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Funding the Higher Education Sector: More funding, with wiser spending

  • 11 December 2023
  • By Antony Moss
  • This blog was kindly authored for HEPI by Professor Antony C. Moss, Pro Vice Chancellor Education and Student Experience, London South Bank University and Chair, London Uni Connect.

Regulators Committee expressed surprise at the university regulator’s assessment that our finances are “in good shape”. To the contrary, the Committee were unequivocal that “the current model for funding higher education is unsustainable”. In a recent piece on this site, Dr Mark Corver presented an alternative model for funding higher education. This sort of thinking is vital for the future sustainability of the higher education sector.

However, there are challenges for the sector in simply calling for more money, and the short-term prospects for any significant increase in funding seem remote. Many of our public services have similar demands, and healthcare and pre-16 education will be seen as higher priorities than higher education by whichever Party wins the next General Election. But at a more fundamental level, from a Treasury perspective, our sector does not benchmark poorly against other countries in terms of our income as a proportion of GDP. Data from 2020 shows we spend 2% of GDP on higher education. While this lags the United States where spending is at 2.5%, it exceeds most other European countries, including Austria (1.8%), France (1.6%) and Germany (1.3%).

While I do not intend to dispute the need to increase spending on higher education, I will argue that there is a pressing need to improve the formulae which we use to allocate funding across our sector. In particular, I do not believe that we have an appropriate funding model for the learning and teaching aspect of higher education. To make this case, I want to draw a comparison between the way we fund research and teaching within English higher education providers.

Our sector is, rightly, recognised as world-leading due to the quality of our research. This is a critical mission for most higher education providers. Data from the Higher Education Statistics Agency shows that, for 21/22, higher education providers in England received over £5.7bn in research grants and contracts. Recognising the importance of having a sustainable infrastructure for research across higher education providers, Research England allocates just under £2bn in annual grants to universities through a number of funds. Over two-thirds of this funding is linked to outcomes from the Research Excellence Framework, such that our most research-intensive universities, producing the highest volumes of world-leading research, receive a higher proportion of available funds.

The remainder of the £2bn allocation is linked to a number of other research-related priorities. One particular pot I would draw attention to is over £200m that is distributed to universities that receive research grants from charities. This is important for universities, because charities will typically not fund indirect costs of research. In the absence of this additional funding, universities would find it financially unsustainable to apply for and receive funding from charities.

An important consequence of linking this £2bn of research grants to the volume, type and quality of research activity is that the range of allocations is extremely broad. While the funding model for research has its flaws, at a fundamental level, there is clearly an attempt to link resource to activity in a way that recognises differences in the volume and quality of research across the sector. The more research an institution does, and the higher the quality of that research, the more recurrent funding it receives.

I acknowledge that this is a simplification of university finances, but purely in terms of income, this reflects our current position in terms of university finances for research activity. It also provides a useful basis for comparison for what, I suggest, is a significantly flawed model for the way we fund teaching across higher education in England.

In contrast to research, teaching-related activity is a far larger proportion of income across the English higher education sector. For 21/22, providers received £21.6bn income for tuition fees and education contracts. This figure includes fees paid by students on all types of course, including both UK-domiciled and international students. With the exception of the higher fees paid by international students (which vary widely by provider), tuition fee income is fixed within a narrow range across the sector. A UK-domiciled student can choose to study at any university, and the maximum tuition fee a provider can charge for an undergraduate degree is £9,250.

It is recognised that different courses cost more to deliver, and providers receive recurrent annual funding from the Office for Students which covers the cost of delivering certain subjects. So, while a student studying a social science degree may be paying the same £9,250 tuition fee as a fellow student in the same university who is studying mechanical engineering, the university will be receiving additional funding for the student on the mechanical engineering degree. In the same way that Research England recognises that the cost of maintaining the infrastructure for a highly research-intensive university, the Office for Students and Department for Education recognise that some courses are simply more expensive to run than others, and provide additional funding accordingly. While some providers will not receive any high-cost subject funding, others receive tens of millions – and the Office for Students distributes over £1bn per year for high-cost subjects.

So far, we have shown that we have a funding regime for higher education which recognises the cost of maintaining high volumes of high-quality research, and the cost of delivering expensive subjects. This is perfectly sensible. What about the cost of actually teaching students? To all intents and purposes, our funding model for teaching assumes that all students are the same.

The Office for Students does have a specific fund for Student Access and Success, which in principle recognises that some students will require more intensive support from their university in order to succeed. However, for 23/24, this amounted to a mere £276m.

Interestingly, the Department for Education provide Pupil Premium funding, which is similar in its purpose to the Office for Students’ Student Access and Success funding (i.e., improving outcomes for disadvantaged pupils). However, the pupil premium accounts for over 5% of total school funding[1] – while the Student Access and Success fund is just 1.2% of the sector’s teaching-related income. Given that we know that inequalities of educational outcomes are not reducing at any level of education in England, it seems counterintuitive that additional funding grants to support equality of opportunity and outcomes reduce so significantly once students enter higher education. And this is, of course, all in very stark contrast to the £2bn in funding for research discussed above, which represents 26% of research-related income.

At the individual provider level, the lack of differentiation in the level of additional funding being allocated to support our most disadvantaged students is even more stark. Based on my previous report on free school meals and student outcomes, the University of Bath and Middlesex University were identified as the providers with the least and most students coming from free school meal backgrounds – 5.4% and 41.2%, respectively. Despite being fairly similar in size, the University of Bath receives £694k, and Middlesex receives £2.26m. This means that, based on one of the most reliable markers of educational inequality, Middlesex recruits 7.6 times the number of free school meal students than Bath, but only receives £1.56m more funding, which is less than 1% of the institution’s income – despite free school meal students comprising over 40% of their student body.

The concept of a research-intensive university is commonly understood across the sector, even if it is debated, questioned and criticised from time to time. Regardless, the idea that some universities are producing substantially more research output and impact than others, and that those institutions do require more funding to maintain the necessary infrastructure, is fairly uncontroversial. What we seem to be lacking is any sense – in terms of how we fund higher education – of teaching-intensive universities, who are particularly serving the most disadvantaged and underrepresented student groups.

I would add my voice to that of Dr Corver, in calling for a rethink in how we create a sustainable funding model for higher education. However, in doing so, we need to recognise that the way we fund excellence in teaching is broken – we are not investing in social mobility in the same way that we are investing in the continued growth and development of world-leading research.

Crucially, I think that changes to the way we fund teaching are not contingent upon a net increase in funding to the sector – we can decide to make better use of existing funding. Such changes would in fact help build a stronger case for increasing public investment in our sector.

The student access and success fund which I referred to, above, uses an outdated allocation formula based primarily on the number of mature students, and those with low entry tariff. A proportion of the funding is also allocated to providers who recruit students from areas where participation in higher education is the lowest. A consequence of this is that London-based providers, who make up 13 of the 20 universities recruiting the most socioeconomically disadvantaged students, receive proportionally less funding, because London is a statistical anomaly when measures of participation in higher education are used.

The point here is that we have far more sophisticated models for determining which students are at greater risk of not succeeding in higher education. A review of this funding formula could be used to ensure that the limited funding available is being spent in the most impactful way possible. This would also pave the way for future arguments that this funding pot needs to be increased – which I think it absolutely does.

In the wider context of the cost-of-living crisis, and the fact that student maintenance loans have failed to keep pace with inflation for many years, the imperative to consider such changes could not be stronger. We have already seen significant drops in applications from underrepresented and disadvantaged student groups, which begs the question of what our sector – including the Office for Students, as our regulator – is doing to avoid our student community becoming less, rather than more, representative of wider society.

Further, and perhaps more controversially, I would argue that there should be a lower limit on the amount of this funding a provider receives from the Student Success Fund. For those providers recruiting the very smallest numbers of students from disadvantaged backgrounds, it would not be unreasonable to expect them to fund additional support from core budgets. A recent report from Civitas, focused on care-experienced students, demonstrated that some large and well-known universities have as few as five care-experienced students, while others recruit hundreds. Drawing a parallel with research-intensive universities which require funding to maintain a core infrastructure for research, universities that are the true engines of social mobility need to be funded to maintain and develop their infrastructure to ensure they are removing barriers to equality of opportunity.

[1] It is worth noting here that this is a conservative basis for comparison. The figure of 5% is based on the £2.9bn Pupil Premium out of a total £57.3bn budget for schools in England for 23/24. The figure of 1.2% for universities is based on £276m Student Access and Success funding out of a total of £21.6bn in teaching-related income, not total income to universities. Like for like comparisons between school and university budgets is beyond the purpose of this article, but suffice to say, there is an argument that the £276m Student Access and Success fund is in fact worth far less than 1.2% of university income.

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