College Fees - HEFCE Inquiry - (1) to No 4452



<br /> Oxford University Gazette: College Fees: HEFCE Inquiry (supplement)

Oxford University Gazette

College Fees: HEFCE Inquiry

Supplement (1) to Gazette No. 4452

Wednesday, 5 November 1997



Contents of the supplement:

Prefatory note

Reply by the University to HEFCE's questions:



To Gazette No. 4453 (6
November 1997)

To Gazette
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The DfEE has referred to HEFCE a review of `the mechanisms for setting future
funding for the universities and colleges of Oxford and Cambridge', having
regard both to the points raised in the Dearing Committee's report and to the
Funding Council's new funding method for teaching. The Dearing Committee
proposed that the Government review college fees against the two principles
proposed in recommendation 74: that variations in the level of public funding
for teaching, outside modest margins, should occur only (a) where
there is an approved difference in the provision, or (b) where
society, through the Secretary of State or his or her agent, concludes, after
examining an exceptionally high level of funding, that in relation to other
funding needs in higher education, it represents a good use of resources. The
principle underlying HEFCE's new funding method for teaching, which was laid
down before the Dearing Committee reported, is that `similar activities should
be funded
at similar rates'.

As part of its inquiry, the Chief Executive of HEFCE, Professor Brian
Fender, wrote to the Vice-Chancellor on 8 October 1997, following a meeting
with representatives of the two universities on 6 October 1997, requesting by
23 October 1997 various information. The letter referred to the Dearing
Committee's recommendation outlined above and then raised a number of
questions. HEFCE's questions and the collegiate University's response to them
are summarised below for the information of members of the University. The
response was prepared under the direction of the College Fees Group, set up on
the authority of the University and the colleges to oversee the presentation
of the case for the additional funding represented by college fees.

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REPLY BY THE UNIVERSITY TO HEFCE'S QUESTIONS


Introduction

The reply opened with four general points:

(1) That it was wholly appropriate to investigate the endowments and
income of colleges before any decision was taken on funding, an exercise in
which the collegiate University would be very ready to co-operate, since it
would dispel the misconception that there were hidden sources of wealth, not
utilised for educational purposes, which could compensate for a significant
reduction in the income of the collegiate University.

(2) That standard funding, even if appropriate to the system as a whole,
was not appropriate for the Universities of Oxford and Cambridge, since they,
unlike all the other universities, were collegiate in their structure; that
other institutions offered high quality provision, which should be recognised
under the HEFCE funding formula for teaching wherever it occurred; and that
HEFCE's existing policy of `convergence' of funding for teaching was at odds
with the Dearing Committee's endorsement and encouragement of diversity.

(3) That the colleges of Oxford were not departments of the University,
but independent, private, educational charities, each with its own royal
charter and that their fees were not top-up fees, but had been charged for
centuries, only in recent years being refunded to students out of public
funds.

(4) That this University, like Cambridge and a number of other British
universities, maintained the highest international standards in both teaching
and research across as many subjects as possible; that this universality of
high quality provision was not only part of the particular mission of Oxford
and Cambridge but was embedded in and founded on the collegiate system; and
that it was very much in the national interest that there be such
institutions, expensive though they were.

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Indicators of quality

On the provision of teaching at Oxford HEFCE asked for measures or
indicators of quality which demonstrated the value of using the funds provided
through college fees.

The University cited the following.

(a) Average A-level scores for the intake at Oxford of 29, i.e.
better than 2 As and a B, compared with a national average of 18.8, which
showed the strength of demand for places from the best qualified candidates;

(b) A drop-out rate of less than 5 per cent, significantly lower
than the national average (estimated at 17--18 per cent in 1994--5);

(c) Very high quality foreign students, e.g. from Europe, the
Commonwealth and the United States, most notably Rhodes Scholars, who came
specifically to take a second Oxford undergraduate degree because of its world
reputation; at the graduate level, the quality of the University's students
was demonstrated by its success rate in the ORS scheme;

(d) A rate of unemployment of students some six months after
graduation of 2.6 per cent against a national average of 8 per cent;

(e) As demonstrated in the Hemmington Scott, Price Waterhouse
Corporate Register 25 per cent of the UK directors and senior company officers
surveyed were graduates of Oxford (and 28 per cent graduates from Cambridge);
and

(f) a survey of professors working outside Oxbridge showed that a
significant proportion graduated from Oxford or Cambridge by way of a first or
subsequent degree.

The reply pointed out that it was largely the existence of the tutorial
system, based in the collegiate structure, which enabled the University to
attract candidates of the highest quality. Individual teaching enabled them to
work on diverse assignments and to cultivate independence of thought, a
distinctive preparation for lifelong learning and the more valuable kind of
transferable skills. Students of such calibre required the kind of teaching
which the tutorial system involved if they were to be stimulated
intellectually and stretched to achieve their full development. Moreover, the
demands of the University's syllabus had traditionally been such that it was
only candidates of that calibre who could thrive and achieve full development
within the University's courses. It noted that all colleges devoted
significant resources to seeking out the students with the greatest academic
potential, whatever their social or ethnic background, and drew attention to
the fact that of those accepted by universities in 1996, just short of 16,000
scored 30 at A level (getting 3 As); just under 1,800 of these came from the
three lowest socio-economic groups, of whom Oxbridge already took about one
quarter of the total.

Reference was made to, and extracts were quoted from, successive
assessments under the HEFCE quality assessment procedures, which had
emphasised the value of the individual tuition provided by the colleges in
developing a thorough understanding of the subjects in question, along with
independent thinking and oral communication skills.

These assessment reports had also noted that regular contact with tutors,
and less formal contact with other senior and junior members of the college,
also provided intellectual stimulus, close monitoring of student progress and
achievement, and an excellent pastoral care system. The quality assessors had
also commented favourably on the high quality of the library provision made by
colleges and its convenience, particularly for late study.

Finally, it was noted that the net additional investment of £19m a
year by the government was matched by some £43m of college endowment
income, which was an admirable example of a private--public partnership.

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International competitors

HEFCE asked how the teaching methods at Oxford and student/staff ratios
compared with those of universities judged to be the University's
international competitors, seeking examples from the United States, Europe and
Japan.

The reply noted that it was difficult to make comparisons with institutions
which had evolved in other cultures with different value systems and
socio-economic conditions. The only university in the US readily comparable
with Oxford in teaching method was Princeton, though it was less than half the
size of Oxford. Research universities in the United States were biased towards
their graduate programmes, and most provided mass undergraduate education, a
route which Oxford had chosen not to follow. There was, however, one very
large contrast between Oxford and Princeton; the Princeton budget was $550m
(or £341m), i.e. not substantially smaller than that of the colleges and
University of Oxford combined for a university somewhat less than half
Oxford's size. Universities closer in size to Oxford—Stanford and
Harvard—spent almost £1 billion a year. Attention was also drawn to
the levels of tuition fees at other US institutions, which showed that an
undergraduate education at comparable universities in the United States cost
over twice as much as that at Oxford (and in some cases considerably more,
given that the norm was a four-year course). This suggested that not merely
was the current level of Oxford's funding justified but that in terms of its
international comparators an increase would be appropriate.

Turning to Europe (other than the UK), the reply indicated that teaching in
other European universities at the equivalent of undergraduate level was
predominantly by lecture to large audiences and that drop-out rates were high.
The Dearing Report itself (para. 3.5 of Appendix 5) had estimated that it was
about 30 per cent in Germany; in France, where similar teaching methods
prevailed, `as few as 17 per cent of initial entrants emerge with a Licence
(full honours degree)' (ibid., para. 2.2). It was also noted that the French
Government had recognised the value to the country's economy of a
highly-trained academic cadre by supporting a system of Grandes Écoles.
By contrast with the rest of the French university sector, where very
large-group teaching was the norm, students of the Grands Corps received a
great deal of individual attention in small seminars and tutorials. State
funding per student in such institutions was some Ff89,000 (£9,470) per
head per year compared with the standard funding of university students of
Ff35,000 (£3,725) per head elsewhere in the system. The Grandes
Écoles were widely admired for integrating higher education with
Government and industry, a policy which Oxford had pursued and was continuing
to develop. One external indicator of the general quality of undergraduate
education in France and Germany, compared with that offered by UK
universities, was the level of applications to British universities for
undergraduate places from Germany and France; in Oxford's case these had
increased by 50 per cent over the past five years. The 354 German
undergraduate and postgraduate students currently at Oxford were the second
largest non-UK group (the largest being from the USA—618).

It was recognised that Japanese universities were very different. At two
leading public universities, for example, it was known teaching was primarily
by large lecture (up to 1,000 students), with some classes of 50 to 100
students, and seminars of between 10 to 30. It was difficult to cite
universities in Japan comparable with Oxford, a university which regularly had
appeared in international surveys as amongst the top ten world universities.

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Use of fee income

HEFCE asked for an indication in broad terms the balance of expenditure
from fee income between teaching, research and infrastructure.

The University supplied HEFCE with a copy of the consolidated college
accounts for 1995--6, which were also relevant to the other financial
questions posed, and a copy of the published college accounts for 1995--6.
These accounts separated:

—the Endowment Account (Statement III), where endowment income
covered premises costs, rents, rates and taxes, after some of these costs had
been allocated against Statements IV and V;

—the Education and Research Account (Statement IV), where fee income
was set against the direct and indirect costs of education and research;

—the Internal Account (Statement V), where charges to students and
to conferences were set against the direct and indirect costs of catering and
accommodation.

It was noted that statements IV and V were in deficit over the colleges as
a whole, requiring subsidy from the surplus on the Endowment Account. HEFCE's
particular interest was likely to be the Academic Account IV, and a breakdown
of that expenditure was provided, showing (a) that part arising from
the college teaching system, (b) that part arising from the
complexity of a system based on thirty-five [1] independent institutions, and
(c) a residual part, arising mainly from the research activities of
the colleges. Parts (b) and (c) were regarded as the prime
cause for the need for a subsidy from endowment, but the schedule also
demonstrated that the costs of the college-based tutorial system absorbed the
entire income from fees. Only in the sense that teaching fellows contributed
to the research profile of the University could fees be said to be spent on
research, and in that sense Oxford was no different from other universities.
It was concluded that any diminution of funding would harm the whole
collegiate structure and impact on tutorial expenditure, and that if further
endowment income was consequently switched into tutorial support, the
diminution of funding would severely damage research.

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Costs specific to Oxford

HEFCE asked for an estimate of the additional expenditure
associated with:

—the need to provide teaching (and research) in listed buildings or
buildings not optimised for modern use.

—The relative small scale of colleges and any extra costs which fell
on the university because of the large number of independent institutions
with which it had to deal.

—Any other additional costs which other universities would not be
expected to meet.

HEFCE was provided with details, which showed that premises running costs
for teaching-related space in colleges totalled £6.97m. A costing of the
provision of similar space in a single modern building, including library and
administration space, demonstrated that additional annual running costs
(including depreciation) of at least £2m were the result of the less than
optimal nature of so many college buildings. It was also noted that college
premises for academic purposes, whose current replacement costs would
otherwise fall on the University, were valued at some £150m by way of
capital cost alone. One reason for the size of this sum was the fact that each
college maintained its own library, which because of the breadth of the
syllabus taught at Oxford needed to maintain a comprehensive stock for
teaching purposes. To the benefit of Oxford's students, such libraries were
closer to where students were, and were open for longer hours than in most
universities, often for twenty-four hours.

Details were also provided of other costs related to the `complexity'
factor, which included the employment of heads of college, the provision of
support and counselling for students, including chapels and chaplain services,
and dispersed administration. These additional costs amounted to £4.93m,
over and above the added `premises' costs referred to earlier.

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College endowments and returns

HEFCE noted that the ability of colleges to respond to a reduction in
fee support, and the speed with which they could do so, were critical matters
and sought information the total assets (excluding functional property) of the
combined college sector and the average percentage yield along with an
asset-figure for each individual college in an anonymised form.

Details were provided of the endowment capital of each college
(anonymised). The total investment capital of the colleges was shown as
£921,365K, in addition to which `trust capital', as defined below,
amounted to a further £275m. The overall income generated from endowments
for the year to 31 July 1996 was 4.59 per cent. It was noted that colleges,
like all rational investors, pursued a policy of maximising total return on
their endowment and that by any reasonable measure this was an acceptable
performance, both for a period during which capital values in equity markets
had increased sharply, thereby depressing income yields, and having regard to
the long-term trusteeship of college endowment. It was further noted that over
20 per cent of the endowment income identified in the college accounts related
to trust funds which could be used only for specific purposes. Virtually all
of these related to academic activities but there were also those of
historical and cultural importance such as the £12m trust endowing the
Diocese of Oxford's Cathedral, which was in effect a college `chapel' and had
therefore to be maintained by that college. It was suggested that the
spend-rate of 4.59 per cent was on the high side, and noted that the trustees
of Harvard, Yale and Princeton, for instance, required their administrations
to spend no more than 4.1 per cent, 4.3 per cent and 4.2 per cent of endowment
respectively. Moreover, their endowment capital was substantially in excess of
Oxford's £921m. As at 30 June 1996 Yale's endowment was valued at $4.8bn
(£3bn), Princeton's at $4.5bn (£2.7bn) and Harvard's $8.8bn
(£5.4bn).

The reply reiterated the point that the colleges' endowment income was
already fully committed to the running of the collegiate structure. Use of
that income to replace public money withdrawn would necessarily imply that
academic objectives and activities currently supported by endowment income
would for many colleges have to be drastically curtailed or abandoned.

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Analysis of expenditure

HEFCE noted that in earlier discussion reference had been made to the
commitment to academic salaries which would limit a college's ability to
respond quickly to a loss of fee income and sought estimates of the annual
combined expenditure by colleges (net of expenditure incurred on student
residences and conference business) on the following:

—Academic staff employed on tenured or indefinite contracts

—Academic related staff employed on tenured or indefinite contracts

—Support staff employed on indefinite contracts

—All staff on limited term contracts

—Academic (and academic support) non-pay items

—Other non-pay items

On the basis of the Statement IV of the published college accounts for
1995--6, i.e. for academic expenditure only, the costs were:


Cost of academic staff on `permanent' contracts               £20.5m 
Cost of academic-related staff on `permanent' contracts       £1.1m 
Cost of support staff on `permanent' contracts                £7.3m 
Cost of all staff on fixed-term contracts                     £5.9m 
Academic and academic support non-pay items                   £9.8m 
Other non-pay items in Statement IV                           £15.2m   

Total                                                         £59.8m

This showed that a high proportion of staff was on permanent contract and
hence redundancy costs would be high. It was noted that many of the fixed-term
academic staff were replacing a permanent member of staff on sabbatical or
funded absence, while others were funded directly from research grants and
trust funds. The figure for fixed-term staff therefore considerably overstated
the real financial flexibility available to colleges.

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Ability to change

HEFCE asked whether more time would be required to allow for any
redistribution of money between colleges than to adjust asset portfolios and
sought information on the rate of change which could be accommodated. For this
purpose it was to be assumed that legislation would prevent the charging of a
top-up fee and that students would be required to pay the £1,000 per
annum tuition fee (including any publicly funded subsidy). It was also to be
assumed that the conditions associated with other charges would remain as
present.

The University confirmed that it would take longer to redistribute money
between colleges than to reconfigure portfolios. Colleges had a legal
obligation to try to maximise their resources, which was what colleges did.
The latter would not be sensible unless market conditions were such that the
colleges would be changing asset allocations of their own volition—in
other words, when the market was right.

It was noted that the present redistribution scheme redirected some
£1.6m of income from richer colleges each year into a fund to provide
capital to some of the least well-endowed colleges and accepted that there
could be some increase in this rate of transfer. It was also noted that there
was no mechanism at present for the Permanent Private Halls to be included in
the redistribution scheme. Many colleges had pointed out that a significant
proportion of their assets was in restricted trusts, for the upkeep of chapels
and libraries, for example, or for grants to students in need, or indeed for
educational purposes outside the college. These were serious questions which
had to be resolved before the scope for any enhanced redistribution scheme
could be considered. Legal advice on aspects of these matters was currently
being sought.

Since 1981, the college system's overall dependency on fee income as a
proportion of turnover had fallen from 42 per cent to 32 per cent in 1996 as a
consequence of lower fee-levels in real terms on the one hand and of
substantial efforts to increase conference income on the other. Endowments had
also produced more income in recent years but this was now under threat from
the proposed changes to the ACT regime, which, if implemented, could reduce
endowment income from investments by some 10 per cent or £3m.

The point made at the outset was reiterated, namely that colleges had long
charged fees and that the state had only reimbursed these for a relatively
short period of time; the college fee therefore could not be regarded as a
`top-up fee'.

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Graduate colleges

It was suggested that dependency on fee income was greater for the
graduate colleges and HEFCE sought information on differences between the
financial position of all colleges and that of the graduate colleges.

The reply indicated that the graduate colleges at Oxford were each very
different in character and the position of each was described individually. It
was noted that fee dependency for the whole college system, expressed in terms
of fee income as a proportion of total income, excluding conferences and
accommodation charges, was 48 per cent; in some cases the figure was very much
higher. It was also pointed out that conference income for the graduate
colleges was negligible, since most graduates were in residence for the full
year. It was further noted that three of the colleges were formally
departments of the University and not as yet autonomous, chartered
institutions; their finances therefore formed part of the University's
overall financial responsibility.

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Increase in numbers

HEFCE noted that under the new method for funding teaching some
institutions would migrate to a lower level of resource through changes to
both funds and student numbers and sought information on the extent to which
the University could increase full-time undergraduate or postgraduate numbers
above 1996--7 levels and about the constraints on such expansion.

The reply indicated that undergraduate admissions were the responsibility
of the colleges rather than the central University, although there were
mechanisms in place to ensure that the University met HEFCE requirements in
terms of CSNs and MASNs. If a reduction in college fees were to reduce the
funds brought to a college by a student to less than the marginal cost of
providing tuition, colleges might well respond by seeking to reduce student
numbers rather than increase them, in order to maintain the quality of
education, which was heavily subsidised from endowment. It was noted that, at
the undergraduate level, Oxford was a residential university and the
University would not wish to change that. A major constraint on numbers,
therefore, was the provision of residential accommodation. By agreement with
the City, there was a planning assumption that the University would take up no
more city accommodation than it did in 1973. Colleges had successfully
provided at their own expense since then over 5,000 units of residential
accommodation to cope with university expansion. The damage to their income
and endowments, which the loss of fee income would involve, would leave little
scope for further provision and would discourage, because of the financial
uncertainties, the seeking of loan-funded finance.

Postgraduate numbers had been increasing marginally, but here, in addition
to accommodation, a constraint on major expansion, as suggested, would be the
provision of supervision. Since academic staff at Oxford (other than Junior
Research Fellows) held joint university/college appointments and given the
impact of reductions in college funding on the finances of the University
itself, there would necessarily be a reduction in university academic staff.
Hence, there would be little scope for an increase in graduate students, since
the University would not have the necessary staff from which to appoint
supervisors. This too would impact on the University's international research
standing.

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`Access' considerations

HEFCE had met on a visit to Oxford the President of OUSU and other
officers, who were fearful that a reduction or abolition of the student fee
would cause other college charges to rise and adversely affect the proportion
of students coming from poorer backgrounds. The University was asked to
comment.

The University saw no scope for absorbing a reduction in fees by increasing
college charges to students. An analysis of 21 universities had shown an
average weekly rental cost in term of a few pounds a week less than the
average in Oxford colleges. Though in Oxford the higher rate was paid for
marginally fewer weeks than at the other universities, there was little scope
for further increase. Moreover, the University was fully committed to
protecting, and indeed increasing, the proportion of students coming to the
University from poorer backgrounds, so would not itself wish to proceed down
this route. The University submitted a summary of what the University and
colleges collectively and individually were doing to encourage such
applications along with an outline of future plans (copy available on request
to the Deputy Registrar (Administration) (telephone: (2)70003).

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