Giving up the block grant principle

I posted last week about the language in the HEFCE funding consultation indicating an end to the block grant principle. This is the principle under which HEFCE has provided large sums of money to universities and colleges for them to spend broadly as they wish on supporting their teaching and research. This principle has two immense benefits (1) it protects academic freedom, because institutions aren't bound to spend it in particular ways on particular projects and (2) it massively simplifies administration. Usually it is pretty simple for us to show auditors that we have spent the money on teaching or research broadly defined. By contrast, convincing a European auditor that you have spent ERDF money in accordance with the rules can be very challenging.



Linked to this second aspect of administrative simplicity is the contract range. In the past, HEFCE's teaching grants have been determined largely by historical factors, and if the actual amount of teaching activity at any university is within 5% of the funded level, HEFCE has paid out the full amount. In practice, institutions have to match their provision to the funding that HEFCE wants to give them, rather than HEFCE matching funding to the actual provision. This again brings immense administrative benefits because the last detail of our student data returns don't usually matter very much. For most institutions, if there are 20, or even 100 FTE fewer at audit than reported in their annual HESES returns the impact on funding will be nil. In addition to lower administration costs, institutions have had greater certainty about their funding. 

HEFCE's proposals for phasing out funding for old-regime (i.e. £3k-fee) students abandon this contract range principle (see paragraphs 31ff here). This means that no institution will have a final figure for its 2012/13 funding before 2014. (HEFCE funding is zero-sum, so even those institutions that do get their data exactly right will see funding change to accommodate over- or under-reporting elsewhere). I'm not sure how institutions will finalise the 2012/13 accounts (which we traditionally do in November or December) whilst the income for the year is still unknown at that time.

All the additional recalculation will create very significant additional work for HEFCE. It will also create more work for institutions checking HEFCE's calculations, and 'correcting' their data wherever possible. Moreover institutions will have to look harder at their HESA returns. A simplifying assumption which may have slightly understated STULOAD (the full-time-equivalence for each student) would have been an acceptable way of saving effort in the past. Now it will cost money, and that is unlikely to be acceptable just at the moment.

Currently only a small group of institutions (those at the wrong end of the contract range) have an incentive to return data 'strategically' to maximise funding. For everyone else, it makes sense to use conservative assumptions. You will not lose funding in the first place, and will have a margin for error in future audits. Giving every institution a financial incentive to take more risk in their data returns is likely to lead to more audit issues over the next three years as the old-regime students phase out. Even beyond this point, there will be substantial HEFCE funding for WP, high-cost subjects and the like.

The overall result will be much higher costs both for HEFCE and institutions in data management, data returns  and audit. I hope this is something we can address through consultation, but I suspect it is already too late for that.