Funding cuts that mean BISness

There are some very large numbers being bandied about, and quite a lot that we don’t know. So let’s start with what we do:

BIS is an unprotected Department, which means, if you follow the IFS analysis of Conservative spending plans from before the election, that there would be an expected 26% cut in its overall budget over the lifetime of this parliament. As over two-thirds of BIS’ budget supports higher education, that is a significant impact.

For 2015/16, BIS was asked to make £450 million savings.  Of this, HEFCE have delivered one-third, essentially through removing the proposed transitional QR funding for HEIs with a big financial hit through REF2014, removing money from investment through the Catalyst Fund, top-slicing the teaching grant by 2.4% and expecting universities to take any additional students in 15/16 (when of course the cap has been removed for the first time) as ‘fees-only’.

Interestingly one of the practical impacts of this action is to hit ‘protected’ STEM areas, given that there is no longer any HEFCE teaching funding for other subjects anyway, and analysis of QR transitional funding suggests a STEM bias.

So where is the rest of the saving coming from?  Well, FE has been significantly hit, and you might argue that HE has got off relatively lightly so far. In the slightly longer term, a major part is essentially from the shift, announced in the July budget, away from maintenance grants and towards loans from 2016/17. The IFS estimates that this will give BIS a short-term saving of £2 billion, although overall spending will increase (due to the increase in the value of loans). The accounting rules say that the loan spending doesn’t count until the debt is written off at the end of the 30-year repayment period, so this has a major advantage for BIS in making its required savings.

Another dimension is that, again according to the IFS analysis, average debt from a three-year course will rise from around £40,500 under the old system to around £53,000 under the new system for the poorest 40% of students. Debt will now be highest amongst those from the lowest-income families.

That is what we already know, but what might we expect to see as part of the Autumn’s Comprehensive Spending Review? George Osborne has asked all unprotected Departments to look at how they would deal with a 40% cut in funding over the course of the parliament. Clearly this is not something that can be dealt with by salami-slicing, looking at bits here and there… it is root and branch. Even on 26% as estimated on previous spending plans, the figures are clearly very challenging.

To illustrate (simplistically, but it makes the point) with the HEFCE example: Their current funding is around £3.3 billion. If you remove Student Opportunity Funding, HEIF and national facilities funding, you still need an additional £170 million to get to a 26% saving. And for a 40% saving the figure is £630 million.

Either the core teaching budget, or the research budget, or both, would be impacted. Put this together with Jo Johnson’s recent refusal to commit to ringfencing the science budget, saying that we should focus on outputs, not inputs, and things start to look like a step-change from what we are currently experiencing in the sector.

There is also the more general impact on support for more vulnerable student groups. We have already seen the move from grants to loans from 2016/17 students. The changes to Disabled Student Allowance were pushed back, but have not gone away. Student Opportunity Funding looks like a clear target for the CSR, and fees are fixed at a flat £9,000 meaning a real-terms drop, so it becomes more and more challenging to continue to meet the OFFA requirements for our students from lower-income backgrounds.

In such an environment, of course it is natural to look at diversification, to see where universities can really respond to the challenges (and I am not going to get into the International students debate…). I am reminded of the PA Consulting article of a couple of years ago on ‘Oligarchs, Innovators and Zombies’ which looked at the issues then and the different ways in which universities might develop in this new environment.

One thing is certain, though.  This is a brave new world… UKHE plc needs to be prepared for it.