OfS starts the funding conversation

The Office for Students frequently takes great pains to let you know that it is a regulator.

It is less often you see OfS thinking about its parallel role as a funding council – but it hands out around £1.5bn each year.

Unlike the continued excitement of responsive regulatoritude, the actual handing out of money hasn’t changed much since 2012-13. The Strategic Priorities Grant is the new name for an old high cost subjects funding stream, London weighting has disappeared, and funding for small and specialist providers has been tweaked, but the aims and purposes of government funding hasn’t shifted since the days of HEFCE.

It is with this in mind that OfS has issued a “call for evidence” – less a formal consultation, more a chance for the sector and others to wade into these big strategic issues in the hope of developing something that is right for the current sector.

First up, let’s take a look at how things are currently done.

The state of the art

In 2023-24, OfS is handing out £1,439m of recurrent funding (£1,407 directly to providers), and £400m of capital funding between 2022-23 to 2024-25 to 100 successful bidders.

By far the biggest wodge of cash (£1,038m) is course based (primarily allocated based on student FTE linked to qualifying provision). In practice, this is mainly for high-cost courses: based on an extended subject cost classification (that started off with four levels and currently boasts six, of which four attract funding through this scheme) the additional costs of teaching in certain subjects is supported via a direct grant linked to student numbers. The remainder goes to support strategic priorities, including overseas study, postgraduate taught provision, accelerated courses, degree apprenticeships, and provision at levels 4 and 5.

Next in order of recurrent magnitude is student based funding – with the most notable contribution being £221m as the premium to support successful student outcomes. This is an old and deeply weird allocation, characterised in recent years by ministerial attempts to re-configure it as a contribution to student hardship funds. Also within this bucket we find funding for the disabled student allowance, a tiny amount for mental health and student transitions, and a bit for the Uni Connect programme.

There is a funding stream linked to the kind of provider you are: £58m for “world-leading” specialist providers, and an additional £9.6m for performing arts specialists. And finally for recurrent funding we see £32m of allocations for national facilities and regulatory activities: the small number of projects OfS funds at providers, running the national student survey, support for TASO, and cash for Jisc to run the various national services it offers.

I should very briefly note the issue of hypothecation – basically none of these funding streams are ring-fenced (with the obvious exception of project funds), so if a provider wants to spend funds from an allocation linked to one group of students on another group of students there is nothing to stop them from doing so.

Here’s how all that looks for your provider:

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Capital funding from OfS is these days allocated via a bidding process – in the past sums much larger than the current £400m were allocated by formula and linked to proposals for additional student numbers (ASNs). It used to be a much bigger deal when HEFCE had controls on university borrowing – these days most capital spending is covered by various forms of commercial finance.

What do you reckon to all that then?

This is a very broad call for evidence – in section A for each of the streams detailed above OfS wants to hear what activity is currently supported, what value is added, and whether what OfS tries to achieve with these allocations is the right thing to be aiming at.

This is laudable – and it is very good to see the long-overdue return to first principles. However, my concern is that given the financial state of the sector and the current low ebb of provider trust in OfS most responses will argue broadly for a continuation of the status quo with a few nudges to get a bit of extra funding.

There are bugs (and latterly, political distortions – arts programmes didn’t get cheaper to run just because Gavin Williamson decided he didn’t like them) in many of these allocations. The existence of the student premium is routinely used by ministers as evidence of support for student hardship – earlier this week in Commons education questions Robert Halfon described the infamous “magic money twig” as:

A welfare support fund, which we give to the Office for Students to ensure that students with difficulties are helped

It is not – or at least historically has not – been a means to prop up a failing student maintenance system, and I would argue that doing so outside of the Covid-19 emergency is not the best use of OfS funding. It is meant to support the academic needs of students from non-traditional backgrounds.

But in all, this call for evidence is a good, open, start for a discussion. And then you get to section B, in which OfS suggests that we scrap HESES.

Scrap HESES?

Yup. For the non-specialist, you’ll have noted that most of the current allocations of recurrent funding rely on student data – specifically the Higher Education Students Early Statistics survey. Before the advent of Data Futures (indeed, after the advent of Data Futures it now seems), HESES is the closest we get to in-year student number data.

Submitted in December of the year in question, the data is checked against final signed off (HESA) data in the summer after so it can be used for allocations the following year. This process allows for early sight of funding allocations (which can then be finessed via the HESA-HESES reconciliation) while still retaining a degree of currency.

The new proposal (actually an old idea familiar to anyone who has been involved in this debate historically) is to scrap the December allocation entirely and use two year-old data (so the 2021-22 year end data informs the 2023-24 allocation), thus reducing burden for providers in submission and reconciliation.

In the latter days of HEFCE funding and a more stable sector, this might have worked. My suspicion is that rapid changes in student numbers year-on-year (and, increasingly, in year) will make this idea quite a hard sell strategically. But in terms of practicalities, the crashing failure of Data Futures – it genuinely blows my mind that we still (in March 2024) don’t have official 2022-23 student number data – might mean that people are reluctant to let go of the various checks and balances in the current system. Indeed – why is there no mention at all in this document of the planned Data Futures in-year collections? Or the use that other bodies (including DfE, no less) make of HESES data?

Views are sought here on the general approach rather than the technicalities of actually making this approach work – and OfS has been clear that there are no “proposals” in this document, just a starting point for conversation. It’s just an odd time to start the conversation.

Quality and hypothecation

The surprises don’t end there. I noted above the principle of non-hypothecation – letting providers decide what to spend allocations on readers with longer memories may recall the work of the Better Regulation Review Group/Higher Education Regulation Review Group in establishing this principle, and the general presumption against funding competitions. This is all now up for debate.

As is the use of teaching quality information, or equality of opportunity data, in determining OfS funding allocations – the regulator here is wondering about the use of incentives. There’s also space to offer thoughts on the use of funding to develop innovation in learning and teaching.

While funding can incentivise practise it can also reduce diversity in provision, foster gameplaying, and bolster calls for ringfencing – a very nuanced conversation needs to be had here. Historically, the incentive approach to funding has been used to drive strategic change (the late and much lamented Teaching Quality Enhancement Fund, support for staff professional development) or at a narrower project-based level.

The other (tuition fee) end of the funding system is set up to use information on teaching quality and equality of opportunity – your TEF grade is meant to determine the extent of an annual inflationary uplift in the higher level fee cap, and access to this higher level is still predicated on the existence of a credible plan on access and participation. Building these factors into the old (largely atrophied) teaching grant end too feels like double counting – though there could be a case to link access to grant funding to a minimum level of teaching quality there would need to be a far more robust and widely supported method of determining this to keep OfS out of court.

Running a consultation about funding allocations during a time of extreme financial pressure is not the best way to engender the kind of blue-skies thinking that OfS is looking for here. Fundamentally, many may instead make the case for a return to the Dearing Report’s expectation of a more equitable split between tuition fee income (following the student) and the teaching grant (preserving the national skills infrastructure and developing capacity). It’s unlikely to happen – indeed the quanta of funding is not up for debate – but it feels like an answer to the woes currently faced.