Chapter 2: Current issues
Funding in higher education
9.Higher education in the UK has a number of sources of funding, which vary by nation. In England11 the two sources of public funding are:
- Directly, from funding councils (research and teaching) and research councils, and
- Indirectly, from student loans.
10.In 2016/17, tuition fees comprised 49.3% of total higher education income in the UK.12 In 2012, the tuition fee cap for undergraduate courses in England was raised from £3,000 to £9,000 per year, increasing to £9,250 from 2017, where it is currently frozen. Most higher education institutions charge the maximum fee for all courses, irrespective of factors such as differential cost of delivery between courses that are expensive to run, such as medicine and veterinary sciences, and courses that are cheaper, such as those in the humanities and social sciences.
11.Higher education institutions also receive a teaching grant from the Office for Students. Prior to the increase in tuition fees in 2012, all courses received additional income, the amount of which varied by price band. Band A courses (clinical medicine and dentistry, and veterinary science) received the highest teaching grant top-up, and Band D courses (those without studio, laboratory or fieldwork elements) received the least. Since 2012, the top-up has been paid only for Band A, B and C1 courses, known as high-cost subject funding. The value of the top-up grant is lower since increased fees were introduced in 2012.13
12.There is no cap on fees for postgraduate courses, and course costs vary widely. Many universities charge differential fees for home/EU students and international students.
Direct funding for research
13.Most funding for research in higher education institutions is via direct funding routes. In 2017/18, 62% of research in UK higher education institutions was publicly funded. There are also non-public sources of income for research, such as charities, industry and the European Commission (see Figure 1).
Figure 1: Universities’ research income 2017/18
Source: Universities UK analysis of HESA Finance record for UK universities [2017/18]14
14.Public funding for research has been largely maintained in real terms since 2010.15 It is delivered via a ‘dual support’ system:
(1)Higher education institutions in England receive annual block grant funding from Research England. Prior to the formation of UK Research and Innovation in April 2018, this funding was administered and distributed by the Higher Education Funding Council for England. Most funding is allocated on the basis of research quality, as assessed by the Research Excellence Framework (REF) exercise.16 It is commonly referred to as QR (quality related) funding.17
(2)Funding for specific research projects from the UK Research Councils is provided on a competitive basis, for projects which normally last for less than five years.18 Research Councils typically fund 80% of the ‘full economic cost’ of a research project, and the funding can be used only for that project.
15.Imperial College London told us about the benefits of the dual support system:
“The UK dual support research funding system is ranked 1st in the world for impact and quality.19 … This has been critical to the success of UK research and universities. The system is widely regarded as a unique asset to UK research and innovation strength and resilience and has been enshrined in law in 2017 for the first time.”20
Funding for scientific infrastructure
16.The definition of ‘infrastructure’ used by UKRI in their research and innovation infrastructure roadmap is:
“Facilities, resources and services that are used by the research and innovation communities to conduct research and foster innovation in their fields. They can include: major scientific equipment (or sets of instruments); knowledge-based resources such as collections, archives and scientific data; e-infrastructures, such as data and computing systems and communication networks and any other tools that are essential to achieve excellence in research and innovation.”21
17.The Research and Innovation budget allocates spending for scientific infrastructure. This is divided between the research councils (40.6%), the Science and Technology Facilities Council (18.6%), Research England (17.7%), UK Space Agency (15.6%), Public Sector Research Establishments (4%) and BEIS programmes (3%).22
18.UKRI are currently developing a long-term roadmap for research and innovation infrastructure.23 Their initial assessment of nationally significant infrastructures for the roadmap noted that there was a strong reliance on public funding to set up, operate and maintain an infrastructure. The Research Councils were the primary source of funding for the infrastructures that were assessed.24
19.Research capital for scientific infrastructure is also provided directly to higher education institutions via devolved funding. Under Research England, most spending is via the Research Partnership Investment Fund, which has provided more than £680 million of capital funding to 43 projects since 2012. The core objectives of the fund are to enhance the research facilities of higher education institutions, encourage partnerships between them and other research-active organisations, to stimulate additional investment in research in them, and to strengthen the contribution of the research base to economic growth.25
Challenges posed by the current funding system
Stagnation of QR funding
20.The challenge most frequently raised by witnesses about the current dual support system was the flat rate of QR funding since 2010. Professor Sir Leszek Borysiewicz, Chair of Cancer Research UK, explained that although the “total QR funding for England under Research England is £1.35 billion per annum”, which represented “20% of the total UKRI budget”, the QR budget had been “fixed with no inflation allowance since 2010”.26 Professor Luke Georghiou, Deputy President and Deputy Vice-Chancellor of the University of Manchester, told us that this represented a fall in the value of QR by “12.8% in real terms since 2010”,27 as calculated by the Russell Group. The result was explained to us by Dr Sarah Main, Executive Director of Campaign for Science and Engineering (CaSE): “QR as a proportion of total research expenditure in universities has dropped from about one-third to about one-quarter over 10 years.”28
21.This is significant because QR funding, unlike funding from research councils, charities or other investors, can be spent as the university sees fit without having to be earmarked for a specific project. Professor Michael Arthur, Provost of University College London, described it as “fundamental to the research structure and the general research ecology of the UK. It is funding that gives me, as university leader, and my teams the flexibility to do new, interesting and important things … It is used to fund equipment and sometimes capital development.”29 This was echoed by Professor Julia Buckingham, president-elect of Universities UK, who told us that QR funding was used in a variety of ways to support research, including “to support infrastructure, to allow for strategic developments in research, to build capacity and to pump-prime areas that are not quite ready for funding”.30
22.QR funding for infrastructure and equipment is particularly significant. Dr Andrew Welchman, Head of Neuroscience and Mental Health at the Wellcome Trust, emphasised that the budget for these items could not be found through other sources of funding:
“My sense from the analysis that Wellcome conducted on QR spend is that an awful lot of that money is used to support physical infrastructure within universities. It is not something that Wellcome as a fund does a lot of, and my understanding is that UKRI has limited sources of money for it too. If we get to the situation where universities cannot make the strategic choices of where they want to invest and the facilities that they want to invest in, we are going to see a decline in the physical infrastructure of those universities.”31
23.UKRI acknowledged the importance of QR funding for universities. David Sweeney, Executive Chair of Research England, said that they were committed to making “a strong case in the spending review for the importance of QR”.32 Chris Skidmore MP, Minister of State for Universities, Science, Research and Innovation and Interim Minister of State for Energy and Clean Growth at the Department for Education and the Department for Business, Energy and Industrial Strategy, told us that he wanted “to be looking at QR funding and providing a significant uplift. I hope that uplift will come shortly and that we will be able to make announcements for 2019/20 on QR funding.”33
24.QR funding is vital in allowing universities to cover the full economic cost of research, and in helping universities to fund research infrastructure which is often not covered by other sources of funding. QR funding must rise by at least the rate of inflation and the deficit that has been created since 2010 should be addressed. The Government should commit to doing this as part of the spending review.
Cross subsidies and the higher education ecosystem
25.The stagnation in QR funding has occurred alongside a decrease in the percentage of research costs universities are able to recover from funders. According to Professor Luke Georghiou, “public research funders have been falling short of providing the intended 80% that full economic costing provides for. In 2010 it was just short, at 77.8%. In 2016–17 it was down to 70.7%.”34 Professor Mark Smith, Vice-Chancellor of Lancaster University, explained that at Lancaster University, “going from 2012/13 to 2017/18” the percentage of research cost recovered decreased as follows: “75%, 70%, 69%, 67%, 59% and 58%.”35
26.UK Research and Innovation told us about the shortfalls from each source of research funding based on the Office for Students’ annual Transparent Approach to Costing (TRAC) analysis:
“For every £1 of costs for charity-supported research, on average universities need to contribute 39p (and charities contribute 61p); for every £1 of costs for industry-based projects universities contribute 23p (and industrial partners 77p); and for research council funding universities contribute 28p (and the research councils 72p).”36
While some of the shortfall from charity grants is topped-up by the Government through the Charity Research Support Fund, universities must find substantial funds to make up the shortfall from all the research grants detailed above. This means that universities must find a way to subsidise research from other income streams.
27.This cross-subsidy is managed in varying ways by the different universities from whom we heard evidence. At the University of Manchester, Professor Luke Georghiou told us that “international student fees generate a surplus, which offsets the very substantial losses that we make on research.”37 This was echoed by Professor Michael Arthur from University College London when he explained that “we make a very slight loss on publicly-funded teaching, we make a significant loss on research, and on international student recruitment we make a significant surplus. So in effect there is cross-subsidy from teaching to research budgets.”38 Dr Tim Bradshaw, Chief Executive of The Russell Group, suggested that this was a pattern across their universities where “by and large, teaching just about breaks even across all our disciplines in the UK. The additional money we get from international students goes to fund research.”39
28.This strategy was familiar to the Minister who told us that “the total amount of research funding and that 30% gap between the amount universities spend—the £11.8 billion versus the £8.3 billion they get in—the £3.8 billion is plugged by international students who have a positive 134% return on the investment made in them.”40
29.The University of Cambridge told us that “the University’s core operational activities of teaching and research are both loss-making activities. The University is dependent on cross-subsidisation from other sources, such as philanthropy and income from the University endowment fund, in order to meet the full costs of these activities.”41 The University of Oxford maintained a similar position. Professor Louise Richardson said that they were able to manage the deficit in research funding by raising money “through philanthropy, although, again, not enough to fill the gap. We generate a significant amount of income through Oxford University Press and other commercial activities.”42 She acknowledged that these were not options available to many other universities.
30.Professor David Lomas reported to us that the shortfall in funding for research was becoming so unmanageable that “some of the universities around the country … are stopping academics applying for certain grants because the overheads and the recoveries are not high enough to cover the central costs.”43
Ratio of applied research to discovery science research
31.Another challenge in the current funding system is obtaining money to conduct discovery science research.44 Professor Julia Buckingham welcomed the increased investment through UKRI of “applied research to support the Government’s industrial strategy” but emphasised that discovery science investment was equally as important “otherwise, in 10 or 20 years’ time we will have nothing to translate into economic benefit.”45 Imperial College London told us that “funding for basic ‘blue skies’ research is getting more competitive … Fundamental research can lead to unanticipated transformational breakthroughs and has real impact in applications in everyday life.”46
32.Dr Alex Marsh, Deputy Director of Strategy at UKRI, assured us that they are “very clear about the value of discovery research in any sensible overall strategy” and he stated that UKRI will be making the case for funding for discovery research as part of their submission to the spending review.47 The Minister was keen to point out that the UK is broadly similar to other European countries in the ratio of applied research to discovery research:
“The OECD analysis that was last done in 2016 shows that, as a proportion, we have had about 18% basic research, 44% applied and 38% experimental development, and that is pretty much on the European average. I do not feel we are in a place where we are somehow disproportionately weighting research streams against experimental research and that somehow, by looking at applied research, this is skewing the field.”48
However, the loss of certain EU funding streams after Brexit may skew this ratio further, which we examine in Chapter 4.
2.4% target and the pipeline of researchers
33.The Government’s commitment to raising the UK’s investment in research and development, from all sources,49 to 2.4% of GDP by 2027 was universally welcomed by our witnesses but we heard that the number of researchers could present a barrier to achieving that target. Professor Peter Bruce FRS, Physical Secretary and Vice-President of the Royal Society, explained that “if we are going to meet the ambition of 2.4% and, ultimately, 3%, we will have to see an increase of 50% in active researchers in the UK. That means we will have to attract more people into STEM subjects.”50 Professor Dame Ann Dowling OM DBE FREng FRS, President of the Royal Academy of Engineering, added that “the increase in R&D does not simply need PhDs, it needs the technicians. In the short term, international mobility is going to be the only way of addressing the people issue”.51
34.However, Professor Peter Bruce told us that one of the difficulties in attracting international researchers was the immigration and visa system. He said that for international students wanting to “do a PhD in the UK, the initial cost of a visa to do that is around £1,200. For our competitors, it is about £300. There is a huge disparity in the attractiveness of the UK.”52
35.The minister acknowledged that “when it comes to looking at some of those visa and post-study work visa issues, if we do not take action, Canada and Australia are already well ahead of us and we will suffer as a consequence.”53 Difficulties in attracting researchers may be further exacerbated by Brexit, which we examine further in Chapter 4.
36.Professor Mark Smith explained that funding for PhD students represented “the lowest recovery area of any of the main funding streams”;54 TRAC data for 2016/17 shows that it is 49.8%, the lowest across externally sponsored research activity. This presents further difficulties for universities in maintaining a pipeline of researchers for the future which, as Professor Roger Kain highlighted, “have to come from somewhere”.55
11 We did not look at funding structures in Scotland, Wales and Northern Ireland and have not made recommendations about elements of research funding that are devolved.
12 HESA, ‘What is the income of HE providers?’: https://www.hesa.ac.uk/data-and-analysis/finances/income [accessed 1 July 2019]
13 Office for Students, Guide to funding 2018–19, OfS 2018.21 (11 May 2018): https://www.officeforstudents.org.uk/media/42d81daf-5c1d-49f6-961b-8b4ab1f27edc/ofs2018___21.pdf [accessed 1 July 2019]. See also Higher Education Policy Institute, Differential tuition fees: Horses for courses?, HEPI Report 104, (February 2018): https://www.hepi.ac.uk/wp-content/uploads/2018/02/HEPI-Differential-tuition-fees-Horses-for-courses-Report-104_FINAL.pdf [accessed 1 July 2019]
14 HESA, ‘Finance record 2017/18—Contents’: https://www.hesa.ac.uk/collection/c17031 [accessed 18 July 2019]
15 House of Commons Library, Higher education funding in England, Briefing Paper, CBP-7393, July 2019
16 Research England, ‘How we fund research’: https://re.ukri.org/research/how-we-fund-research/ [accessed 1 July 2019]
17 Funding councils also provide block grant funding for teaching in higher education institutions; in England this is administered by the Office for Students.
18 The University of Sheffield, ‘Finance’: https://www.sheffield.ac.uk/finance/staff-information/howfinanceworks/higher_education/funding_of_research [accessed 1 July 2019]
19 Elsevier, International Comparative Performance of the UK Research Base 2016 (October 2017): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/660855/uk-research-base-international-comparison-2016.pdf [accessed 1 July 2019]. The UK ranks first amongst its comparator countries by field-weighted citation impact, an indicator of research impact and quality.
21 UK Research and Innovation, ‘Research and Innovation Infrastructure Roadmap’: https://www.ukri.org/research/infrastructure/ [accessed 1 July 2019]
22 Figures are for 2017–18.
23 UK Research and Innovation, ‘Research and Innovation Infrastructure Roadmap’: https://www.ukri.org/research/infrastructure/ [accessed 1 July 2019]
24 UK Research and Innovation, UKRI Infrastructure Roadmap (March 2019): https://www.ukri.org/files/infrastructure/landscape-analysis-march-2019-low-res-pdf/ [accessed 1 July 2019]
25 Research England, ‘UK Research Partnership Investment Fund’: https://re.ukri.org/research/uk-research-partnership-investment-fund/ [accessed 1 July 2019]
33 Q 60 (Chris Skidmore MP). On 2 July Research England announced their budget for 2019/20, including an uplift of £45 million in QR funding, which represents an increase of 2.3%.
44 This is sometimes also referred to as fundamental or basic research.
46 Written evidence from Imperial College London (SRF0004). See also written evidence from the Royal Society of Chemistry (SRF0003), Q 34 (Professor David Lomas) and Q 55 (Lord Macpherson of Earl’s Court)
49 Figures from the Campaign for Science and Engineering suggest this would require an additional £17 billion of private investment and £9 billion of public investment. Campaign for Science and Engineering, ‘Projections for R&D spending to reach 2.4% of GDP’, 16 October 2018 : http://www.sciencecampaign.org.uk/resource/2-4-one-pager-rnd-investment.html [accessed 1 July 2019]