Select Committee on Science and Technology Eighth Report


5  The higher education funding system

Overview of the funding system

76. English universities are funded by Government at arms' length through two main sources. Under the Dual Support System, core funding (the "block grant") is awarded to universities by the Higher Education Funding Council for England (HEFCE), which allocates both quality-related (QR) funding for research on the basis of institutions' performance in the Research Assessment Exercise (RAE); and teaching funding. The second funding stream in the Dual Support System is channelled through the Office of Science and Technology, and is awarded by the Research Councils for specific research projects, again on the basis of merit. In 2004-05, HEFCE awarded a total of £5,993 million in funding to universities. Figure 4, below, shows how this was broken down. In response to the Lambert Review of Business-University Collaboration, the Government has confirmed its support for "third leg" university funding through the Higher Education Innovation Fund (HEIF). HEIF is a "permanent third stream of funding for universities in England to further build capacity in the university sector for knowledge transfer". The value of HEIF will be increased in value to £110 million per year by 2007-08.[153] Universities also secure funding from other sources: research project support from charities, the private sector and the European Union; donations from alumni and other benefactors; and fees from students.Figure 4: Breakdown of HEFCE funding in 2004-05: total £5,993 million
Component Amount of funding (£ million)
Teaching 3,826
Research 1,081
Special funding 486
Earmarked capital funding 584
Provision for transfers and flexibility 16

Source: HEFCE, Funding in higher education in England: How HEFCE allocates its funds, May 2004, p 5

77. The degree of control that the Government can exercise over HEFCE is formally very limited. Dr Kim Howells MP, Minister of State for Lifelong Learning, Further and Higher Education, told us that "we are prevented by law from instructing HEFCE to do anything. The Secretary of State once a year writes a letter which sets out what it is that the Government thinks is required from the Higher Education Funding Council for England and of course it is a means of protecting the academic independence of the university sector and of individual universities".[154] The independence of the university sector is a principle endorsed by both Government and HEFCE. We have found in the past, however, that, because Government has ultimate control of the purse strings, HEFCE cannot in practice act entirely on its own initiative. We believe that this informal control exercised by Government has on occasion constrained HEFCE and its associate Non-Departmental Public Bodies from forming an independent view.[155]

UNIVERSITY AUTONOMY

78. Universities are autonomous institutions and, as such, have the power to decide how they will spend the funds that they receive from HEFCE. They are under no obligation to distribute internally the funds that they receive according to the formulae used by HEFCE as the basis for making the award. Indeed, the principle of "collegiality", or the cross-subsidisation of one department using funds nominally awarded to another, is widespread in the university sector. Under current arrangements, each university is required by HEFCE to develop an institutional mission and a corporate plan. Whilst HEFCE requires to be shown these plans, it does not have the power to sanction or approve them.

79. University autonomy was enshrined in the funding system in order to ensure that the Government could not "use the power of the purse to interfere in academic judgements, but it has the additional advantage of ensuring that detailed decisions on higher education funding are not taken with an eye to short-term political considerations".[156] A Higher Education Policy Institute paper notes that "the arrangements we have here have endured for good reasons, and have contributed to the dynamism, vibrancy and quality of our higher education system. By and large, universities that are well-managed are in a better position to make their own decisions based on their strengths and weaknesses and their perception of market conditions than a central bureaucracy, however much expertise is injected into it".[157] University autonomy is widely supported and the general principle was not questioned in the evidence we received. The Government itself stated in written evidence that "it is not desirable to revert to a state-controlled curriculum, where government decides what courses universities can run. That route would destroy university autonomy, and leave subjects fossilised according to last century's needs".[158] The universities themselves unanimously defended their autonomy in evidence to this inquiry, although, as will be seen below, in common with other witnesses some of them are in favour of limited Government intervention in university affairs where particular disciplines are under threat.

80. It has been argued that, since universities are autonomous, HEFCE has no direct responsibility for the financial difficulties experienced by any one particular university department. HEFCE itself stated that "the great majority of HEFCE funding is allocated to HEIs as a single block grant, and it is entirely for the HEIs to decide how to allocate this and the other resources available to them between disciplines and between activities within disciplines. We do not therefore see a direct linkage between our grant allocations and the financial viability of academic departments".[159] Whilst this may be true in theory, in practice university autonomy is constrained by universities' need to play the system in order to win funding. As we have commented in our two Reports on the RAE, such games-playing limits the number of options that universities have for the internal distribution of their block grant.[160] The informal control that Government exercises over university affairs was acknowledged by the Minister for Lifelong Learning, Further and Higher Education, who told us that "the biggest finger in the pie we have got is we are the ones who have got our hands around the pound notes that we hand over to the VCs, via HEFCE of course, and, believe me, that is quite a handful".[161]

81. The other brake on university autonomy is the market-driven approach advocated by the Government. As a consequence of this approach, universities have become demand-led, providing the courses that attract high student numbers and closing those for which there is very low demand. Whilst one student we saw was unhappy about the closure of her own chemistry department, she advocated the principle of a market driven by student demand, saying that universities "have to look at the fact that the people paying for it are taxpayers and the like, and also we are all customers of the university; we pay to be there and we pay quite a lot to be there and they should respect what we want".[162] With the introduction of variable tuition fees, and the consequent treatment of the student as consumer, the market principle in higher education can only become further established. In combination, the twin imperatives of securing Government funding and responding to student demand have the effect of limiting quite severely the number of choices that theoretically autonomous universities can make. Professor Steve Smith, Vice-Chancellor at Exeter University told us that "universities do not want to go around shutting expensive facilities. You do not get pleasure from displacing students. You really try not to do this. I think the combination of a situation in which there are fewer well qualified students in many of the sciences than one would need to fill all the places that are available nationally and the double whammy of the research funding model means that institutions have to make choices".[163]

82. It is entirely proper that universities should be able to react to the student market and changes in the levels of funding that they receive by taking decisions on the basis of their own financial interests. Indeed, any changes to this arrangement would be inconsistent with the performance-based principles under which the higher education system operates. However, as the Government itself stated, "it is possible that independent universities, acting separately, may take decisions which, taken collectively, are not in the best interests of individual regions (or of the country as a whole)".[164] It is precisely because the sum of individual interests does not always equate to the interests of the higher education system as a whole that HEFCE is considering two mechanisms by which it can intervene to secure the provision of threatened subjects that are of strategic importance. The Government's Investment Framework states that:

  • "The Government expects HEFCE to explore with HEIs [higher education institutions] and bodies representing HEIs' interests the possibility of making a notice period of 12 months before the closure of any department a condition of grant"; and
  • "HEFCE will now consider providing additional funding to particular departments if there is a powerful case that weakening provision in a particular region would hinder student access to disciplines that are important to national and regional economic development".[165]

These measures do not sit easily with the principle of university autonomy, however beneficial they may be. Nonetheless, the principle of university autonomy could be substantially protected, providing that HEFCE intervened only if it could be proved that the national or regional economic interest would be compromised if no action was taken; and only if its intervention was positive (to secure provision of a struggling subject) rather than negative (to reduce or curtail provision of a subject that did not meet the Government's policy objectives).

83. We endorse the principle of university autonomy. We also acknowledge that, in practice, the decisions taken by universities are in large measure dictated by the need to win funding and respond to changes in student demand. Where market conditions and the university funding system make it financially difficult for universities to continue providing subjects of national or regional strategic importance, HEFCE may need to intervene to prevent their decline at a national or regional level. We support HEFCE's proposals to require universities to give a period of notice before closing a department and to consider offering financial support to individual departments where it is in the national or regional interest to do so. Without the introduction of these mechanisms, many STEM departments will struggle to survive in the short term. In the longer term, STEM subjects are best protected by measures to influence student demand. These are discussed in chapter 4.

84. There is a risk that, if HEFCE provides financial support to protect struggling university STEM departments, universities will knowingly allocate insufficient funds to such departments in the knowledge that further targeted funding will be forthcoming. It is essential that any additional HEFCE funding for strategic subject provision is used only as measure of last resort. In order to qualify for such funding, universities should have to prove to HEFCE that no alternative financial arrangements can be made. HEFCE should also have to satisfy itself that, without the allocation of such funds, capacity in the subject in question would be severely damaged at either a regional or a national level.

FUNDING FOR MINORITY SUBJECTS

85. HEFCE has acknowledged that "there is some HE [higher education] provision which is in the national interest but which it would not be reasonable to require institutions to make within their formula-based allocations for teaching and research". Since 1991 it has set aside funding in addition to existing research and teaching funds in order to support subjects that it designates as "minority subjects". This academic year (2004-05), it has allocated £2.8 million in their support. In order to qualify for this additional support, subjects have to be deemed to be in the national interest. For these purposes, HEFCE has defined the national interest as follows:

a)  "The needs of diplomacy: this covers the full range of UK interests, influence and commitments overseas and requires a supply of independent expertise to be available to respond to the patterns of UK interests as they vary over time;

b)  The needs of industry and commerce: international trade and the development of overseas markets demand knowledge of local language and culture. Again, as international trading patterns change, so do the countries and regions about which knowledge is required; and

c)  Maintenance of academic diversity: minority subjects contribute to the diversity of provision by HEIs [higher education institutions] and their continuation is important to maintaining the balance and breadth of discipline expertise in the UK. Minority subjects by their nature are dependent upon a very small group of experts and would quickly become in danger of disappearing if the number of new first degree entrants were allowed to decline too far. Once gone, the reintroduction of a subject would be unlikely".[166]

In order to qualify as a minority subject, HEFCE stipulates that a subject must have enrolled no more than 100 students throughout the UK.

86. HEFCE's arrangements for minority subjects establish the principle of limited Government intervention in the higher education market where intervention is deemed to be in the national interest. In practice, however, these arrangements help to preserve only a very narrow range of subjects. As a paper published by the Higher Education Policy Institute notes, "the definition of minority subjects—which requires that fewer than 100 students study them nationwide—means that they tend to be rather esoteric".[167] In oral evidence, the Chief Executive of HEFCE, Sir Howard Newby, told us that "the vast majority of these subjects are what we call exotic languages, although they do include some science and technology subjects—paper-making technology for example, and shoe and leather technology have been two in particular".[168] The degree of specialisation of such subjects; the existence of a direct and specific application for graduates in these areas; and the very small scale involved all make the question of Government intervention relatively straightforward, and limit the financial burden of any action taken. It is clear that the issue of minority provision is less straightforward when applied to mainstream STEM subjects. The demand for skills acquired through the study of these subjects is far less easily quantified: as is seen in chapter 3 above, there is often no single direct application for a core STEM degree, and the benefits of taking one may be cultural rather than practical. Furthermore, the numbers involved are far greater. If only 100 students per year took physics degrees, numbers would already have fallen far lower than was necessary to meet the demands of the economy, however indirect the relationship between the volume of graduates and the demand for their skills. In order to sustain the provision of STEM subjects at an acceptable level, a greater number of students, and thus more money, would be required than is currently the case for HEFCE's designated "minority subjects".

87. We commend HEFCE for its support for minority subjects deemed to be in the national interest. It is clear, however, that the arrangements that have been made to secure the provision of such subjects would not be applicable to mainstream STEM subjects.

Research funding

A SYSTEM BASED ON PERFORMANCE

88. Both pillars of the Dual Support System fund research on the basis of excellence. Research Councils award research grants on the basis of research proposals, which are peer reviewed. Some Research Council grants are awarded within managed strategic programmes, which are established—usually at RCUK level—in response to emerging national priorities. It is the intention that such projects meet the same criteria of excellence as projects funded in responsive mode. Similarly, QR funding is awarded by HEFCE on the basis of departmental performance in the RAE. There is no mechanism to ensure that both funding streams are channelled to the same recipients, but, as RCUK observes, "in practice, statistics collected by the Research Councils demonstrate a strong correlation between RAE rating and success in winning funding from the Research Councils for research, training or access to facilities".[169] Whilst this correlation suggests that the assessment processes for both funding streams are working well (their decisions are mutually confirmed), one of its consequences is the concentration of research funding in a relatively small number of departments (see paragraphs 96 to 103).

THE RESEARCH ASSESSMENT EXERCISE (RAE)

89. The problems caused by past RAEs are well documented, particularly in two Committee Reports published during this Parliament, The Research Assessment Exercise and Research Assessment Exercise: a re-assessment.[170] Ironically, these problems are associated with a widespread improvement in the quality of research being carried out in an ever increasing number of departments. For example, 144 departments that were rated 3a (on a scale of 1-5*) or below in the 1996 RAE were rated 5 or, in ten cases, 5* in 2001. Of the total 439 departments that were rated 3a in 1996, 306 were rated 4 or higher in 2001.[171] Thus only 30% of departments rated 3a in 1996 did not improve their rating five years later. In 2001, the proportion of research active staff in departments rated 5 or 5* was, at 55%, very high. Although the total amount of funding available to support research through QR funds increased between 1996 and 2001, it did not increase in step with the dramatic improvement in RAE scores. This meant that HEFCE had to make a strategic decision about the distribution of funding. Sir Howard Newby explained to us that "our first priority is to sustain truly world-class science research in this country; then, as I often say, we work our way down until the money runs out. At the moment, it runs out at about two-thirds of the way through the grade-4 departments. I wish we could fully fund the grade 4s, but we do not have the resources to do so".[172]

90. After RAE 2001, all but those departments scoring in the top two categories saw a reduction in funding, regardless of whether or not they had shown an improvement in rating between 1996 and 2001. For departments rated 3a or lower, the allocations following RAE 2001 brought no funding at all. Departments rated 4 saw their combined funding drop from a total of £139 million in 2002-03 to £118 million in 2003-04. Figure 5 shows how RAE 2001 affected departments in different subjects with different ratings at London Metropolitan University. Box 3 illustrates the consequences that the new arrangements following 2001 had on three STEM departments at Exeter University. At Exeter, despite an increase in rating from 3a to 4, the biology department saw a decrease in QR funding of 18% between RAE 1996 and RAE 2001. However, unlike chemistry, the biology department at Exeter was kept open and targeted for growth. Also unlike chemistry, demand for courses in the biological sciences was high at Exeter (see box 2 in chapter 2). This case study tends to reinforce the argument that student demand plays a vital role in the ability of a department to thrive (see chapter 4).Figure 5: London Metropolitan University: Percentage changes in the value of the QR funding unit between 2001-02 and 2003-04
Subject 4-rated 5-rated 5*-rated
Biological sciences -50%-7% -11%
Chemistry -46%+1% +1%
Physics -42%+7% +7%
Earth science -49%-5% -5%
Environmental science -38%+17% +16%
Pure mathematics -39%+15% +14%
Applied mathematics -44%+3% +3%
Statistics -49%-5% -4%
Computer science -38%-16% +16%

Source: Ev 125

Box 3: Consequences of RAE 2001 for Exeter University



Physics


Rated 4 in RAE 1996.


Rated 5 in RAE 2001.

Rating change: improvement.


In the last year of the old RAE distribution (2001-02), it received a sum of £24.8k per staff member. By 2004-05, this had risen to £46.2l per staff member.


Change in funding:  +86%



Chemistry


Rated 4 in RAE 1996.


Rated 4 in RAE 2001.

Rating change: no change.


In the last year of the old RAE distribution (2001-02), it received a sum of £28.2k per staff member. By 2004-05, this had fallen to £16k per staff member.


Change in funding:  -43%



Biology


Rated 3a in 1996 RAE.


Rated 4 in 2001 RAE.

Rating change: improvement.


In the last year of the old RAE distribution (2001-02), it received £18.3k per staff member. By 2004-05, this had fallen to £15k per staff member.


Change in funding:  -18%


The funding cliff

91. As a result of the funding decisions taken by HEFCE following RAE 2001, the funding differential between departments rated 5 and 5*, departments rated 4, and departments rated 3a or less has become extremely steep. Many witnesses felt that this was responsible for the financial difficulties—and, in some cases, closures—being experienced by many STEM departments rated 4 or lower (see figure 6, below). The UK Deans of Science, for example, told us that "since the 1996 RAE there have been at least 80 cases of closure of single subject science degrees in lower (RAE) graded departments".[173] Loughborough University stated that "there is no doubt that the funding ratios of roughly 1: 2.8: 3.3 have been damaging for grade 4 departments […] reasonable assumptions and private data suggest that ratios of roughly 1: 2: 3 would be the highest one could justify on the basis of RAE criteria of excellence".[174] In oral evidence, Dr Simon Campbell, President of the Royal Society of Chemistry, told us that "the cliff is very steep between five-star, five and fours and that is the problem, but we need more money".[175] Professor Amanda Chetwynd, Vice President of the London Mathematical Society, stated that "I would make the cliff less steep and I would put more money in altogether".[176] In our 2004 Report, Research Assessment Exercise: a re-assessment we noted that, as a result of the steep cliff in funding, "comparatively fine judgements at the grade boundaries could have a disproportionate impact upon funding and reputation".[177]Figure 6: University chemistry department closures by RAE scores
University Subject RAE rating in 2001 % of returned staff in units below 5/5*
Exeter Chemistry4 43
King's College London Chemistry4 39
Queen Mary, London Chemistry3a 53
Swansea Chemistry4 81
Newcastle Physics4 40
Keele Physics3a 59

Source: Informal meeting with Professor Steve Smith, Vice Chancellor of Exeter University, on 14 December 2004

92. Although many witnesses told us that research funding was a problem mainly in conjunction with declining student demand, very few witnesses thought that the RAE played no role at all in the financial viability of university departments. The University of York told us that it was possible to maintain STEM departments regardless of their RAE score, stating that it had "made a strategic decision to maintain and build all its Departments, irrespective of RAE 2001 performance, and has successfully implemented this strategy in this challenging financial environment".[178] We asked a panel of Vice Chancellors why other universities had not pursued a similar policy. Professor Steve Smith of Exeter University told us that the information provided by the University of York needed to be seen in context: "the key figure about York is to look at the percentage of staff it has in a four ranking and below. Just off the top of my head, I think 85 per cent of their staff are in five or five star. If you look at all of the closures in the last two years in the physical sciences, in every single case there are institutions that have around 40 per cent or more of their staff in fours and below".[179] In other words, the viability of 4-rated departments in institutions that have a majority of departments rated 5 or higher can be secured through cross-subsidy. This becomes more difficult in institutions where less than half of the departments are rated 5 or above.

93. The funding allocations made as a result of RAE 2001 have severely compromised the financial viability of departments rated 4 or lower, particularly in those institutions that do not have an overall majority of research staff in departments rated 5 or higher. In order to prevent the continued decline of many 4-rated departments, there needs to be a reduction in the steepness of the "cliff edges" between the funding allocated to departments falling within different funding bands.

94. Our 2004 Report, Research Assessment Exercise: a re-assessment, welcomed the acceptance by the Funding Councils of Sir Gareth Roberts's proposal for a "quality profile" to be used in RAE 2008. Under the current system, a department's performance rating is recorded as an average of its total activity—this means that pockets of excellence within departments with a varying standard of performance tend to go unrewarded. The new system will instead give a full picture of all the research activity taking place within a particular department, its research "footprint". This will provide a means of rewarding pockets of excellence within departments performing less well overall. By giving a more rounded picture, the new assessment method is intended to help eliminate the cliff edge between ratings on the scale used in previous RAEs. As we noted in our Report, the proposals have received widespread support. We concluded that "the introduction of a quality profile is a significant step forward and, if associated with an equitable funding formula, could eliminate many of the iniquities of the previous grading system".[180] We hope that the new "quality profiles" to be used in RAE 2008 will help to reduce the steepness of the funding scale for the allocation QR funds. In the meantime, however, many departments are still feeling the adverse effects of the funding arrangements made as a result of RAE 2001. The Government may have to recognise that short term measures, such as those proposed by HEFCE, are required to support departments currently rated 4 or lower until the new arrangements have had time to take effect. Intervention by HEFCE is discussed in paragraphs 82 to 84.

IMPACT OF FULL ECONOMIC COST POLICY

95. In May 2003 the Government published The Sustainability of University Research: A consultation on reforming parts of the Dual Support System.[181] In it the Government proposed to increase the proportion of the full economic cost of research paid by the Research Councils by means of research project grants. In January 2005, a letter from Lord Sainsbury announced that the proportion of the full economic cost of research paid by the Research Councils would be 80%.[182] In our Office of Science and Technology: Scrutiny Report 2004, we cautiously welcomed this development, although we commented that the opacity of the data provided to us meant that we were unable to judge the extent to which the changes would improve the overall sustainability of research funding.[183] Some witnesses to our current inquiry welcomed the changes more wholeheartedly. Nottingham Trent University, for example, stated that "forthcoming changes to Research Council funded projects, which are moving towards full economic costing, should reinforce our ability to maintain a small core of highest quality research within the physical sciences irrespective of RAE funding".[184] The move towards Research Councils meeting the full economic cost of the research projects that they fund should improve the financial viability and thus the sustainability of STEM departments carrying out a significant volume of research. In turn, this may mitigate against some of the more negative consequences of the RAE. We hope that our successor Committee will have the opportunity to assess the impact of this new policy once it has had time to take effect.

RESEARCH CONCENTRATION

96. The Government has no explicit policy aim to increase the concentration of research funding. It told us in written evidence that "it is not Government's policy to concentrate funding or research in this way, and we are not convinced that there is such a concentration". Nonetheless, research is funded through both streams of the Dual Support System on the basis of excellence: "our research policy is to support excellence wherever it is found, and we make no apologies for providing a higher level of public funding to the best departments".[185] It is widely acknowledged, not least by Government, that an inevitable consequence of the policy of rewarding excellence—particularly in view of the fact that the two funding streams tend to converge—is research concentration. We were told by the Director General of the Research Councils that "something like 46 per cent of Research Council expenditure is within ten universities and just over 80 per cent of it is within 25 universities. The numbers for HEFCE are broadly comparable to that".[186] The University of York told us that "research funding is already concentrated with 40% of HEFCE [research] funds going into the Oxford/Cambridge/London triangle, and the top four institutions attracting 30% of entire QR funding available".[187] Professor O'Nions told us that he thought that research concentration is "an inevitable situation in terms of the resources we have available".[188] The concentration of research funds is an inevitable consequence of a system that funds research on the basis of excellence from limited funds. The Government is responsible for this system. It is therefore disingenuous of the Government to deny that it has a policy to concentrate research.

97. Many submissions argued strongly against the further concentration of research. The Royal Academy of Engineering told us that "a concentration policy, too crudely applied, could damage the ability of young researchers in less favoured institutions to win funding and affect the flow of talent".[189] The Institute of Electrical Engineers argued that "concentrating research into fewer departments would create deserts of research in many areas of the country, and would adversely impact on local innovation and wealth creation initiatives, and regional development plans".[190] The London Mathematical Society told us that research concentration could damage vital interdisciplinary links, saying that it would "damage the symbiotic relationship between mathematical scientists and other disciplines in research. The vitality of application-driven research in mathematics depends crucially on research-active mathematicians being available".[191] Parents Against Cuts at Exeter stated that "universities as a whole benefit from being comprised of a rounded comprehensive range of disciplines and the consequences of the trend towards concentrating research in a small number of universities will be an increasing number of specialist universities, reduced provision of a healthy range and mix of disciplines overall, and regional deserts in particular subject areas".[192] In a 2002 Report, The Future of Higher Education, the Education and Skills Committee remained unconvinced that research concentration would benefit the UK's research base.[193] A 2003 review, commissioned by OST and conducted by the Science and Technology Policy Research Unit (SPRU) at Sussex University, concluded that "there seems to be little if any convincing evidence to justify a Government policy explicitly aimed at further concentration of research resources on large departments or large universities in the UK on the grounds of superior economic efficiency".[194] In its Response to our Office of Science and Technology: Scrutiny Report 2003, the Government dismissed the SPRU study, saying that it "criticised a caricature of Government policy".[195]

98. There are two main arguments that are often used in favour of a degree of research concentration: international competitiveness and critical mass. The 1994 Group of universities told us that "success in the face of […] international competition requires […] a proper depth of research expertise and capability, particularly in science subjects. For the UK, these considerations require a continued concentration of research resources".[196] Oxford University made the same argument on the basis that funds for research were limited: "to protect Science research, it is essential that research selectivity applied by HEFCE in respect of its QR funding is maintained. This is especially so if the UK is to maintain international competitiveness. If funds are limited, they must be concentrated in the most successful and competitive departments".[197] The Lambert Review made the same argument: "if [the scope of the Dual Support System] were broadened radically, public resources would be spread too thinly across the university system, putting the research-intensive universities at a disadvantage in the competition for global research excellence".[198] A Report commissioned by the Department of Trade and Industry from consultants Evidence Ltd, and published in October 2004, states that "the UK relative international research performance is second behind the USA in terms of overall research recognition".[199] Universities UK told us that "the current basic research profile of UK universities shows research of international standards".[200] It would be unwise to jeopardise the UK's international standing in research by taking away resources from those universities that contribute the most to it.

99. The panel of Vice Chancellors we saw on 9 March agreed that some degree of research concentration is necessary. Professor David Eastwood of the University of East Anglia said that "if we are to be, and to remain, internationally competitive size matters, critical mass matters and therefore the policy, which is in effect a settled policy of the concentration of research resources, is the right one". He also noted the consequences of following such a policy: "once you commit to that kind of policy in an expensive research led discipline then it will have consequences for the provision of undergraduate teaching".[201] Professor Michael Sterling pointed out that subject provision at the institutions into which research funds are concentrated is enhanced by the process: "some Vice Chancellors decide that strategically chemistry is not important and therefore close it. Those applicants that would have gone to that university are now dispersed across the rest and as that process continues applications at the remaining universities go up and so the viability of their department gets better and that is tending to happen now".[202] This suggests that research concentration is a self-constrained process: it will end automatically when the quality of all remaining provision is uniformly high. The model endorsed by Professor Sterling favours depth of provision, at the possible expense of breadth.

100. The obvious way to resolve the issue of research concentration to the satisfaction of all parties would be to increase overall levels of funding for research, thus enabling the system to provide both depth and breadth. This is the preference of many of the learned societies, as is shown in paragraph 91. However, as we set out in the introduction to this Report, we think it unlikely that the overall pot of money for research will increase significantly in the immediate future. Thus we have assumed that any attempt to address the issue of breadth versus depth would have to operate within current financial limits—the system would continue to be a "zero sum" game, with funding gains in one area offset by funding losses in another.[203] The two scenarios we have considered are as follows:

a)  Taking funds away from departments rated 5 or 5* in RAE 2001 and redistributing them amongst departments rated 4 or lower. This was described by Malcolm Keight of the Association of University Teachers as "robbing Peter to pay Paul".[204] Whilst much of the evidence we received expressed support for the principle of extra funding for departments rated 4 or lower, very few submissions countenanced taking funding away from the best performing departments in order to achieve this.

b)  Redistributing the funding that is currently automatically allocated to 4-rated departments (until it runs out: see paragraph 89). This was the solution, initially proposed in the Sir Gareth Roberts's Review, that we recommended as part of our "three track" approach in Research Assessment Exercise: a re-assessment.[205] Under this system:

i.  departments currently achieving the highest scores (5 and 5*) would be exempt from the RAE process and would be proportionally funded on the basis of their research grant income;

ii.  other departments could continue to take part in the RAE process. The funding that they received from the Funding Councils would be based on a formula relating to the volume and quality of their research. Departments not reaching a minimum standard of quality would not be funded;

iii.  departments could also bid for funds to develop their research. They would be assessed by subject panels based upon the RAE units of assessment and would be required to enter subsequent RAEs to provide a benchmark for improvement. Applications would be based on a business plan which indicating how the department in question intended to achieve a higher research quality rating.[206]

In its Response to our Report, Research Assessment Exercise: a re-assessment, the Government rejected our recommendation of the three-track approach on the basis that "the Funding Bodies' consultation with the sector on the desirability of the 'three track' assessment process had a mixed response. There was a substantial majority opposed to the idea, which runs counter to the desire for criterion referencing".[207]

101. There is a serious risk with the implementation of the first option listed above (paragraph 100a) that the removal of funding from 5 and 5* rated departments would compromise their ability to continue performing at the same high level. The University of York told us that "to penalise Grade 5 and 5* departments in order to support those with lower research grades would put the international standing of UK science at risk".[208] This was the position adopted by the Director General of the Research Councils: "to move away from the international excellence that that has achieved to distribute the things more widely is a policy which would be curious to follow after all the benefits in terms of international competitiveness and career structures that the selective funding and 'concentration' have achieved".[209] In addition, the Institute of Electrical Engineers told us that "spreading funding too thinly tends only to create mediocrity amongst many whilst we should be aiming for excellence".[210] Furthermore, even some 5- and 5*-rated STEM departments are struggling financially. For example, the chemistry department at Oxford University, rated 5* in the RAE, announced in November 2004 that it was running at an annual £1 million deficit.[211] Removing some of the funds of such departments could only increase the number of chemistry departments that were struggling to survive. Instead of resolving the financial difficulties experienced by some STEM departments, the wholesale redistribution of research funds would diffuse those problems more widely. Such a policy would threaten the ability of 5 and 5* rated departments to continue performing at a high level. It would also risk their international standing, a move that could have adverse consequences for the UK's international competitiveness and for individual careers. In the absence of increased overall funding, "robbing Peter to pay Paul" is not a viable solution to the financial difficulties of some STEM departments.

102. By contrast, the introduction of a three-tier assessment process would allow the Government to continue to support excellence in research and would not penalise departments rated 5 and 5* for their previous success. It would also allow departments currently rated 4 or lower to compete for funds on the basis of merit, with funding available for the developmental stage of research on the basis of bids made by individual institutions. We urge the Government to reconsider its rejection of proposals for a three-tier research assessment process. Such a process would allow departments to bid for funding on the basis of merit instead of imposing an arbitrary cut off point for departments upholding the same standard of research activity. Although this would not increase overall levels of funding for research, it would distribute existing funds more fairly amongst lower performing departments. See paragraph 94 for a discussion of changes to the RAE for 2008.

103. Many of the objections to research concentration centre on the assumption that, by differentiating between the performance of different departments, the funding system questions the ultimate value of those that perform less well. This need not be the case. In chapter 6 we make the case for a diversity of higher education provision. Research is not the only function of a university: such institutions also teach undergraduates, engage in scholarship and forge links with businesses. Greater differentiation of function might enable all departments to thrive on the basis of their own particular strengths, instead of forcing all departments to compete—and inevitably many will lose—on the basis of the strengths of a few. Research concentration is not an evil per se: it only becomes a problem when it occurs in a uniform system, where universities that do not carry out world class research but are nonetheless strong in other areas of their work, are disregarded.

Teaching funding

104. Teaching funds form the largest of the two main funding elements given to universities and colleges by HEFCE in the form of the block grant. In 2004-05, HEFCE allocated a total of £3,826 million in funds for teaching, comprising 64% of its total allocations (see figure 4, above). This amount is supplemented by tuition fees, paid by individual students, the Government, the Research Councils or other research funding bodies and industry. Box 4, below, sets out the method used by HEFCE to calculate the level of teaching grant given to each university or college. As is shown, the calculation is based on an institution's expenditure rather than on the cost of their activities.

Box 4: HEFCE's method for calculating the teaching grant for universities and colleges



Stage 1


HEFCE calculates the standard resource for each institution. This is a notional calculation of what the institution would get if the grant was calculated afresh each year. It is based on each institution's profile of students, and takes into account:


- the number of students


- subject-related factors

- student-related factors

- institution-related factors


Stage 2


HEFCE calculates the assumed resource for each institution. This is based on the teaching grant paid to the institution got the previous year, adjusted for various factors such as inflation and HEFCE's assumption of student tuition fee income.



Stage 3


The standard resource is compared with the assumed resource, and HEFCE works out the percentage difference between them.



Stage 4


If the difference between the standard resource and the assumed resource is no more than 5% either way, the HEFCE grant will be carried forward from one year to the next. For institutions outside the 5% tolerance band, their grant and/or student numbers need to be adjusted so that they move within the tolerance band.


Source: HEFCE, Funding higher education in England: How HEFCE allocates its funds, May 2004, p 8

105. As Box 4 sets out, there are a number of variables that are taken into account when HEFCE calculates the level of teaching grant allocated to each institution. Paragraph 46 sets out the impact that student numbers have on the grant. Much of the evidence to this inquiry was concerned with the subject weightings used by HEFCE. Different subjects need different levels of resource. For example, subjects that are broadly classroom based are much less expensive to teach than subjects that require the use of laboratories and workshops. Consequently, STEM subjects, because of the need for laboratories and expensive equipment, tend to be more expensive to teach than arts and humanities subjects. HEFCE has created four broad groups of subjects, each with a different cost weighting. These four categories, set out in Figure 7, below, were changed for 2004-05 on the basis of responses to a HEFCE consultation conducted in August 2003, Developing the funding method for teaching from 2004-05.[212] The subject weightings are designed to ensure that institutions have sufficient funding to cover the full range of their teaching activities. Institutions are not obliged, however, to distribute the grant internally according to the same ratios used by HEFCE in the calculation: "we do not expect institutions to allocate their teaching grant internally using the same approach that we have adopted for the sector as whole".[213]Figure 7: Changes to the subject weightings used to calculate HEFCE's teaching grant: 2003-04 to 2004-05
Funding band Description Cost weight 03-04 Cost weight 04-05
A The clinical stages of medicine and dentistry courses and veterinary science 4.54.0
B Laboratory-based subjects (science, pre-clinical stages of medicine and dentistry, engineering and technology) 2.01.7
C Subjects with a studio, laboratory or fieldwork element 1.51.3
D All other subjects 1.01.0

Source: HEFCE, Funding higher education in England: How HEFCE allocates its funds, May 2004, p 11, and informal meeting with Professor Steve Smith, Vice Chancellor of Exeter University on 14 December 2004

106. The majority of STEM subjects fall into category B, which saw its weighting reduced from 2.0 to 1.7 in 2004-05. We have received extensive evidence suggesting that the new weighting for category B subjects is insufficient to meet their teaching costs. Richard Sear, a lecturer in the School of Electronics and Physical Sciences in the University of Surrey, told us that the teaching grant "is inadequate to pay for teaching physics degrees in the way they have been traditionally taught in the UK, i.e. with substantial time in experimental and computing labs, and a relatively high staff to student ratio".[214] The Royal Academy of Engineering said that STEM subjects "receive less than 50 per cent of the funding for medicine despite being equally, if not more, expensive in terms of resources for equipment and laboratory staff and the cost of industrial projects and design".[215] The University of Central England stated that "reduction in the weightings means that students will have less practical work and more PC-based stimulation. A reduction of laboratory-based sciences takes them further away from the practical needs of industry".[216] Senior scientists from the pharmaceutical industry told us that "for undergraduate chemistry teaching, the single most important problem is that the funding weighting given to the subject is totally inadequate and in no way reflects the cost of providing good education and training in the subject and complying with modern standards of safety".[217] The UK Deans of Science told us that they had received estimates of the effect of the changed weightings on three universities: "these led to the removal for the 2004-05 session of approximately £750,000 for one Science Faculty and around £1,000,000 each from two others, despite their increasing costs".[218] Both the UK Deans of Science and the Council of Professors and Heads of Computing told us that HEFCE's decision to move computer science from band B to band C has caused "reductions in staff at a time when […] employers are increasingly demanding higher level skills in this area".[219]

107. Not all the subjects contained in funding band B cost the same amount of money to teach. The Royal Society of Chemistry, for example, told us that "the money universities spend on chemistry is 37% per student more than pharmacy, 19% more than the biosciences, 17% more than earth and environmental sciences and 12% more than with engineering, to take four examples, yet all are in the same band and therefore funded equally through the HEFCE funding formula".[220] This difference in costs means that the more expensive STEM subjects in band B benefit less from the current subject weightings, although this imbalance may be compensated for by the recipient university when it distributes teaching funding internally. Paragraph 112 shows that when HEFCE consulted on changes to the subject weightings, it proposed splitting funding band B to reflect the differences in costs between subjects in that band, but that the proposal was rejected.

108. One of the signs that HEFCE's teaching grant is insufficient to cover the costs of teaching STEM subjects is found in widespread reports that STEM departments are subsidising their teaching activity from research and other funds. Astra Zeneca told us that "nearly all Chemistry Departments conduct undergraduate teaching at a loss, and recoup the shortfall through HEFCE research funding".[221] Dr Tina Overton from the Department of Chemistry at the University of Hull told us that "the teaching funding formula does not support science teaching and departments rely on cross subsidy from research streams to maintain staff and equipment levels".[222] Professor Tom Blundell, President of the Biosciences Federation, told us that "I have done an analysis on our school in Cambridge and I think the teaching looks as if it is about one third under funded and that is actually funded through research activity".[223] By contrast, HEFCE told us that "it is possible for departments to remain viable where the majority of income comes through teaching resource. For example, in 2003-04 there were some 42 departments of chemistry with significant student numbers. Sixteen of these do not receive HEFCE research funding, although they do earn research income from other sources".[224] Professor David Eastwood, Vice Chancellor of the University of East Anglia supported this position, telling us that early indications from the application of the TRAC methodology suggested that research had a greater deficit than teaching.[225] It would be unacceptable if universities had to use research funds to subsidise teaching activity. In order to ensure that both teaching and research are supported at a sustainable level, the Government needs to have a clear understanding of the costs of each type of activity. We recommend that it uses the TRAC methodology to produce a comprehensive analysis of the costs of research and teaching relative to the level of funding that each activity receives.

109. We received evidence that the calculation of the new subject weightings was flawed because it looked at expenditure rather than cost. Professor Michael Sterling, Vice Chancellor of Birmingham University and Chairman of the Russell Group of universities, explained that:

    "In chemistry it was held that expenditure was going up. Why was it going up? It was going up because the student number was going down and it was difficult for chemistry staff to find alternative jobs outside the academic world. So essentially you had a high cost base remaining in staffing costs and a declining number of students and therefore your unit cost was going up. If you contrast that with engineering, engineering numbers were going down but staff numbers were also going down because engineering could make the transition into the commercial industrial world much more easily, so your cost base was going down. What appeared to happen is that the unitary resource, the spend, was going down for engineering and HEFCE then drew the conclusion that you do not need to spend as much money on engineering because the unitary resource is lower but you need to support the science one."[226]

There would be very little to be gained by discussing at length here the relative costs of chemistry and engineering provision. What Professor Sterling's example demonstrates is that a number of factors influence a department's expenditure: many of them will be unrelated to the costs of teaching the subject in question. HEFCE told us that "currently our funding method uses expenditure as a proxy for cost in each subject area. This is the best information available, but we are piloting a means of looking more closely at costs based on the TRAC methodology, and may use this information in making future allocations".[227] It has since asked consultants to examine cost-based approaches to funding to inform its ongoing review of the teaching funding method. The consultants are due to report on their findings by the end of June 2005.[228] Departmental expenditure is a flawed basis from which calculate the level of teaching funding allocated to STEM departments. This seems to have been accepted by HEFCE: we understand that it has commissioned research on possible cost-based approaches to funding, including an approach based on the TRAC methodology.

110. Throughout the course of this inquiry, HEFCE has insisted that STEM subjects have not been disadvantaged by the change in teaching weightings. In written evidence, and subsequently repeated by Sir Howard Newby in oral evidence, HEFCE stated that:

    "The change in weighting affects the relativities between subject allocations. Changing the relativities naturally has an effect on the base unit of funding used to calculate grant allocations. When the weighting for SET subjects was changed from 2 to 1.7, this led to only a slight shift in resource for these subjects of -3.4%. Moreover, the allocations made to HEIs [higher education institutions] included additional funding for teaching, meaning that the overall grant for 2004-05 was allocated against a higher base. Taking this into account, the resource for SET subjects actually increased by 5.5%."[229]

We have not received any statistics that contradict this statement. However, the proportion by which the resource for category B subjects has increased or decreased is meaningful only in context. This is a point made by Universities UK in written evidence. It states that, whilst the impact of changes to the subject weights will vary between institutions "depending on the particular circumstances of that institution and the way in which resources are allocated internally […] there are two additional and more fundamental issues that need to be considered—the inadequate funding base for university teaching and learning and the historic basis upon which the funding is allocated".[230] Professor Boucher, a fellow of the Royal Academy of Engineering told us that "yes, there has been a modest increase but it is an increase that is still in a situation where there is chronic under funding".[231] Set against this "chronic under funding", which is attested to by a majority of those who submitted evidence to this inquiry, even an increase in teaching funds of 5.5% is likely to be insufficient to meet the actual costs of running STEM departments.

111. STEM subjects might have seen a slight increase in their levels of teaching resource, even after the change in subject weightings for their category was reduced from 2.0 to 1.7. However, any such increases need to be set against a history of chronic under funding for teaching. We recommend that the Government uses its research into the costs of teaching, facilitated by the TRAC methodology, to reach a settlement for STEM subjects that accurately reflects their cost.

112. When HEFCE consulted on its adjustment of the teaching funding weightings, it initially proposed to split price band B into two separate categories: B1 (containing physics, chemistry, chemical engineering and mineral, metallurgy and materials engineering) and B2 (containing other laboratory sciences and engineering). The proposal, made on the basis of expenditure data, was intended to increase the ratio of funding for the four subject areas that had seen the most significant decline in student demand, leading to increased unit costs. In its publication on the outcomes of its consultation, HEFCE framed the proposal as "a policy question: to what extent should HEFCE provide higher rates of recurrent funding to support subject areas of national importance that are in decline?" HEFCE abandoned the proposal on the basis that "a significant majority of institutions did not favour splitting price group B. It was also not generally supported by the broad science and engineering subject bodies, who perceived that science and engineering as a whole would lose out, even if the B1 subjects gained".[232] We are not convinced that this opposition was well founded. Throughout the course of our inquiry we observed the special pleading used by many of the learned and professional societies to advance the cause of their particular area of specialism. However, the benefits of such tactics for one subject have to be weighed against the negative consequences for all the others. It would be a matter of regret if, when HEFCE changed the subject weighting for teaching funding, competition between the science and engineering bodies about the relative importance of their areas of specialism had prevented some subjects, such as chemistry and physics, from receiving the funding uplifts that they so badly needed. The scientific community needs to pull together to ensure that future discussions about funding are resolved in the interests of science as a whole, regardless of the interests of individual specialisms.


153   HM Treasury, Department of Trade and Industry and Department for Education and Skills, Science and Innovation Investment Framework 2004-2014, July 2004, p 74 Back

154   Q 472 Back

155   See Fourteenth Report from the Science and Technology Committee, Session 2003-04, Responses to the Committee's Tenth Report, Session 2003-04, Scientific Publications: Free for all? (HC 1200), passim. Back

156   Bahram Bekhradnia, Higher Education Policy Institute, Government, Funding Council and Universities: How Should They Relate?, February 2004, p 3 Back

157   Bahram Bekhradnia, Higher Education Policy Institute, Government, Funding Council and Universities: How Should They Relate?, February 2004, p 9 Back

158   Ev 237 Back

159   Ev 89 Back

160   Second Report from the Science and Technology Committee, Session 2001-02, The Research Assessment Exercise (HC 507), and Eleventh Report of the Science and Technology Committee, Session 2003-04, Research Assessment Exercise: A re-assessment (HC 586) Back

161   Q 519 Back

162   Q 50 [Danielle Miles] Back

163   Q 432 Back

164   Ev 237 Back

165   HM Treasury, Department of Trade and Industry and Department for Education and Skills, Science and Innovation Investment Framework 2004-2014, July 2004, p 95 Back

166   Ev 301 Back

167   Bahram Bekhradnia, Higher Education Policy Institute, Government, Funding Council and Universities: How Should They Relate?, February 2004, p 13 Back

168   Q 179 Back

169   Ev 196 Back

170   HC [2001-02] 507, and HC [2003-04] 586 Back

171   Fifth Report from the Education and Skills Committee, Session 2002-03, The Future of Higher Education (HC 425-I), p 17 Back

172   Q 196 Back

173   Ev 83 Back

174   Ev 232 Back

175   Q 340 Back

176   Q 339 Back

177   HC [2003-04] 586, p 20 Back

178   Ev 166 Back

179   Q 421 Back

180   HC [2003-04] 586, p 21 Back

181   Department of Trade and Industry, The Sustainability of University Research: a consultation on reforming parts of the Dual Support system, May 2003 Back

182   "Higher Education Research", Letter from Lord Sainsbury of Turville to Vice Chancellors, 6 January 2005 Back

183   HC [2004-05] 8, p 23 Back

184   Ev 118 Back

185   Ev 235 Back

186   Q 209 Back

187   Ev 166 Back

188   Q 209 Back

189   Ev 151 Back

190   Ev 96 Back

191   Ev 240 Back

192   Ev 190 Back

193   Fifth Report from the Education and Skills Committee, Session 2001-02, The Future of Higher Education (HC 425-I), pp 16-17 Back

194   N. von Tunzelmann, M. Ranga, B. Martin and A. Guena, The Effects of Size on Research Performance: A SPRU Review, June 2003, p iv Back

195   HC [2003-04] 588, p 7 Back

196   Ev 85 Back

197   Ev 97 Back

198   HM Treasury, The Lambert Review of Business-University Collaboration, December 2003, p 86 Back

199   Department of Trade and Industry, PSA target metrics for the UK Research Base, October 2003, p 12 Back

200   Ev 258 Back

201   Q 411 Back

202   Q 441 Back

203   Ev 147 Back

204   Q 395 Back

205   Review of research assessment: Report by Sir Gareth Roberts to the UK funding bodies, May 2003 Back

206   HC [2003-04] 586, pp 10-11 Back

207   First Special Report from the Science and Technology Committee, Session 2004-05, Research Assessment Exercise: a re-assessment: Government Response to the Committee's Eleventh Report of Session 2003-04 (HC 34), p 2 Back

208   Ev 167 Back

209   Q 224 Back

210   Ev 96 Back

211   Donald MacLeod, "Cash crisis at Oxford's chemistry department", The Guardian, Monday 29 November, 2004 Back

212   HEFCE, Developing the funding method for teaching from 2004-05, August 2003 Back

213   Ev 90 Back

214   Ev 290 Back

215   Ev 151 Back

216   Ev 214 Back

217   Ev 114 Back

218   Ev 84 Back

219   Ev 105 Back

220   Ev 185 Back

221   Ev 120 Back

222   Ev 229 Back

223   Q 349 Back

224   Ev 91 Back

225   Q 449 Back

226   Q 442 Back

227   Ev 91 Back

228   Ev 301-302 Back

229   Ev 90 Back

230   Ev 259 Back

231   Q 346 Back

232   HEFCE, Funding method for teaching from 2004-05: Outcomes of consultation, June 2004, p 8 Back


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2005
Prepared 11 April 2005