17.1 In our work, we were conscious that a major factor leading to the establishment of the Committee was widespread concern about the funding of higher education, particularly if growth in student numbers was to be resumed. In Chapters 17 to 21 we examine the funding of higher education. We are conscious that the issues are complex and some of the arguments are lengthy and technical, so throughout these chapters we have highlighted key conclusions in green bold type to provide some signposts.
17.2 It was clear from evidence submitted by all groups that these concerns related in particular to the ability of institutions to maintain the quality of their teaching and research in the face of continued downwards pressure on the level of public funding per student. The previous Governments solution of imposing a cap on student numbers was seen as unsustainable in relation to potential national needs beyond the short term.
17.3 Given the available evidence, it was inevitable that institutions should spell out concerns centred on the short term funding issues. The Higher Education Funding Council for England (HEFCE) reported for example that, in the 1996 forecasts, 78 (or nearly 55 per cent) of English higher education institutions were expected to be in deficit by the end of 1999/2000.1 We also understand from the Higher Education Funding Council for Wales (HEFCW) that out of 14 higher education institutions in Wales 10 were, in their 1996 financial forecasts, expecting to be in deficit by the end of 1998-99. Several institutions also told us about the programmes of redundancies they were entering into in anticipation of the planned cuts of 6.5 per cent in public funding over the next two years.
17.4 Futhermore our terms of reference invited us to examine how higher education might develop to meet the needs of the UK over the next 20 years, taking into consideration a wide range of principles related to higher education. These principles were prefaced by the general statement that:
17.5 With this in mind, we have looked critically at all the potential demands for additional funding arising from the proposals we have developed. This chapter provides an assessment of what we judge to be the unavoidable additional costs of providing a higher education system over the next 20 years which will be able both to sustain the UKs economic competitiveness and to meet the legitimate aspirations of its citizens to improve their qualifications and employability. The next chapter examines how these additional costs might be shared between the principal stakeholders taxpayers, students and their families, graduates, employers and institutions themselves.
17.6 Our terms of reference asked us to look at the contribution of higher education on a 20 year timescale. As the Committee of Vice-Chancellors and Principals (CVCP) put it to us in oral evidence, there is a real danger that the potential long term contribution of the higher education system may be undermined by short term decisions by institutions in the face of current funding pressures. We have, therefore, sought to identify the most serious short term needs. This has implications for the timescale for introducing the new approaches to funding considered in subsequent chapters.
The current position
17.7 To provide a base for assessing the future funding requirements for higher education, we considered the current level of public funding and the sources of funding (public and private) supporting institutional expenditure on higher education and supporting students.
17.8 Such an assessment has to take into account the several streams of public funding for higher education and for student support. These include:
17.10 These figures exclude
the funding for higher education programmes provided in
further education colleges other than those franchised by
higher education institutions. Other higher education
programmes in further education colleges are funded by
different routes in the different countries of the UK.
Higher education provided in
further education institutions
Expenditure on student
17.12 The current public expenditure plans assume that in 1997-98 expenditure on maintenance grants, at £966 million, will still exceed expenditure on loans at £851 million net of repayments. This reflects the fact that not all students eligible for loans take them out.
Planned public expenditure
on higher education 1996-97 to 1999-2000
17.14 The year on year pattern of reduction varies from country to country within the UK, but the overall reduction from 1997-98 to 1999-2000 of about 6.5 per cent is a consistent feature across the UK. The public expenditure figures include block grant for both teaching and research. On the basis of allocations in 1995-96 (Table 17.1 above), about 17 per cent can be assumed to be allocated for research.5
are currently significant differences in the average
levels of funding for higher education from the Funding
Councils in England, Scotland and Wales. Detailed work
reported to us by the Scottish Higher Education Funding
Council (SHEFC) suggests that the unit of funding in
1996-97 was about ten per cent higher in Scotland than in
England. The Higher Education Funding Council for Wales
(HEFCW) carried out a preliminary assessment which
suggested its average unit of funding was significantly
lower than the average unit of funding in England. HEFCW
is, we understand, now carrying out more detailed work
along the lines of that undertaken by the SHEFC. These
comparisons take no account, however, of possible
differences arising from the different approaches to
funding higher education programmes in further education
colleges in the three countries, described in paragraph 17.10, which have been excluded from
Short term funding requirements
Reducing the pressure on the
unit of funding
17.17 We believe that, over time, with further growth in student numbers, institutions can reduce their costs further. But a 6.5 per cent reduction in unit funding is not achievable in two years without putting quality unacceptably at risk. How much and how fast institutions are able to reduce their costs will depend, in part, on their ability to exploit opportunities for expansion and exploit the potential of communications and information technology. This issue is considered further in paragraphs 17.40 to 17.45.
17.18 We cannot, on the other hand, ignore the general pressure on all publicly-funded organisations to improve their cost-effectiveness. Higher education institutions, notwithstanding their notable achievements in this respect over the last 20 years, cannot be exempt. We have, for example, in Chapter 15 identified some of the current differences in costs between institutions which could be reduced. Some of the international comparisons that have been made on our behalf also raise questions about the cost base that merit further consideration.6, 7
17.19 On balance, and making the best judgement we can on the basis of the patchy information available, we have concluded that institutions, with their current organisation and approaches to learning and teaching, should be able to deliver a one per cent reduction in costs in both 1998-99 and 1999-2000. To alleviate the pressure on institutions to this extent would require additional funding, compared with current spending plans, of just over £100 million in 1998-99 and £270 million in 1999-2000.
17.20 Analysis carried out for us by the Higher Education Funding Council for England (HEFCE)8 suggests that the shortfall in capital expenditure is likely to be £250 million per annum given the accumulated backlog both in the refurbishment of the estate and replacing equipment, and the need for investment in communications and information technology of the kind that has been identified in Chapter 13. The question of the sources of funding for capital investment for institutions are discussed further in Chapter 19.
17.21 To respond to the urgent need for action to remedy the state of the research infrastructure in our top quality research departments, we consider that a separate initiative is needed of the scale we have identified in Chapter 11. We have in mind the need for a sum of between £400 and £500 million.
17.22 We therefore, propose a revolving fund specifically devoted to addressing the need through loans at a low rate of interest and funded equally by the Government, Funding and Research Councils out of their budgets, industry and charities (see Chapter 11). Each of these sources might be invited to contribute £50 million in each of two years, with the contributions from each of the four parties being contingent on matching funding from the others. As described in Chapter 11 we envisage the fund being managed by trustees, with tightly drawn terms of reference agreed by the contributors, and specifically earmarked for a limited number of top quality research departments.
17.23 The analysis by the HEFCE suggests that even with the kind of short term measures we have proposed to limit the reduction in the unit of funding and address the backlog of investment in research infrastructure there is still likely, within the overall identified requirement of £250 million to be a shortfall of £150 million a year in capital expenditure in the next two years.9
Resumed growth in student
Summary of short term
17.29 We have received no indication that higher education can look to public funding to ease the current planned pressure. It is essential, therefore, that our proposals to seek a contribution from graduates in work which we make in Chapter 20 should be brought into effect for the start of the academic year 1998-99. Since for the most part the proposals will involve loan finance, it follows that the treatment of loan finance within public accounts is a major issue. This issue is addressed in Chapter 20.