The principal sources of income for higher education institutions are:
For many institutions this will be the dominant funding source, but the position varies widely. There are two main funding components – teaching and research, together with various special funding streams, for example in relation to widening access, and the development of ‘third stream’ income.
Tuition fees and teaching contracts make up a growing component of many institutions’ income, and include fees from international students, an area of income that can be volatile.
The main source of research grant income for many institutions is the research councils, but government departments, charities and industry also can be significant.
Other income includes that from student accommodation, conferences and catering, consultancy, donations from alumni and through the exploitation of intellectual property. A small number of institutions also have substantial income from endowments and investments.
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Expenditure patterns of higher education institutions vary less than those for income, with the largest component of expenditure – averaging almost 60% in non-specialist institutions – being staff. For most institutions the second heaviest area in the estate, with other significant expenditure on educational support (libraries, IT and educational technology).
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Institutions may have extensive property holdings which they may wish to improve or develop. In addition to core funding for running costs, the government makes special grants available to higher education through a series of initiatives. Most of these are for capital purposes. In England for 2007/08 HEFCE allocated £449m for special funding and a further £738m for earmarked capital grants. Different arrangements apply in Scotland and Wales. Particularly in England, there has been an increasing tendency for such grants to be allocated on a formula basis, related to an institution's volume and pattern of teaching and research.
Property development or acquisition can be a very significant commitment. If it is not wholly grant funded it must be financed by the generation of surpluses or from borrowing. Careful appraisal and risk analysis should be vital parts of governors’ approval processes.
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