Government funding for universities

To be sustainable in the long term, universities need to think about how government funding is covering their costs

In order to be sustainable long term, universities need to think very carefully about how they use government funding to  cover their costs. Starting with meeting the full economic cost of teaching potential, including staff, services and  resources. Also allowing costs for the replacement of infrastructure and reinvesting in future innovation to meet students and employee requirements over the years to come. Universities only recently broke even in terms of  teaching UK and EU under/post grad students to the full economic cost in 2014-15.

There are a range of courses that cost more to teach than what is received from UK and EU students in fees. Government funding for education designed teaching grants to minimise the gap. However, it is not guaranteed that fees from students and government funding will cover these costs. Non-EU student fees are unregulated and therefore higher than fees charged to UK/EU students. This surplus can  over university activities when cost exceeds income – the teaching of high-cost courses and funding for research falls into this.

Next, in order for uni’s to be financially flexible they’ll need to cover the full economic cost research conduction. This includes academic staff, postgraduate research training for students, fieldwork and laboratory work, as well as cost of infrastructure replacement and funding for innovation. Income received by UK universities (government funding/all remaining sources) in 2014-15 did not equate to being sustainable, the deficit of £2.9 billion impacted the investments made by universities in research and development areas.

Government funding for universities has had a lot of debate in past years, as the 2012 reforms to higher education and fee hit the UK. Most of the attention was focused primarily on undergraduate study fees and research grants from government funding to universities – the conclusion surrounded finances of universities.

This is only a small area of the debate, as most uni’s that receive public funding are charities, meaning they raise income  from a wider range of resources. Surplus has to be reinvested into improving teaching quality, funding research and support local business with innovation and national growth.

With no surplus universities would have no means of delivering the scale of investment that is required to reach student needs, meet international competition and continue to be financial flexible. 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.

Government funding

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.

Government funding for education

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.


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:

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 government 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.

Funding for universities

To find out more about government funding for universities and get a clearer understanding on how costs are managed, read this PDF by University UK (UUK).



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