Formula funding of UK higher education: rationales, design and probable consequences

The decision to adopt a formula funding model for the UK university sector in 1986-87 has profoundly shaped subsequent developments. This article analyses the fundamental characteristics of such models and considers the rationales which motivate their adoption. Attention then turns to the specific context after the 1981 grant reductions which encouraged resort to formula funding models as a means of rendering defensible reduced allocations and of protecting excellence. The importance of model architecture, the choice between needs- or performance-based funding drivers, and the role of interior cash limits in segmenting the calculation process, are demonstrated. The interactions of the funding formula with both university finances and public expenditure are carefully analysed. The probable consequences for the nature of the university system and for the management of institutions are then explored