Investigation suggests extent of ScotGov university funding shortage

According to The Herald's results, Scottish Funding Council (SFC) funding may only cover an average of 58% of the UK Department for Education (DfE) estimated full economic costs of teaching across 45 subject areas. Sciences come the closest to full estimated coverage (up to 86%), while the estimated coverage for social sciences, business and languages is closer to 50%.

For the purposes of this analysis, The Herald focused on the publicly-funded tuition that universities receive per Scottish student from the Student Awards Agency Scotland (SAAS )– which offers £1,820 a year for first-time undergraduates and Professional Graduate Diploma in Education students– and from the SFC's six teaching price groups.

Experts in the sector confirmed that, despite some variations between Scottish and English universities, the relative similarities across UK higher education make this a valuable approach and a "constructive" way of progressing conversations about the Scottish funding model.

And the Scottish Government, when presented with The Herald's findings, did not express any objections. 

'Constructive' step to further the conversation

The result of The Herald's investigation presents the potential value of each subject's deficit between what the Scottish government provides for Scottish students and what the DfE estimated it costs to teach that subject.

The existence of a gap in public funding has never been in dispute. Financial analysts, government officials, and sector stakeholders have been ramping up debates over its size and how to close it for months.

Nor should the funding gap alone be used as an indictment of government policy. Conversations with stakeholders make it clear that there has never necessarily been an expectation that public money will cover the full costs, and the Scottish Government provides money to institutions in ways other than student tuition.

But because of that gap, universities have made it clear that they must rely on other income sources–including international student fees–to cross-subsidise the costs of educating Scottish students.

As the new data reveals, universities may have to cover significant proportions of the costs of teaching students in some subject areas.

The SFC assigns subject areas to one of six price groups, which determines each student's funding level. Students enrolled in health and science, technology, engineering, and mathematics (STEM) subjects generally garner more public funding, while social sciences, business, and law are classed in the lower price groups.

Subjects in Price Group 6 have the largest funding deficit compared to the DfE's estimated full economic costs of teaching. These include History, Law, Philosophy, Media Studies, and Theology and Religious Studies. In 2022/2023, SFC contributions for students in Price Group 6 were priced at £5,574.

However, the DfE estimated that teaching subjects in this category could cost more than £13,000. The largest difference between the DfE's estimated full economic cost of teaching and the SFC funding level is in Media Studies, which registered a difference of £7,562.

In other words, SFC funding only covered 42% of the DfE's estimated costs of teaching that subject area. 

In general, however, The Herald's investigation revealed that SFC funding comes closer to matching the DfE's estimated cost of teaching as subjects get more expensive. 

The differences recorded in Price Group 1, valued at £17,673 in 2022/2023, maxed out at just under £10,000 for Veterinary Science. While the gap is higher in cash terms than Price Group 6, it means that SFC funding covers more than 65% of the estimated costs.

For other subjects in that group, such as Clinical Medicine, coverage reaches 86%. 

Although these figures are a starting point for quantifying the real costs and deficits facing Scottish universities, university leaders urgently argue that this current funding situation is unsustainable.

They say it focuses too much on volatile sources of income and puts universities that don't have the same focus on international recruitment in a precarious position. 

Read more:

Why did we decide to investigate Scotland's universities?

University funding: International fees crucial but unreliable income

The importance of international students to Scotland

No one knows what a university education costs, and that's a problem

Universities Scotland, the representative body of Scotland's higher education institutions, responded to The Herald's investigation by saying that the estimated deficits could be used to further discussions about how the sector is funded. 

Claire McPherson, Universities Scotland director, said that her organisation recognises the "undeniable" pressure on the next Scottish Government budget and said that conversations need to be realistic in the short-term.

“The university sector has calibrated its ask for public investment to the fiscal reality and we’ve offered the Scottish Government creative ways to make the same amount of resource go further in the student interest. Even if that ask can be met, it does not come close to addressing the systemic funding problem which exists in our universities and which quietly builds in the background.

"Scotland needs to engage with strategic questions about what funding level, models and methodologies will be fit for purpose for Scottish learners and universities over the next ten to twenty years.

"The Herald’s analysis is a new take on a conversation that has to happen. There is no perfect place to start but start we must.”

She added: "When you put the level of public funding invested in each Scottish student, next to figures that estimate what it really costs to teach undergraduates on a subject-by-subject basis, it’s possible to start a deeper conversation about what proportion of real cost should come from public funding in a publicly-funded model.

"Looking at the whole sector, it has never been 100% for teaching and research together; cross-subsidy has and always will be part of the mix for most institutions.

"Yet, when less than 50% of real cost is covered by public funding in subjects like social work and modern languages and less than two-thirds of the cost of a nursing degree is from public funding, you can start to see how really big challenges start to pile up, particularly when sources of cross-subsidy funding are more volatile and not equally accessible to all institutions.”

In order for the next stages of conversation to be the most effective, however, Ms McPherson said that stakeholders and the government must be clear on the figures they are discussing.

“This is a constructive, if imperfect, way of starting to get beyond a binary conversation about HE funding. The interest isn’t in comparing Scotland to England or even entertaining different ways of funding universities when there’s total clarity from the Scottish Government on the current tax-payer funded model.

"The interest is in asking if this is a tax-payer funded model, how do we also ensure it is fully-funded to sustain it long-term?”

Estimating a deficit: how to read The Herald's analysis

Because this new analysis relies on comparing cost estimates from England and funding levels in Scotland, it's important to understand what the data is actually saying and what calculations were used.

First, it is essential to remember that stakeholders and public bodies accept that there is a gap in public funding.

Multiple agencies, most importantly the SFC, have reported that Scotland's university sector is not recovering the full economic costs of publicly funded teaching. This largely refers to Scottish students whose tuition is funded by the Scottish Government. 

According to SFC data, Scottish higher education institutions are doing relatively well compared to institutions in the rest of the UK in terms of recovering their full economic costs on the whole.

But the most recent SFC data from 2021 shows that Scottish institutions recovered 90.6% of the costs publicly funded teaching (a deficit of roughly £150m) and only 77.5% of research (a deficit of roughly £433m).

An SFC spokesperson explained that "full economic cost" (FEC) is a very specific measurement. More than just a calculation of expenditures, FEC also includes a Margin for Sustainability and Investment (MSI). This accounts for the level of surplus that institutions would need to continue operating in the future.

FEC is also calculated using an accounting method called the Transparent Approach to Costing for Teaching (TRAC-T), which helps universities estimate the real costs of teaching.

The 2019 Department for Education (DfE) report that forms the backbone of The Herald's analysis used similar TRAC-T data to estimate the costs of teaching by subject area.

These subject areas, with two exceptions, directly correspond with the 45 subjects identified in the SFC's six teaching price groups. The DfE's cost estimates were adjusted for inflation using the same calculation as the DfE's original analysis.

A history of looking south for reference

Experts have said that not only is there merit in considering figures from England, there is precedent for it as well.

In 2011, the Scottish Gov, SFC, Universities Scotland, and other sector representatives sat down to calculate a funding gap. Except they weren't trying to calculate how far short Scottish Government money was falling of the estimated costs in Scotland.

Instead, the Scottish Government and Universities Scotland working group had clear goal to "‘consider the size and nature of any gap in funding between north and south of the border which may be opening up, and comment on the possible effect of some of the funding solutions in this paper in terms of helping to close that gap."

Later Scottish Government reports defined the "funding gap" as the difference in teaching income from the Scottish Government (via the SFC block grant and SAAS tuition fee) relative to tuition fee income available to English institutions.

The resulting report offered a series of agreed-upon proposals for closing the gap and bringing Scottish funding closer to the levels south of the border.

A lot has changed since 2011, however.

Brexit, changes to the English funding model and tuition fees, inflation, and changes in enrolment trends have altered the financial landscape for universities north and south of the border. But one thing that hasn't changed in Scotland is the party in government.

This suggests that not only are English costs similar enough for rough comparison but that the SNP-led Scottish Government has a history of recognising English figures as a starting point for financial discussions in the higher education sector.

According to Claire McPherson, director of Universities Scotland, those discussions can happen again.

Time to pull up a chair?

Ms McPherson said that Universities Scotland has had productive conversations with the Scottish Government and Higher and Further Education Minister Graeme Dey in recent months. One of the most common ways for public and political discussions about funding to break down is over the future of free tuition. 

The SNP government, and almost all other parties, have committed to the ideal of free tuition. Ms McPherson said that her organisation agrees, but that can't be the end of the conversation.

"The sector really thinks that it's very unhelpful to be in a binary 'free vs fee' conversation and that isn't what the sector is discussing. When we talk about levels of funding, we talk very specifically about the trajectory of public funding being unsustainable. 

"That's not saying free tuition is unsustainable. In fact, free tuition is very much sustainable if the trajectory of public funding changes. It is absolutely not a criticism of the model, it is about the level of funding."

Government ministers, including Mr Dey, have been sympathetic to the idea of moving away from the "free vs fee" conversation, Ms McPherson said.

"The conversation that we need to have with the government is about saying, can we agree on a diagnosis of the problem?

"Having done that in 2011 there's no reason why we can't do it again."

The next step is to engage in a much more complicated conversation about the amount of funding required, she said, which will need both sides to have an idea of the costs in question.

"There's a sense of urgency around it. The sector will submit a budget bid to the government shortly and it will set out what we think is a plan for sustainability over this one budget year.

"But part of that will be saying that we need to have a broader and deeper conversation."

Scottish Government remains committed to free tuition

When asked to comment on The Herald's methodology and results and whether the Scottish Government has considered any changes to the level of funding for universities, a Scottish Government spokesperson said:

“Scotland’s universities play a pivotal role in the economy and society. And despite facing the most challenging budget since devolution, the Scottish Government continues to invest over £1 billion in teaching and research, including an increase in research and innovation funding.

“This funding ensures that free tuition is maintained - which has seen the number of Scottish students entering university increase by 27% since its implementation. Additionally there are record numbers of students from the poorest communities now being accepted into universities.

“In Scottish Funding Council’s allocations for this academic year, the funding level for the 6 subject price groups has been maintained on previous years, with Scottish universities receiving up to £17,760 for students studying the most expensive subjects.”