Recurrent Grant for the Academic Year 2006-07

Dear Professor Smith

Recurrent grant for the academic year 2007-08

1. I am writing to provide details of your provisional funding allocations for the academic year 2007-08. A copy of this letter and the enclosed grant tables for your institution are also available on the HEFCE extranet. The keys to access them were provided in my letter of 16 February 2007. This year the electronic version of the grant tables contains extra sheets that can be used for modelling outcomes (including potential indicative grant adjustments) of different patterns of student recruitment.
2. The allocations for all institutions will be summarised in HEFCE 2007/06, ‘Recurrent grants for 2007-08’, which will be available on the HEFCE extranet on Wednesday 28 February and published on the web on Thursday 1 March. Please note that all information in this letter and the publication is subject to embargo until 0001 on Thursday 1 March. Final allocations will be confirmed in July.
3. An electronic version of this letter and annex, along with tables showing grants for the sector as a whole for 2007-08 and recurrent grants by government region, will shortly be available on our web-site under Finance & assurance/Finance and funding.

Queries and further information

1. We do not generally require a response to this letter. If you have any questions about your allocations, please contact your HEFCE higher education adviser Lucy Church (tel 0117931 7057, e-mail ).

1. Paragraph 45 asks institutions to notify us of any requests for changes in our funding relationship with further education colleges. If these are to be implemented for 2007-08, please provide your HEFCE higher education adviser with full details by 30 April 2007.
2. Most of the funding for widening participation is allocated on the basis of 2005-06 data submitted to the Higher Education Statistics Agency (HESA) or the Learning and Skills Council’s Individualised Learner Record (ILR). Paragraph 28 explains that we have set aside £5 million for allocation by July to allow for changes to underlying data. Notification of any HESA data corrections must be submitted via an action plan by 11 May 2007 using the guidance provided in Annexes I and J of HEFCE 2006/50, ‘2005-06 Statistics derived from HESA data for monitoring and allocation of funding’.
3. If you believe that the allocations should change for any other reason, please provide your higher education adviser with full details by 1 June. Please note that this year we will not agree to requests to defer additional student numbers (ASNs) from 200708 to 2008-09. Institutions have the option to decline ASNs and associated funding for 2007-08 if they no longer plan to increase overall student numbers.
4. The deadlines set out above will ensure that any changes can be incorporated in the final allocations to be considered by our Board and issued to institutions in July. Responses after the above dates will not be reflected in revised grant tables.

Recurrent funding

1. Details of recurrent funding and student numbers are given in the 10 enclosed tables. For 2007-08, the breakdown of calculations for widening participation allocations has been incorporated into the grant tables (Table H), and the funding agreement targets have been moved onto a separate table (Table B). Annex A to this letter explains how we have derived all the figures in the tables, and (in the case of Tables B to I) sets them in the context of our funding methods for teaching, widening participation and research.
2. The grant tables are:

Table A Overall summary of 2007-08 funding

Table B Funding agreement targets (provisional)

Table C Summary of 2007-08 recurrent funds for teaching

Table D Derivation of 2007-08 assumed full-time equivalent (FTE) students

Table E Calculation of 2007-08 standard resource

Table F Calculation of assumed fee income for 2007-08

Table G Parameters in the mainstream recurrent teaching funding model for 2007-08

Table H Widening participation allocations for 2007-08

Table I 2007-08 Recurrent funds for research

Table J 2007-08 Special funding

1. There may be minor differences between the figures shown in the tables and those in HEFCE 2007/06 because of rounding.

Funding for teaching

1. We have not implemented any significant changes to the main teaching funding method for 2007-08, in the interests of maintaining continuity while the new fee regime is introduced. The majority of ASNs for 2007-08 are incorporated within institutions’ mainstream FTE growth targets. However, there are some new allocations for places held outside the mainstream teaching grant. Allocations for such places are shown on the lower section of grant Table B, and are subject to separate conditions of grant and monitoring arrangements.
   Lifelong Learning Networks
2. In 2006-07 we allocated the first ASNs, alongside funding from our Strategic Development Fund, for Lifelong Learning Networks (LLNs). LLNs have the option to distribute their ASNs among partner institutions for incorporation within mainstream overall FTE targets (the ‘model 1’ funding route), or to have their ASN funding held by a lead institution outside the mainstream and monitored separately (the ‘model 2’ route). For 2007-08, there are some new LLNs in their first year of ASN funding, and others with both funding for new 2007-08 ASNs and funding for places delivered in 2006-07 continuing into 2007-08. Where LLNs are following the model 2 route, their nonmainstream funding is shown on the lower section of grant Table B and fully described in paragraphs 50 to 54 of Annex A.
3. Where LLNs following the model 2 route are mainstreaming their funding for 200708, the mainstream funding agreement targets of participating institutions will incorporate the places that are being mainstreamed. Where LLNs now wish to adopt this approach, lead institutions should provide us with the required information for mainstreaming the funding as soon as possible. Further information about the two funding routes for LLN ASNs, including details on model 2 grant adjustment calculations and guidance on mainstreaming model 2 funding, is available from our web-site,
   Employer engagement
4. The grant letter that we received from the Secretary of State on 15 January 2007[1] asked us to build on the progress we have made in developing closer engagement between higher education and employers. The forthcoming Circular Letter 03/2007, ‘Allocation of Additional Student Numbers in 2008-09 for employer engagement’ sets out our plans in response to the Secretary of State’s request and the publication of the Leitch Review of Skills.
5. For 2007-08 we have incorporated allocations for provision co-funded by employers and higher level skills pathfinders into our March recurrent funding announcement. These allocations are currently held outside the mainstream teaching grant. This is because there are complexities surrounding the reporting of students that count towards the allocations, and in setting and monitoring an appropriate level of funding. Since these are pilot initiatives, we are content to keep the allocations separate, but we will look to include the funding within mainstream teaching grant as soon as it is practical to do so. We are writing separately to relevant institutions to explain how monitoring arrangements will work for the non-mainstream funding, including details of how formulaic grant adjustments will be calculated.
   Further ASNs for 2007-08 and 2008-09
6. The forthcoming Circular Letter 04/2007, ‘Allocation of funds for Additional Student Numbers in 2008-09’ announces that we are allocating further ASN funding as follows:
7. Additional funding for 10,000 FTEs to support strategic projects, including LLNs.
8. Additional funding to deliver ASNs in conjunction with employers, with the expectation that co-funding from HEFCE and employers will deliver 5,000 FTE students.
9. Five thousand of the ASN FTEs will be for foundation degrees. As Circular Letter 04/2007 explains, we will allocate the additional funding for 2007-08 where it is feasible for growth to be delivered at short notice. Where applicable, institutions should provide the information required for calculating funding for any further 2007-08 ASNs by 21 May 2007, so that it can be included in the funding agreements issued in July.

Funding agreement targets

1. The upper section of Table B shows the provisional funding agreement targets affecting student numbers that we expect your institution to meet, in return for the mainstream teaching funding. It also identifies the funding within the teaching grant for rewarding and developing staff (R&DS), which is subject to separate conditions of grant. In general, the mainstream funding agreement targets for 2007-08 contain the same elements as for 2006-07 (although their values may, of course, have changed). These elements are:
2. A contract range, expressed as a permitted range of percentage differences from standard resource. This is commonly the 5 per cent tolerance band, but may be extended for institutions that are migrating to be within the band.
3. FTE targets for funding conditional upon delivery of growth. These apply to certain institutions that have been awarded mainstream additional funded places for 2006-07 or 2007-08.
4. Funding available to be recovered in 2007-08 if institutions have had consolidated holdback of grant because they were above their contract range in 2006-07.
5. A contract full-time equivalent student number (CFTE), representing minimum FTEs on quota-controlled undergraduate medical and dental courses.
6. Institutions’ funding may be adjusted in 2007-08 and subsequent years to reflect the extent to which they meet their funding agreement targets. The method by which we calculate such grant adjustments will be set out in a publication later this year. The method used for 2006-07 is described in HEFCE 2006/19, ‘HEFCE grant adjustments 2006-07’.
7. Where institutions receive funding held outside the mainstream, these are shown on the lower section of Table B and are subject to separate conditions of grant and monitoring arrangements. See paragraphs 13 to 16.

Contract range

1. For the majority of institutions, their 2007-08 contract range is equal to the +/-5 per cent tolerance band. This is because 2006-07 was the final year of migration for institutions that moved (further) below the tolerance band as a result of changes to the teaching funding method in 2004-05 and 2005-06. For those institutions that remain above the tolerance band as a result of changes to the teaching funding method in 200405 or 2005-06, we have reduced their contract range compared with 2006-07 so that they migrate back to the band over three years and by 2009-10. Annex A (paragraph 30) provides a more detailed explanation of how contract ranges for 2007-08 have been set.

FTE targets for funding conditional upon delivery of growth

1. As in previous years, we have set overall FTE targets for 2007-08 for institutions that have been awarded mainstream ASNs. Institutions that fail to secure the required overall growth in the year for which it is first awarded will have one further opportunity to do so. If they fail at the second attempt, then their funding will be reduced permanently.
2. Allocations for model 2 LLNs and employer engagement initiatives that are outside the mainstream teaching grant are not incorporated in funding conditional upon delivery of growth targets. Allocations of some ASNs for structural realignment and other miscellaneous adjustments to student numbers will not in themselves result in an institution being set FTE targets for funding conditional upon delivery of growth, but will be reflected in adjustments to the FTE baseline against which such growth targets are monitored. Annex A (paragraphs 32 to 43) provides more detailed explanation.

Consolidated 2006-07 contract range holdback recoverable in 2007-08

1. Institutions have an opportunity in 2007-08 to recover any funding deducted from their baseline as a result of the consolidation of 2006-07 contract range holdback. Where this applies, the funding that can be recovered is identified on Table B. It will be repaid to the extent that the reinstatement of this funding keeps an institution within its 2007-08 contract range. Paragraphs 44 to 47 of Annex A provide more details. Institutions should note in particular that the sum that may be recovered in this way may be retrospectively recalculated to reflect the outcomes of any data reconciliations or audits.
2. Full details about the funding agreement targets for 2007-08 are provided in paragraphs 27 to 56 of Annex A.

Funds for rewarding and developing staff (R&DS)

1. From 2004-05, R&DS funding has been allocated as part of recurrent teaching grant. The round 1 R&DS allocation was mainstreamed for 2004-05 and is no longer subject to separate monitoring or conditions of grant, because those conditions have now been met. The round 2 allocations have been phased in for 2004-05 and 2005-06 and remain subject to separate monitoring and conditions of grant where institutions are yet to complete self-assessment of their own progress in people management. The conditional allocations for this element of R&DS funding are identified on Table B, and the conditions that apply to them are referred to in paragraph 54.

Funding for widening participation

1. We are allocating £354 million for widening participation. The allocations being announced in March total £349 million. The balance of £5 million has been set aside for allocation by July to allow for changes to underlying data. These may include changes to 2005-06 HESA or ILR data, or to the total 2007-08 FTE student numbers to which the total allocations are scaled. The £349 million comprises:
2. £39.7 million for widening access of full-time undergraduates
3. £53.6 million for widening access of part-time undergraduates
4. £186.5 million for improving retention of full-time undergraduates
5. £56.3 million for improving retention of part-time undergraduates
6. £12.9 million for students with disabilities.
7. There have been no changes to the allocation methods for any of these streams of widening participation funding.
8. Any changes to assumed FTEs effected by July will cause subsequent changes to widening participation allocations. Generally such changes will come about following requests for adjustments to ASN allocations or transfers of provision between institutions. Table H of the electronic version of the grant tables can be used to model the effect on widening participation allocations of changes to assumed FTEs.

Funding for research

1. Total recurrent funding for research in 2007-08 in this March announcement is £1,415 million. This is made up of the following elements:

• quality-related research (QR) funding of £1,391 million, comprising:

£892.1 million for mainstream QR

£27.7 million for London weighting for mainstream QR

£24.6 million for the ‘best 5-star’ departments, as rated in Research Assessment Exercises (RAEs)

£193.3 million for the research degree programme (RDP) supervision fund for departments rated 4 and above in the RAE

£180 million for the charity support element

£60 million for the new business research element (see paragraph 32 below)

£10 million for supplementary allocations to maintain QR in real terms (see paragraph 37 below)

£1.5 million transitional RDP supervision fund for departments with RAE ratings of 3a in subjects not eligible for the Research Capability Fund

£1.7 million transitional special funding for research libraries

• Research Capability Fund of £22 million, comprising:

£18 million allocated according to staff FTEs

£4.1 million supplementary funds for RDP supervision

• funding of £2 million for the joint veterinary science research initiative with the Department for Environment, Food and Rural Affairs (DEFRA).

1. For 2007-08, we have established a new business research element within QR. It is based on an average of 2003-04 and 2004-05 'Research income from UK industry, commerce and public corporations', taken from the HESA Finance Statistics Return Table 4 for academic departments. In setting the overall budget for 2007-08, we have had to be cautious about the funding that may be available from the 2008-09 financial year. This has meant that the total of £60 million for the new element has been found from within existing QR for 2007-08.
2. As well as establishing this new business research element, in distributing QR funding, we are:
3. Increasing the total of the QR charity support fund to £180 million.
4. Maintaining in real terms the total of the RDP supervision funds for departments rated 4 and above (with the exception of the transitional element for the 3a-rated departments, which is being phased out).
5. Increasing the average rate of grant by 4.9 per cent on a like-for-like basis for submissions rated 4, 5 and 5*. The increase takes account of:

• mainstream QR funding
• London weighting on mainstream QR
• QR charity support fund
• funds for the ‘best 5-star’ departments
• RDP supervision funds for departments rated 4 and above.
  

Because of the establishment of the new business research element within QR, we have excluded the £60 million from both the 2007-08 and 2006-07 comparison figures (we cannot include it in both, because it is not calculated by unit of assessment, UOA).

1. Institutions are reminded that these changes in the rate of grant are averages across all UOAs, but may not hold for individual UOAs because of the variation in volume changes between them. There has been a modest increase in the steepness of the selectivity scale within mainstream QR, to counterbalance the fact that RDP supervision and QR charity support funds are not quality weighted, other than for the threshold criterion that activity must be in departments rated 4 or above.
2. The first stage in the method for distributing mainstream QR is to determine the total funding for each UOA. This is pro rata to the cost-weighted volume of research in each UOA.Because the new business research element has been found from within existing monies and is allocated on an entirely different basis to mainstream QR (see paragraph 32 above), the totals for each UOA have been smoothed to ensure that no large subject group receives a cash reduction following the introduction of the new funding stream. It should not be assumed that we will continue to smooth the totals for each UOA in future years. Our Board will make decisions about funding for future years after the outcome of the Comprehensive Spending Review is known.
3. The following table shows how the mainstream quality weightings have changed between 2006-07 and 2007-08, as explained in paragraph 34 above.
   

1. In setting the overall budget for 2007-08, we have had to be cautious about the funding that may be available from the 2008-09 financial year. The combination of this and the establishment of the new business research element has led to a reduction to the total available for mainstream QR. We do not want some institutions to see a short-term cut in their research grants in 2007-08, which might prove unnecessary once we know the next spending review settlement. Therefore we are allocating supplementary funds to ensure that all institutions’ recurrent QR grant is maintained in real terms compared with 2006-07 (that is, a cash increase of 2.7 per cent). However, in order to avoid allocating small sums from this supplementary fund, we are only making allocations where they amount to at least £100,000. The total of the supplementary fund in this provisional March announcement is £10 million, but institutions should note that any subsequent changes to research funding for 2006-07 or 2007-08 could cause a change to their supplementary allocation. This supplementary funding stream is transitional and HEIs should not assume that it will continue in future years. Our Board will make decisions about funding for future years after the outcome of the Comprehensive Spending Review is known.
2. We have also maintained in cash terms the total funding for the Research Capability Fund.

Moderation funding

1. As in previous years, we are providing funds to moderate significant changes in funding. Moderation funding is a short-term measure. It is not an entitlement or general subsidy, but is intended to support actions that will enable institutions to secure change and manage the transition to lower funding levels.
2. The HEFCE Board decided in February that the thresholds for moderation should be set at a cash increase of 2 per cent compared with the equivalent figures for 2006-07, but that we should not provide moderation where it amounts to less than £100,000.
3. In all cases where the moderation funding is significant, we need an assurance that it is being used appropriately. We will therefore ask institutions with significant levels of moderation funding to explain how they are using the allocation to secure necessary change arising from the change in recurrent resource.
4. Any moderation to your overall teaching and research funding is shown in the summary in Table A and published in Table 1 of HEFCE 2007/06. Please note that the calculated moderation figure is provisional until our allocations are finalised. Any changes to grant for 2006-07 or 2007-08, or to underlying data, may result in a change (up or down) to the moderation funds. In particular, some moderation funding may be attributable to reductions in widening participation funding that arise because of poor underlying institutional data. As explained above, we have set aside £5 million for allocation by July to allow for corrections by institutions to their data. The distribution of this £5 million may result in consequential reductions to moderation funding.