this chapter, we address:

  • the principles for funding research;
  • future arrangements for funding research;
  • wider impacts of research funding;
  • the creation of multiple funding streams to support research and scholarship.

Throughout the chapter, we make a series of interconnecting proposals on how research should be funded in the future.

Principles for funding research

11.9 Most of those offering evidence to us identified some concerns about the existing funding mechanisms for research. Those most strongly expressed were that:

  • the current state of the research infrastructure is inadequate to support research and train the next generation of researchers needed to maintain our international competitiveness;
  • the Funding Bodies procedures reward institutions for excellence in research and not teaching which leads individuals, departments and institutions to focus on research activity to the detriment of teaching.

11.10 Other issues raised were that current arrangements do not sufficiently support or reward:

  • applied research, research with industry, and research which supports local and regional economies;
  • collaborative activities within and between institutions;
  • research in the arts and humanities.

11.11 It is also evident that research, particularly in the fields of science, engineering and technology, is expensive. It is an international activity and the UK’s researchers are working in an increasingly competitive global environment. These factors mean that the UK cannot expect to be pre-eminent in all research fields, and that higher education institutions can no longer expect to have a research capability in all areas. Public investment in research has reflected this position by allocating research funds on a selective basis. Such targeting of funds must continue if creative researchers in higher education institutions are to compete in their fields with the best in the world. The basis for funding research should be to fund excellence wherever it is located – in a department, a team or even the lone outstanding scholar.

11.12 We remain concerned, however, that funds available to support research are barely sufficient. The regrettable, but unavoidable consequence of any further reduction in the research funds available to the Funding Bodies would mean that selectivity of funding would have to be increased so that the best groups were funded at a level that enabled them to be fully viable and competitive with their peers. As we look forward 20 years we would expect to see an increase in Government funding for research. If this was not forthcoming, selectivity would have to be increased further.

11.13 In the light of these factors, we established a set of principles against which future research funding arrangements should be judged. These principles are that:

  • excellence should be supported;
  • adequate funding for infrastructure to support high quality research and training should be provided;
  • whatever research is selected for support, it must be fully funded;
  • funding policies to support research should, as far as possible, promote, not devalue teaching;
  • different types of research should be supported by different streams of funding – including support for applied and regional work;
  • funding streams and mechanisms should be clear and transparent.

Future arrangements for funding research

11.14 In the light of views given to us and on the basis of the above principles, we have examined a number of aspects of the dual support arrangements. These include the balance of funding responsibility between the Funding Bodies and Research Councils, the support for infrastructure, and the support for the humanities and art and design.

The strains on the dual support system
11.15 It is becoming increasingly clear that the working of the dual funding system is less than adequate to meet the needs of a modern research base. The National Academies Policy Advisory Group concluded that the dual support system has shown remarkable adaptability and durability under great strain, but that strain has been carried mainly by the rundown of institutional infrastructure (eg libraries, experimental equipment, and building maintenance).3 It has also led to an increasing number of researchers on short term contracts, some of whom undertake significant amounts of teaching, and many of whom are reported to be in circumstances which are financially straitened and insecure.

11.16 In recent years, the volume of research in higher education has increased without a commensurate increase in funding levels to support infrastructure. An overall increase in research activity, due to increased amounts of project work, has been achieved through longer working hours for academic staff, more time being devoted to research at the expense of teaching, under-investment in new and replacement equipment, and to a lesser extent, improved operational and financial management of research.4

11.17 The increase in volume of research has placed considerable pressures on the infrastructure available to conduct the work. One of the key purposes of the allocations from the Funding Bodies is to contribute to the costs of the infrastructure of projects funded by sponsors such as the Research Councils, the charities, industry and the European Union (EU). However, there is a widespread view that a gap exists between the costs of the research and the combined funding available through the dual support system. A number of organisations have attempted to measure the size of the gap by looking at the amount of research project money gained by institutions and the extent to which institutions have received adequate funding for indirect costs for the work. Estimates of the size of the funding gap for research range from 137 million to 720 million.5

11.18 The indirect costs which institutions incur in carrying out Research Council projects are not always adequately met. Although Research Council grants include a nationally applied figure of 45 per cent of staff costs (recently increased from 40 per cent), which is intended as a contribution to the indirect costs of the work,6 a recent report by Coopers & Lybrand found that at a number of institutions the levels of indirect costs required were in the range of 55 to 65 per cent of staff costs.7 (These figures exclude academic salaries, premises and central computing costs).

11.19 A related problem is that the indirect cost contribution from non-government sources has not been sufficient to meet the full costs of research, particularly in the case of charity and EU grants. Charities have traditionally taken the position that public funds were provided to meet the indirect costs of their work, but have sometimes been relatively generous in assessing direct costs, and, in some cases, have contributed to the costs of buildings. The recent growth in research funding from charities, has led to problems for institutions that receive large amounts of funding from charities. We judge that the charities may be willing to share more of the indirect costs of research with institutions if there is greater clarity in how the costs arise. Given the increasing importance of the charities, especially medical charities, in funding research, it will be important for the Government to involve them at an early stage in strategic decision-making about research in higher education institutions.

11.20 Funding secured by institutions from the EU does not meet the full indirect costs of research. UK institutions have been particularly successful in securing EU grants and, as a consequence, face problems in finding the indirect costs from their own resources. In 1990, the House of Commons Education, Science and Arts Committee recommended that a fund be established from which any higher education institution winning an EU research contract could claim a contribution towards the indirect costs which would bring it on to a financial par with a Research Council grant.8 The Higher Education Funding Council for England has indicated that it would be able to contribute to EU grant indirect costs by adjusting its formula for funding research. We urge all the Funding Bodies to consider such a development.

11.21 An associated problem with indirect costs – which should be in the hands of institutions to solve – is the indirect cost payment from industry for contract research services. This differs from collaborative work with industry where it reasonable to expect some costs to be shared. For contract research, industry negotiates the price of the research with higher education institutions on an individual basis. The existence of a national (average) Research Council indirect cost figure results in some of them seeking to pay only this amount, when the real figure is significantly higher.

The future of dual support
11.22 Given the strains in the existing dual support system, it is reasonable to ask whether at least a greater fraction, if not all, of the Funding Body research funds should be directed through the Research Councils. Several arguments have been put to us in support of such an approach.

  • Higher education institutions do not, in all cases, give priority to providing appropriate infrastructure for individual peer-reviewed research projects funded by the Research Councils. They are not transparent in the use they make of Funding Body allocations and they do not necessarily pass to departments what they have ‘earned’ from the Funding Bodies through the Research Assessment Exercise (RAE).9
  • The RAE is not the best mechanism for identifying excellence in research because it is insufficiently selective given that research is largely done by groups and not by departments. It does not treat interdisciplinary areas adequately and it indirectly discourages collaboration.
  • The Research Councils are the best judges of priorities within the fields for which they are responsible and conduct extensive consultation exercises on the basis of which they formulate policy.

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