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Report 01/05

Transfers between the further and higher education sectors

Approach to be adopted by the HEFCE and the FEFC in advising on applications for transfer

To Heads of HEFCE-funded higher education institutions
Heads of HEFCE-funded further education colleges
Heads of non-HEFCE funded further education colleges in the FE sector
Heads of universities in Northern Ireland
Of interest to those responsible for Strategy, planning, management
Reference 01/05
Publication date February 2001
Enquiries to Julia Moss, tel 0117 931 7329
e-mail j.moss@hefce.ac.uk

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Executive summary

Purpose

1. This report sets out the approach to be adopted jointly by the Higher Education Funding Council for England (HEFCE) and the Further Education Funding Council (FEFC) in advising the Secretary of State for Education and Employment on applications from institutions to transfer between the further and higher education sectors.

Key points

2. In this report, 'the Funding Councils' refers to the HEFCE and the FEFC, and the Learning and Skills Council once established as the successor to the FEFC. We will take the following approach:

  1. We do not rule out further transfers of institutions between sectors in principle; but we would expect them to be rare.
  2. Overall, there should be few direct financial incentives for transfer between sectors, although there is a range of more subjective factors to do with status, autonomy and academic aspiration which may impact in some cases.
  3. We will assess applications from further education colleges to transfer to the HE sector against the same criteria as for private sector institutions applying for designation to become HE sector institutions (set out in Annex A). We will also take account of the college's range, level and stability of HE provision, as well as its HE strategy, research, and FE strategy.
  4. Applications should be considered and endorsed by both Funding Councils.

Action required

3. No action is required; this report is for information only.

Background

4. Current legislation note 1 states that:

'The Secretary of State may by order provide for the transfer of a further education corporation to the higher education sector if it appears to him that the full-time equivalent enrolment number of the institution conducted by the corporation for courses of higher education exceeds 55 per cent of its total full-time equivalent enrolment number.'

5. This power has only rarely been used. Since the higher education (HE) sector was established in its current form under the Further and Higher Education Act 1992, transfers from the further education (FE) sector have included Cumbria College of Art, Norwich School of Art, Surrey Institute of Art and Design, and Writtle College of Agriculture.

6. The method for defining the 55 per cent threshold is set out in section 161 and Schedule 9 of the Education Reform Act 1988. Those provisions relate to 'students enrolled at' the institution concerned. We understand this to mean that students on HE programmes which are franchised from a higher education institution (HEI) to a further education college (FEC) count as enrolled at the HEI, and not at the FEC, and therefore should be excluded in calculating whether a particular FEC has reached the threshold. In contrast, students on HE programmes directly funded by the HEFCE at the FEC, or students on HE programmes provided by an FEC within an HEFCE-funded consortium, count as enrolled at the FEC. This is significant for those FECs with substantial franchised provision, since the volume of HE student activity taking place on their premises is greater than their enrolment numbers suggest. And it may thereby create a perverse incentive for such colleges to seek direct HEFCE funding rather than indirect via a franchise, contrary to the HEFCE policy of encouraging FE colleges to work in partnership with HEIs, including in the form of franchising. Nonetheless, we think it is right to exclude franchised numbers in calculating the threshold, because franchised students belong to the HEI for funding and quality purposes, rather than to the FEC.

7. In formulating our approach to transfers, the main issues considered were:

  1. Are transfers desirable in principle?
  2. Are there factors currently operating to encourage transfers?
  3. What criteria should be used by the Funding Councils in deciding what advice to give to the Secretary of State on individual applications?
  4. In what circumstances might transfers from the HE to the FE sector be appropriate?

Are transfers desirable in principle?

8. Transfers of institutions between the HE and FE sectors may be desirable in principle, but it depends on motivation and circumstances. It is undesirable for either sectors or institutions to be completely static. Both FE and HE institutions should be dynamic, developing their missions and provision over time to match their judgements of what will best meet the educational needs of the communities and groups they seek to serve. A legitimate development of mission might cause an FE college to increase its proportion of HE where, for example:

  • the college is in an area of the country with an expanding need for graduates as a result of local economic growth, but which is under-provided with HE institutions meeting those needs
  • the college specialises in a subject area which is becoming vocationally professionalised, with increasingly strong expectations of HE-level qualifications for practice.

9. If a college is responding to these sorts of drivers by moving to a position where most of its programmes are HE, it should then come within the remit of the funding body focused on that type of provision. Institutions which are predominantly HE should have a different orientation from those which are predominantly FE, and should be funded by the Funding Council which best understands that orientation. So we see no reason to rule out such transfers in principle.

10. Such cases are likely to be rare. There is a fairly complete geographical spread of HE and FE institutions serving all parts of the country. And both sectors are set for continued student growth as part of the Government's commitment to widening participation and lifelong learning. So in general FE and HE institutions ought already to be fully occupied in discharging their existing missions. Both sectors already have the capacity for institutions to expand in whatever geographical or subject areas are needed. Transfers of FECs to the HE sector are certainly not a necessary mechanism for ensuring sufficient development of HE nationally.

11. What is clearly undesirable is for an FEC to make transfer to the HE sector an end in itself, driven by perceptions of prestige or financial advantage, and to seek to achieve the 55 per cent threshold by reducing its FE programmes while building up its HE programmes, thereby depriving its local community of access to FE. It is in no-one's interest to encourage that sort of 'mission drift'.

12. Guidance from the Government emphasises the issues in paragraphs 10 and 11 as being key in considering applications for transfer.

Are there factors currently operating to encourage transfers?

13. The HEFCE and the FEFC have reviewed whether there are factors which might be creating incentives to transfer, particularly whether there are perverse incentives. The main elements are:

  1. Perceptions of relative prestige and autonomy. There has historically been a tendency to regard university status as the top of the educational tree, and as conferring maximum autonomy, with some institutions consequently seeking to move over time in that direction. There is little that can be done about such generalised perceptions, although the emphasis on the centrality of FECs in delivering lifelong learning should redress the balance in demonstrating that colleges have a vital, valued and growing mission in their own right.
  2. Core funding for teaching. As a result of decisions taken by its Board in 1998, the HEFCE is migrating the HE it funds in FECs to the same funding level as for HEIs. That means it will make no difference in terms of basic funding for HE programmes whether an institution is in the FE or HE sector.
  3. Growth of HE in FECs. For the past couple of years, the HEFCE has supported expansion of HE in FECs as contributing towards local access, widening participation and progression. That trend is set to continue, subject to sufficient qualified student demand being available, for example with the development of foundation degrees. We have encouraged FECs to undertake that growth in partnership with HEIs, through franchises, consortia or compacts. Given that funding levels for teaching will be the same, there is no reason in principle why continuing growth of HE in FECs should lead to further applications to transfer from the FE to the HE sector if the college's FE provision is also growing at roughly the same rate. On current plans, FE overall is set to expand student numbers at least as fast as HE. Nonetheless, the result will be the emergence of more HE centres within FECs with a critical mass which may influence aspirations within the institution. There may be cases where a college steadily builds up its HE in partnership with an HEI to meet local needs, and increasingly seeks independence and equivalent status in its own right. As noted above, at that point it may become a significant issue whether the college's HE is directly funded or franchised.
  4. Research funding. Only institutions in the HE sector are eligible for HEFCE research funding. This does create an incentive to transfer for a small number of FECs who would like to develop a research capacity and have a realistic prospect of success. Given the principle of selectivity in research funding, the HEFCE would not want to extend eligibility to a significant number of additional institutions, and this would be one factor in considering new applications.
  5. Special funding from the HEFCE. The principle applied at present is that FE colleges directly funded by the HEFCE are eligible for the special funding which relates to students and programmes, but not that which relates to whole institutions. Thus, FECs qualify for the postcode premium for widening participation, and have their own fund to develop learning and teaching quality (which parallels the revenue and capital special allocations for HEIs on teaching and learning), as well as access to the FEFC standards fund. But they are not eligible for the HE Reach-out to Business and the Community fund, specialist institutions funding, or restructuring and collaboration funding. This could create incentives to transfer, to the extent that the FEFC does not offer parallel programmes to FE colleges. The premiums that the HEFCE pays to specialist institutions did create incentives for subject specialist FECs to transfer. But the FEFC has now introduced a 10 per cent specialist institutions premium of its own, which should mitigate that factor.
  6. Capital funding. Consistent with the principles for special funding from the HEFCE, FECs do not qualify for poor estates capital or research formula capital, although an element of teaching capital is incorporated in the HEFCE's development fund for HE in FECs. That has created concern among FECs with large amounts of HE, some of whom want to develop separate HE campuses or centres. So far, the HEFCE has been able to secure progress by offering capital funding to an HE partner to work with an FEC. The FEFC has agreed in principle to fund HEIs to support FE-focused capital projects. The future of this approach will need to be reviewed with the Learning and Skills Council once it is operational.
  7. Quality assurance. Since the Quality Assurance Agency for Higher Education (QAA) already works on the principle that it reviews all the HE which the HEFCE funds, irrespective of sector, there is no incentive to transfer sectors on that account. Similarly, the FEFC Inspectorate inspects FE provided by HEIs.

14. Overall, we conclude that there are no major direct financial incentives for transfer, but there is a range of more subjective factors to do with status, autonomy and academic aspiration which may impact in some cases.

What criteria should be used in reaching judgements on individual applications?

15. The Secretary of State has discretion to judge each application on its individual merits and circumstances, applying whatever criteria he reasonably thinks fit. This section of the report does not fetter that discretion. It does set out the criteria the Funding Councils expect to apply in advising the Secretary of State on any application.

16. The HEFCE Board approved in April 2000 a set of criteria for considering applications from private sector HE providers to be designated by the Secretary of State for transfer into the HE sector. These are in Annex A. We will apply the same criteria to transfers from the FE to the HE sector, albeit with a presumption that the tests in paragraph 7 of Annex A can be met because the college is already within the publicly funded service, and therefore subject to the FEFC's requirements on governance, management, funding, quality and so on. Under paragraph 5 of Annex A the applicant college should be able to show that its transfer would add value to the HE sector in terms of institutional distinctiveness or reputation.

17. In addition, we will consider the following:

  1. Range of HE. Schedule 6 of the Education Reform Act 1988 defines what constitutes higher education, including for the purpose of calculating the 55 per cent threshold. But the Qualifications and Curriculum Authority is working through an exercise to establish which courses should properly qualify as meeting that definition in the range of professional, craft and leisure activity programmes currently recorded as HE. So one criterion should be the range of the college's HE.
  2. Level of HE. Similarly, the higher the level of HE, the stronger the case for transfer. At one end of the spectrum, a college's HE may include a large proportion of HNCs, closely linked to FE programmes, provided in response to local employer need, and possibly fluctuating in volume and subject mix. That can be seen as essentially an adjunct to the college's continuing core focus on FE. At the other end of the spectrum, a college may be offering first degree and Masters courses, with national recruitment and a high level of associated staff scholarship, possibly delivered on a separate campus.
  3. Stability of HE. Transfers should not be approved if a college has only recently exceeded the 55 per cent threshold. The college should have exceeded the 55 per cent threshold for at least two recruitment cycles and be able to show that its balance of HE and FE will be stable for the long term.
  4. HE strategy. The college ought to have developed its HE in line with a considered strategy for meeting the needs of its community and the groups it seeks to serve, and be able to show how transfer to the HE sector would enable it to strengthen that strategy in a way not feasible within the FE sector. This might, for example, include considerations of geography and subject professionalisation.
  5. Research. Given the principle of selectivity in research funding, the HEFCE does not want to increase significantly the number of institutions qualifying for research funding. Nonetheless, the Funding Councils would consider whether the college is able to make a distinctive actual or potential contribution to scholarship and research. The proportion of staff with PhD and Masters qualifications would be one indicator; college income from existing research contracts could be another.
  6. FE strategy. The presumption is that the college will, as a minimum, continue to provide the same scale and range of FE programmes for its local community, and will not develop its HE at the expense of its FE. We will also consider the types of FE offered: for example, if the college has a high proportion of GCSEs, NVQs 1 and 2, and basic skills courses, that will influence its centre of academic gravity and make it harder to develop as an HE-oriented academic community.

18. Applications will not be endorsed unless both Funding Councils have considered the issues from their respective points of view and in the light of their statutory duties, and unless both have agreed to recommend approval.

Transfers from the HE to the FE sector

19. Section 47 of the Further and Higher Education Act 1992 provides that:

'The Secretary of State may by order provide for the transfer of a higher education corporation to the further education sector.'

20. There are no provisions on the circumstances in which this power can be exercised, and no equivalent of the 55 per cent threshold for transfers from the FE sector to the HE sector. Our understanding is that this lack of specificity reflects an assumption that the power would rarely, if ever, be used. It has not been used to date, and we see no reason to expect that it will be. We are not aware of any current HE sector institution which intends to develop its mission in such a way that it becomes predominantly an FE provider, and therefore suitable for transfer.

21. Nonetheless, there are some HEIs with relatively high proportions of FE. Such mixed economy providers have a valuable role within the HE sector, particularly in securing progression routes. It is possible that one or more might develop in such a way that its proportion of HE reduced (for example, by being transferred to another HEI) or its proportion of FE increased.

22. In such a case, our approach will mirror that recommended in paragraphs 16-18 above for transfers from the FE to the HE sector. In particular:

  1. Transfers will only be considered on application from the HE institution concerned.
  2. The proportion of FE must be, and be expected to remain, 55 per cent or more of total enrolments. In such cases, the provision of HE to meet the needs of the community should still be safeguarded.
  3. The application to transfer should reflect a considered and sustainable strategy showing how the institution can best meet the needs of the communities and groups it seeks to serve.
  4. The resulting FE institution should represent an enhancement to the FE sector, in terms of the quality and distinctiveness of the institution's provision.

Footnotes

1. Section 122A of the Education Reform Act 1988, as inserted by section 74 of the Further and Higher Education Act 1992


Annex

Principles for considering applications from private HE providers to transfer into the HE sector