FULL ECONOMIC COST
40. In May 2003, DTI published The Sustainability
of University Research: A consultation on reforming parts of the
Dual Support System.[49]
The document contained proposals for increasing the proportion
of the "full economic cost" of research paid by the
Research Councils. The full economic cost is the total cost to
Higher Education Institution (HEI) of an activity or project,
taking into account both direct and indirect costs. It "includes
the costs of all staff time spent on the activity, and an appropriate
share of the costs of maintaining and developing relevant aspects
of the research infrastructure".[50]
41. Research Councils currently pay HEIs all the
direct costs of a research project, but only a contribution towards
the indirect costs.[51]
In 1990-2000, for example, of the £528 million spent by Research
Councils on research grants, the contribution towards indirect
costs amounted to approximately £113 million.[52]
As far as we are aware, the Government has nowhere stated what
proportion of the full economic cost of research this represents.
However, working from the limited sources available to us, it
is reasonable to assume that Research Councils currently pay an
average of 63% of the full economic cost.[53]
The proportion of the indirect costs of research that have not
been met by the research funder are intended to be derived from
the block grant awarded to individual HEIs by the Funding Councils
(QR funding).[54] Taken
together, these two funding streams had been expected to cover
the full economic cost of research. In recent years, however,
increases in QR funding have not kept pace with increases in Research
Council budgets and the volume of research being conducted. In
the Investment Framework, the Government estimates that the shortfall
amounts to £0.8-1 billion per year.[55]
42. As part of Spending Review 2004, the Government
confirmed the changes that it would be making to the Dual Support
System to make it more sustainable:
"In the light of responses received and subsequent
consultation with stakeholders, the Government have decided as
follows:
- Research Councils will pay a single percentage
[…] of full economic costs (FEC) for almost all types of
grants for research projects and programmes. […] Research
Councils will include time spent by permanent academic staff,
as calculated using the extended TRAC methodology;[56]
- Research students will continue to be excluded
from the FEC regime for the time being. This will be revisited
when TRAC has been successfully extended to teaching;
- The additional resources allocated in Spending
Reviews for Research Councils to pay a greater proportion of the
costs of research (£120 million from Spending Review 2002
and a further £80 million from 2007-08 allocated in SR04)
will be allocated between Research Councils from 2006-07 in such
a way as to preserve the current balance of research volume. Detailed
modelling is currently underway; an announcement will be made
when this has been completed."[57]
43. It was originally estimated that, under the new
model, Research Councils would be expected to pay between 60%
and 70% of the full economic cost of the research projects that
they fund.[58] This does
not represent a substantial increase on the 63% that we estimate
is currently paid by the Research Councils (see paragraph 41,
above). In a letter from Lord Sainsbury to Vice Chancellors, dated
6 January 2005, it was revealed that the proportion of the full
economic cost of research paid by Research Councils would be 80%.
In addition, where equipment, survey or similar costs on a research
grant exceeded £50,000, the cost above this figure would
be paid in full by the Research Councils, thus relieving some
of the pressure on QR funds.[59]
44. The revised funding mechanisms do not address
the shortfall in funds to meet the indirect costs of research
projects funded by organizations other than the Research Councils,
for example, charities and the EU. Research charities have tended
to argue that the indirect costs of the research that they fund
should be met by Government. In the Investment Framework, the
Government states that "subject to the continued progress
of charity funding towards sustainability, the Government will
develop an additional element of QR funding to support charity
research funding".[60]
For this purpose the Government will make available £90 million
by 2007-08 through QR funding, based on charitable income. This
is in addition to the £90 million which is currently distributed
in England on the basis of charitable income. The Government is
not making similar funds available through QR funding to support
EU-funded research. We commend the Government for making funds
available to support the indirect costs of research funded by
the charitable sector. On the same principle, we recommend that
the Government makes funds available to support the indirect costs
of EU-funded research. This is vital to ensuring that the universities
in the UK continue to take on research projects funded at a European
level.
45. The reforms to the Dual Support System are less
radical than might be supposed. For the most part, the system
will operate as at present. Ministers told us that the key characteristics
of the reformed system were:
i. The block grant will continue to be used
to pay the overhead costs of research (albeit a smaller proportion
of these costs): "of course, the situation is not that you
have to rely on Research Council funding for the full economic
cost of a project. That is what QR money is for, to provide the
other side of this in terms of the overhead costs".[61]
ii. The increased funds from the Research Councils
will free up some of the QR funding currently used to pay research
overheads, thus giving Vice Chancellors "a high degree of
autonomy in deciding strategic objectives".[62]
iii. The TRAC methodology will encourage better
financial planning in universities: "we are saying that you
should know what the full economic costs are, and in going for
projects you should have available to you ways of making up the
difference through QR money or other money".[63]
In other words, the reforms are designed, not to
challenge the principle of dual support, but to release some of
the tension in an overstretched system.
46. On the surface, the Research Councils appear
to benefit from the Government's focus on science. They will receive
£80 million in 2007-08 on top of the £120 million allocated
to them in Spending Review 2002. In his letter to Vice Chancellors,
however, Lord Sainsbury makes it clear that the initial £120
million will only be used to provide extra support to existing
research grants, not to fund additional research projects.[64]
This answers a question that we directed to Ministers in writing
following our evidence session of 1 November. At that time, the
Ministers were unable to tell us exactly what the additional funds
would be used for.[65]
It is not yet clear whether the £80 million of funding in
2007-08 can be used to support additional research projects, or
whether it will all be entirely consumed in the drive towards
sustainability. Neither has it been made clear whether or not
the additional funds will be sufficient to ensure that the volume
of research supported can remain constant.
47. The additional funds allocated to the Research
Councils for 2005-06 and 2007-08 are welcome. Given the opacity
of the data supplied by Government on this issue, however, we
are unable to judge whether or not the additional funds will be
sufficient to enable the Research Councils to sustain the current
volume of research supported when they move to paying 80% of the
full economic cost. We urge the Government to ensure that Research
Councils can maintain their current portfolio of research projects
even whilst moving towards paying the full economic cost of that
research.
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