Previous page

Table of Contents

Next page

REPORTS

Second Report of the Council on amendments of Statute G, II (Financial relations between the University and the Colleges: the Colleges Fund)

The COUNCIL beg leave to report to the University as follows:

1. Commencing in the summer of 1997, the Secretary of State for Education and Employment carried out a review of the arrangements for the public funding of the fees charged by Oxford and Cambridge Colleges to Home and EU students. After extensive negotiations, a settlement was announced in December 1998, by which the funding of College fees for undergraduates by Local Education Authorities will cease at the end of the academical year 1998-99; public funding will be reduced in amount over a ten-year period, and will in future be made available through the University, rather than being paid direct to Colleges.

2. As an important element in the settlement mentioned above, it was agreed that steps should be taken to address the particular needs of the poorer Colleges by increasing the resources of the Colleges Fund, from which less well endowed Colleges receive subventions. The arrangements for this Fund are governed by Statute G, II. The Council have received a report from the Fees Sub-Committee of the Bursars' Committee proposing a number of amendments of the Statute, which are designed to increase the amount of money raised each year through the system of College contributions and thus to make more money available to the Colleges Fund. The Sub-Committee's report is reproduced as an Appendix to this Report. The Council agree with the view expressed by the Sub-Committee that the continuing vitality of the collegiate University depends on the endowments of all the Colleges being brought up to an acceptable minimum level, measured in relation to their size.

3. In due course it will be necessary for arrangements to be agreed between the University and the Colleges to deal with the new system of payments. This will be the subject of a further Report to the Regent House in due course.

4. The Council recommend:

That, subject to the approval of Her Majesty in Council, the Statutes of the University be amended as set out below, and that these amendments be submitted under the Common Seal of the University to Her Majesty in Council for approval.

Statute G

Chapter II
FINANCIAL RELATIONS BETWEEN THE UNIVERSITY AND COLLEGES

Section 4.

By amending subsection (vii) so as to read:

By repealing subsection (xiii).

Section 6.

By amending the section so as to read:

6. For the purpose of calculating the contribution of a College, the net assessable income of the College shall be divided into three bands, as follows:

first band: the first £250,000;
second band: the second £250,000;
third band: any amount in excess of the aggregate of the first and second bands;

provided that the amount specified for the first and second bands may be increased from time to time by Grace. The contribution of a College shall be calculated in accordance with the table contained in Part II of Schedule G.

Section 13.

By amending the section so as to read:

13. In any year for which a sum is specified in Part I of Schedule G as the sum to be applied to the general purposes of the University, the total of the gross contributions of the Colleges, up to the sum specified for that year, shall be applied to the general purposes of the University, and any excess over the sum specified shall be paid into a Colleges fund from which grants shall be made from time to time to the Colleges in accordance with Ordinances enacted by the University. In any year for which no sum is specified in Part I of Schedule G, the total of the gross contributions of the Colleges shall be paid into the Colleges fund.

Statute T

TEMPORARY PROVISIONS

By adding the following as Section 53:

53. The amendments of Statute G, II and of Schedule G made by Grace 00 of ………… 19..¹ shall have effect from 1 July 1999, and shall first apply to the calculation of College contributions in respect of the year 1999-2000.

SCHEDULE G
College contributions under Statute G, II

Part I

By amending the detail so as to read:

In the year 1999-2000 and subsequent years no part of the College contributions shall be applied to the general purposes of the University.

Part II

By amending the detail of Part II so as to read:

The contribution of a College under Statute G, II, 6 shall be calculated according to the following table:

Part III

By repealing Part III.

15 March 1999

Appendix

The Colleges Fund

Introduction

1. The Report of the National Inquiry into Higher Education ('the Dearing Report'), published on 23 July 1997, stated that the College fees in Oxford and Cambridge represent a substantial addition to the standard funding for institutions of higher education, and proposed that the Government should review them against two principles set out in Recommendation 74 of the Report. That review took place, resulting in a decision of the Secretary of State for Education and Employment on 17 March 1998 that the future public funding of Oxford and Cambridge College undergraduate fees should be through the Higher Education Funding Council for England, via the respective Universities, and that the additional public funding to the two Universities on that account should be reduced, over a period of years, by about one-third. Discussions with HEFCE ensued, and a settlement was agreed by the Colleges' Committee on 24 October 1998, and subsequently confirmed by the Department for Education and Employment in a press release of 8 December 1998. One component of that settlement was an undertaking by the Colleges to seek to address the needs of the poorer Colleges by increasing, for a ten-year period, the total income of the Colleges Fund to about twice its present level.

2. In preparation for that settlement, the Colleges' Committee, at their meeting on 16 May 1998, asked the Fees Sub-Committee of the Bursars' Committee to prepare a discussion paper for the revision of rates of University contribution by the Colleges, including the possible introduction of a banded system of rates of contribution. That paper was received by the Colleges' Committee at their meeting on 11 July 1998. They asked for further work to be done on the assessment of the needs of the Colleges, and for a definite proposal to be formulated as to future rates of University contribution. A revised paper was submitted to a special meeting of the Colleges' Committee on 26 September 1998, who approved it for circulation. Comments were requested by the end of the Michaelmas Term 1998. The Fees Sub-Committee modified their proposals in the light of the response of the Colleges, and their amended recommendations were approved on 6 February 1999 by the Colleges' Committee, who agreed to ask the Council of the University to submit a Report to the University recommending amendments of Statute G, II to implement the proposed changes.

3. This report of the Fees Sub-Committee summarises their earlier consultation paper, considered by the Colleges, and their report to the Colleges' Committee on the outcome of the consultation. This report is structured as follows:

The report proposes, for the reasons explained below, the replacement of the present rules for treating expenditure on repairs and improvements as deductible items by the allowance of a single per capita sum of £250 for each Fellow and each member of the College in statu pupillari; a substantial increase, to £250,000 each, in the two bands (currently £5,000 each) for the lower rates of University contribution; and an increase to historical levels of the rates of contribution, to taper down again over a ten-year period to approximately current levels.

History of University contribution

4. A detailed history, by Mr J. S. Boys Smith, Master of St John's College, of the development of University contribution from its inception, under the University Statutes of 1882, until 1962 can be found in Reporter, 1961-62, p. 1124. A major change took place in 1966, when the Colleges Fund was constituted in consequence of the Report, dated 31 January 1966, of the Council of the Senate on amendments of the statutory provisions governing the financial relations between the University and the Colleges and on the establishment of a Colleges Fund (Reporter, 1965-66, p. 1049). The fundamental purpose of the 1966 Report was that the aggregate of the contributions of all the Colleges, hitherto applied exclusively to University purposes, should be applied to a diminishing extent to the University over a period of 20 years, and the balance of that aggregate paid into a Colleges Fund from which grants were to be made to Colleges for either recurrent or non-recurrent purposes. Payment for University purposes was to be reduced from the year 1967-68, ceasing entirely for the year 1986-87 and beyond. From 1986-87, the rates of contribution were to become 2%, 5%, and 10% (having originally been at levels of 4%, 11%, and 21%, but with a provision for certain repayments back to the Colleges) for the various bands of net assessable income, namely the first £5,000, the next £5,000, and the excess over £10,000, those bands having been fixed in the University Statutes of 1926.

5. A further substantial change occurred ten years later, on the recommendations of the second Report, dated 12 January 1976, of the Council of the Senate on amendments of the statutory provisions governing the financial relations between the University and the Colleges (Statute G, II) (Reporter, 1975-76, p. 379). The repayments back to the Colleges were steadily reduced from the year 1976-77, being discontinued altogether from 1979-80; the rates of contribution were increased to 4%, 11%, and 21% from 1986-87 onwards; and they were then reduced gradually to the lower rates as follows:

6. Some lesser changes were made to Statute G, II on the recommendation of the Report, dated 20 February 1995, of the Council of the University on amendments of Statute G, II (Financial relations between the University and Colleges: the Colleges Fund) (Reporter, 1994-95, p. 450). The principal alterations were a reduction in the lower rates of contribution to 0% (by then a trivial change in revenue terms); an increase, from £10 to £100 in the per capita deduction allowed under Statute G, II, 4(vii) (College Building Fund - for improvements or extensions to College buildings or grounds); and a right was introduced for Colleges to carry forward any excess of deductible items over gross assessable income by one or two years as a deductible item in those subsequent years.

Repairs and improvements

7. Fundamental changes in the provisions of Statute G, II concerning the treatment of repairs and improvements as deductable items were made on the recommendation of the 1966 Report (see paragraph 4 above). Up to that time the rateable value of each College (the so-called 'net union assessment') was included in the gross assessable income of the College, that sum being paid from the Internal Revenue Account to the External Revenue Account, representing a rent paid by the internal accounts for the use of the College buildings, which belong to the corporate capital of the College. Corresponding to that item of gross assessable income there were various deductable items. Thus half of the rates levied on the College buildings and grounds - as opposed to their rateable value, i.e. the net union assessment - was deductable. (The other half of the rates was paid by Internal Revenue.) Moreover one-third of the net union assessment was deductable as a repair allowance in respect of the College buildings, that sum being transferred from the External Revenue Account to the Endowment Account, against which expenditure on repairs and improvements to College buildings was charged. The Financial Board had authority, under the pre-1966 Statute G, II, 6, to make further allowance to a College for deductability in the event of an exceptionally heavy outlay by that College in repairs expenditure, and from 1950-51 the Financial Board allowed Colleges, as a matter of course, a further one-third of the net union assessment as a deductable item for repairs.

8. The previous system was swept away in 1966. The net union assessment was removed from the gross assessable income of Colleges and as a charge on the Internal Revenue Account. A new item of one-half of the cost of repairs to College buildings was charged to Internal Revenue. The other half was charged, as before, to the Endowment Account. Deductability for half rates was abolished, and the sum of half rates, previously charged to External Revenue, was charged to Endowment - it was henceforth to be paid out of taxed income. (The other half was paid, as before, from Internal Revenue.) A new deductable item was introduced, of a per capita sum of £10 in respect of each Fellow of the College and each member of the College in statu pupillari paid into a College Building Fund for improvements or extensions to the College buildings and grounds. Most significantly, however, all sums spent on repairs and decorations of College buildings became deductable.

9. In practice a number of unsatisfactory features have emerged from the open-endedness of the present rule for the deductibility of repairs expenditure. Problems have arisen, foreseen by the Council of the Senate in 1966, in distinguishing between expenditure on repairs and improvements. Most tax systems relate allowable deductions to items of expenditure out of the income being charged to tax, and that was the case with repairs expenditure before 1966. However the present system permits deductibility in cases where the actual repairs expenditure has been capitalised in the College accounts, and thus bears no relation to the income being taxed. The pre-1966 system provided a limit on the deductability of repairs expenditure which bore some relationship to the extent of a College's buildings, with provision for exceptional levels of repairs to be sanctioned as deductable by the Financial Board. That system provided a much better protection of University contribution than does the present one.

10. With those considerations in mind, and recognising that the emphasis on junior member accommodation which guided the 1966 changes no longer applies with the same force, the Fees Sub-Committee concluded that expenditure on repairs and improvements should be treated alike, and should in future cease to be deductible. The responses of Colleges to the consultation paper drew attention to the needs of the Colleges themselves to devote resources to the repair and improvement of College buildings, and in the light of those comments the Fees Sub-Committee have modified their original proposal. They are satisfied that repairs and improvements should be dealt with on the same basis, and believe that the model of per capita deductibility of the College Building Fund should be followed. They therefore recommend the retention of such a per capita allowance and, recognising that the allowance for repairs expenditure is to be brought within that bound, they recommend an increase in the per capita sum to £250.

The assessment of need

11. The Colleges Fund Committee have developed a model of the minimum endowment needs of a College, based on the nature and size of that College. From time to time all Colleges are invited to submit applications for grants from the Colleges Fund, and the practice of the Colleges Fund Committee has been to determine grants for a period of years based on that information. On the last round of applications, in 1994, the total capital shortfall of all the Colleges, measured according to the model, was a little short of £30m. The Fees Sub-Committee have borrowed from the work of the Colleges Fund Committee in adopting that figure (of £30m) as the target that should be set, to be achieved over a period of years, to bring the endowments of all Colleges to a minimum sound level. They note that the inflationary change that has occurred since 1994 is counter-balanced by the distributions made by the Colleges Fund Committee since that time.

12. The Fees Sub-Committee are aware that to a degree their proposed target is of a rough and ready nature, and may be understated by reason of the facts that their proposals relating to deductibility will bring virtually all Colleges into a charge to University contribution, and that not all Colleges are in an equal position to address the pressures created by a reduction of fee income. On the other hand, the position of the graduate Colleges is more secure than had at one time been feared, as the College graduate fee has been exempted from the reduction in public funding determined by the Secretary of State; and the Colleges Fund will have a continuing income from University contribution beyond the target period for the distribution of £30m.

13. The Fees Sub-Committee's proposal regarding the deductibility of expenditure on repairs and improvements will have the benefit of bringing almost all Colleges into tax. In order that the application of tax should be a progressive one, the Sub-Committee believe that the intention in 1926 to have lower-rate bands of net assessable income was correct. But the extent of the bands (namely the first £5,000 for the lowest rate of contribution, and the next £5,000 for the middle rate) requires modification to be in any sense meaningful today. Having regard to the increase in the level of gross assessable income of Colleges since 1926, the Sub-Committee propose that the two lower bands be set at £250,000.

14. The approach adopted in 1976 (see paragraph 5 above) was to increase contribution rates to a level of 21%, 11%, and 4%, then tapering them down to rates of 10%, 5%, and 2%. That transition was achieved over a fourteen-year period, the highest rates being held for the first eight years and annual reductions of 2% in the highest rate being made thereafter, with a 1% reduction in the final year. The Sub-Committee propose a ten year period of reduction, beginning with new higher rates of 19%, 10%, and 4% for the year 1999-2000, with the highest rate reducing steadily at 1% a year. Based on an examination of the accounts of the Colleges for the years 1991-92 to 1997-98, with adjustment to apply to those figures the amended rules now proposed, the Sub-Committee estimate a total income to the Colleges Fund for the years 1999-2000 to 2008-09 of approximately £29m. Recognising the imprecision which necessarily affects the estimating process, the Sub-Committee consider that to be a satisfactory figure. They propose that a review be made during the course of the academical year 2002-03 and every fifth year thereafter, of the rates of contribution, the lower bands for contribution, and the per capita allowance under Statute G, II, 4(vii), and suggest that a decrease of the per capita allowance might be made on the first review, should that appear to be necessary to achieve the target figure of £30m.

15. A number of Colleges suggested, in responding to the consultation paper, that the principles for determining grants from the Colleges Fund should be reviewed. The Colleges' Committee have agreed to refer those comments to the Colleges Fund Committee and have further agreed to establish a special committee, comprising the Chairman and Secretary of the Colleges' Committee, the Master of Corpus, the Master of Downing, the Master of Emmanuel, the Mistress of Girton, and the Principal of Newnham, with terms of reference to advise the Colleges' Committee about matters which should be drawn to the attention of the Colleges Fund Committee in determining principles of taxation and distribution from the Colleges Fund from 2001. The changes in the rules for University contribution recommended by the Fees Sub-Committee are intended to take effect in respect of the financial year 1999-2000. The first payments of contribution at the higher level proposed will therefore be made at 31 December 2000.

Summary of recommendations

16. The amended recommendations of the Fees Sub-Committee are as follows:

25 February 1999

¹ Here will be inserted the number and the date of the Grace for the approval of the present recommendations.

Previous page

Table of Contents

Next page

Cambridge University Reporter, 17 March 1999
Copyright © 1999 The Chancellor, Masters and Scholars of the University of Cambridge.