Flexible and purposeful

When I joined the Higher Education Funding Council for England in 2006, we received about £6.7 billion. This year, our grant is just shy of £8 billion - a powerful restatement of the Government's commitment to higher education.

This year's funding is a 4 per cent increase on last year, meaning we are able to maintain the unit of resource for teaching and fund the excellence identified by the 2008 research assessment exercise. We can also maintain our capital stream, bring forward extra spending to help mitigate recessionary impacts, and increase the Higher Education Innovation Fund.

The core of our allocation is funding for teaching, which in 2009-10 will reach £4.8 billion. Maintaining the unit of resource is key to quality and affords flexibility for institutions to invest wisely. Beyond that, the sector will continue to grow. Additional fully-funded student numbers have been reduced from 15,000 to 10,000, but that is still growth. Although admissions will be at 2008's record levels, there will be further growth within the contract range next year.

This will allow the development of diversity with excellence, ensuring that in 2009-10, more people than ever will be in higher education. With these resources the sector will be able to refresh its commitment to key disciplines, higher-level skills, widening participation and the student experience.

Many people are focusing on how we will translate the outcomes of the RAE into quality-related allocations. In determining research funding, we were committed to preserving the integrity of the RAE process, reflecting panel judgments and research priorities in the funding distribution. Funding is restricted to research of international quality, and we believe we have developed an appropriate funding curve that differentiates between 2*, 3* and 4*.

There has been much comment on our decision to protect science, technology, engineering and mathematics (STEM) disciplines, most but not all of it positive. What we are doing is protecting the proportion of research funding flowing to such subjects at 2008 levels. Not to have done so would have confounded a central principle of the Government's ten-year framework.

This is not a raid on humanities or the social sciences, although volume increases will reduce funding per full-time researcher. On neither side of dual support has volume been the sole driver of funding, but we have made use of our flexibility margin to soften the effects across a range of subject pots.

We have borne in mind the Secretary of State's advice to reward islands of excellence, while seeking to establish incentives for research collaborations to sustain and connect those islands.

To help universities manage significant variations in funding, we are providing £24 million in moderation to phase in funding changes and a further £12 million of temporary funding to smooth the impact of the RAE on the subject pots. Within the resources available, it is a responsible approach.

The grant tables show significant variations between 2008-09 and 2009-10. Much of this was predictable in the first year of a new RAE cycle, but there are other key drivers. The tables reflect the allocation of additional student numbers, both to institutions and to Lifelong Learning Networks. They also take account of changes in the wake of the Equivalent or Lower-Level Qualification (ELQ) decision.

It is a Hefce cliche to say that our funding arrives in institutions mostly in the form of block grant. Like all cliches, this embodies a deeper reality. The decisions on investing Hefce funding are determined by institutions' management and their governing bodies. Higher education institutions' mission, priorities and opportunities will shape local budgetary decisions and resource allocations. The block grant is the bedrock of institutional autonomy.

Universities have never been asked to do more, and the future is clouded by uncertainty and this budgetary round will be challenging. It would be perilous to operate without the headroom crucial both for investment and as a necessary financial buffer against any chill winds.

It would be foolish to pretend the coming years will be easy, but in a sector underwritten by substantial public investment, we can emerge from the downturn challenged, changed, refreshed and purposeful.