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A Framework for Higher Education in Scotland: Higher Education Review Phase 2

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A Framework for Higher Education in Scotland: Higher Education Review Phase 2

7 Funding

This review has not examined the overall level of funding available to the higher education sector in Scotland. Its focus has been on how government, the Funding Council and institutions can work together to make the most effective use of the resources already provided to the sector, to make sure that Scottish higher education responds to the needs of learners and succeeds in the future.

Funding levels: The Executive will continue to monitor carefully the level of its funding of higher education as part of our wider commitment to lifelong learning - as the Enterprise and Lifelong Learning Committee of the Scottish Parliament has recommended.

By 2005-06 the total funding available to HEIs from the Executive is projected to be around 900 million 33 - or around 5% of the Scottish block, even before taking into account the support made available directly to individual learners in HE. That compares with a figure of over 600 million in 1998-99. This represents a 50% increase in cash terms, or over 26% in real terms 34 over the period of the first 7 years of devolution. The Scottish Executive has increased its commitment to higher education institutions in real terms every year since devolution, on top of extra investment in student support. Institutions themselves acknowledge that they start from a higher funding baseline than their counterparts elsewhere in the UK 35 - indeed, Scottish funding levels for higher education are seen as a target in other parts of the UK. 36

But with increased funding have come new demands - including 2,800 fully funded student places, supporting new developments such as UHI Millennium Institute, improving access and retention. Meantime, the external environment within which our institutions operate is becoming more demanding and competitive.

We recognise that we will need to assess what impact new fee regimes being proposed elsewhere in the UK 37 may have on the Scottish higher education sector. Any changes to the fee regime in England will require legislation and will not come into effect before 2006 and will not effect students in England who start their course before 2006 - there is time to do this in a thoughtful way.

To progress this we will:

  • 7.1 Take forward the commitments in this report in partnership with the Funding Councils and institutions, in order to make the most effective use of existing resources.
  • 7.2 Commission a third phase of this review to examine in depth the specific long-term issues for the Scottish higher education sector which may arise from developments in funding elsewhere in the UK. We will ensure that that exercise is fully embedded in the overall implementation of the Lifelong Learning Strategy.
  • 7.3 Introduce legislation to merge SHEFC and SFEFC. This merger will make possible greater comparability and transparency in the way different types of institution and level of course are funded in tertiary education. 38
  • 7.4 Work with Universities Scotland and SHEFC to deepen the understanding of trends in recruitment and retention in Scotland, including the implications of the age structure of the current higher education workforce.

Funding sources: For its size, Scotland has a large higher education sector. It is a net importer of students from elsewhere in the UK, it attracts growing numbers of students from overseas and it competes well for research funding from the UK Research Councils, major charities and others. Drawing on diverse sources of income will continue to be important for institutions.

We expect the Executive to remain the single largest funder of Scottish HEIs. But it is critical that institutions also continue to seek new funding sources, as they have done very successfully in recent years.

The abolition of fees was a major achievement, reflecting strongly-held views in Scotland about the way in which higher education should be funded - and for the same reason, the Executive does not intend to follow the move to higher fee contributions being explored in England.

Diversifying the sources of income will be an important theme over the next decade - institutions will need to look hard at the possibilities of increasing income from self- or employer-funded students, from business and industry, from charitable research funders and other partners.

Events since devolution have shown that higher education is highly valued in Scotland. Individuals and employers who have already benefited from higher education in Scotland should be made more aware of the ways in which they can contribute to keeping our higher education base strong and successful. The Executive welcomes the UK government's initiative to highlight and strengthen the incentives which already exist for private giving from individuals and organisations to educational institutions. We want to do more, and encourage institutions to do more, to stimulate fund-raising - which is particularly valuable for one-off projects. To reach US levels of private giving would be an ambitious aspiration - but our institutions have already proved that far more is possible than we might expect.

To progress this we will:

  • 7.5 Play a full part in the Task Force proposed in the DfES White Paper on private donation, and take action on any recommendations.
  • 7.6 Use the third phase of this review to look at ways of developing the range and value of non-public sources of funding available to higher education.
  • 7.7 Encourage institutions to develop their student base, to reach out successfully to individuals who are willing and able to fund themselves, or find employer funding, in order to extend their experience of higher education.
  • 7.8 Continue to use the funding available through SHEFC for research to attract sustainable resources from other funders.

Funding systems: while the Executive sets the overall settlement, SHEFC determines the funding systems and methodology for distribution. It is important that systems are robust and responsive, able to adapt to cope with innovation and change.

As well as overall funding levels, and types of income, the funding systems used to distribute resources have a powerful impact on behaviours and decision-making in institutions.

There is huge variation in the quality of the teaching estate and evidence that, over a number of years, institutions have tended to prioritise immediate recurrent funding commitments over capital investment. Understandably there is a tendency to highlight the issue of overall funding - but we believe there may also be an issue about the behavioural incentives in the current funding system, where little specific funding is ear-marked by the Funding Council for capital - and none for teaching capital. SHEFC already collects and analyses data on the condition of the higher education estate and institutions' investment plans, and we would like to see further use made of this information to inform future funding models.

The overall grant allocation to individual institutions is issued on a year-by-year basis. Indicative forward allocations are now used for a number of major public services in Scotland, including local government. With a well-established pattern of 3 year rolling spending reviews, we think it is timely to look again at the system of annual allocations.

In order to progress this we will:

  • 7.9 Ask SHEFC to ensure that in making any changes to funding systems the potential impacts on institutional and individual behaviour are properly assessed, to minimise unexpected and unintended consequences.
  • 7.10 Ask SHEFC to examine whether the current approach of providing teaching funding in a single block with no separate identification of capital is sustainable, in terms of the incentives it provides, or does not provide, for longer term investment in the teaching estate.
  • 7.11 Ask SHEFC to examine the scope for providing institutions with more information on future year allocations than at present, to aid planning.