8. SIMPLIFICATION OF THE FUNDING SYSTEM AND INCOME GENERATION
Our aim
151. At a time of unprecedented financial constraint, our top priority is to ensure the sustainability of post-16 learning and - more specifically - to protect the competitive position of the higher education sector in the face of changes to funding arrangements in England and our commitment not to introduce tuition fees for Scottish-domiciled students in our universities.
152. This demands more strategic investment of Government funding in line with our overall objectives for post-16 learning; equally we must consider re-balancing the investment in non-advanced learning and skills by, respectively, Government, employers and, potentially individuals. All this will be underpinned by a simpler, needs-based funding system for further education and vocational training that better reflects the cost of delivery; allows greater responsiveness to changes in demand; and makes the deployment of resource, and what we get for it, more transparent.
Current system
153. The Government currently directly invests in the order of £2bn in post-16 learning. Over £1.6bn of this is allocated by the SFC to universities and colleges, with Ministers' setting a strategic framework and priorities for the expenditure through guidance to the SFC. In recent years, we have worked closely with the sector to align investment more closely with national priorities through, for example, research pooling and the Horizon Fund for Universities. We have also allocated ESF funding to colleges and training providers which they are using to respond to the economic downturn.
154. The system for college funding is based around a funding formula which allocates a grant to a college in return for an agreed amount of teaching activity in which the unit of resource is a SUM (""Student Unit of Measurement"). One SUM is equivalent to 40 hours of notional student learning and is currently priced at just over £200. SUMs are then adjusted ("weighted") for different types of course to reflect the cost of delivery. All this means that colleges receive, on average, just over £4,000 for a full-time student on a non-advanced course.
155. Whilst the SFC funding methodology has supported stability and the improvement of the financial health of the college sector over the last few years, it has been unresponsive to changing needs and demography, has been driven by historical patterns, and has not obviously driven improvements in performance. Moreover, there is a widely held view in the sector that funding for college provision and the rules associated with it are unnecessarily complicated. We agree: the current arrangements additionally, in our view, can lead to waste and do not support achievement of the outcomes we want.
156. Meanwhile, SDS contracts directly with training providers which deliver its National Training Programmes. The Modern Apprenticeship programme also has direct contracting with training providers to cover the Government's training contribution which is, in many cases, topped up by employers (employers meet the wage costs of all employees on the MA programme). A payment to the training provider on successful completion of the apprenticeship constitutes a significant element of the MA funding model.
157. SDS also has a key role in commissioning pre-employment support for unemployed adults and young people struggling to make a successful transition to post-16 learning and work. This is carried out in close consultation with Community Planning Partnerships ( CPPs) in order to align provision with local needs and labour market opportunities. SDS retains control of the budget, but CPPs are involved in advisory groups responsible for developing and implementing locally a model of co-commissioning. The advantages of this approach are in ensuring what is commissioned aligns local needs with emerging labour market opportunities and gets best fit with existing services, thereby removing duplication and waste.
Achievements
158. We have taken steps to maintain the stability of the higher education sector in Scotland by being clear we will not charge tuition fees for Scottish students. We have also made clear our commitment to fund the sector to retain its competitive position. These steps have been undertaken with the sector and the Tripartite Advisory Group which has also established how well universities perform internationally in terms of generating efficiencies. Additionally, we have worked in partnership to encourage universities to generate more income from other sources e.g. our work to attract more international students.
159. As we made clear earlier in this chapter, the very significant growth in the public resource available to colleges over the last two decades has supported stability and the improvement of the financial health of the college sector over the last few years. Our investment in the capital estate has, additionally, seen 13 new or significantly refurbished facilities being opened in the last four years alone.
160. We have started to address the issue of co-investment with employers, with the introduction of Flexible Training Opportunities, a skills co-investment model for businesses employing 150 people or less, where Government investment is matched pound for pound by the private sector.
What next
RUK fees consultation
161. The first measure we have undertaken as part of the HE reform process was the launch of a consultation on proposals for secondary legislation to allow Scottish universities to set their own fees for students who are resident in other parts of the UK ( RUK students) from academic year 2012/13 [12]. This consultation recently ended and we are considering the next steps. If we allow universities to set their own fees for RUK students we will introduce a cap of £9,000 through primary legislation for 2013/14, a limit which the sector has agreed to observe in 2012/13 and we will also legislate to ensure Scottish provision is not eroded by a focus on fee-earning students.
162. If universities are able to set their own fees for RUK students, the SFC will no longer count RUK students and therefore will need to revise their student number targets. Reducing funded numbers for these students will create savings but this will need to be reinvested in an number of areas, such as high cost subjects ( e.g. science, engineering, veterinary science, conservatoire music etc) where Scotland might otherwise lose its competitive edge. The SFC is working with students and universities to ensure the funds freed up are appropriately targeted. This change will contribute towards a sustainable funding solution for higher education and protect places for Scottish students at Scottish institutions.
EU management fee
163. It continues to be our intention to introduce a management fee to be paid by EU students. We continue to examine all possible options, within the boundaries of European law, and expect to be able to say more about our plans early next year. This could include possible legislation to allow universities to charge a management fee to cover aspects such as student services and examination fees. Throughout this process we will continue to engage with the European Commission.
New income sources
164. We will continue to work with universities, the SFC and employer organisations to maximise the scope to generate income from philanthropic giving and contributions from business - including funding of bespoke programmes and scholarships at postgraduate level, exploring and identifying examples of good practice in the university sector and elsewhere and considering the impact of match funding.
165. The UK government is undertaking a consultation [13] on incentivising legacy giving by introducing a lower rate of inheritance tax ( IHT) where people leave a charitable legacy of 10% or more of their estate. These proposals could provide an additional incentive for people to leave legacy gifts to Scottish universities and we therefore await the results of the consultation with interest.
Efficiency savings
166. Universities Scotland has recently established an Efficiency Task Force, comprising senior managers of university professional services, to identify individual and collaborative action to enhance efficiency. This will take account of recent, expert thinking on public sector efficiency including the Clyde Valley Review, the Christie Commission, the McClelland Report on public sector ICT and the UK-level work on university efficiency led by Professor Ian Diamond, Principal of the University of Aberdeen. We look to that Task Force to propose and support ambitious and radical sector-led plans for reform.
SFC funding methods for higher education teaching and research
167. The SFC is reforming and simplifying its teaching funding method so that the price it pays for different subjects is more closely aligned to the actual cost of teaching. This process will also reduce bureaucracy by reducing the number of subject groupings, thereby freeing up institutions to respond more flexibly to changes in their markets.
168. To meet the challenges of the future, the SFC must work towards achieving a more strategic approach to funding, as discussed earlier. To achieve this, we will ask SFC to adapt its teaching funding methods so that it can respond to our proposals for reform of the shape and structure of the sector.
169. We will also ask the SFC to revise its funding of research to ensure that world class excellence in this vital field is protected and enhanced, as discussed elsewhere in this document.
Reforming funding for higher education, further education and skills
170. A fundamental next step is to reform our funding mechanisms. Our aim is to offer strategic incentives to providers to deliver our requirements in a way that is sustainable both for the Government and for individual institutions. In doing so, we want a much sharper focus on provision of strategic economic importance (consistent with the direction set in the Government Economic Strategy); and we also want to protect activity for those further from the labour market which might be at particular risk in the current financial climate.
171. Given our wish to shift towards regionalisation of college provision, SFC funding for colleges should in future be based on the needs of a region, taking into account the demographics and economy of the region in question. The SFC should also separately consider if there is specialist provision that should be funded nationally. Regional funding of college provision should be bolstered by new requirements to make sure the needs of individual localities and communities within the region are properly taken into account. There should be a simple, visible and public connection between the funding allocated and the outcomes that should be delivered in return.
172. Returning to university funding, and picking up themes discussed elsewhere on regionalisation, overlap exists in provision and communities served between some universities who are strongly regional in character and the college sector. As we consider further the case for a more regionalised approach (as set out in the Delivery chapter) we will ask the SFC to consider where there is scope to introduce similar regional funding models for these universities as proposed above for colleges. While we recognise that this may be more complex in practice given the reach and different character of the university sector, we believe the case for change should be explored.
173. In order to make more efficient use of public funds, and better align it with our employment strategy, we will work with SDS, the SFC and local authorities to consider the case for pooling budgets for pre-employment training programmes into a new approach to employability funding. This would ensure services commissioned align with local needs and fit with existing services. Each community planning partnership ( CPP) or group of CPPs, if they chose to collaborate, would be funded to deliver national and locally agreed outcomes.
174. Working with the SFC and SDS, we will also maximise the leverage exerted by Government funding through co-investment in non-advanced learning and skills with employers - and potentially individuals - where appropriate.
CONSULTATION QUESTIONS
- What are the pros and cons of the proposed needs-based regional commissioning model for colleges?
- Is there a market for co-investment with employers? If so, how do we select the employers with whom we might co-invest in order to maximise the leverage of Government funding? On what basis should Government funding be made available?
- In what circumstances would it be appropriate and fair to expect people to pay for their learning?
- What are the advantages and disadvantages of pooling funding for pre-employment support? What lessons can we learn from examples of pooled funding elsewhere?