Private funding increasing in importance to universities as Government funding allocation falls again

It has published a grant letter from the Department for Business, Innovation and Skills (BIS) confirming the funding allocations for 2014/15, and setting out indicative allocations for 2015/16. The body is expected to receive just over £4bn to distribute in 2014/15. The HECFE said that the funding cuts went "beyond those accounted for by the switch to publicly-funded tuition fees".

"At a time of considerable pressure on public finances, the funding settlement for 2014/15 and the indicative allocation for 2015/16 incorporate significant reductions," said HEFCE chair Time Melville-Ross.

"Nevertheless, the Government continues to recognise the key contribution that higher education makes to the economy and society. We will work to implement the settlement in as fair and sensible a way as possible," he said.

The HEFCE receives an annual government grant which it distributes to universities for teaching, research, knowledge exchange and related activities. It has some freedom in how it allocates this funding and intends to publish institutional funding allocations for the next academic year before the end of March.

In a letter setting out total Government funding, Business Secretary Vince Cable and Universities Minister David Willetts said that the HEFCE should preserve funding for the "high-cost" 'STEM' subjects (science, technology, engineering and mathematics) "as far as possible". The body has also been asked to preserve funding for "small and specialist" institutions.

The letter also urges the HEFCE to maintain funding allocated to widening participation, which the body does through its Student Opportunity programme. However, an annex to the letter urges the simplification of funding streams that "seek to deliver a similar objective", by combining this programme with the Access to Learning Fund, as well as reviewing disability funding arrangements. The Government will also invest an additional £50 million, previously allocated to the now-abolished National Scholarship Programme, to help support postgraduate education, according to the note.

According to the letter, the higher education will also be expected to make "greater progress" in delivering efficiency savings, ensuring that students receive "value for the fees they pay". Universities are also warned about "the substantial upward drift" in salaries of senior management, and told to exercise "much greater restraint" when awarding pay increases.

"The Department's request to HEFCE to look at the way disability funding is used and to continue to support improving access to disabled students must be welcomed as is the additional £50m to support postgraduate education," said universities law expert Gayle Ditchburn of Pinsent Masons, the law firm behind Out-Law.com.

"The Government is using the £600m increase in combined funding received by universities since the implementation of higher student fees as a platform to further reduce direct Government funding. This, coupled with the policy changes to the cap on student numbers, will lead to greater disparity between public and private funding for the sector. This will no doubt open up the debate again about whether universities remain contracting authorities for the purposes of EU procurement law," she said.

Under EU law, public bodies are required to observe a number of fundamental principles when awarding contracts. They include non-discrimination, equal treatment and transparency in order to ensure the free movement of goods and services. 'Contracting authorities' include the state, regional and local authorities and 'bodies governed by public law'. The last of these has been interpreted broadly by the Court of Justice of the European Union (CJEU), but generally includes a body established for the specific purpose of meeting needs in the general interest and which is more than 50% financed by another public body or subject to management supervision by that body.

As part of his recent Autumn Statement, the Chancellor of the Exchequer announced a 30,000 increase in the limit on publicly-funded university places before the student numbers cap is removed completely by 2015. Currently, the Government limits the number of student places, funded through the student loans system, for those who did not achieve the grades ABB or above at A level.