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Government funding for universities

To be sustainable in the long term, universities have to think very carefully about how they will cover their costs

Posted by Joe Lawson-West | April 21, 2017 | Finance, legal, HR

 To be sustainable in the long term, universities have to think very carefully about how they will cover their costs. This includes everything from employing staff to conducting research, training postgraduate students, carrying out fieldwork and investing in innovation. It also includes maintaining and replacing infrastructure.

 The costs associated with providing science, technology, engineering and mathematics (STEM) subjects can be particularly high. To teach these subjects effectively and conduct research in them, higher education institutions (HEIs) need to have state-of-the-art labs. It is now relatively straightforward for universities to create these learning and research environments. Interior specialists such as Innova Solutions can provide laboratory furniture only or full turnkey laboratory solutions, including design, manufacture and installation to fit the brief and budget. Of course, before universities can give the go-ahead to infrastructure projects like these - or sign off other expenses - they need to ensure they have the funding in place.

 Impending changes to legislation could have a major impact on the way universities secure funding and the levels of money available to them. Here, we take a look at what these rule changes will involve and the impact they could have on higher education funding.

The Higher Education and Research Bill

If you are not familiar with the current Higher Education and Research Bill going through parliament right now, here it is in a nutshell: The proposed legislation is intended to raise standards by increasing competition and making it easier and quicker for newly established, high-quality education providers to start up and gain degree-awarding powers and secure themselves university status.

 To read more about this bill, follow these links:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/543500/bis-16-285-higher-education-research-bill-summary.pdf

http://services.parliament.uk/bills/2016-17/highereducationandresearch.html

 How can current universities that have seen a 5% decrease in UK student applicants and a 7% fall in European student applications find help?

Government money

The UK government provides significant funding for universities, and this includes money intended specifically to improve the country’s scientific infrastructure. Highlighting this fact, last April it announced a record £26.3 billion five-year budget for science. This included a £5.8 billion capital commitment between 2016 and 2021.

The government has also committed to real terms increases in research and development investment of £2 billion per year by 2020 to help ensure British businesses remain at the cutting edge of technological and scientific discovery.

The HEFCE

The major source of state funding for universities is the Higher Education Funding Council for England (HEFCE). Sponsored by the Department for Education, it invests billions of pounds every year on behalf of students with the aim of promoting innovation and excellence in teaching, research, knowledge exchange, capital grants and national facilities and initiatives. Each winter, the HEFCE receives a grant letter from the government specifying how much public money is available for universities and colleges the following academic year. For the academic year 2016-17, this figure was £3,674 million.

 The money is distributed to HEIs according to specific formulae to help ensure fairness and transparency. The calculations take a range of criteria into account for each institution, including the number and type of students they take, the subjects they teach and the standard of research they undertake.

Research Councils

Government money is also distributed through seven Research Councils, which include the Biotechnology & Biological Sciences Research Council and the Engineering & Physical Sciences Research Council. Every year, approximately £3 billion is invested through these bodies and the money is used to fund world-class research - as assessed by expert, independent peer review. HEIs can apply to the relevant Research Council for money. To access funding, they need to demonstrate the academic, economic and social impact of their work.

 The majority of Research Council funding grants are awarded for three years, but applications for longer funding periods (usually five years) are also welcomed.

 Plugging the gap

Public funding is limited, so universities cannot rely solely on these sources of money. There are also risks that government expenditure will fall. Highlighting this fact, in its 2015 Comprehensive Spending Review, the government revealed that teaching funding provided through direct government grants will decrease by £120 million in cash terms by 2019-20.

This means that to meet their financial needs, HEIs have to generate additional funding through a variety of different means. These include tuition fees from EU and non-EU students, EU grants, charity grants, and endowments and investments. Universities can also raise money by entering into commercial agreements with businesses.

 Mounting pressures

Despite having access to various sources of funding, many HEIs are feeling the financial pressure. One issue that’s currently causing particular concern for many in the sector is Brexit. Although the government has issued reassurances, there are fears about the long-term financial implications for HEIs of Britain’s impending exit from the EU. UK universities currently receive around 15% of their money from the EU, and this funding gap will have to be filled when Britain leaves. Also, if restrictions are tightened on the awarding of international student visas, this could lower the amount of money universities are able to make through tuition fees.  

These potential problems come at a time when many HEIs are already under significant financial strain. Reflecting this, the net liquidity of universities (which is a measure of their ability to meet their short-term financial obligations) is expected to fall from an average of 126 days in 2014-15 to 67 days in 2017-18.

Given the financial pressures facing universities, these institutions have to be more proactive than ever when it comes to securing government money and other sources of funding. They must also focus on maintaining cost controls and driving efficiencies. 

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