22.1 In this report we have advocated a new compact between higher education, the state, students and employers. We have explored aspects of that compact, including the duty on institutions to strive constantly for value for money, their obligations to students, and the need for them to listen to and explain themselves to a wide constituency of interests. We also propose that graduates in work should be responsible for contributing to the costs of their learning. In this chapter we say more about the role of the state in this new compact and specifically, the ways in which the government should relate to higher education institutions.

22.2 We have also emphasised the importance of institutional autonomy and diversity, in Chapter 16. That emphasis has implications for the relationship between institutions and government.

22.3 In our discussion of the funding options in Chapters 19 and 21 we consider the mechanism for distributing teaching funds to institutions and the need for society, through government and its various agencies, to respond to the needs of higher education if their mutual interests are to be well served. In Chapter 21, we discuss the administrative arrangements necessary to enable individuals to contribute more to the costs of their higher education. In the short term, these include arrangements for assessing students’ eligibility for public support, making loans and collecting the repayments. In the longer term, that chapter suggests that a unified Student Support Agency be established which would undertake responsibility for assessing eligibility and administering all the tasks associated with making payments to students and which would have an increasing role in channelling public support for teaching to institutions. It further suggests that such an Agency might subsequently assume the role of a Learning Bank with Individual Learning Accounts.

22.4 In this chapter we focus on the best way of distributing block grant for teaching and research in the light of the evidence submitted to us. In particular, we consider the structure of the Funding Bodies responsible for funding higher and further education; and the case for periodic high level advice on higher education to the Government. We offer views on the following issues:

  • changes in the relationship between higher education institutions and government;
  • the case for intermediary funding bodies;
  • the functions of intermediary funding bodies;
  • the structure of the intermediary funding bodies;
  • the need for independent high level advice on higher education to the Government.

22.5 In doing so, we have adopted a number of principles, which we consider important in informing the details of the arrangements put in place for the relationship between government and higher education institutions. These are that:

  • institutional diversity and autonomy should be respected, consistent with the requirements of the nation;
  • intermediary bodies should continue to be placed between the government and institutions to allocate a proportion of public funds;
  • in responding to public needs, the government must be properly informed about the current and future prospects for the sector.

Changes in the relationship between higher education institutions and government

22.6 This report demonstrates the ways in which higher education has now become of national economic importance, and that its place in the national economy will grow. This means that, even were it not to be a major source of funding, the Government would wish to concern itself with higher education, as it has so strongly in the last decade. It will, for example, and as we acknowledge in Chapter 6, want to intervene if it considers that the level of participation in higher education in the United Kingdom is falling behind its main competitors. It will be concerned about the effectiveness and value for money of such a major activity; about its standards and standing in the world; about the way it is able to relate to society as a whole; and about its contribution to the nation’s research and development effort. At the local and regional level, higher education is assuming greater importance to cultural and economic life, pointing to a progressive strengthening of regional ties, including the regional aim of government, which we explore in Chapter 12.

22.7 All these considerations point to the need to strengthen the relationship between higher education and its students and the wider community of interests that draws on its services. On the other hand, the greater the scale of higher education the greater the dangers of excessive government involvement and unmanageable expectations. Moreover, the very scale of higher education has already raised the need to identify alternative sources of funding, leading to our proposals for contributions from graduates in work and to an emphasis on stronger and more extensive partnerships with industry. The more diverse the institutions making up the higher education sector, the more devolved decision-making is likely to be. New questions are being asked about the extent to which at regional, if not at national level, there is advantage in more thought being given to ways in which the complementary roles of higher and further education can best be developed.

22.8 Against this background we have re-thought aspects of the functions and structures of the intermediary Funding Bodies.

The case for intermediary funding bodies

22.9 A distinctive element in the relationship between the Government, as a major source of funding, and the higher education institutions, has been the inter-position between the two of Funding Bodies, established under statute with defined functions and responsibilities. This is not a characteristic of the publicly-funded higher education institutions in all the other countries we visited, where public funding may be negotiated directly between the institution and its government; where academic salaries may be determined by the government; where the addition of a professorial post may require government approval; and where the government may have powers to appoint some members of governing bodies.

22.10 The independence, responsiveness and effectiveness of UK higher education institutions owes much to the well-established tradition of the government distancing itself from institutions and entrusting the high-level administration of the public financial to independent bodies of standing, the Funding Councils (other than in Northern Ireland, where funding is allocated directly from the government, with advice from an advisory Council). While the government can attach general conditions to the funding it provides, it may not attach conditions to the funding of individual institutions. We are wholly convinced and firmly commend to the Government that there should continue to be an arm’s length relationship between government, both nationally and regionally, and the higher education system, so as to assure the autonomy of institutions within a broad framework of public policy.

22.11 The Organisation for Economic Co-operation and Development (OECD) highlighted the UK tradition of intermediary or ‘buffer’ bodies alongside institutional autonomy in its recent review of tertiary education, noting that the autonomy of institutions is a very important, traditional and admirable characteristic of the UK university system and that several Continental European systems are in this respect moving towards the United Kingdom system.1

22.12 We conclude that there should continue to be intermediary bodies, such as the present Funding Councils, with the functions described below. It follows that an intermediary body is required for Northern Ireland in order to put higher education there on the same footing as in the rest of the United Kingdom, and we say more about this in Appendix 1.

Recommendation 84
We recommend to the Government that the tradition of institutional separation from national and sub-national levels of government is firmly maintained; and that this principle is extended to Northern Ireland.

The functions of intermediary funding bodies

22.13 Despite the legal framework in the UK which prevents government intervention in the life of individual institutions, the OECD review comments that, while no evidence was brought before it of deliberate attempts to erode institutional autonomy, ‘there are obvious pressures that individually may be slight but collectively could impede the development of institutions if left unchecked.’2 We noted in Chapter 16 that there is widespread concern about the effect of current funding arrangements on the diversity of institutions. Balance and fine judgement are necessary if real autonomy is to be maintained. The development of accountability mechanisms and funding incentives, whilst proper elements in the relationship between society, as a major provider of resources, and institutions, should be handled with sensitivity to institutional differences so that it does not lead to an unhelpful loss of diversity. As we showed in Chapter 16 this institutional diversity is a major strength of the UK system, but a number of those giving evidence to us believe that some convergence between institutional missions has already begun.

Funding for teaching
22.14 We are concerned that, as we progress further towards a mass system of higher education, the Funding Bodies responsible for allocating block grant for teaching to institutions may not be able to promote the diversity and responsiveness to student requirements that will increasingly be needed, whilst also being seen to act even-handedly in their stewardship of public money. In principle, individual contracts with institutions might be an attractive alternative to the current largely formula-driven funding methodology for teaching. But, applied in any general way, we fear this would make for very real difficulties in providing and demonstrating equity of treatment, consistency of criteria and transparency of application, which are essential characteristics in the way block grant is allocated. Nonetheless, we do not think this precludes reflection of the renewed focus on institutional diversity, as advocated in Chapter 16, with a somewhat more mission-oriented relationship between the Funding Bodies and institutions.

22.15 Instead of a funding system rooted wholly in individual contracts between the Funding Bodies and institutions, we see the effectiveness, diversity and responsiveness that society rightly expects from higher education institutions coming increasingly from the interplay of market forces. This will be encouraged by the stronger exercise of informed and responsible student choice and from institutions generating a greater proportion of their income from contracts for services, research and teaching.

22.16 Looking at the role of informed student choice, our assessment in Chapter 20 that an increased contribution to the cost of higher education teaching should come from graduates in work is influenced by our view that:

  • the ends of higher education and the needs of society will be best served if funding for institutions comes increasingly through the student, with the student having a real understanding of the costs involved;
  • the institutions are likely to have a stronger focus on their missions if they are required to be more obviously responsive to diverse student demand.

22.17 We have already stated in Chapter 6 that we consider that student supply and demand should be the predominant influence on the size and shape of the overall system and in Chapter 19 that we are attracted in the long term to a funding system which mirrors student decisions more readily than the current block grant.

22.18 However, it will be important to ensure that student choice is indeed well informed. Otherwise, moves in the direction of a greater share of the block grant funding flowing through the student will not be effective. For those who are young entrants to higher education, this requires the schools and colleges where they study to have much better information than at present on institutions, departments and the programmes they offer. The present institutional prospectus is helpful, but its purpose is substantially promotional. The representatives of schools and colleges who gave evidence to us made clear that they consider the information currently available to be inadequate to enable them to offer well informed guidance on the programmes offered by institutions, and how far these meet the aspirations and abilities of their pupils and students. This was also clear when we talked to secondary school pupils. Apart from information on programmes, potential students need to know about the costs and likely benefits of higher education, including employment prospects. If employed graduates are to repay more of the costs of their studies, potential students will need to know the financial implications of their choices and the sources of funding and other resources available to support their learning. Simultaneously, information technology should make it more likely that relevant and up to date information, sometimes interactive, can be available to potential students through schools, colleges and the providers of careers guidance, without the need for individual institutions to maintain and keep up to date large archives of material. The recomendations we make in Chapters 8 and 9 on specifications for the various programmes offered by institutions and a clearer framework for the qualifications available should be helpful here.

Recommendation 85
We recommend to the Government that, with immediate effect, it brings together the representative bodies of students, schools, colleges, higher education institutions and the organisations offering careers services to identify what better information is needed by students about higher education opportunities, their costs and benefits; and to work together to improve timely dissemination of the information.

22.19 We recommend in Chapter 20 that the contribution from graduates in work should amount to approximately 25 per cent of the average cost of tuition. This will mean, when added to the element which is already allocated by the current Funding Bodies on the basis of student numbers and the fee element paid by local education authorities, that just over half of the average cost of a full-time undergraduate programme will flow with the student. In addition, we envisage that over time, some substantial part of the funding for tuition that is not to be met retrospectively by these graduates when in employment, should transfer from the Funding Bodies to students, in the form of vouchers or proxy fees. This would encourage the student to see him/herself as an investor in receipt of a service, and to seek, as an investor, value for money and a good return from the investment.

22.20 But we also see value in a balance of public funding for teaching continuing to flow through the Funding Bodies, as the block grant does currently. This is because only the Funding Bodies, by virtue of their size and market position, can act as the expert buyer of services, able to exert appropriate influence on the quality, effectiveness and price of higher education.

22.21 The first function for intermediary Funding Bodies for the foreseeable future is therefore to continue to contribute to the funding of teaching activities.

Influencing the supply and demand for higher education
22.22 The second function of the Funding Bodies is to help to influence the overall levels of supply and demand for higher education. They may also need to exert influence in particular programme areas or disciplines.

22.23 As we noted in Chapter 6, there are historically some disciplines where higher education places are filled easily and targets relative to the best estimates of national need are met, such as medicine; and others where there are long-standing shortfalls, such as teacher training. We are satisfied that mechanisms are required which set targets or determine limits for a small number of disciplines which are particularly costly to provide and/or where the state is the major employer and we believe that such mechanisms should be robust and transparent, as recommended for initial teacher education in Report 10, ‘Teacher education and training: a study’. In general, as we set out in Chapter 6, informed student demand should be the prime determinant of the balance of student numbers pursuing each discipline. Nonetheless, the intermediary funding bodies will have a role in reflecting imbalances between supply and demand for different disciplines within higher education and trying to bring these more into balance by adjusting funding incentives as necessary. As the Organisation of Economic Co-operation and Development thematic review noted, ‘there is a particular problem of "steering" demand’ and this will be a perennial problem of any higher education system, when central planning is to be eschewed, as we argued it should be in Chapter 6.3

Promoting and ensuring the good use of public funds
22.24 The third function for intermediary Funding Bodies is promoting and ensuring the good use of public funds. To that end, they need to monitor the financial wellbeing of higher education institutions and act to safeguard the interests of students should an institution for any reason be unable to continue. The greater interplay of market forces we propose may tend to reduce the certainty with which institutions can look ahead. It may increase the risk of an institution finding itself in financial difficulty. A number of those giving evidence to us urged that the Funding Councils be more prepared to step in earlier in support of an ailing institution, to offer guidance, short of additional financial support. We see merit in that proposition, not least as a means of safeguarding the interests of students. As for the financial wellbeing of institutions, we see continued merit in the chief executives of the intermediary Funding Bodies having responsibility as Accounting Officer for the public funds allocated through them and for representing the institutions’ financial health to the Government, within the annual public expenditure round. We make recomendations in Chapter 15 for a systematic review by governing bodies, which would be a condition of public funding, and we believe that will do much to further promote and ensure the good use of public funds by institutions.

Supporting government policies
22.25 The fourth function for the intermediary Funding Bodies is to act in support of government policies, in the medium term flowing from the advice of the independent body to which we refer at the end of this chapter; or to pursue other policies, properly formulated. We have already made a number of recomendations elsewhere in the report which require some new or refined funding incentives, such as policies to widen participation in Chapter 7. We have also made recomendations which envisage conditions being attached to the funds allocated by the Funding Bodies, including strategic reviews by governing bodies (including their strategies for participation) in Chapter 15; and discipline in the use of institutional titles in Chapter 16.

Funding dual support for research
22.26 The fifth function for the intermediary Funding Bodies will be to continue to fund research under the dual support arrangements. We have discussed this in detail in Chapter 11 and have there recommended certain changes to the way in which this funding is allocated by the Funding Bodies.

The structure of the intermediary Funding Bodies

22.27 We have considered the extent to which, in a society where people through their working lives may well move between further and higher education and where part of the provision of higher education will be through colleges of further education, it is desirable to maintain separate funding bodies for further and higher education.

22.28 A number of those giving evidence to us had strong views on this matter, some noting that the boundaries between further and higher education are already blurred and likely to become more so, and they argued that this should be reflected in the structure of the Funding Bodies in England, Wales, Scotland and Northern Ireland.

22.29 The arrangements in each country are currently very different:

  • in England, two Funding Bodies, one for higher education and the other for further education, each served by its own executive, fund further and higher education irrespective of the sector in which the institutions are located;
  • in Wales, two Funding Bodies served by one executive similarly divide their funding responsibilities according to the level of study;
  • in Scotland, one Funding Body funds all the provision in higher education institutions and the Scottish Office Education and Industry Department funds all the provision in further education colleges;
  • in Northern Ireland, higher education is funded directly by the Department for Education (DENI), with advice from the Northern Ireland Higher Education Council, while further education is funded by the five Education and Library Boards (although the further education colleges are likely to be incorporated shortly and funded directly from DENI).

22.30 In their evidence to us, all the Funding Councils, the Committee of Vice-Chancellors and Principals and others, foresaw a strengthening of links between the two sectors of post-compulsory education, in the context that ‘the long term goal for the UK must be a new education and training framework encompassing all post-16 further and higher level learning and qualifications.4 The Scottish Higher Education Funding Council (SHEFC) advocated a single tertiary funding council on the grounds that this would ‘provide an integrated approach to funding and quality assurance for all higher and further education institutions and which would have the capacity to meet the needs of a wide range of institutions and a diverse spectrum of provision’.5 The SHEFC also suggested that employers would find it easier to deal with a single tertiary education sector.

22.31 The Higher Education Funding Council for Wales, however, urged a continuation of present arrangements in that country, on the basis that it was working well.

22.32 In England, the general consensus amongst those giving evidence to us was that, while there is scope for more co-operation between the two Funding Councils, a single body would be too large to work properly or to represent the range of interests adequately. While the Funding Bodies and others, such as the Training and Enterprise Council National Council and institutional representative bodies, acknowledged that further blurring of the boundary between further and higher education was inevitable and that the respective funding responsibilities should be sorted out, they did not advocate a single Funding Body.

22.33 In Northern Ireland, we were advised that, in its particular circumstances, the best option, at least initially, would be to introduce two Funding Bodies with one executive, together with a Tertiary Education Forum to offer an oversight of both sectors (see Appendix 1).

22.34 We are mindful of the advice we received in evidence and we therefore support different arrangements which suit the particular circumstances of each country. In each of Scotland, Wales and Northern Ireland, therefore, we consider that the most appropriate arrangement is two separate Funding Bodies with a single executive.

22.35 In England, in view of the scale of higher and further education, the number of institutions, and the need for a Funding Body to be able to relate effectively to them, we consider that separate Funding Bodies for higher and further education should be continued. But, as we have previously indicated, there should be stronger arrangements for liaison at regional level, particularly to assist in widening participation.

22.36 As for the funding responsibilities of these bodies, we considered how these should be divided between the bodies responsible for higher and for further education. We have previously recommended in Chapter 16 that further education colleges be given the opportunity to develop their particular role for the delivery of sub-degree higher education. We therefore considered what division of the funding responsibilities would be more likely to support the development of vibrant and flourishing sub-degree provision in further education colleges.

22.37 Two main options were put to us. The first option is that sub-degree provision in further education colleges should be funded by the further education Funding Body, with degree-level provision in those colleges and all provision in higher education institutions funded by the higher education Funding Body. The second option is that all higher education, whether in further education colleges or higher education institutions, should be funded by the higher education Funding Body. This is closest to the current English model. We noted the views of the Scottish Committee that the former should obtain on the grounds that this is most likely to ensure successful sub-degree provision. This option would also be supported by those who regard this provision as essentially advanced further education, by virtue of its local delivery and largely vocational nature.

22.38 Set against that is the view that the English model should prevail since only this could force a consideration of the relative costs of similar provision across all the providing institutions, be they in the further or higher education sector; that this would place the enhanced responsibility for funding sub-degree provision squarely alongside that for other higher education; that it would not confuse delivery of sub-degree higher education with the remaining legal duty for further education of the Further Education Funding Councils; that it would be essentially a tidying-up of the current arrangements; and that the development of the sort of sub-degree qualifications with value which we advocate in Chapter 9 could only be achieved within the higher education context. We think that these considerations have force and therefore, on balance, in England and Wales, that funding for higher education in further education colleges should flow through the higher education Funding Body. In Scotland and Northern Ireland, we respect the preference expressed for the first option.

Recommendation 86
We recommend to the Government that the division of responsibility between the further and higher education Funding Bodies in England and Wales should be such that the higher education Funding Bodies are responsible for funding all provision defined as higher education.

22.39 Also in England, concerns have been expressed to us about the effects for some institutions of having a separate intermediary body responsible for funding teacher education. We have considered this matter and conclude that the Teacher Training Agency (TTA) should maintain its funding responsibilities in England, as discussed in Report 10. Nonetheless the TTA and the Higher Education Funding Council for England need to consider the means by which they could work more closely together; and careful thought also needs to be given to the relationship between the duties and powers of the TTA if a General Teaching Council is established. We do not recommend the creation of a TTA-equivalent body elsewhere in the UK, where the current arrangements appear to be working satisfactorily.

Recommendation 87
We recommend to the Government that the Teacher Training Agency continue its remit in respect of teacher training in England but that the respective responsibilities of the Higher Education Funding Council for England and the Teacher Training Agency are reviewed in drawing up proposals for the role of a General Teaching Council.

Intermediary bodies with non-financial functions

22.40 Elsewhere, we have made recommendations about some of the intermediary bodies with non-financial functions:

  • for quality and standards we welcome the establishment of the Quality Assurance Agency. We have made recommendations in Chapter 10 about the extensive tasks facing the new Agency;
  • we have recommended the establishment of a new Institute for Learning and Teaching in Higher Education to raise the status and professionalism of higher education teaching (Chapter 8);
  • for research we have recommended the creation of an advisory committee whose chair has access to the Prime Minister and whose role is to advise the Government on research policy (Chapter 11).

22.41 It will be particularly important that the higher education Funding Bodies and the Quality Assurance Agency work together closely. The former will discontinue their present roles in assessing the quality of teaching. However, there would be merit in their funding allocations being explicitly informed by judgements reached by the Quality Assurance Agency where that Agency finds that an institution is failing to meet the threshold standards or is otherwise not in compliance with the code of practice, described in Chapter 10.

The need for a higher level strategic review for higher education to advise the Government on an ongoing basis

22.42 For overall policy guidance on higher education, it should not be another 33 years before there is another major inquiry into higher education. Events are moving too quickly for any inquiry to be able to see far into the future and there is so much more at stake than 30 years ago. We have therefore considered the case for creating a high-level standing advisory committee. This is the course recommended by our Committee on Scotland for that country, in the form of the Scottish Forum on Higher Education, which would meet at the invitation of the Secretary of State for Scotland to advise on strategic issues. For the UK as a whole, it will be especially important that there is opportunity for review in depth, from time to time. The first task of this review must be to reflect on the progress made in implementing our recommendations and on their impact, including the effects on longer programmes; and which subsequently will be charged, above all, with considering the level of support needed by students and the level of contributions from graduates in employment.

Recommendation 88
We recommend to the Government that, in five years’ time and subsequently every ten years, it constitutes a UK-wide independent advisory committee with the task of assessing the state of higher education; advising the Government on its financing and on ways in which, in future years, it can best respond to national needs; on any action that may be needed to safeguard the character and autonomy of institutions; and, in particular, on any changes required in the level of student support and contributions from graduates in employment.


22.43 In this chapter we have reiterated, in the light of earlier chapters, the importance of the UK’s tradition of intermediary bodies between higher education and government. We have reflected on the appropriate functions and structures for these intermediary bodies in the context of our earlier recommendations. We have also noted that precise details of the arrangements in each country might well differ, depending on individual circumstances. We turn in Chapter 23 to a more detailed understanding of the those circumstances in Northern Ireland, Scotland and Wales.