A cheat’s guide to the Scottish Government’s budget and university funding

Susannah Lane, Head of Public Affairs has written a short blog detailing a guide on how universities in Scotland are funded and a breakdown of the Scottish Government budget, ahead of the budget for financial year 2024/25 on 19 December.

Next week the Scottish Government will publish its budget for the financial year 2024/25. By December 19 we’ll be well into the season of good will, but with a shortfall of £1 billion in the Scottish Government’s finances for 2024/25, the budget is not likely to bring good news for very many sectors at all.

Higher education funding arrangements have never been, and never will be, simple. But with public funding in ever-more scarce supply, here’s a simple run through of some of the details in the budget to look out for when it comes to universities:

  • Level 3. Typically, the Scottish Government’s publishes spending plans down to “level 3” in its budget. That gives us sufficient detail to know what the allocation will be for The Scottish Funding Council’s budget for universities, as distinct from colleges. Last year, you could see all this set out for universities in table 7.08 of the budget, which shows HE resource and HE capital budget lines. We’re expecting the same level of detail for 2024/25.
  • HE Resource. Our top priorities are the two core grants; the Teaching Grant and the Research Excellence Grant. There is a plethora of much smaller funding pots for universities too, but added together, T and R account for more than 85% of all university funding from the Scottish Government. The Teaching Grant covers all funded places for Scottish-domiciled students and its name is a bit of a misnomer because it is the public funding intended to cover almost all elements of the student experience, not just teaching. The Teaching Grant sits within the Scottish Government’s “HE Resource” budget line and was worth almost £700 million in 2023/24.
  • HE Capital. Funding for research funding has sat within the “HE Capital” budget line, as of 2020/21, due to an accounting change. That means funding for research is bundled up in the “capital” pot along with funding for university buildings and infrastructure. On face value, at least, it’s not as immediately apparent how that budget line will shake down between research and buildings although funding for research has always been by far the biggest element within that budget line, since it was merged into this stream. Last year, with the SFC’s capital budget seeing a significant cash cut, the Council sought to protect research funding in cash terms and so capital maintenance funding, which a few years ago stood at >£80m, was reduced to £3m.
  • Financial transactions. The other line of funding for universities is “financial transactions” (FTs). Also relatively recent, they are a low-cost loan available to universities to support capital (building) projects, with a focus on carbon reduction. First introduced around 2016/17 the quantum available to universities through FTs has grown as levels of actual public funding for university buildings has been scaled back. There was £26 million of FTs for universities in last year’s budget. Universities have been grateful for a lower-cost way to borrow but that’s the key point – this is not a grant in the same way that everything else in the budget is. It’s a loan and universities pay it back.
  • FY to AY. Key for the university sector is the fact that the Government’s budget is for financial year (FY) starting 6 April, but universities’ financial year, and SFC allocations, start from 1 August. So, there’s an FY to academic year (AY) conversion that needs to happen, led by the Funding Council, over the months that follow. This gives the SFC a challenge as the AY runs a few months beyond the Government’s spending plans for the financial year. To manage this, in the absence of certainty, the SFC assumes the next financial year will bring a cash flat budget. If, when the next financial year comes around, universities have fared worse than cash flat, the scale of that cut is amplified as further savings will have to be made in the current AY.
  • In terms of the university process which follows the parliamentary process, universities typically find out their AY allocation from the Funding Council in indicative allocations, usually published around April, and then have final allocations confirmed in May – a couple of months before the new academic year.

So far, this is all pretty standard. However, there is one new thing to look out for this year which could have a major impact for the settlement that universities receive; what will the baseline level of funding for universities in 2023/24 be?

  • Baselines. The current level of resource funding for universities, as published in the budget document for 2023/24, is £809.2 million. As we’ve moved on a year, that becomes the baseline, against which we can assess whether this year’s funding settlement is a cash or real-terms cut or increase. However, universities have experienced in-year savings throughout this last year. Firstly, in May, the Scottish Government took back £20 million from universities’ resource budget. And then in November, further in-year savings were announced, totalling £102 million from the SFC’s budget (covering universities and colleges).

Going into this next budget, we have no way to know whether the Scottish Government is going to keep the 23/24 baseline level for universities as it was, at £809.2 million – as we hope they do – and allocate resource relative to that. Doing so, would mean that the Scottish Government does not intend for universities to pay long-term for the unanticipated cost pressures in other portfolios which the Scottish Government choose to meet during FY 23/24. If the baseline level for 23/24 is readjusted down, that would compound the cuts universities experienced this last year and set university funding further back.

For capital, as well as last year’s SFC budget of £340.7m, we will also have an eye on how the decision on the FY2024-25 budget compares with that in the Scottish Government’s most recent Capital Spending Review in which the SFC budget for 2024-25 was listed as £359.4m.

The Universities Scotland budget submission has been calibrated to take account of the tough financial climate. We are asking for modest additional resource at levels far below what the sector really needs to be internationally competitive, but we have also proposed a range of cost-neutral measures that would give universities more flexibility to act within their existing budgets (2023/24 baselines).

As ever, there will be lots to look out for on budget day. This year, it’s more likely to be weeks and months later that we get a proper sense of what the published budget really means for universities.