Home > UGC Publications > Press Releases > 2003 > UGC explains funding mechanism to tertiary institutions (26.11.2003)

UGC explains funding mechanism to tertiary institutions

In response to media enquiries, the Secretary-General of the University Grants Committee (UGC), Mr Michael Stone, today (November 26) explained how the funding figures for UGC-funded institutions for 2004-05 in the LegCo Education Paper were arrived at. He emphasized that, taking all matters into consideration, the real level of reduction in grants to the UGC sector was less than 10%.

"The headline reduction in grant to the UGC sector is 13%," Mr Stone said. "But this figure is made up of many factors, some of which involve real cuts and some of which are cost neutral to the institutions."

He explained the situation as follows:

  1. Cost Neutral reductions in grants : - 7.8%

    1. Civil Service pay cut : - 3.8%

      During the 2004-05 academic year (which runs from July 2004 to June 2005), the two civil service pay cuts will come into effect: 3% in January 2004 and 3% in January 2005, thus making about 4.5% overall. But this only applies to that part of expenditure related to salaries and applies to the total funding requirement (as opposed to the grant). Taking account of these factors, the reduction in the grant required for 2004-05 is 3.8%.

    2. Deflation on the 2001-04 triennium : - 2.7%

      There was deflation on the current triennium which we calculate to be 6.7%. In line with the agreed formula, this will be taken account of in the next funding period. Given that non salary expenditure only accounts for part of the institutions' budgets, this represents a 2.7% reduction of the grant for 2004-05.

    3. Change in student mix and numbers : - 1.3%

      There are fewer students requiring funding grants in 2004-05 due to the moving of some sub-degree and taught post-graduate (TPg) places to a self financing basis. There are also changes in the numbers of students studying at different levels. The net effect is a reduced requirement of 1.3%.

  2. Efficiency Savings : - 9.7%

    The grant figures include a 9.7% overall reduction for efficiency savings. This reflects the 10% cut requested by the Administration in March 2003.

  3. Offsetting effects : +4.5%

    1. Other Assumed Income : +3.7%

      The institutions have had to face a considerable reduction in investment income due to falling interest rates since 2000 when the funding assessment for 2003/04 was done. The UGC and the Government have agreed that the loss of this stream of assumed income should be recognized in the 2004-05 funding exercise. As a result, there is an increase of about 3.7%.

    2. Retention of savings from TPg : + 0.8%

      The government has agreed that the UGC sector may retain the savings from TPg places going onto a self financing basis to help institutions with restructuring and meeting the challenges ahead. This equates to $103 million or 0.8% of grant.

      Mr Stone said, "Taking account of all these factors, although the headline reduction is 13%, the real reduction is about 9%."

      "To encourage institutions to diversify their funding base, they will be allowed to retain any income above the assumed level. Depending on the success of institutions in raising 'other assumed income', the real reduction will thus be lower than 9%."

      "We hope this will encourage institutions to find other sources of income, which is a UGC and government objective," he added.

      The Chairman of UGC, Dr Alice Lam, emphasized that all the calculations had been done strictly in accordance with the agreed, same methodology. This applied equally to all the institutions. There had been no favoritism and no "hidden" adjustments.

      Mr Stone said that all institutions were affected slightly differently because of changes in students loads and other factors in accordance with the methodology.

      He said, "While these cuts are significant, I believe that the institutions will be able to cope. All are very responsible bodies and have already been planning how to manage. The UGC will do its part by establishing a loan and restructuring fund with $203 million to help institutions restructure and move forward in the difficult environment."

      "The Government's $1 billion Matching Fund will also be of great help to institutions," he added.

Wednesday, November 26, 2003