6.1 The Inquiry was established against a backdrop of widespread concern about the funding of higher education in the United Kingdom (UK) and the National Committee has given detailed consideration to this issue. We have been kept abreast of funding issues by the National Committee and in return have ensured that it has been made aware and kept informed of distinctively Scottish issues in considering funding matters. In approaching our task, we agreed to defer substantive discussion of funding until we had clarified our requirements for a high quality higher education system for Scotland. Having done so, we endorse the principles and conclusions which the National Committee has reached on funding although we have found it necessary to make further proposals to the Secretary of State for Scotland to ensure that, as far as possible, Scottish students are treated equitably compared to students in the rest of the UK.

6.2 In Chapters 17 to 21 of its report, the National Committee sets out the results of the extensive work which has been undertaken to identify the funding requirements of the UK higher education system and ways in which these might be met. This chapter should therefore be read in conjunction with those chapters in the National Committee's report. It considers the funding requirements, identifies who should pay for higher education within the consent of a new 'compact', outlines the options, details the graduate contribution - including the implications for Scottish institutions and students - and outlines the mechanisms for financing institutions.

The funding requirement

Public expenditure on higher education in Scotland
We have had to recognise that public expenditure on higher education in Scotland, as with other public services such as health, appears to be proportionately higher than in the rest of the UK. A detailed analysis, conducted by the Scottish Office Education and Industry Department (SOEID) and Scottish Higher Education Funding Council (SHEFC), has revealed that, calculated on a like-for-like basis, public expenditure on teaching per full-time student in higher education institutions per year is approximately 10 per cent higher in Scotland than in England.105 The longer honours degree has no impact upon this figure which has been arrived at after other factors have been discounted such as the different subject mix across borders.

6.4 The Scottish Office Education and Industry Department (SOEID) has advised us that the size of the 'Scottish Block' - the funding allocated to the Secretary of State for Scotland for expenditure on all Scottish services - is calculated on the basis of Scotland's share of the UK population. Since the Secretary of State for Scotland has discretion to apportion expenditure according to his or her own assessment of priorities, expenditure on specific services can increase or decrease at different rates on different sides of the border. Thus, the main reason for the 10 per cent differential in spending is that 'Scottish Office Ministers have decided to treat higher education relatively favourably partly in recognition of the efficiency gains that have been made.' 106 As we have suggested throughout this report, participation in higher education in Scotland leads the UK. Higher education also yields substantial economic and social benefits to Scotland and is widely regarded as a good investment.

6.5 Scottish institutional responses to the Inquiry did not identify a particularly Scottish dimension to the funding issue and certainly did not comment on the fact that funding is more generous in Scotland. It must be borne in mind that these figures only relate to teaching in higher education institutions and cannot simply be extrapolated across other aspects of higher education or into the further education sector. A similar exercise has not been carried out for the higher education offered by the further education sector which, in Scotland, as we have recorded earlier, delivers a larger proportion of all higher education than the further education sector elsewhere in the UK. The figures also take no account of the continuum of costs for the entire Scottish education system, which differs fundamentally from the rest of the UK.

6.6 In Chapter 22 of its report, the National Committee notes that the Funding Bodies in the UK have adopted different methods of allocating resources to institutions and this, together with inherited levels of funding which differed widely between institutions, has resulted in a considerable spread of funding around the average. The Scottish Higher Education Funding Council (SHEFC) has moved ahead more rapidly to bring convergence to teaching funding levels across institutions, than the other Funding Bodies in the rest of the UK. There are therefore many institutions in the rest of the UK which receive above average funding. We share the National Committee's view that, whilst different institutions may be paid different prices for their services by the Funding Bodies, these differences need to be justified on the basis of the type of provision being offered. We believe that analysis of these differentials, and of the reasons for them, will be made easier through co-ordinated benchmarking of the kind we have recommended in Chapter 5 of our report.

6.7 The National Committee has concluded that the overall reduction in income to higher education of over 40 per cent since 1975-1976, and a projected reduction of a further 6.5 per cent in the two years 1998-99 and 1999-2000 cannot be achieved without jeopardising quality and standards. It has, therefore, identified a shortfall of 350 million in 1998-99 and 565 million in 1999-2000 compared with current public expenditure plans.

6.8 For the longer term, the National Committee has identified six elements which will have a significant effect upon the requirement for additional funding. These are: growth in student load; increased lifelong learning; research requirements; provision for refurbishment and replacement of equipment including prospective developments in communications and information technology; improved maintenance support for students; and increasing higher education pay in line with earnings elsewhere in the economy. Two of these; growth in numbers of students and maintenance support, require further comment from a Scottish perspective.

Growth in numbers
The National Committee based its calculations of the long term funding requirement on a scenario that assumes a UK participation rate of 45 per cent from students aged under 21, by the end of the 20-year period. Scotland has almost reached this rate already. We consider that in future Scottish participation rates will probably continue to contribute a higher proportion to the UK average and that they should continue to rise as long as there is demand. Given existing levels of participation in Scotland, however, we expect that neither demand nor, therefore, expansion, will rise as sharply as in the rest of the UK. This accords with projections of demand prepared for the Inquiry by the Scottish Office Education and Industry Department (SOEID), detailed at Annex G, Table 1, which suggest that participation will rise from 44 per cent in 1995/96, to 49 per cent in 2007/08. We recognise the difficulties inherent in long-term forecasting but, based on these projections, the increase in participation in higher education by under-21-year-olds over the next ten years in Scotland are likely to be modest in comparison with recent experience.

Growth in demand for higher education will also be affected by growth in entrants aged 21 and over. In many cases these entrants are people who missed out on higher education when the API was much lower in the past. Table 3 at Annex G shows that in 1994/95, almost 17,000 entrants to higher education in Scotland were 21 and over. This mature group comprised 35 per cent of total entry and, of these, 56 per cent were in further education colleges. We believe there is still significant scope for growth in adult entrants to higher education. The most convenient route for them is often the further education college route either through an access programme or an HNC or HND programme.

6.11 Although this expansion of higher education will require additional funding, we have noted that, despite the longer honours degree in Scotland, the average length of time which full-time students spend on a higher education programme was, in 1995, 2.87 years compared to 2.94 years for the UK as a whole107. This clearly reflects the extent of the emphasis on sub-degree provision in Scotland, which we expect will continue to prevail.

6.12 We also expect to see an increase in part-time study, proportionate to full time study, as institutions begin to adopt our recommendations and offer more flexible routes to qualifications. To this end we welcome the National Committee's proposal that part-time students should be eligible to apply for Access Funds.

Maintenance support
The National Committee has noted the evidence from a survey carried out in 1995-96 of a general shortfall, on average, of about 1,000 per annum between the publicly-funded maintenance support grant and loan package and the unavoidable living expenses of full-time undergraduate students, other than those living at home.108 The National Committee has agreed that a simple increase in funding for maintenance across the board would not provide for the most efficient and effective use of public funds and is therefore recommending that this problem should be tackled in two ways.

6.14 First, that the Government should use the opportunity afforded by the current review of the social security benefits system to consider the eligibility for benefits of full-time students. We agree that this could ensure that those in most need are safeguarded.

6.15 Secondly, we believe that the Access Funds, which are allocated to institutions to assist with cases of financial hardship and currently amount to about 20 million per annum should be both increased in volume and more purposefully targeted, through widening their scope to cover potential students as well as those already in the system. We welcome this approach, particularly given that there is anecdotal evidence of a stronger aversion to debt in Scotland than in other parts of the UK. Although we have been unable to fully substantiate this, we note that take up of student loans by eligible students studying in Scotland is lower than across the UK as a whole (by about 6 per cent in 1995/96).109 Lower take up of loans is reputedly strongest amongst social classes IIIm, IV and V. These are also the groups which are currently under-represented and who we wish to see further encouraged to enter into higher education. The National Committee's proposals on Access Funds will allow institutions the flexibility to offer financial packages to potential students which might help to offset any increased disincentive which might arise from the National Committee's recommendations on funding.

6.16 We conducted a comprehensive survey of the use of Access Funds in Scotland and found that institutions found them insufficient to meet genuine demand and consequently found it difficult to ration and target the funds at students in real need.110 We also found that several institutions supplemented the Access Funds with hardship funds of their own. One, by no means atypical, respondent commented, 'the allocation is never sufficient to really meet the needs of those students who find themselves in financial difficulty.' We therefore endorse the National Committee's recommendations that the total amount of Access Funds should be doubled and that part-time students should be eligible to apply for support.

6.17 Our survey of use of the Access Funds revealed some dissatisfaction from institutions that the methodology employed by the Student Awards Agency for Scotland (SAAS) to allocate resources to individual institutions takes no account of the social profile of the student body or of local circumstances such as the cost of accommodation. Conversely, one institution admitted to being ' having a student population which does not make overwhelming demands on available funds'.

Recommendation 28
We recommend to the Student Awards Agency for Scotland that it should consider how it might adopt a differential funding methodology for the Access Funds so that resources are better targeted towards those institutions where the students' need is greatest.

6.18 We note that the National Committee has estimated the total additional long term funding requirement, to its key practices, as follows:

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