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The Spending Review and higher education – what we know and what we don’t

25 November 2015
Julie Tam

Julie Tam

Deputy Director of Policy
Universities UK

The Chancellor finally delivered his Spending Review today, ending months of frenzied speculation about the scale of cuts needed for the UK to be a ‘country that lives within its means’.

So what are the implications for higher education?

The Department for Business, Innovation and Skills (BIS), home to funding of higher education, research and innovation, fared relatively well, with a 17% cut in real terms by 2019–20, less than the 25% or even 40% cuts feared.

A significant share of BIS’s cuts were accounted for with the shift from maintenance grants to loans announced in the summer Budget. This change, plus the government announcing that the student opportunity fund will be reduced, and the freezing of repayment thresholds for students, presents challenges to ensuring those from disadvantaged backgrounds can enter and succeed in higher education. Universities UK will be considering this in detail as part of the work of our social mobility advisory group.

Major government announcements often raise more questions than they answer.  Below we set out what we know so far, our reaction, and what remains to be decided.

Research funding

What we know

The chancellor has committed to protect science funding in real terms.  The government has also confirmed its intention to invest £6.9 billion up to 2021 in research capital.

Protection in real terms is an excellent outcome in the context of a tough fiscal environment.  However, it will be important to remember that increases in investment will be needed over the longer term, if we are to keep up with our competitors – as universities UK and others have been calling for in the run up to the Spending Review.

What we don’t know:

  • How much funding will be allocated via quality-related (QR) funding and how much via the research councils. Given the Nurse Review’s proposals for a new overarching research body, we also don’t know how in practice QR funding will be kept separate from research council funding in terms of governance – which is absolutely essential if the integrity of the dual support system is to be upheld.
  • The ‘ringfence’ has not been mentioned. Does it still exist? It will be important to keep it, given changes to research and innovation infrastructure (discussed below)
  • How much funding will be allocated to each research council – following a spending review, a separate announcement would usually be made by BIS in the months to come. Will this still happen given the proposed changes to research infrastructure, and if so, when?
  • How much funding remains allocated to clinical and applied research funding, through the National Institute for Health Research.
  • The detail of how the £6.9 billion in research capital is to be spent and who will decide this – Although previous budgets and autumn statements have provided some indications of spend, and a new Dementia Institute has been announced, the picture is not yet complete.

Innovation funding

What we know:

The government will maintain Innovate UK support in cash terms, with increased funding for catapult centres, but replace some existing grants with loans. Following on from the Nurse Review, a new overarching research body will work across the research councils and integrate Innovate UK.

What we don’t know:

  • Whether the Higher Education Innovation Fund (HEIF) has survived. We might assume that the part of HEIF that is funded via the science budget is safe, but what about the part that is funded from the Higher Education Funding Council for England (HEFCE)? Our blog explains why it is essential that HEIF continues.
  • How the increase in funding for catapult centres will impact on the rest of Innovate UK’s funding, and which areas of spend will be converted to loans. Innovate UK’s activities have developed strong and successful relationships between universities and businesses, particularly through knowledge transfer partnerships and collaborative research and development. It will be important that the switch to loans does not undermine and reverse the important progress that has been made.
  • How the new research body will keep innovation funding separate from research funding. Again, this is absolutely essential to prevent the research budget from being raided. Innovation funding has a completely different focus to research funding.

Students and skills

What we know: the government has:

  • indicated teaching grant will be reduced by £120 million in cash terms by 2019–20.
  • committed to protect overall funding for high cost subjects in real terms. Universities UK highlighted that funding for high-cost subjects per student should be protected in real terms in our submission to the Spending Review​.
  • asked that universities take more responsibility for widening access and social mobility, with the student opportunity fund being retargeted and reduced. Universities UK strongly supports the funding available via the student opportunity fund, and so will be looking closely at how changes will be implemented, alongside our work in leading the social mobility advisory group.
  • confirmed its intention to introduce a system of postgraduate Masters loans, and increased the age limit from 30 to 60. We supported this in our spending review submission, and the increase in the age limit will make a real difference.
  • acknowledged the decline in the number of part-time students through introducing maintenance loans and widening the eligibility criteria for tuition loans for students wishing to do a second degree in STEM subjects. We called for changes in our submission, particularly equity in maintenance support between part- and full-time students.
  • committed to strong growth in students from outside the EU, supporting the £30 billion education exports ambition, and to retain the existing English language requirements under Tier 4
  • switched grant funding for health professionals to a system of loans, and removed the cap on numbers. The uncapping of numbers will be important for the skills needs of the NHS to be met.
  • indicated a new resource accounting and budgeting (RAB) charge of around 30%. While some policy changes (such as the switch from maintenance grants to loans, and NHS bursaries to loans) would have increased the RAB charge, the discount rate has been revised which would have reduced it.
  • announced a 0.5% levy on companies with a paybill in excess of £3 million to fund three million new apprenticeships over this parliament.

What we don’t know:

  • the overall amount of funding for higher education – we may not get to find this out until BIS’s grant letter to HEFCE, which may be early in the new year.
  • how much has been allocated for teaching capital – a reduction would significantly affect the student experience.
  • whether the commitment to high cost subject funding includes additional funding to reflect a high-cost subject supplement for health professionals (given the switch from grants to loans) or for those students wishing to study a second degree in STEM. The detail will need to be looked at carefully to ensure high cost subjects are funded sustainably.
  • how the apprenticeship levy will work in practice, and what activities will qualify. Universities UK will be working closely with government to ensure universities expand the number of higher level apprenticeships, including degree apprenticeships, to help meet the government’s three million target.

Taken together with the recent higher education green paper, the spending review marks a significant change in the landscape for the funding of higher education, research and innovation.  After today’s announcements, there is still a lot that is unclear – including significant items such as the amount of funding allocated for higher education. We await clarification in subsequent announcements from BIS, and in the grant letter to HEFCE. The Welsh and Scottish governments are to lay their own budgets on 8 December and 16 December respectively, which will decide outcomes in more detail for Wales and Scotland.

In the meantime, one thing is absolutely clear: while the Spending Review may be over, there is plenty of negotiation still to be done.

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