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July 2007/20

Funding higher education in England
How HEFCE allocates its funds

This guide describes the principles that underpin HEFCE's allocations of grants to universities and colleges. It is intended for those working in higher education and for others who wish to understand HEFCE's funding methods.

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Table of contents and introduction (read on-line)


Funding higher education in England (2007 edition)

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  • Introduction
  • Background
  • The annual funding cycle
  • Funds for teaching
    • General funding principles
    • Overview of the funding method
    • Detailed description of the method
    • Funds for widening participation
    • Other recurrent teaching grants
    • The funding agreement
    • Data monitoring
  • Funds for research
    • Quality-related research funding
    • Mainstream QR funding
    • Charity support element
    • Research degree programme supervision fund
    • Business research element
    • Other elements of QR funding
    • Research Capability Fund
  • Other related funding
    • Special funding and earmarked capital
    • Moderation
    • Additional funding for very high cost and vulnerable science subjects
  • Annex A: Funding for teaching - examples
    • Calculating the standard level of resource
    • Worked examples for HEIs
    • Worked example for FECs
  • Annex B: Funding for widening participation - examples
  • Annex C: A simple numerical illustration of the allocation method for mainstream QR funding
  • Glossary of terms
  • Further reading


1.   Every March we announce the grant for the following academic year to each university and college we fund. The academic year runs from 1 August to 31 July.

2.   This guide describes the principles that underpin the allocation of this funding and explains the components of an institution's grant. It is intended for those working in higher education and for others who wish to understand our funding methods.

3.   We use formulae to determine how most of the money is allocated between institutions, helping us to minimise the burden on institutions of having to account for their use of public funds. These take account of certain factors for each institution, including the number and type of students, the subjects taught, and the amount and quality of research undertaken there. After we determine the amount of funding, it is provided in the form of a 'block grant' which institutions are free to spend according to their own priorities within our broad guidelines. We do not expect institutions to model their internal allocations on our own funding method. The constraints that our main funding methods impose on institutions are generally in terms of delivery of overall teaching and research activity. Wherever possible, we look to reduce the number of separate funding streams (and any associated separate monitoring) by incorporating them within our main formulaic allocations.

4.   The main principles underpinning the funding method for research are unchanged since its introduction in 1997-98, but each year there are changes to some of the parameters and finer detail of the method. For 2007-08 these include the establishment of a business research element within quality-related research funding.

5.   We are currently involved in a consultation process with the higher education sector about changes to our teaching funding method from 2008-09. The review of our funding method began in 2005 and the second consultation on changes to the method took place earlier in 2007. Further details can be found in HEFCE 2005/41 'Review of the teaching funding method: consultation on changes to the method', HEFCE 2006/12 'Review of the teaching funding method: outcomes of first cycle of consultation' and HEFCE 2007/02, 'Review of the teaching funding method: second consultation on changes to method'.

6.   It is our policy, and has been our practice, to be open about our allocation methods and policies, and this guide is intended to explain them.


N.B. On 28 June 2007 (after this report had gone to press) the Department for Education and Skills was replaced by the new Department for Innovation, Universities and Skills, which now has central government responsibility for higher education.