Virtue from necessity

March 5, 2004

Worried about cuts in your grant allocations? It may be no bad thing, says David Wallace

It all used to seem so simple. The university got a block grant for teaching and research, and distributed it as it saw best.

Even if it really was like that, I am not sure that I would call them the good old days. Internal allocations were too frequently decided in smoke-filled rooms, and the lack of transparency made "university politics" an unsavoury business for the unskilled. I recall joining a dean's committee as a head of department, and finding mine was the only department that had acceded to the cuts demanded by the dean the previous year.

So, in general terms, I applaud the moves of the funding councils over the years towards formulaic and transparent funding. In parallel, universities have understood their cost base much better, using soundly based cost apportionment models.

One by-product of this transparency is that increasingly universities have been able to reward those departments that have earned the income.

Another is more money - the recent increases in research funding that have flowed from the Treasury through the funding and research councils. But these increases have come with strings, namely, from October 2005, the requirement to calculate the full economic cost of every individual research grant application the university makes. I am sure we are not alone at Loughborough University in knowing how to do this, nor in beginning to hire the extra administrative staff to do it.

So although transparency has clear advantages, when carried to the proposed microscopic levels it brings its own difficulties and additional costs. It also sits uneasily with a dual-support system - it is hard to justify a requirement that you calculate the detailed overhead costs of individual research grants in the clear knowledge that if you are successful, these costs will not be awarded. Instead, you are required to recover the total shortfall in funding from whatever other sources you can muster in future years.

The same issue may well arise for teaching: presuming the higher education bill is passed, we will in effect have a dual-support system here as well, with the cost of teaching met by a dual combination of funding council cash and student fee. At the same time, the funding council is exploring the full economic costs of teaching for individual subjects. This kind of detailed costing increasingly makes the block grant look anachronistic.

It is hardly surprising therefore that many universities are looking to decrease their dependence on funding council income. Arguably, this is a natural outcome of good university governance: it is not good business to be overly dependent on one stakeholder who is, or believes that they are, in a monopoly position, and who may not be meeting the full economic cost.

So, ironically, a discouraging grant letter from the funding council may be taking you in exactly the direction that you want to go. We didn't think in those terms when Loughborough was safety-netted (in very good company) to almost £1 million last year, but this has been dwarfed by the buoyancy of other activities, such as international students. Even with the 7.9 per cent increase in our Higher Education Funding Council for England cash for next year, the relative decline of Hefce funding as a proportion of our total income looks likely to continue.

One of the more painful aspects of our safety-netting was that the reason for it, namely the cut of 4 per cent in the teaching base for well-qualified students, seemed never to be acknowledged explicitly by Hefce. I had a frisson of déja vu when I read that in the coming year, the base for teaching would increase by about 20 per cent and no band would lose out. How could this be? The answer is: only by including the special funding for human resources in the pot for teaching, and an allowance for inflation. But the HR money is not new, and I estimated that in real terms laboratory-based subjects such as science and engineering would have their Hefce allocation cut by another 4 per cent. As it turns out, the cut for these subjects seems to be 1 per cent in real terms. It really is important that Hefce does not succumb to the temptations of spin.

David Wallace is vice-chancellor of Loughborough University, president of the Institute of Physics and treasurer and vice-president of the Royal Society. These are his personal views.

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