Draft Budget : Higher Education

Transcription

1 The Scottish Parliament and Scottish Parliament Infor mation C entre l ogos. SPICe Briefing Draft Budget : Higher Education 6 November /79 Suzi Macpherson This briefing reports on funding plans for higher education (HE) as presented in the Scottish Government s Draft Budget for financial year

2 Contents EXECUTIVE SUMMARY 1 HIGHER EDUCATION INSTITUTIONS: INCOME STREAMS 2 THE FUNDING GAP 3 SCOTTISH GOVERNMENT FUNDING 4 SCOTTISH FUNDING COUNCIL (SFC)... 4 SFC Ministerial Guidance... 5 Revenue and Capital Allocations... 6 STUDENT AWARDS AGENCY FOR SCOTLAND (SAAS)... 8 Student Support... 8 Administration costs... 9 Student loans Cost of providing student loans SOURCES 14 ANNEXE 1 ACCOMPANYING TABLES 16 FIGURE 2 - SFC grant as percentage of all income ( m), FIGURES 3, 4 and 5: SFC HE revenue and capital, cash and real terms ( m), to FIGURE 6 - SAAS student support, cash and real terms ( m), to FIGURE 7 - SAAS revenue costs, cash and real terms ( m) to FIGURE 8 - Student loan new lending, cash and real terms ( m) to RELATED BRIEFINGS 18

3 EXECUTIVE SUMMARY The main source of public funding for Higher Education Institutions (HEIs) in Scotland is that allocated from the Scottish Government to the Scottish Funding Council (SFC) and the Student Awards Agency Scotland (SAAS) for onward distribution to HEIs and individual students. The SFC is responsible for funding HEIs to support the delivery of teaching and research. It also supports capital investment and strategic initiatives. Figures in the draft budget indicate: A small cash terms increase in revenue funding, from 1,061.6 million in to 1,062.5 million in Taking account of inflation. this results in a real terms funding reduction of 15.8 million. A cash terms reduction in capital funding, from 34.8 million in to 21.0 million in Taking account of inflation, this results in a real terms funding reduction of 14.1 million. SAAS administers tuition fee payments to HEIs for eligible Scottish and EU domiciled students studying at Scottish HEIs. It also administers student loan applications up to the point of confirming entitlement, at which point the Student Loans Company (SLC) makes the loan payment to the student. In addition, SAAS directly provides to eligible students available bursaries, grants, and allowances. The draft budget indicates: Some of the funds previously allocated to SAAS for student support are being transferred to SFC to support higher education students with the costs of childcare. The result is a cash terms funding cut of 4.4 million from the SAAS student support budget. Taking account of inflation, this amounts to a 9.1 million reduction to the SAAS student support budget between and There is a significant increase in the budget line Cost of Providing Student Loans (the RAB charge), from million in to million in This increase is the result of Barnett consequentials from increased demand for student loans in part emerging from higher rate tuition fees in place in other parts of the UK since academic year

4 HIGHER EDUCATION INSTITUTIONS: INCOME STREAMS The most up to date figures available showing the income streams available to higher education institutions (HEIs) are for financial year In that year, Scotland s HEIs received a total income of over 3 billion (HESA, 2014). Just over a third (35.3%) of HEI income came from the Scottish Funding Council (SFC) grant, 26 per cent from tuition fees and education contracts, and 21.2 per cent from research grants and contracts (HESA, 2014). The remainder came from endowments and investments (1.2%) and other income (16.3%), which includes funding from commercial activity (e.g. residence and catering) and income from intellectual property rights. Figure 1: Scottish HEIs main income sources, Source: Higher Education Statistics Agency (HESA), 2014 The above offers a general picture of the income streams for all Scottish HEIs. Looking at the income of individual HEIs shows significant variance in proportions of income from different sources. For example, Figure 2 presents information on the income received in financial year from the SFC grant as a proportion of all income. This demonstrates that in financial year the SFC grant represented only a fifth of Scotland s Rural University College s (SRUC) income while accounting for over two thirds of the income for University of West of Scotland. Clearly, as the above illustrates, HEIs in Scotland have access to a range of income streams, which for some HEIs account for relatively large proportions of overall income received. However, the purpose of this briefing is focus on the funding allocations from the Scottish Government only. 2

5 Figure 2: SFC grant as proportion of total income, by HEI, Source: Higher Education Statistics Agency (HESA), 2014 THE FUNDING GAP A previous SPICe briefing (Berry and Georghiou, 2011) discusses the significant changes in tuition fee charging introduced to English HEIs from academic year and the implications of these for funding the higher education sector in Scotland. From , English HEIs could charge students a tuition fee of up to 6,000 per academic year, or 9,000 1 where the HEI took steps to financially support lower income students (Macpherson and Liddell, 2013). At the same time, public sector funding to the sector was significantly reduced (Bolton, 2012) Berry and Georghiou (2011) note that the decision to increase tuition fees at English HEIs resulted in the devolved administrations reflecting on how they should fund higher education in the future. Each has taken its own approach to respond to this situation. In Scotland, the current Scottish Government has consistently cited its opposition to charging Scottish domiciled students for tuition. The standard tuition fee the Scottish Government pays for each eligible full time undergraduate student has been 1,820 per academic year since (SAAS, 2014). With English HEIs able to charge up to 9,000 in tuition fees from academic year , concerns arose that this funding disparity would open up a funding gap between English and Scottish HEI, which in were considered broadly comparable in financial terms. It is worth reiterating that the higher education sector receives its income from a range of sources, including but not limited to public sector funding. Funding for teaching, for example, comes from both a fee for tuition attached 1 The average tuition fee at an English HEI in academic year is 8,601 (before fee waivers), 8,448 (after fee waivers) and 8,040 (after costs of all institutional support) (OFFA, 2014). 3

6 directly to individual students and from a teaching grant, which, in Scotland, is provided by the Scottish Funding Council. In order to maintain Scotland s competitive position in the UK, the Scottish Government took the decision to allow Scottish HEIs from academic year 2012/13 to charge up to 9,000 for tuition to rest of UK (ruk) students who came to Scotland to take part in full-time undergraduate study 2. It did this to guard against students from other parts of the UK coming to Scotland to access lower tuition charges - so-called fee refugees (Denholm, 2010) - while at the same time also reducing the risk of displacing Scottish domiciled students at Scottish HEIs (Berry and Georghiou, 2011). In addition, the Scottish Government Spending Review for the three years to committed to restoring teaching funding (allocated by the SFC) to levels, increasing the number of funded places for eligible Scottish and EU domiciled students and increasing funding for strategically important high cost subjects (Mullen and Liddell, 2012). It also removed previous limits on the number of ruk and international (non-eu) students that Scottish HEIs could recruit onto non-controlled subjects 3. Financial year is being treated as an additional year included in the above Spending Review period. In this context, this briefing considers the main funding allocations to HEIs in financial year , comparing these over the last ten years, specifically focusing on the current Spending Review period. SCOTTISH GOVERNMENT FUNDING The Scottish Government budget for higher education is allocated to HEIs and students principally through two bodies: the Scottish Further and Higher Education Funding Council (SFC); and the Student Awards Agency for Scotland (SAAS). These bodies are responsible for, among other things, administering the SFC revenue budget, the SFC capital budget and the SAAS higher education student support budget. SCOTTISH FUNDING COUNCIL (SFC) The SFC is the non-departmental public body responsible for funding teaching and learning, research and related activities within Scotland s public colleges and HEIs. It was set up by the Further and Higher Education (Scotland) Act 2005, replacing the former Scottish Further Education Funding Council (SFEFC) and the Scottish Higher Education Funding Council (SHEFC). The purpose of this merger was to bring 2 The 9,000 fee cap is currently running on a voluntary basis. It will become a statutory fee cap once an Order is made under Section 9D of the Further and Higher Education (Scotland) Act 2005 (as inserted by the Post-16 Education (Scotland) Act). 3 There remain controls on the number of ruk and international students (as well as on Scottish and EU students) on a small number of controlled subjects, including medicine, dentistry and initial teacher training. 4

7 together into one statutory body responsibility for funding and support across all public colleges and HEIs in Scotland. Scottish Government funding allocated to the SFC is used to support the infrastructure of learning and teaching, research and knowledge exchange, skills development, innovation, and other costs accrued by HEIs e.g. staff, buildings and equipment. SFC Ministerial Guidance The priorities for how the SFC should use Scottish Government funding are set out in the Ministerial guidance letter issued each year by the Cabinet Secretary for Education and Lifelong Learning. Ministerial guidance is usually issued in October to inform planning for the following academic year. For academic year , however, the guidance letter was issued slightly earlier (in July 2014) to inform negotiations between the SFC and institutions about the content of academic year outcome agreements 4 (Russell, 2014). The key priorities for the higher education sector in are: Continuing to make progress on widening access to higher education, particularly for those from more disadvantaged backgrounds and areas and widening opportunities to study medicine. Continuing to improve retention rates, particularly among those institutions doing less well at retaining students, including improved student support. Responding to the Wood Report on developing Scotland s young workforce. Addressing the underrepresentation of women in governing bodies of institutions and among student intakes in some subject areas. The Ministerial guidance for also highlights a number of other priorities for the sector, including: Promoting the use of new technologies and new approaches to learning, including greater use of open educational resources. Producing skilled graduates who can make a contribution to Scottish economy and society, including developing practical language skills that will facilitate engagement in an increasingly multi-lingual world and increasing uptake rates in taught postgraduate study. Continuing to prioritise internationally competitive and impactful research while also supporting higher education institutions to develop research capacity where they are currently less research active. 4 Outcome agreements form the basis of the funding relationship between the Scottish Funding Council and individual colleges and higher education institutions. Negotiations take place between the institution and the SFC over its priorities for allocation and spending of Scottish Government funding. The SFC is informed in this process by the Ministerial guidance on priorities issued by the Scottish Government. 5

8 Continuing to promote and develop knowledge exchange opportunities, to ensure the contribution of the higher education sector is recognised, used and developed for the benefit of both Scottish society and the economy. Revenue and Capital Allocations Figure 3 shows the total combined revenue and capital funding allocation from the Scottish Government to the SFC for higher education during the period to in both cash and real terms. SFC funding for higher education increased in cash terms from million in financial year to 1,088.5 million in ; an increase of 131 million over the period. In real terms, the budget reduced from 1,122.2 million in to 1,066.4 million in ; a reduction of 55.8 million over the period. Figure 3: SFC revenue and capital funding, cash and real terms ( m), to , , , , , , , , , , , , , , , , , , m real ( prices) m cash As noted earlier, there was a funding uplift from the Scottish Government in the current Spending Review period ( to ). This was intended to support Scottish HEIs facing a potential funding gap after tuition fee increases were introduced in other parts of the UK. This uplift is evident when looking at the combined SFC budget to HEIs from , which shows: A cash terms increase in funding from million in to 1,096.4 million in A cash terms reduction in funding to 1,083.5 million in , due in large part to capital funding cuts. A real terms increase in funding from 1,022.4 m in to 1,096.4 million in

9 A real terms reduction in funding to 1,066.4 million in (a 30 million budget reduction). Looking only at the revenue budget, Figure 4 shows a cash terms rise in funding of million over the period to In the current Spending Review period ( to ), revenue funding has increased in cash terms by 60.3 million. Figure 4: SFC revenue funding, cash and real terms ( m), to m cash m real ( prices) The real terms value of the SFC revenue budget has reduced by 30.5 million in the period to Looking only at the current Spending Review period ( to ) highlights a real terms increase in SFC revenue funding; totalling 2.7 million. For capital funding, Figure 5 shows that after funding increases in the period to , the capital budget has been in decline. For the period to there has been an overall funding reduction of 34 million; although there was a significant uplift in this funding in the period to followed by significant funding reductions in the period to Looking only at the current Spending Review period shows a funding reduction of 12 million between and The real terms value of the SFC capital budget reduced by 45.2 million in the period to Looking at the Spending Review period only, there has been a real terms reduction in capital funding of 13.7 million in the period to

10 Figure 5: SFC capital funding, cash and real terms ( m), to m cash m real ( prices) STUDENT AWARDS AGENCY FOR SCOTLAND (SAAS) SAAS is an executive agency of the Scottish Government. Its role is to provide financial support to eligible students taking a course of higher education in the UK. SAAS administers the tuition fee payment that the Scottish Government agrees to pay to HEIs for eligible Scottish and EU domiciled students studying at Scottish HEIs. It also administers student loan applications up to the point of confirming entitlement, at which point The Student Loan Company (SLC) makes the loan payment to the student. SAAS also provides to eligible students any bursaries, grants, and allowances they are entitled to. Student Support Figure 6 outlines the cash and real terms funding allocated by the Scottish Government to SAAS for student support (tuition fees and bursaries) from financial year to Student support funding increased in cash terms from million in to million in peaking at million in Looking only at the current Spending Review period shows a cash terms reduction in funding of 24.3 million between financial year and In real terms this amounts to a 41.9 million reduction in the SAAS student support budget between and

11 Figure 6: SAAS student support, cash and real terms ( m) to Administration costs SAAS also administers student loan applications for living costs to eligible Scottish domiciled students as well as tuition fee loans for eligible Scottish domiciled students studying at HEIs in other parts of the UK. While student loans are paid to students by the SLC, applications are processed by SAAS. This means that there are financial costs for SAAS associated with administering the student loans system in Scotland. The draft budget shows the budget allocations for administrative costs associated with management of student support, including the costs associated with administration of SAAS and the SLC. Looking firstly at SAAS administration shows that during the period to , revenue running cost funding allocated to SAAS increased in cash terms by 2.6 million. In real terms this amounts to an increase of 0.9 million in the period. The increased revenue funding for SAAS administration in specifically the increase of 2 million in cash terms between and is the result of problems SAAS faced with processing funding applications in academic year An independent review (SAAS, 2013) highlighted problems responding to high demand for assistance from students. It also set out actions required to address these. The draft budget states that the budget for SAAS running costs was increased to ensure high quality and timely delivery of support to students (Scottish Government, 2013b). 9

12 Figure 7: SAAS revenue costs, cash and real terms ( m) to cash real ( prices) Turning to the Student Loan Company administration costs, Table 1 (below) highlights that funding has, during the period to , reduced in cash terms by 0.7 million. Most of the reduction in funding has occurred during the current Spending Review period, totalling a 0.5 million reduction. In real terms this means a reduction in SLC administration funding of 1.8 million across the period to ; including a real terms funding reduction of 0.8 million in the current Spending Review period. Table 1: SLC administration, cash and real terms ( m) to SLC administration cash real ( prices) Student loans In recent years there has been a significant increase in student loan new lending. As Figure 8 shows, cash terms funding increasing from million in to million in This represents a total budget increase of million in this period. Much of the increase in student loan new lending has occurred within the current Spending Review period, where there was an increase of 167 million between and and a further 60 million in the period to

13 In real terms the budget has increased from million in to million in ; an increase of million in the period. In line with the cash terms allocations, much of the increase occurs from onward with a budget increase of million between and , and a further increase of 51 million in Based on current budget proposals, student loan new lending is expected to reduce in real terms by 7.4 million in Figure 8: Student loan new lending, cash and real terms ( m) to real ( prices) cash This budget increase is explained in large part by the large increase in living cost loans made available to eligible students from academic year , including the introduction of the minimum income guarantee for full time undergraduate students from low income families (see SAAS (2014) for details of the funding available in the form of loans and bursaries to eligible students). The draft budget notes that the figures presented in the budget as Annual Managed Expenditure (AME) for net new student lending represent a forecast of the amount of AME funding for student loans that the Treasury has made available to the Scottish Government through the 2010 UK Spending Review. The actual level of student loan funding required will depends on how students respond to the increased loan available through the minimum income guarantee 5. Given this, the AME forecasts were reported as being subject to revision during the Spending Review period (Scottish Government, 2013). 5 The minimum income guarantee is a Scottish Government initiative that offers Scottish domiciled full time undergraduate students from the lowest income households a package of bursary and loan support amounting to a maximum living cost allowance of 7,500 in More information can be found here. 11

14 Cost of providing student loans The Resource Accounting and Budgeting (RAB) charge is intended to reflect a calculation of the amount of the face value of student loans issued in a given year that are not expected to be repaid (due to low income, cancellation of the loan, etc.). This budget line also reflects the cost of any subsidy paid by the government to cover interest charges during the period that the loan is outstanding. Fundamental to the ability of government to manage the student loans system is being able to accurately forecast future repayments. The difference between the estimated future income recouped from student loan repayments and the original value of the loan issued is recorded in full in the year that the loan is issued. The difference between the amount paid out and the expected return is referred to as an impairment or the RAB charge. The estimated impairment offers the government early recognition of the amounts expected never to be repaid. In other words, the RAB charge reflects the total predicted subsidy that the government implicitly pays to students through the student loans terms offered (House of Commons, 2014). With higher student borrowing associated with higher tuition fees in England from and higher student borrowing in Scotland associated with higher levels of living cost loans from , the potential impairment / RAB charge increases. Figure 9 shows that this budget line has increased significantly since , with the largest cash terms rise million - taking place between and Figure 9: Cost of student loans (the RAB charge), cash terms ( m) to In budget terms, the RAB charge is a Departmental Expenditure Limit (DEL) noncash ring-fenced budget allocation from the UK government. HM Treasury calculate the RAB charge for student loans based on the English student loan system. Since the introduction of higher tuition fees in England there has been increased student borrowing in England. With this comes an increased potential for non-repayment of 12

15 loans and so an increase in the estimated impairment / the RAB charge (House of Commons, 2014). As this budget allocation to Scotland is determined by Barnett consequentials, an increase in the RAB charge in England raises the consequential allocated to the Scottish Government as costs of providing student loans (RAB charge). Two points about this budget line are worth noting: This budget line is ring-fenced so it cannot be allocated or used for anything other than the costs associated with providing student loans. The Scottish Government (2013b) states that non-cash ring-fenced DEL allocations, such as this, do not represent spending power (p.22). However, where there is financial pressure on the cost of providing student loans, the Scottish Government can draw on this budget line to make a request to HM Treasury for additional funds. For example, in financial year , the Scottish Government recorded in its Spring Budget Revisions (SBR) an additional DEL non-cash amount of 49 million (Scottish Government, 2014). This was required to cover the cost of adopting the updated model for Income Contingent Loans (Scottish Government, 2014). As higher levels of living cost loans were introduced in Scotland in academic year , the estimated impairment / RAB charge will also have risen. The 49 million was recorded as additional DEL non-cash student loan subsidy, drawn down from HM Treasury RAB charge student loan budget consequentials. 13

16 SOURCES Berry, K and Georghiou, N (2011) Higher Education: tuition fees and the funding gap, SPICe briefing Available at: Bolton, P (2012) Changes to higher education funding and student support from 2012/13, House of Commons Library Standard Note SN05753 Available at: Denholm (2010) Scots students could lose out to fee refugees The Herald, 16 November Higher Education Statistics Agency (2014) Finances of Higher Education Providers. Cheltenham: HESA. House of Commons (2014) Business, Innovation and Skills Committee Third Report: Student Loans. Available at: Macpherson, S and Liddell, G (2013) Student Loans and Repayments SPICe briefing 13-78, Available at: Mullen, F and Liddell, G (2012) Draft Budget : Higher Education, SPICe briefing Available at: OFFA (2014) Access Agreements for : key statistics and analysis. Office for Fair Access, Available at: Russell, M (2014) Scottish Funding Council (SFC) Letter of Guidance , Scottish Government. Available at: Scottish Government (2013) Scottish Draft Budget , Available at: Scottish Government (2013b) Scottish Draft Budget , Available at: Scottish Government (2014) Spring Budget Revision, Available at: Student Awards Agency for Scotland (2013) Independent Review SAAS Available at: 14

17 Student Awards Agency for Scotland (2014) Funding in for Young Students studying full time in Scotland Available at: 15

18 ANNEXE 1 ACCOMPANYING TABLES FIGURE 2 - SFC grant as percentage of all income ( m), Institution SFC grant ( m) All income ( m) SFC grant as % of total The University of Aberdeen % University of Abertay Dundee % The University of Dundee % Edinburgh Napier University % The University of Edinburgh % Glasgow Caledonian University % Glasgow School of Art % The University of Glasgow % Heriot-Watt University % Queen Margaret University, Edinburgh % The Robert Gordon University % Royal Conservatoire of Scotland % The University of St Andrews % Scotland s Rural University College (SRUC) % The University of Stirling % The University of Strathclyde % University of the Highlands and Islands % The University of the West of Scotland % Total Scotland 1,067 3, % Source: Higher Education Statistics Authority (2014) FIGURES 3, 4 and 5: SFC HE revenue and capital, cash and real terms ( m), to cash real ( prices) Revenue Capital Total Revenue Capital Total , , , , , , , , , , , , , , , , , ,066.4 Source: Scottish Government budget documents Notes: Capital allocations for higher education in FY , and are not reported in budget documents. These figures were provided by SFC officials. Real terms figures calculated using 2014/15 prices (SPICe Inflation Tool at October 2014) 16

19 FIGURE 6 - SAAS student support, cash and real terms ( m), to cash real ( prices) Source: budget documents Real terms figures calculated using 2014/15 prices (SPICe Inflation Tool at October 2014) FIGURE 7 - SAAS revenue costs, cash and real terms ( m) to cash real ( prices) Source: budget documents Real terms figures calculated using 2014/15 prices (SPICe Inflation Tool at October 2014) FIGURE 8 - Student loan new lending, cash and real terms ( m) to cash real ( prices) Source: budget documents Real terms figures calculated using 2014/15 prices (SPICe Inflation Tool at October 2014) 17

20 RELATED BRIEFINGS SB Higher Education: tuition fees and the funding gap (685KB pdf) SB Draft Budget : Higher Education (645 KB pdf) SB Student Loans and Repayments (692KB pdf) Scottish Parliament Information Centre (SPICe) Briefings are compiled for the benefit of the Members of the Parliament and their personal staff. Authors are available to discuss the contents of these papers with MSPs and their staff who should contact Suzi Macpherson on extension or Members of the public or external organisations may comment on this briefing by ing us at However, researchers are unable to enter into personal discussion in relation to SPICe Briefing Papers. If you have any general questions about the work of the Parliament you can the Parliament s Public Information Service at sp.info@scottish.parliament.uk. Every effort is made to ensure that the information contained in SPICe briefings is correct at the time of publication. Readers should be aware however that briefings are not necessarily updated or otherwise amended to reflect subsequent changes. 18