Select Committee on Education and Skills Minutes of Evidence

Memorandum submitted by Higher Education Funding Council for England (HEFCE)

  1.  The HEFCE was established by the Further and Higher Education Act 1992 as a non-departmental public body operating with a high degree of autonomy within a policy and funding context set by the Government. The Council's main function is to administer grants provided by the Secretary of State for Education and Skills. We have distinct statutory duties and are thus free from day-to-day political control. Although we are often referred to as a "buffer body" between higher education institutions and the Government and provide independent advice to the Secretary of State on the funding needs and development of higher education, we take account of the strategic direction set by Ministers in the annual grant letter to the Council and the key performance targets in our Strategic Plan are subject to Ministerial approval. Further information about the role, policies and funding allocations of the HEFCE can be found on our web-site at www.hefce.ac.uk (HEFCE publications 2006/13, 2006/43 and 2006/44).

  2.  HEFCE employs around 240 staff, mostly based at our head office in Bristol with a small secretariat in London. Our running costs for the 2005-06 financial year totalled £17 million, just 0.25% of our total expenditure of £6,713 million. This compares with figures of between 0.5 and 5% for other public bodies.

HEFCE STRATEGIC VISION

HEFCE Mission statement

  "Working in partnership, we promote and fund high-quality, cost-effective teaching and research, meeting the diverse needs of students, the economy and society".

  3.  It is now nine years since Lord Dearing set out his vision for higher education in the learning society, but the four main purposes he identified for higher education still hold true:

—  To inspire and enable individuals to develop their capabilities to the highest potential levels throughout life, so that they grow intellectually, are well-equipped for work, can contribute effectively to society and achieve personal fulfilment.

—  To increase knowledge and understanding for their own sake and to foster their application to the benefit of the economy and society.

—  To serve the needs of an adaptable, sustainable, knowledge-based economy at local, regional and national levels.

—  To play a major role in shaping a democratic, civilised, inclusive society.

  4.  Since the Dearing Report in 1997, global competition has intensified and high-level skills and knowledge have become even more central to the UK's economic success. Demand for higher learning is escalating across the world, and there has been a dramatic expansion of higher education in some other countries, leading to increased competition for students. There is also a global market in the recruitment of leading academics and in the award of research contracts. European policies are gaining a higher profile and we must engage with them on, for example, quality assurance, lifelong learning and research. At the same time the internet and other new technologies, many arising out of higher education, give us new opportunities to compete and connect across the world.

  5.  We live in a diverse world which brings us stimulation and excitement, but also creates tensions. The contribution that higher education brings to society—to understand, to solve problems, and to connect intellectually—is ever more important. Of course we need to balance our global perspective with the need to relate to our own communities and regions, and for higher education to play a part in reaching out locally to the diversity of people within our nation.

  6.  Higher education also has an important contribution to make in responding to the challenges and opportunities posed by increasing life expectancy. England's population is predicted to grow substantially in the next 50 years through increased longevity and migration from within and beyond the UK. These demographic changes are likely to have implications for economic growth and for regional development and infrastructure. An ageing population will also increase demands on public funding, especially in relation to pensions, health and long-term care.

  7.  So while the fundamental purposes of higher education remain constant, the challenges it faces are increasing in complexity. The pace of change in our society is increasing and higher education needs to keep up with that pace, and even innovate ahead of it. There are a growing number of stakeholders in higher education—students, businesses, the public sector, society, and Government are just a few. They are demanding more and varied outcomes and they seek a swift response as their needs change. Therefore, on the one hand higher education needs to be closely attuned to the needs of its customers and stakeholders; on the other, it needs to help transform and not just reflect society. The people who work in higher education are key to achieving this.

  8.  Our Strategic Plan 2006-11 sets out how we think the higher education sector needs to respond to these complex challenges both now and in the future. It sets out our vision for higher education in England and our role in working in partnership to take it forward.

  9.  The HEFCE Strategic Plan covers the period 2006-11. A copy of the Plan has been sent to the Select Committee with this submission and can be accessed on the HEFCE web-site at www.hefce.ac.uk (HEFCE publication 2006/13). The plan was published in April 2006 following extensive consultation with stakeholders and Ministerial approval of our key performance targets. Our approach over the five years covered by the plan will be to build on the many strengths of a sector that is already diverse and responding to the social, economic and environmental challenges that we need to face together. The student experience, social inclusion, sustaining world-class research and supporting the wider roles of universities and colleges within the economy and society are all key features of our strategic plan. Uppermost in our mind is the need to maintain institutional autonomy and identify policies and funding methods which are not burdensome, but which will help to secure the long term sustainability, vitality and excellence of higher education. We believe that our strategic plan, enriched by the input of many contributors and partners, provides a map to get us there.

  10.  Working with DfES and our other stakeholders, we will fundamentally review this strategic plan after three years and consider what changes may then be needed. In addition we will undertake a small-scale annual review of the plan to take account of changes that have occurred since the publication in April 2006, such as the outcome of the Comprehensive Spending Review.

  11.  We have four core strategic aims concerned with widening participation and fair access, learning and teaching, research, and the contribution of higher education to our economy and society. Underpinning these are two further strategic aims: to sustain a high quality higher education sector and to operate at the highest level ourselves as an organisation. Our Strategic Plan contains 22 key performance targets by which the successful delivery of the plan will be measured.

  12.  In 2006-07 the HEFCE will allocate £6.7 billion in public funds to universities and colleges to support high quality education, research and related activities. We are accountable for the proper use of that funding, and for ensuring that the higher education sector is financially healthy and well managed. To promote high standards in the sector, we identify and disseminate good practice. We are also responsible for making sure that the quality of learning and teaching is assessed. This work is carried out on our behalf by the Quality Assurance Agency for Higher Education.

  13.  HEFCE will fund 275 institutions in 2006-07: 132 higher education institutions (88 universities, two general colleges, and 42 specialist institutions) and 143 directly funded further education colleges providing HE courses.

  14.  Some argue that we need a period of stability of public funding as we adjust to the new fee arrangements for full-time undergraduates. Students as fee payers are likely to become more demanding, and their interests and the quality of their learning experience are at the heart of our plans. Meeting their increasingly diverse needs will require a much closer engagement with employers and other partners. We will ensure that our funding method for learning and teaching is appropriate for the sector, supports innovative, flexible provision, and has the capacity to cope with more significant change if required by Parliament following the independent review of the HE funding reforms in 2009.

  15.  We remain committed to funded growth in student numbers. We see this as essential if we are to meet the challenge of widening access, and increasing participation and student progression, which all remain crucial to our mission. We continue to see the drive towards widening participation as fundamental in promoting social inclusion and improving the country's economic competitiveness.

  16.  A key feature of the next five years will be maintaining a dynamic, world-class research sector which will underpin economic prosperity and national well-being. We will work with the Government, the Research Councils and other funders to ensure that the UK's record in creating new knowledge and opening up new fields of research is matched by achievements in their application. It is our objective to maintain a research sector with a strong position among the world leaders.

  17.  The Government's framework for science and innovation highlights the important role that the higher education knowledge base plays as a source of the country's global competitiveness. Long-term funding to promote engagement between higher education institutions and businesses will be crucial in creating ideas and nurturing enterprise, as well as enhancing skills, management capability and productivity.

  18.  We also want to focus on the role of higher education in society more broadly, and will develop a strategy on the social dimension to activities to enhance the contribution that higher education institutions make to their localities and regions.

  19.  We aim to achieve all this while continuing to reduce bureaucracy. We will take an increasingly risk-based approach to ensuring that the public funds we distribute are well spent, relying more on well led, governed and managed institutions' own accountability processes.

  20.  At the global level our strategy will be to support the higher education sector's reputation for excellence. At the national level we will aim to ensure that the sector retains the capacity to meet national needs, while building on the strengths and diversity of autonomous universities and colleges. There will be significant challenges at the regional level where we will work more closely with partners to address under-provision, skills development needs and economic regeneration.

ROLE OF THE HEFCE: ENABLING EXCELLENCE

  21.  The future of higher education may be subject to Parliamentary decision in a number of areas and could be shaped by a mix of decisions by autonomous universities and colleges; market forces from students and business; increased engagement with employers; strategic influence and investment from Government and public bodies; and proportionate regulation from a range of organisations. These forces will interact differently through time as the contribution of each to public policy objectives is more clearly understood, with markets maturing and regulatory processes adapting. Accordingly, the role we expect to take between now and 2011 will continue to evolve.

  22.  In the light of the new tuition fee arrangements for full-time undergraduate students from 2006, our funds will therefore make up a lower, although still significant, proportion of the overall funding available to the sector. The £3,000 cap on fees cannot be raised in real terms before 2010 at the earliest. While this may limit the effect of market forces, the introduction of a significant new funding steam is already influencing the behaviour of universities and colleges.

  23.  There will be an increasing need for us to provide evidence-based advice and information to help Parliament and Ministers consider issues of public interest, as higher education institutions develop their brands and build on their strengths. The aspirations and goals of a diverse higher education system do not necessarily add up to meeting national or even regional interests. So our role is to consider the whole higher education sector—what it delivers in terms of support for the intellectual, economic, social and environmental needs of society, and whether this is done in the most effective and efficient way to secure the long-term sustainability of higher education.

  24.  We will help to develop further a higher education system where excellence in teaching and in knowledge exchange are as highly regarded as excellence in research. We will support innovative ways of delivering lifelong learning, both traditionally and through new technologies. We will support all parts of the sector in widening participation to under-represented groups, so that all those who can benefit from higher education are able to do so successfully. We will contribute to the 2009 independent review of the higher education funding reforms, in terms of monitoring the impact of variable fees on the sector and on the recruitment and progression of students, including those from lower socio-economic groups and part-time students.

  25.  We will also support diversity and collaboration to sustain and improve quality. We will support subjects that are of strategic importance to the nation, but where there is a mismatch between supply and demand. We will identify opportunities arising from our funding relationship with the sector to disseminate advice and guidance, often by sharing good practice from within and beyond higher education.

  26.  In doing all of this we will make full use of evidence from research and evaluation, as well as international experience. We will also take advantage of opportunities to promote the role and achievements of the higher education sector.

PUBLIC CONFIDENCE AND BETTER REGULATION

  27.  Overall we expect to have relatively stable funding for publicly funded teaching and research, but there may be some volatility and uncertainty as higher education institutions come to terms with the new economic landscape. Therefore, one of our most important roles is to facilitate the transition for institutions and in doing so to foster public confidence.

  28.  We will maintain the highest standards of public accountability in all of our work, and pursue the same in the bodies that we fund by following a risk-based approach to better regulation. It is our belief that good regulation adds value by supporting stakeholder confidence that public money is being used properly. It is also our belief that regulation must be minimised and constantly challenged. We will increasingly rely on universities and colleges' own accountability processes so that we can continue to reduce the burden of accountability. It is our objective to be a modern and sensitive regulator with vision.

KEY DEVELOPMENTS

  29.  To supplement the information provided in our Strategic Plan 2006-11 we have provided notes for the Select Committee on the following areas of HEFCE activity:

—  Strength of the higher education sector.

—  Managing the transition.

—  Research assessment and funding.

—  Enhancing Learning and Teaching.

—  Review of the teaching funding method.

—  Funding for growth in student numbers.

—  The Leitch Review and engaging employers with higher education.

—  Widening participation and fair access.

—  Enhancing the contribution of higher education to the economy and society.

—  Public engagement with higher education.

—  Strategically important and vulnerable subjects.

—  Leadership, Governance and Management in higher education.

STRENGTH OF THE HIGHER EDUCATION SECTOR

  30.  Higher education in England is world class. It is an indispensable part of our competitive knowledge-based economy and a major force for securing a democratic, civilized and inclusive society.

  31.  As the pace of change in our society increases, universities and colleges have demonstrated great flexibility in shaping and responding to their environment, not only through significant expansion but through the variety of flexible ways of learning that they offer, and the range of partnerships they have entered into with employers, their communities, business and other stakeholders.

  32.  The HE sector has also delivered efficiencies over many years, as demonstrated by a real terms reduction in the unit of funding of a third since 1989-90[1]. Efficiencies have been delivered through improvements in asset utilisation[2], savings from procurement[3], improvements in people management[4], and continuing development of our world-class network infrastructure[5].

  33.  HE in England is itself an international business (worth £45 billion to the UK economy on a public investment of £15 billion, and generating £3.6 billion in gross export earnings—a larger contributor to the UK economy than the UK pharmaceutical industry and aircraft industry[6]) contributing significantly to UK competitiveness and fostering long-term international relationships.

  34.  Higher education in England is respected throughout the world for the quality of its learning and teaching. Comprehensive teaching quality information is available to all prospective students and published on the Teaching Quality Information (TQI) website[7]. Recent surveys have shown that 80% of students are satisfied with the quality of learning and teaching they receive[8], and 81% of employers state that the graduates they employ are typically well prepared for work[9]. Furthermore, the rapid growth in overseas student numbers and fee income over the past decade[10] exceeded targets in the Government's first initiative for international education.

  35.  Higher level skills and knowledge are central to our ability to trade on high quality and added-value goods and services. HE develops the critical and creative thinkers who ensure that the UK has the intellectual innovation, skills and knowledge both to compete and to contribute internationally.

  36.  The Leitch Review of Skills notes the progress made in raising the proportion of adults with high skills from 21% in 1994 to 29% in 2005,[11] placing the UK in a position comparable with the OECD average at present. Furthermore, completion rates remain among the best in the world.[12] A high proportion of students completing their course is an important indicator of good quality learning, teaching and student support. This provides an excellent base for the further expansion recommended by Leitch to move the UK towards a world-class position by 2020.

  37.  Increasingly HE is not a one-off experience. More learning takes place over an extended period, offering individuals lifelong learning opportunities for personal and professional development and responding to employers' changing requirements. Nearly 55% of students starting undergraduate studies are 21 or over and 45% study part-time. In addition postgraduates now account for one in six of all entrants[13].

  38.  Of course, HE has much more than an economic role to play in our future. The experience of higher learning helps individuals to develop tolerant attitudes, to adapt to and manage change, and encourages active citizenship. For example, we know that graduates are more likely to vote, to be active in community organisations and to have non-racist attitudes than non-graduates with A-levels.[14] Participation in HE also significantly improves an individual's life experiences in employment, physical and mental health, and parenting.[15] The increasing profile of widening participation over the past 10 years means that ensuring social justice in HE has become a central plank of the policy agenda, which can only lead to benefits for those from disadvantaged groups.

  39.  The UK has been exceptionally good at generating new knowledge, and the HE sector's research is world-class. Although the UK has only 1% of the world's population, it carries out 5% of world research and produces over 12% of all cited papers and almost 13% of papers with the highest impact. On average, UK scientists receive about 10% of internationally recognised science prizes.[16] This places the UK second in the world in terms of percentage share of citations and high impact research. While we recognise that the Government has made significant steps in increasing investment in UK research and development over the past 10 years,[17] UK success has occurred in spite of historically lower public and private investment in UK research and development than our leading competitors. The majority of UK research and development is carried out in HEIs, whereas in other countries (such as Germany) public research institutes do a larger proportion of the research.

  40.  This world-class research base is critical to our economic future: a view reflected in the Lambert Review of Business-University Collaboration,[18] and the Government's Science and Innovation Investment Framework 2004-14.[19] We know that publicly-funded research contributes significantly to industrial and economic growth, as the business sector seizes opportunities from the generation of knowledge.[20]

ww.hm-treasury.gov.uk under Consultations and legislation/Full index of consultations.

  41.  Higher education institutions (HEIs) have become increasingly outward-looking, with a growing ability and motivation to work more effectively with business, each other, and numerous other stakeholders.[21] The HE-business and community interaction (HE-BCI) surveys of the past five years[22] demonstrate the considerable progress made by HEIs in building relationships with business, not only in R&D, but also through consultancy and training. For example, the surveys highlight that UK HEIs are more successful than US institutions in forming spin-out companies (even if at present UK HEIs generate proportionally less licence income).

  42.  HEIs are also playing a growing role in supporting and helping to regenerate communities, with some explicitly placing regeneration at the heart of teaching and research missions. A recent survey[23] shows that regeneration income to the sector increased by 47% from 2002-03 to reach nearly £216 million in 2003-04. Activities include providing consultancy or continuing professional development to businesses and individuals—sometimes free at the point of use. Academic staff also work with voluntary groups and others, to plan urban renewal or economic regeneration projects.

  43.  The total activity of the UK sector in delivering "knowledge exchange" is valued at around £2 billion (in 2003-04), nearly £1 billion of which was delivered through contract and collaborative research for business to develop new knowledge and innovative applications.[24]

  44.  Our universities and colleges are central to the country's economic future, and play a major part in meeting the country's social and environmental goals. We know that globalisation, fierce economic competition, rapid technological change, demographic change, and growing pressures on natural resources and the global climate will pose considerable challenges for our country and place major strains on the global community, particularly developing countries. HE has a major role to play globally, and in transforming our own economy and society, to meet these challenges.

MANAGING THE TRANSITION

  45.  England has a high performing higher education sector. It has successfully addressed multiple, complex and dynamic agendas. In the past it has managed change well—for instance, the doubling of HE participation[25] or the introduction of fees. It must do the same in the future if the UK is to remain globally competitive and deal with deep-seated social issues.

  46.  The key to HE success has been a diverse sector, autonomous institutions and a regulatory system that commands respect and is continually improved. Other governments are reshaping their HE systems to adopt these features as they are keen to replicate the English success.[26]

  47.  The challenge for England is therefore to stay ahead. The introduction of variable fees will provide a much-needed stream of additional investment, but it may also intensify the trend of students who demand more from their investment of time and money. This should help improve the competitiveness of institutions but may result in market shocks which need to be managed to protect public investment and the experience of existing students. In these circumstances HEFCE is able to offer institutions support as they reshape their provision. This enables market factors such as student and employer demands to be properly reflected in a re-alignment of supply. We also invest to ensure provision that is crucial to our economic prosperity (for example, science, technology, engineering and mathematics subjects) or to widening participation (for example, accessible and local provision) remains available even when short-term market forces would otherwise cause closure.

  48.  It is doubtless true that as global competition intensifies and new players, at home and abroad, enter the HE market then the sector will need to adapt and respond at a faster rate than in the past. Our approach will be to rely on a combination of market forces and selective interventions to ensure the English HE sector maintains its leading global position.

RESEARCH ASSESSMENT AND FUNDING

  49.  In 2006-07 HEFCE will distribute £1,342 million in recurrent funding for research within our block grant to HEIs. This funding is allocated to institutions selectively to support and reward excellence in research of all kinds and in all subjects, across the HE sector, with the aim of developing and sustaining a world class research base that can respond flexibly to the changing needs of stakeholders and lead in developing new approaches and fields of enquiry.

  50.  Within the dual support system our funding for research has two key purposes:

—  To support and develop the core research infrastructure, underpinning work of public benefit funded by Research Councils, other government departments, industry, charities and the European Union.

—  To enable HEIs to pursue curiosity-driven and "blue skies" research that is fundamental to future innovation.

  51.  Most of our research grant is distributed as quality related (QR) funding allocated primarily on the basis of quality, as measured through the Research Assessment Exercise (RAE); there is also some specific funding for initiatives to develop research capacity and capability in selected disciplines. There are elements within QR grant allocated by reference to research income from charities and to support the costs of supervising postgraduate research students.

  52.  Since 1986 the HEFCE has assessed research quality through peer review, in periodic RAEs in which expert panels rate the quality of research conducted in departments across the UK. In addition to informing our grant allocations RAE has been influential in driving up the quality of research and of research management and in benchmarking quality in an international context. The last RAE in the present form is due to take place in 2008, and this will substantially inform funding for a period of five years from 2009.

  53.  HEFCE has recently announced that it will allocate a portion of QR funds (£60 million in 2007-08) to support and encourage research that directly meets the needs of business and industry.

Reform of research assessment and funding

  54.  In the December 2006 pre budget report the Government announced the development of a new framework for the assessment and funding of research, to follow after the 2008 Research Assessment Exercise (RAE). The new system will be designed to reduce significantly the operating cost and administrative burden associated with the RAE while still producing robust indicators that can be used to benchmark quality and to drive the Council's funding for research.

  55.  HEFCE has welcomed the Government's continuing commitment expressed in this announcement to the dual support system for public funding for research and the distinctive role within this for QR funding allocated primarily by reference to research excellence. The Council will now undertake the detailed work necessary to develop and implement the new framework, including detailed consultation with the sector. We will seek to ensure a smooth transition to the new arrangements, to be fully in place by 2014.

  56.  The new arrangements will be developed as a single overarching framework within which a differentiated approach is possible for groups of disciplines. The approach for science, engineering, technology and medicine will be based on quantitative indicators of research quality and outputs (including bibliometric data, external research income and postgraduate student information), with a role for expert advisors in determining the use of these indicators. This will run for the first time in 2009 with a gradually phased change to funding allocations between 2010 and 2014. For other disciplines there will be a light touch peer review based assessment process, informed by statistical indicators, to be undertaken in 2013 to inform funding allocations from 2014.

Sustainability

  57.  While the reform of the assessment and funding mechanisms will provide a stable framework for our continuing support of a world leading research base which is dynamic and responsive, further progress is needed to ensure its financial sustainability. During the 1990s, the amount of research funding provided to HEIs by external partners more than doubled; but the funding to support the QR part of the system increased only modestly in real terms. The result has been a situation where the HE sector is struggling to provide the infrastructure to underpin externally funded research. The HEFCE estimates that the full economic cost (taking into account the need to invest continually in renewing the infrastructure) of research of public benefit undertaken in English higher education institutions currently exceeds the income from all sources to support that work.

  58.  The Government's Science and Innovation Investment Framework (SIIF) set out a 10 year plan for the delivery of stronger research outcomes, including increased investment on both sides of the dual support system, and expectations that Research Councils and other government departments would pay a greater proportion of the full economic costs of the research they commission. Provision for increased spending on research through QR will contribute to closing the gap, but achieving full sustainability without risking a damaging loss of research volume remains a challenge for the HEFCE and the sector. We continue to monitor HEIs' progress towards sustainability through annual "TRAC" returns of their costs and income for all activities, and through the broader monitoring of sustainability in the UK research base initiated by the HE Research Base Funders' Forum.

  59.  HEFCE is currently considering the contribution that strategic collaboration between higher education institutions can make to improving the strength and sustainability of the research base, informed by discussion with colleagues from the HE sector at a seminar held in September 2006.

ENHANCING LEARNING AND TEACHING

  60.  The University sector in England is widely acknowledged to be of high quality and its systems for quality are recognised across the world. The quality assurance system has been enhanced through the development of publicly available information including a comprehensive National Student Survey (NSS). The information is available on a web site www.tqi.ac.uk and includes the second year of data from the NSS. This shows a broad based high level of student satisfaction across the sector which, along with the high level of positive assurance given by the Quality Assurance Agency for Higher Education (QAA), demonstrates that our HE sector is maintaining its quality as we move to much greater student numbers.

  61.  There is a strong indication that institutions are using the outcomes of the NSS for quality enhancement efforts within their institutions. The Higher Education Academy (HEA) and the Equality Challenge Unit are using evidence from the NSS to support institutions in improving the experience of students from particular ethnic groups, and of those with disabilities. The HEA, along with the QAA, will also be looking at ways in which institutions can improve assessment and feedback mechanisms to students, another area identified by the NSS. Institutions will also begin to share, as a matter of course, external examiners' reports with student representatives, strengthening the student involvement in improving assurance and enhancement.

  62.  As a result of significant investment, institutions now place quality enhancement in learning and teaching at the heart of their strategic objectives. This investment has been extended to include provision by further education colleges. Targeted investment of this kind supports institutions in driving forward change and raising the profile of teaching and learning across the campus.

  63.  Over the past year the 74 Centres for Excellence in Higher Education (CETL) have established their presence and most of the work to enhance the learning environments through injections of capital spending has been completed. This investment will enhance the learning experience of an increasing number of students as the CETLs complete their programmes to infuse their excellence into further programmes of study. This focus on developing excellence helps English HE to maintain its position in the increasingly competitive market for international students.

  64.  Through the network of 24 subject centres, the HEA is working with the QAA to further develop enhancement in HE, and on benchmarking academic standards. The HEA also continues to support institutions in their response to judgements from the QAA, ensuring they use the outcomes of reports to drive forward enhancement programmes.

REVIEW OF THE TEACHING FUNDING METHOD

  65.  HEFCE began its review of teaching funding in 2005. The guiding principle was to ensure that our approach to teaching funding was fit for purpose in the funding environment envisaged in the Higher Education Act 2004. In developing our revised approach we consulted widely with the higher education sector and other stakeholders.

  66.  We are now committed to a two-cycle approach which will ensure that the sector will be able to meet the challenges arising from variable fees. A second cycle will take into account any changes recommended in the review of the new funding reforms in 2009.

  67.  The key principles underpinning our funding in the planning period 2006-10 are ensuring that the sector has a stable funding platform rewarding dynamism and enhancing quality, and securing strategic provision and strategic objectives (notably strategic and vulnerable subjects, widening participation, and employer engagement).

  68.  These objectives will be secured through maintaining a commitment to the teaching funding allocation being determined by volume of teaching and the relative cost of provision. In addition we will make a number of allocations to support strategic subjects, widening participation, historic buildings, and exceptional costs carried by some institutions. Our teaching funding will continue to be delivered to institutions as a block grant, leaving institutions the discretion to invest HEFCE funding in accordance with their own strategic priorities.

  69.  We will continue to extend the Transparent Approach to Costing (TRAC) to teaching. This major project will enable higher education institutions better to understand the distribution of costs between teaching, research and other activities. It will also, by 2008, give HEFCE and the HE sector robust data on the relative costs of different types of provision and, when used sensitively and with appropriate contextual information, will give clearer data on teaching costs. These data will help inform our review of teaching after 2009.

FUNDING FOR GROWTH IN STUDENT NUMBERS

  70.  The Leitch Review of Skills sets a challenging vision for expansion in HE. The Report emphasises the need for significant growth in a parallel economy of lifelong learning to up skill the adult workforce to higher skill levels through HE qualifications. It states that the costs this expansion should be met predominantly by the individual and employers. It is a challenging agenda starting from a low base. The Report is also clear that this new growth must be built on the successful bedrock of a continued increase in the proportion of young people progressing to HE as part of their initial education. HEFCE believes that it is important to maximise the growth in higher level learning in the most cost-effective way through both routes. We expect there will be continued demand for HE arising from the following factors: demographic change; increased numbers of students from other EU countries; anticipated improvements in attainment at level 3; and the success of existing and future activities to increase demand. It will be important to enable the HE sector to meet that demand as well as to increase the number of employees learning in the workplace in order to ensure a continued flow of people with higher level knowledge and skills through HE to benefit our economy and society.

MAINTAINING OPPORTUNITY

  71.  The population of 18-20-year-olds will continue to increase until 2010-11[27]. Growth in student numbers is therefore required just to maintain the current rate of HE participation. Zero or limited growth would mean that some young people might not be able to progress to HE. Those denied a place in such circumstances could include a number of young people from less advantaged backgrounds. Providing the students of tomorrow with opportunities to participate in HE is important if all those succeeding at level 3 are to fulfil their potential.

  72.  Ten countries joined the European Union in 2004, and Bulgaria and Romania became members on 1 January 2007. We anticipate that this will lead to more demand from EU students. The HE system may need to become even more responsive to meet national and European demand.

  73.  The Public Service Agreement targets include increasing the proportion of young people who achieve Level 3 qualifications. This will lead to an increased demand for HE places as more young people with level 3 qualifications progress to higher level courses. Progress has already been made: the numbers of 19-year-olds qualified to Level 3 increased by 3.5% between 2004 and 2005[28]. Modelling currently assumes that this improvement will continue at a rate of 1% per year. Work to improve boys' attainment at levels 2 and 3 (where boys consistently under-perform girls)[29] will also feed into achievement of this target, and thus into higher rates of progression to HE.[30]

  74.  We are currently supporting measures, such as Aim Higher and Lifelong Learning Networks that will further develop demand from young people. Soundings within the HE sector, and statistics on applicants from UCAS, suggest that there is continuing growth in demand from young people which it is in the public interest to meet. Furthermore, to reach the proportions of people in the workforce with HE qualifications that the Leitch Review says the UK needs to be competitive, a far greater investment in demand development activity will be required.

  75.  In considering the cost effectiveness of different routes to producing higher levels of HE qualified people in the workforce it is important to examine evidence about completion rates. Sixty seven per cent of full-time undergraduates on three-year programmes qualify with an HE award within three years, whereas it can take rather longer to complete some part-time vocational programmes. While there are often good business and career reasons why learners and their employers are making use of HE in this way, in order to address the issues being raised by the Leitch Review of Skills, we need to strive for an appropriate balance between traditional full-time provision and employer co-funded provision as another type of higher education.

GROWTH IN LEARNING IN THE WORKPLACE CO-FUNDED WITH EMPLOYERS

  76.  Building employer demand and supporting the HE sector to innovate in their supply of new flexible learning solutions should help the HE sector to develop programmes that more closely match the needs of employers and their employees. Consequently, employers should be more inclined in the future to meet a greater proportion of the costs of HE-level learning undertaken by their employees.

  77.  There are significant variations in employers' contributions to costs, influenced by factors outside the control of HE such as the size of the employer, the sector, their exposure to competition and the prevailing economic conditions. Co-funded provision is relatively new. We will use the experience of the coming years to help us predict with greater certainty how quickly co-funded HE-level learning in the workplace can grow after 2011.

THE LEITCH REVIEW AND ENGAGING EMPLOYERS WITH HIGHER EDUCATION

  78.  HEFCE welcomes the report from the Leitch Review. Lord Leitch rightly sets out targets which will challenge higher education in meeting the country's future needs for higher level skills. The role of higher education is crucial to driving up economic productivity by adding value both to the individual and to the economy. We also welcome the recommendation that some expansion in Higher Education should be delivered through a demand-led mechanism like Train to Gain. We have already established Higher Level Train to Gain pathfinders in three regions. We will explore with partners how we extend our support for universities and colleges in taking a greater role in workforce development, and extend their capacity to deliver the tailored flexible courses that businesses and individuals need. We look forward to working with the DfES and the HE Sector to help realise the Leitch vision.

  79.  The approach advocated by Lord Leitch is consistent with that set out in HEFCE's own strategy for engaging employers with higher education, agreed in June 2006. This strategy, delivers current HEFCE Strategic Plan objectives in relation to flexible and lifelong learning and employer engagement and draws on significant independent research commissioned by HEFCE in 2005. It also addresses issues raised by the Secretary of State for Education and Skills in HEFCE's 2006 grant letter.

  80.  Higher education has a vital role in making the country more competitive by promoting the knowledge-based aspects of our economy and driving up productivity and growth, through improving skill levels. Although many universities and colleges are already engaged with the world of work, the HE sector needs to collaborate more effectively with employers to maximise the benefits for learners, employers, employees, the economy and society. HEFCE's strategy will identify how we should support the HE providers to do this. In doing so, a key aim will be to promote partnerships between HE, employers and individuals. This will deliver a holistic approach to the key challenges and ensure a fair partnership in which all three share in the costs as well as the benefits of higher education. The strategy will seek to improve the employability of graduates, as well as helping HE to make a stronger contribution to workforce development.

  81.  We are adopting a two-phase approach. In the first phase we are funding a range of pilot projects which will develop our understanding of current activity and test approaches to making provision more relevant and tailored to employers' needs. The second phase will draw on these findings to develop a shared strategy between HE and its partners.

  82.  We will be supporting a range of projects at national, sectoral, regional and local levels. These will explore and address the barriers faced by universities and colleges in being responsive to employers' needs. These include ensuring that:

—  quality assurance systems which apply to HE provision are fit for purpose;

—  employer-responsive provision is funded appropriately;

—  HE links effectively to policy for 14-19 year-old learners and further education;

—  vocational and work-based learning is valued and supported by providers;

—  academic staff have opportunities to update and refresh their knowledge of industry and the world of work;

—  there are clearer routes for learners to enter HE with non-traditional backgrounds; and

—  credits and qualifications systems enable learners to learn and accumulate qualifications in a flexible way that fits with their work and broader life commitments.

  83.  Employers can also expect to see better services tailored to their needs, such as:

—  Access to HE level provision through the Train to Gain brokerage service for employers in three regions: North East, North West, and South West.

—  Clearer presentation of the costs of HE programmes to suit employers' needs for general business skills and specialist knowledge.

—  More undergraduate and postgraduate courses that are relevant to employers' current needs; and more student placements and consultancy which will contribute to higher productivity and business transformation.

—  More universities and colleges offering opportunities for workforce development, such as through:

—  work-based learning;

—  e-learning;

—  short courses;

—  flexible delivery at the workplace;

—  accreditation of prior learning;

—  accreditation of experiential learning; and

—  accreditation of companies' in-house training programmes.

  84.  To improve services for national employers, we will work with the Learning and Skills Council to explore the potential for HE provision to be accessed through the LSC's National Employer Service.

  85.  We also aim to expand opportunities for employers to access HE provision to complement and enhance knowledge transfer, research and consultancy from universities and colleges.

  86.  In the longer term we seek to:

—  make clearer to employers which universities can meet their needs;

—  spread good practice on engaging with employers to enable employers to focus on practical outcomes, with fewer committees;

—  develop a shared language between employers and the HE sector;

—  ensure employees know what support is available to them for increasing their skills and personal development; and

—  ensure graduates are well-rounded, with the skills and attributes not only for employability but to help them transform the businesses they work in.

  87.  A key challenge in this agenda will be in building employer demand for higher level skills and HE qualifications. As the Lambert Review showed in relation to knowledge transfer, too few businesses are demanding the services from HE that they need to support innovation and productivity and remain gloabally competitive. To realise the vision of the Leitch Review, with a massive growth in higher level learners, paid for in part by employers, there will need to be a concerted and combined effort, using a wide range of publicly supported mechanisms, to demonstrate to employers the value of investing in higher level upskilling of their workforce. The HE sector has an important role to play but other organisations will also need to play their part.

WIDENING PARTICIPATION AND FAIR ACCESS

  88.  We fully support the Government's aim to increase and widen participation in higher education so that all those who can benefit from it have the opportunity to do so. Higher education institutions (HEIs) have already made considerable progress in meeting the long-term challenges that this poses, supported by targeted public funding and good practice guidance.

  89.  The evidence that widening participation (WP) interventions have an immediate positive impact on aspirations of learners is overwhelming. In our recent review of WP (2006), we showed that activity designed to raise aspirations among young people were considered very successful by practitioners and teachers. There is also some research evidence to suggest that this conclusion is well-founded. The Sutton Trust was surprised (and gratified) to find that two-thirds of 11-16 year-olds in schools in England and Wales questioned by MORI for research commissioned by the Trust said they expected to go into higher education when they were old enough (Sutton Trust 2002). Eighty-four per cent of professionals think it likely their children will go to university, but so too according to Wragg and Johnson, do 65% of manual workers. "Despite the differences... the very fact that nearly two-thirds of routine manual workers expect their children to go to university, it could be argued, is evidence of the success of policies encouraging all groups in society to aspire to higher education" (Wragg and Johnson 2005, 96). There is also strong evidence of endorsement by teachers, and although less common (because more difficult to reach) positive endorsement from parents and carers too. In addition, as part of the evaluation of Aimhigher, evidence from the NFER surveys in the former Excellence Challenge areas found: higher than expected levels of attainment associated with being designated as a member of the WP cohort; a 4.6 percentage point improvement in the proportion of Year 9 pupils attaining Level 4, 5 or 6 in mathematics at Key Stage 3; an average improvement of 2.5 points in GCSE total point scores; a 3.9 percentage point increase in Year 11 pupils intending to progress to HE.

  90.  We believe that some of the expansion in student numbers caused by demand-raising activities such as Aimhigher will be captured within growth due to demographic changes and increases in level 3 attainment. However, we expect demand to increase still further. Estimates of demand in the regions have indicated that institutions may wish to accommodate around 60,000 additional places over the next CSR period. This is around 6,000 more that we project from demographic changes, increased attainment and EU expansion. We believe that the difference reasonably represents the additional growth that demand-raising activities may stimulate, beyond what they contribute to increased attainment.

  91.  A significant part of our work in further raising demand for HE is the steps we have taken to improve the prospects for progression into and through higher education for vocational learners. Roughly half of those qualified at level 3 in vocational subjects progress to HE compared with about 90% of those with academic qualifications.[31] In addition, for those vocational learners already in HE, there continue to be gaps and inconsistencies in opportunities available. To address this, HEFCE and the LSC asked partnerships of HEIs and further education colleges (FECs) (along with key partners such as Aimhigher, Regional Development Agencies, Sector Skills Councils, and local employers) to develop proposals for Lifelong Learning Networks (LLNs). While the core characteristics of an LLN were identified in advance, each LLN has developed solutions appropriate to their regional context and sector focus, through an iterative development process found to be robust by HEFCE's internal audit.

  92.  We have been encouraged by the different and innovative approaches taken by LLNs, and have now achieved almost national coverage. To date, approximately £92 million has been allocated to fund twenty seven networks, spanning 113 higher education institutions and more than 260 further education colleges. If all of the further proposals are developed into full business cases, this would increase national coverage to at least 119 HEIs and over 285 FECs. LLNs have also been allocated approximately 7000 additional student numbers (ASNs) to make places available on programmes (existing programmes or new ones) that enable progression for vocational learners.

  93.  LLNs will take a number of steps to create the required coherence, clarity and certainty for vocational learners. These include:

—  Progression agreements that define clearly the expectations about progression that learners can reasonably hold and makes a commitment that these expectations will be met (moving beyond "pathways" and "frameworks").

—  Curriculum alignment that removes barriers to progression and bridging provision that forms part of the HE offer.

—  HE Curriculum development involving employers to ensure that appropriate learning opportunities are actually available that match the skills and abilities non-traditional learners bring to HE to the needs of employers.

—  The involvement of HE in the development of the 14-19 specialised diplomas.

—  Learner support systems that allow LLNs to engage, and track, learners in the context of lifelong learning opportunities.

  94.  As well as raising aspirations and demand for HE, supporting student success is also a shared concern across the sector, facilitated through a combination of targeted support and increased flexibility and quality of provision. Many institutions have objectives "to attract and retain" students, and look to support a diverse student body. Both the Universities UK report, From the Margins to the Mainstream (2005) and Action on Access (2003) argue that embedding WP across institutional practice and policy is the key to supporting student success. The evidence is that WP funding is leading to the incorporation of WP objectives in the mission statements and management arrangements of HEIs. Some institutions now expect faculties and departments to justify their portion of the retention allocation as part of their reporting processes and business planning cycles. Indeed, evidence to date suggests that widening participation funding is leading to the incorporation of widening participation objectives in the mission statements and management arrangements of HEIs. For example, the University of Manchester aims to be the UK's most accessible research-intensive university and has widening participation as one of its nine strategic goals. This suggests a shift in HE culture and shows real commitment to wider access.

BIBLIOGRAPHY  Action on Access (2003) Student success in higher education

(http://www.actiononaccess.org/?p=2_5_4_3_1_2)

  HEFCE (2006) Widening participation: A review (http://www.hefce.ac.uk/widen/)

  Sutton Trust (2002) "School omnibus 2001-02: a research study among 11-16 year olds", conducted by MORI for the Sutton Trust. (http://www.suttontrust.com/reports/omnibus_rep.doc)

  Universities UK (2005) From the Margins to the Mainstream (http://bookshop.universitiesuk.ac.uk/)

  Wragg, T and M Johnson, (2005), "Higher education: a class act", British Social Attitudes: the 22nd report, Sage Publications

ENHANCING THE CONTRIBUTION OF HIGHER EDUCATION TO THE ECONOMY AND SOCIETY

  95.  Higher education institutions (HEIs) contribute to the economy and society in many ways. HEFCE is committed to maximising the contributions made by HE teaching and research to businesses, public services, social enterprises, arts and cultural institutions. We aim to enhance HE's capacity to create jobs and wealth, as well as to improve people's quality of life, support social and economic regeneration and inculcate civic values.

  96.  The HE knowledge base has a considerable role to play as a source of the country's global competitiveness, creating new ideas, entrepreneurs and increasing skills and productivity. This has been acknowledged in the Government's Science and Innovation Framework.[32] Since 1999 HEFCE, in partnership with Government partners has been providing a "third stream" of funding alongside funds for teaching and research, to enable institutions to develop their responsiveness to the needs of business and the community. This investment has put in place an infrastructure for knowledge exchange between HEIs and a range of users, including public and private partners, social, civic and cultural organisations, and individuals.

  97.  The HE Innovation Fund (HEIF), which is a partnership between HEFCE, DfES and OSI, enables all HEIs to invest in culture change and infrastructure to engage with users across the broad range of their activities and to shape their future offer in response to the needs of business and the community. It aims to integrate third stream activities into every HEI in a sustainable way that is appropriate to their mission. Under HEIF 3 (2006-08) we will allocate £233 million through a formula allocation to all HEIs, and project funding to 11 large-scale collaborative projects.

  98.  We expect our funding to leverage funds from other sources and some aspects of knowledge exchange (eg commercialisation) are most appropriately funded by the beneficiary rather than public funds. However, we believe there is a strong need for the continued public funding of this innovation infrastructure in HEIs, in order to secure the wide range of public goods which are delivered from engagement between HEIs and external partners, such as research which informs business and social activity, the promotion of enterprise education and knowledge exchange with community organisations and small and medium-sized enterprises (SMEs) who are not likely to be able to pay the full costs of interactions with HE.

  99.  We continue to work with Government partners to collect and develop appropriate data relating to the third stream activities of HEIs, as a basis for effective mechanisms for funding in this area. We run the annual HE Business and Community Interaction Survey (HEBCI) for this purpose. The HEBCI survey shows a significant shift in the quality and extent of HEIs' interactions with business and the community during the period 2000-04 (see table below).

Selected HE-BCI indicators 2000-01 to 2003-04

	2000-01	2001-02	2002-03	2003-04
Number of invention disclosures
	2,159	2,478	2,710	3,029
Consultancy income £000s (real terms*)	112	129	172	211
Collaborative research income £000s (real terms*)	447	495	491	541
A required contracting system for all staff-business consulting activities (% of UK HEIs)	60%	65%	66%	68%
An enquiry point for SMEs (% of UK HEIs)	83%	85%	89%	90%
Regeneration income £000s (real terms*)	£129	£134	£150	£216
Equipment and facilities £000s (real terms*)	£28	£53	£68	£80
HEIs providing short bespoke courses on companies' premises	62%	67%	78%	80%
HEIs providing distance learning for business	52%	52%	66%	66%

  * All figures have been adjusted to 2003-04 prices.

Disclosures are often the first step to the commercialisation of inventions and certain types of intellectual property.

  100.  Much of our third stream funding to date has been awarded to collaborative projects which encourage HEIs to pool their resources and work together to deliver increased benefits to external users. We are also supporting the sector to identify and share good practice in engagement with business and the community, and are working with the new Institute of Knowledge Transfer and other sector based bodies to professionalise knowledge transfer careers within HE. The Cooksey Review[33] recommended that HEFCE and OSI should also review the technology transfer function in HEIs, to identify and disseminate good practice in this area, and we will be developing our proposals in relation to this in the coming months.

  101.  Through HEIF 3 formula funding we are supporting all HEIs to develop a strategy and infrastructure to share the benefits of their teaching and research with the wider world. However, in future we also want to do more to support those HEIs who are going further and focussing their institutional mission on the third stream. Such HEIs are increasingly describing themselves in terms of their relevance to users, and are significantly increasing the intensity of their third stream activities. We believe that enabling this kind of mission could expand the reach of HE to users and sectors which don't currently engage with HE knowledge. It will also encourage a more diverse HE sector that provides a range of services relevant to all aspects of competitiveness. We are currently working jointly with five HEIs[34] on experimental projects that will demonstrate latent capacity in institutions with this mission profile that could stimulate demand in new users, particularly local and regional SMEs.

  102.  Through our Strategic Development Fund (SDF), we support large-scale and structural changes in the HE sector. Many projects funded through SDF seek to align HE more closely with the needs of business and the community, either at local, regional or national levels. Through SDF we are currently working with a number of HEIs to develop new ways for the HE sector to encourage business innovation and creativity, through collaborations in design and creativity, bringing together students, researchers and businesses in a shared environment.

  103.  Investment in our HE sector to improve knowledge transfer and innovation is of vital importance to the future competitiveness of our economy. However, we also see a need to promote more international and global partnerships devoted to innovation through creating opportunities for leading-edge researchers and practitioners to come together with users of research to push back the barriers of discovery and application together. A number of the projects funded through HEIF 3 include international collaborations with HEIs, businesses and others in India, China and North America, to develop new ideas and technologies which will increase the global competitiveness of the UK. We will support the work of other partners such as the UK Research Councils, Technology Strategy Board and UKTI in promoting international partnerships in innovation.

PUBLIC ENGAGEMENT WITH HIGHER EDUCATION

  104.  HEFCE has united with the major UK funding bodies to establish a co-ordinated approach to recognising, rewarding and building capacity for public engagement in higher education institutions (HEIs). Support for public engagement was one of the issues that received significant backing in the consultation on the HEFCE strategic plan for 2006-11. With Research Councils UK, and the Scottish and Welsh Funding Councils in association with the Wellcome Trust, we have launched a new initiative to promote excellence and effect a culture change in the way universities and colleges engage with the public. The initiative will seek to create partnerships and networks between higher education institutions (HEIs) and other providers such as museums and galleries and will span all subjects and activities in higher education.

  105.  HEFCE on behalf of all the funding bodies is inviting proposals from HEIs to set up collaborative beacons for public engagement, including one national co-ordinating centre. Jointly we are providing a total of up to £8 million over four years to support this pilot initiative. We believe that this co-ordinated approach will send out a strong signal that maintaining an effective dialogue with the wider public is important in terms of maintaining confidence in higher education and extending its civic and civilizing influence. It is also essential that teaching and research remain in tune with the needs of society, and that means listening to the public.

STRATEGICALLY IMPORTANT AND VULNERABLE SUBJECTS (SIVS)

  106.  HEFCE believes that it is essential that disciplines and subjects that are of strategic importance to the nation are sustained and developed so that the public interest in England's higher education is secured.

  107.  The principles and policy that guide our programme were set by an advisory group chaired by Professor Sir Gareth Roberts in June 2005 (see HEFCE 2005/24). In summary, Sir Gareth's group advised that:

—  The dynamism of the HE sector is a great strength. Action should therefore be proportionate to the problems we find.

—  Each strategic and vulnerable subject will have its own characteristics that will require a tailor-made solution.

  108.  Since then we have worked in partnership with a wide variety of stakeholders, using a sound and reliable evidence base, to support and develop strategically important and vulnerable subjects. Stakeholders include, but are not limited to, funding bodies, Royal Societies and professional bodies, subject associations and groups concerned with widening participation into HE.

  109.  In tandem with this we keep a watching brief on the potential national consequences of withdrawal of provision and department closures in HEIs to monitor whether current provision is out of step with national or regional need. Acting with regional partners, such as Regional Development Agencies, we are able to sustain disciplines of strategic importance in a region where an individual HEI's decision may have led to some decline. We also keep abreast of the data so that we can understand trends over time in strategic subjects. This helps us to recognise the vulnerability of individual strategic subjects. Over the longer term, these data will help us understand the impact of our work to encourage more people to study strategic subjects in higher education.

  110.  We have developed a programme of work tailored to the specific vulnerabilities of each subject, which is informed by the policy framework set by Professor Sir Gareth Roberts' advisory group. This programme is proceeding hand in hand with the initiatives and funding streams that support our strategic aims, many of which provide national and regional support for strategic subjects.

  111.  We have sought to increase and widen participation in these subjects by working through existing structures, including Aimhigher and the Science, Engineering, Technology and Mathematics Network (SETNET). Although individual professional bodies have led the way, they have taken a very inclusive approach, working (for example) with CETLs, Higher Education Academy subject centres, RDAs, and Sector Skills Councils. We will also take account of the way in which the recommendations from the Langlands Review, "Gateways to the Professions[35]" are taken forward.

  112.  We are acting to raise aspiration in collaboration with the Institute of Physics, the Royal Society of Chemistry, The Royal Academy of Engineering and other professional bodies in science, technology, engineering and mathematics (STEM) and with the HE Academy's subject centre in languages, linguistics and area studies to raise demand for the study of modern foreign languages. We are providing additional funded student places in STEM disciplines. We are also working with the Research Councils and the UK's other higher education funding bodies to sustain research capacity and capability in areas that are of critical importance to the nation. An example is our £12 million support for the UK wide Area Studies and Related Languages initiative. This aims to create a world class cadre of researchers to enhance the UK's understanding of the Arab World, China, Japan, Eastern Europe and the former Soviet Union.

  113.  In addition, we fund several Centres for Excellence in Teaching and Learning that support SIVS and the funding we have committed to support Lifelong Learning Networks will also help to meet regional skills needs and economic priorities of England's regions in conjunction with key stakeholders and raise demand for HE.

  114.  Such demand raising activity will, by its very nature, take some time to result in increased take up of these subjects in HE. Therefore, we have recognised the need to help HEIs maintain provision in those subjects that are particularly expensive to provide, ie chemistry, physics, chemical engineering and mineral, metallurgy and materials engineering. Consequently, we announced in November 2006 that we would deliver an additional £75 million to the sector to sustain capacity in these very high cost subjects over the next three years.

  115.  Overall, we have committed nearly £250 million to support our work in SIVS. Looking forward, we will evaluate the effectiveness of this programme of work during 2007. The results will help inform the work of a review overseen by a new advisory group in 2008, which will consider whether the policy framework we have in place is still fit for purpose in a more marketised higher education environment. The results of future government spending reviews and subsequent decisions about priorities will also help determine the level of investment in strategic subjects in the future.

LEADERSHIP, GOVERNANCE AND MANAGEMENT IN HIGHER EDUCATION

  116.  English HE is a leading UK export[36] and a source of local and regional wealth creation[37]. Its current strength reflects well on its past leadership, governance and management. Judged by its outputs the HE sector must be good.

  117.  While on the whole this analysis is true, it is deficient in two important respects. First, past success does not guarantee future success. There is, for instance, now a much greater need for HEIs to understand better, and to communicate effectively with, their "markets." Students and employers are obvious examples but the marketing skills need to be deployed more widely; universities are increasingly looking to expand donations and need to ensure government investments are seen to deliver valuable outcomes. Running a modern HEI is every bit as complex as managing a large multinational, multi-product business. To succeed in the future HEIs will need to widen their range of skills as well developing new ones.

  118.  Second, multiple stakeholders demand a greater degree of accountability in return for both public and private investment, with a need for assurance that extends much wider than existing regulatory systems such as the Quality Assurance Agency for Higher Education and the Research Assessment Exercise. Banks and donors want to ensure their investments are safe. It is also important that HEIs fulfil their obligations under public policy agendas such as equal opportunity and sustainable development. In this context it would be easy for the accountability burden to rise with little real world improvements. At HEFCE we have worked hard to reduce the burden of accountability by using a risk-based approach and targeting our resources appropriately. With a low risk, high performing sector, this means we have achieved a 25% reduction in burden between 2000 and 2004.[38] We have also sought to increase broad confidence, leading to the sector enjoying some of the lowest rates and best terms available in the financial markets.

DEVELOPMENT OF THE NEW ACCOUNTABILITY FRAMEWORK

  119.  We aim to further reduce the accountability burden over the coming years (by 20% between 2004 and 2007, and by a further 10% by 2011[39]). To achieve this we consulted the sector in 2005 on proposals to change the accountability process. The key idea is the "single conversation", concentrating, as far as possible, the exchange of documents and dialogue with institutions into a short period each year. The sector broadly supported our plans and we have been running a pilot study in 2006. The results will be available in early 2007, and we hope to move towards new sector-wide processes after that.

  120.  At the same time we have been discussing with other public sector funders of higher education how to create a common accountability framework. By relying more on each others' work we could cut out duplicated and unnecessary effort. In this way institutions would face fewer demands for information. The National Audit Office is playing a key role in promoting this initiative.

PROGRESS ON SECTOR LEADERSHIP, GOVERNANCE AND MANAGEMENT ISSUES

  121.  Considerable progress has been made in leadership, governance and management issues in recent years. Taken together, these make a significant contribution towards achieving the Council's key strategic aim to "sustain a high-quality HE sector which adapts to the developing needs of stakeholders, and which continues to be recognised as world class".

Sustainable Development

  122.  Sustainable development is a central part of our strategy for the future development of the sector. During our recent consultation with the sector, a leading journal in this field (the International Journal for Sustainability in Higher Education) declared UK higher education to be the leading sector in Europe after Sweden. Our vision is that, within the next 10 years, the HE sector in England will be recognised as a major contributor to society's efforts to achieve sustainability—through the skills and knowledge that its graduates learn and put into practice, and through its own strategies and operations. Our recently published sustainable development strategy[40] has raised the issue's profile in the sector, and HEIs agree that they have a significant contribution to make towards ensuring the sustainable development of society. This will be in four ways—as an educator; developing research in new technologies; acting as a catalyst for change with businesses, government bodies and others; and through the position HEIs hold in their communities. All of these support the UK Government's sustainability strategy to secure our future.

People and Skills

HR Management

  123.  Since the substantial injection of £888 million of new funding into the sector via the Rewarding and Developing Staff in HE special initiative, HEIs have modernised their human resource processes and practices. Evidence from KPMG's evaluation of the initiative[41] in 2005 found that the investment had changed the profile of human resources in HE: becoming more proactive, strategic, professional and systematic. There is an increasing awareness of the importance of strategic human resourcing to institutional success. At the same time, the sector has implemented the Framework Agreement for the Modernisation of Pay Structures, resulting in a range of improvements including contribution pay and market supplements, as well as a single pay spine for all HE staff which will go some way towards ensuring equal pay for work of equal value.

Workforce Development

  124.  Our workforce "framework" will be the vehicle whereby we can identify workforce challenges of the future, publish research that is of sector importance as well as highlighting those HE "success stories" from which other HEIs can derive valuable examples of good practice. Delivering an appropriate and useful framework will require successful maintenance of those important partnerships with our key stakeholders. Our future work in this area will be based around internationalisation and cross-sector comparisons.

Estates

  125.  Capital investment of some £4.36 billion from HEFCE between 2000 and 2007,[42] as well as the increasing marketisation of HE, means that the quality of the HE infrastructure has improved significantly over recent years. About two-thirds of the estate is classified as either category A (as new) or category B (good). Estates Management Statistics and the UK HE Space Management Group further enable us to gather appropriate data and facilitate change in this area, and we are developing a new Capital Investment Framework, which will allow for longer-term, strategic investment.

Building capacity and capability

Leadership, Governance and Management Fund

  126.  The Leadership, Governance and Management Fund continues to provide a small, but valuable source of public funding for the development and dissemination of good practice in these areas. Often this is identified by HEIs themselves, but we can maintain a strategic overview through commissioning projects which are of strategic importance to the sector and for government—most recently, for example, in the areas of: governance; shared services; environmental sustainability; performance management; and pensions:

—  Committee of University Chairman—key performance indicators to aid effective governance in HE.

—  University of Leeds—academic performance management for excellence at the university—NHS interface.

—  St George's Hospital Medical School—UK Panel for Research Integrity in Health and Biomedical Sciences.

—  University of Westminster—development of a 10 year pensions strategy for HE.

—  University of Liverpool—business processes and organisational development (shared services).

Leadership Foundation for Higher Education

  127.  The Leadership Foundation for Higher Education (LFHE) was launched in March 2004 to help the HE sector meet the future demands of global HE provision. An evaluation by independent consultants, reporting in June 2006 after two years of operation, endorsed its approach and found it to be a well-led organisation. The evaluation report said: "The LFHE is a well-led and governed organisation that has fully grasped and understands the role it must perform... that it is now generally accepted as a legitimate and necessary capability that serves to work for and on behalf of the sector is in our view a very real achievement".

Governance

  128.  A close working relationship with the Committee of University Chairmen supports ongoing improvements in governance development (for example, we worked with the Committee to produce the new governance code[43]), and we commissioned the Leadership Foundation for HE to deliver governor development programmes, research and related activity. This aligns with recent thinking in the EU: among the recommendations given in their Modernisation Agenda for Universities,[44] the EU commissioners said that member states should "...build up and reward management and leadership capacity within universities. This could be done by setting up national bodies dedicated to university management and leadership training, which could learn from those already existing", recognising the future leadership demands of global HE provision.

Equality and Diversity

  129.  We are committed to promoting equality and diversity within the staff and student bodies in higher education, within a legal framework where we have a positive duty to promote race, disability and soon gender. But our commitment to promoting diversity across all areas runs throughout our strategic aims. With the other UK funding bodies, we fund the Equality Challenge Unit to work with HEIs to ensure they are properly advised and supported in achieving both the letter and the spirit of the law in this area. The Equality Challenge Unit works with individual HEIs offering sector-wide advice; representing the sector publicly; advising organisations within the sector; liaising with outside bodies on the sector's behalf; and initiating sector-wide conversations on the key issues. In recent years, HEIs have developed equality schemes in the areas of race and disability, and will shortly be producing equality schemes for gender.

THE BOLOGNA PROCESS

  130.  HEFCE supports the Bologna Process. Active engagement by the English higher education (HE) sector with the development of the European Higher Education Area is important for a number of reasons. It will help to secure the position of English HE within Europe, and to ensure that best practice can be shared and applied in learning, teaching and quality assurance. It will also support the mobility of learners, enabling them to develop an international perspective that will enhance their employability in an increasingly globalised economy. We support this engagement in the following ways:

—  By providing funding, together with the other UK funding bodies and other stakeholders, in support of the UK Higher Education Europe Unit, to co-ordinate and champion the UK contribution to developments in Europe.

—  Through supporting the contribution of the Quality Assurance Agency for Higher Education to the development of Europe wide quality assurance arrangements.

—  Through support for the "Measuring and Recording Student Achievement Steering Group" that has recommended the adoption of a common HE credit framework that would articulate with the European Credit Transfer System (ECTS) and has led discussions about enhancements to the transcript based around the Diploma Supplement.

—  Through supporting a faster adoption of the ECTS-compatible credit framework by moving towards funding on the basis of credit and proposing amendments to the HESA record so that provision is recorded at module level.

  131.  The UK Higher Education Europe Unit has provided a separate written submission to the Select Committee Inquiry into the Bologna Process. HEFCE supports this submission and the issues covered in the document. We would emphasise the issue of progress towards full implementation of the Diploma Supplement by English HE providers and the importance of developing flexible provision in HE.

  132.  We noted the progress institutions were making towards awarding the Diploma Supplement, reported in the Europe Unit survey conducted in 2005. The "Measuring and Recording Student Achievement Steering Group" will report in 2007 on the future of the degree classification and make proposals in relation to enhancements to the accompanying transcript that will enable higher education institutions to work towards adoption of a combined diploma supplement/transcript. We are aware that some institutions have been awaiting the recommendation of this Group before embarking on further revisions or development of their transcripts. HEFCE will seek confirmation from institutions in 2007 that the HE sector has made further progress towards the full implementation of the Diploma Supplement.

  133.  HEFCE is supporting a wide range of activities to improve the flexibility of the learning and teaching on offer to students. This includes a number of pilot projects that are testing the feasibility of, and demand for, HE courses that vary the pace of learning. One form of flexibility that institutions are experimenting with involves a more intensive programme of study, essentially teaching within the summer period in addition to the normal terms or semesters. In some circumstances this enables learners to complete six semesters of work within two calendar years rather than three, using the summer period as a "third semester". We regard provision of flexible learning as being extremely important in meeting the needs of employers and learners, as students or employees, and supporting the competitiveness of our economy in a global market. If we are to realise the levels of HE learning that the Leitch Review advocates, HE providers in the UK (and indeed across Europe) will need to be able to respond to demand from learners for HE learning packaged in a form to meet their needs. This may include more intensive provision as well as provision in other forms such as e-learning and learning in the workplace.

  134.  We are continuing to explore issues of compatibility of intensive study programmes with the Bologna first cycle and the HE institutions involved in the pilots will test the levels of demand from learners. If there is significant demand for this form of learning it will be important to reach agreement as to its treatment within the European Higher Education Area.

January 2007

---

---

1   (If capital funding is excluded-or by 25% if capital funding is included). Data from DfES' annual grant letters to HEFCE. Back

2   Estate Management Statistics reported an increase in floor area of nearly 4% between 2000 and 2004. In this same period the FTE student population increased by 12%, and total income in real terms rose by 13%. Back

3   For example, the latest set of purchasing consortia annual reports detailed efficiencies of £40 million. Back

4   For example, investment in modernising management processes has put HEIs in a stronger position to retain high quality staff. Back

5   The Joint Information Systems Committee has recently had a value for money study undertaken which highlighted that, on average, for every £1 of the JISC budget the HE community received at least £5 of demonstrable value. Back

6   "The economic impact of UK higher education institutions", Universities UK 2006. Back

7   www.tqi.ac.uk Back

8   National Student Survey 2006, www.hefce.ac.uk/learning/nss/data/2006/ Back

9   National Employer Skills Survey 2005: Main Report, LSC 2006. Back

10   Overseas student fee income exceeded £1,215 million in 2004-05. HESA Finance Statistics Return (English HEIs only). Back

11   Leitch Review of Skills, "Prosperity for all in the global economy-world class skills: Final Report", HMSO 2006. Back

12   According to OECD statistics the UK is fifth in terms of the survival rates of students in tertiary education. "Education at a Glance 2006", table A3.4. www.oecd.org Back

13   HEFCE 2006/13 Strategic plan 2006-11 www.hefce.ac.uk/pubs/hefce/2006/06-13/ Back

14   Institute of Education, University of London, 2001, "The wider benefits of higher education". Study sponsored by HEFCE and the Smith Institute (HEFCE 01/46). Back

15   Bedford Group for Lifecourse and Statistical Studies (Institute of Education), "Revisiting the benefits of higher education", HEFCE research and evaluation report April 2003. Back

16   PSA target metrics for the UK research base, OST 2004, cited in "Science and innovation investment framework 2004-14: next steps", HMSO 2006. Back

17   HM Treasury, DTI, DfES, Department of Health, "Science and innovation investment framework 2004-14: next steps", HMSO 2006, page 6. Back

18   "Lambert Review of Business-University Collaboration", HMSO 2003. Available on Treasury website, Back

19   HM Treasury, DTI and DfES, "Science & innovation investment framework 2004-14", HMSO 2004. Available on the Treasury web-site, www.hm-treasury.gov.uk under Spending review/2004 Spending review. Back

20   An analysis across 16 OECD countries concludes that a 1% increase in public R&D expenditure leads to a 0.17% growth in productivity. From Guellec, D and van Pottelsberghe de la Potterie, B, 2001, "R&D and productivity growth: panel data analysis of 16 OECD countries", OECD Economic Studies No 33. Back

21   As demonstrated by the annual surveys of interactions between higher education and business and the community, published jointly by the Department of Trade & Industry (DTI) and HEFCE. Back

22   HEFCE 2006/25 Higher education-business and community interaction survey www.hefce.ac.uk/pubs/hefce/2006/06_25/ Back

23   See note 23. Back

24   See note 23. Back

25   The number of students in HE more than doubled between 1977 and 1997, with particularly rapid growth between 1988 and 1993. "Higher Education in the Learning Society" (The Dearing Report), HMSO 1997. Back

26   For example, the Australian Government has been developing a Research Quality Framework. "Research Quality Framework-Assessing the quality and impact of research in Australia", Australian Government Department of Education, Science and Training 2006. Back

27   Bekhradnia, B, "Demand for Higher Education to 2020", Higher Education Policy Institute 2006. Back

28   National Statistics First Release, "Level 2 and Level 3 attainment by young people in England measured using matched administrative data: attainment by age 19 in 2005 (provisional)", DfES 2006. Back

29   38.3% of male 19 year-olds in 2004 had attained a level 3 qualification, compared to 47.1% of females. Source: "Level 2 and 3 attainment by young people in England measured using matched administrative data: attainment by age 19 in 2004", table 2, additional information, DfES 2005. Back

30   The Higher Education Initial Participation Rate (HEIPR) for male English domiciled first-time entrants to HE courses at UK HEIs was a provisional 37% in 2004-05; the equivalent rate for women was a provisional 47% in 2004-05. Source: DfES, 2006, "Statistical first release: participation rates in higher education: academic years 1999-2000 to 2004-05 (Provisional)." See also HEPI, 2005, "Demand for HE to 2020" on the benefits for progression of raising boys' attainment. Back

31   Emerging research does suggest that the differential participation rates between those with academic qualifications and those with vocational qualifications may reflect weaker underlying performance at both level 2 and 3. Back

32   Science and Innovation Investment Framework 2004-14, HM Treasury, July 2004. Back

33   Sir David Cooksey, A Review of Health Research Funding, HM Treasury, December 2006, pp 96, paragraph 7.41. Back

34   The five HEIs are: De Montfort University, University of Central England, University of Hertfordshire, Sheffield Hallam University, Brighton University. Back

35   Details are available at http://www.dfes.gov.uk/hegateway/hereform/gatewaystotheprofessions/index.cfm Back

36   English HE is reported as being worth £45 billion to the UK economy and generating £3.6 billion in gross export earnings. "The economic impact of UK higher education institutions", Universities UK 2006. Back

37   For example, the University of Bradford is working closely with the city's planners in a major transformation of the city, creating an educational village that is integral to the city centre. There are many more universities and colleges taking a leading role in the regeneration of cities and towns: current developments include Ipswich, Southend, Hastings and Folkestone, Birmingham, Stoke on Trent, Lincoln and Newcastle. Back

38   PA Consulting (2004) "Better accountability revisited: review of accountability costs 2004", HEFCE research report. Back

39   Key performance target 17, "Strategic plan 2006-11", HEFCE 2006/13. Back

40   "Sustainable development in higher education", HEFCE 2005/28. Back

41   Evaluation of Rewarding and Developing Staff in HE initiative 2001-02 to 2003-04. May 2005. A report for the HEFCE by KPMG LLP. Back

42   "Future needs for capital funding in HE-a review of the future of SRIF and learning and teaching capital", a report to HEFCE by JM Consulting Ltd 2006. Back

43   Guide for Members of Higher Education Governing Bodies in the UK-Governance Code of Practice and General Principles", Committee of University Chairmen 2004/40a. Back

44   "Communication from the Commission to the Council and the European Parliament-delivering on the modernisation agenda for universities: education, research and innovation", Commission of the European Communities, Brussels 10.5.2006 COM(2006) 208 final. Back

---

Prepared 9 August 2007