Full Economic Costing : Another cut on the way

If you’ve read any of my earlier posts, you’ll know that I’m not a fan of the Full Economic Costing (fEC) funding model that was recently introduced in the UK. In case you don’t know what this is, it is the way in which research is funded in universities. When a researcher wants money to carry out research, they will apply for funding from one of the research councils and the researcher’s university will include all the costs associated with the research. This will include any salaries (or parts of salaries), admin costs, estates and buildings, travel, computing and a sum referred to as “indirect costs”.

The fundamental problem I have with this is that I think it is not straightforward to separate the costs of teaching and research and that they are both an equally important part of an academic’s career. The risk, in my view, is that we will start to value someone’s ability to bring in money more than the quality of their research and teaching. There will be pressure for research to follow the money and also the possibility that teaching will suffer since the direct link between teaching and money is less obvious. This isn’t to suggest that the amount of money that the universities are getting is not appropriate, but simply that we should have a more holistic view of universities and provide the funding in a more general way (i.e., how much does a research university of a certain size need to cover the basic costs of operating).

However, I do think that some universities may have been interpreting the term Full very specifically and have been including anything that they possibly could onto a research grant. Typically a research grant that proposes to employ a junior researcher, buy some computing, pay some travel costs, and pay some of the Principal Investigator’s (PI) salary will be costed at £150000 per year (with the junior researcher’s salary being about £29000 per year). The university gets almost £50000 per year to cover indirect costs and estates and buildings plus another £15000 or so to cover part of the PI’s salary. I don’t want to suggest that a university wastes this money, but I suspect that it is – in general – more than the actual full cost of a typical research project (or at least more than the full cost that could be easily associate with a typical research grant).

I was listening to Radio 4 yesterday evening and they had – amongst others – David Willetts discussing the science budget. He made the point that even though the science budget will effectively see a 10% cut over the next few years due to inflation, he thought that there could be efficiency savings of order 10%. He highlighted, in particular, the possibility (suggested supposedly in a review by Bill Wakeham – a physicist from Southampton) that in fact universities have been including too many things in fEC research grants. Essentially what he seems to be proposing is that research grants are reduced by about 10% and that all of this will come out of the indirect costs. A consequence of this is presumably that the same amount of money will be going into universities, but more of it will be used to cover the direct cost of research and less to cover the indirect. Universities will therefore effectively see a cut in the money that they use to cover infrastructure and other non-direct research expenses.

My personal view is that universities made a mistake in agreeing to the fEC model. My understanding is that there had been a period when universities were supporting research with money that they felt should have been used to support teaching. I believe the initial idea was that some money would be taken away from universities (the portion that supported research) and returned (with some extra added) through research grants from the funding councils. Universities expected to gain money and hence properly cover all the costs of research and teaching. It is quite possible that the reverse will happen. The research councils could agree that the fEC costs are too high and that there should be some kind of cap on the level of non-direct costs on research grants. Universities could therefore end up back where they started with not enough money to cover the indirect costs of their research activities properly. Personally I wish they’d thought more deeply about the consequences of the fEC model and not simply leapt at the possibility of getting more money.

Budget deficit

I listened – last night – to the House of Lords Science and Technology Select Committee session with David Willetts. In general I was impressed, both with those on the committee and with David Willetts himself. Phil Willis (the ex Chairman of the House of Commons Science and Technology Committee) was a member of the committee and he was, as usual, well informed and articulate. He asked a very interesting question about why we are planning to cut research budgets while many other countries (Germany, France, Spain, Japan, China, USA) are ring-fencing or increasing their research budgets. He also pointed out that our total public debt is comparable to or less than that of many of these countries. David Willetts’s response was that the problem is not necessarily the total debt, it’s our current deficit – the amount we need to borrow in order to cover the difference between expenditure and receipts. This is illustrated in the figure below that I have taken from the treasury website. It shows total public sector spending (blue bars) and total public sector spending (yellow bars). The deficit is the difference between these two values.

As can be seen in the above figure, there was actually a surplus in the late 1990s. In about 2001 we started running a budget deficit, but it remained at less than 3% of GDP until 2007-2008 when it suddenly ballooned to about 10% of GDP. This is a big number and does mean that we are borrowing a large amount of money at the moment. This is what confuses me though. If the economy recovers, then the deficit should return to 2007-2008 levels within a couple (maybe a few) years. If we were to do nothing, we would need to borrow a large amount of money and although this may make the city a little nervous, it’s hard to see how the economy itself would suffer. People would remain in employment, education and healthcare would still be well funded, and research budgets would not need to be slashed. What is more, the small print on the above figure says that the public sector spending is the “Total managed expenditure, including the temporary effects of financial interventions.” Maybe I don’t know what this means, but I assume it means that one of the reasons for the large deficit is that we’ve been bailing out the banking sector. If right, we’re facing massive cuts entirely because we’ve had to bail out the banking sectors who already are making profits of billions of pounds a year.

This again seems to indicate that the deficit should reduce, fairly quickly. Again, I understand that our debt will grow if we don’t cut it quickly. Currently we pay 43 billion in interest on our debt. If we increased our debt by one-third, we would be paying about 60 billion a year. It is a lot of money and I’m all in favour of reducing our deficit and, over time, reducing our debt. Given that our deficit is likely to return to pre-financial crisis levels of about 3% of GDP, a reduction of about 9% in public spending (given that public spending makes up about one-third of our economy) could remove the structural deficit and – in the short term – essentially cover the interest payments. What is more, a modest increase in taxation together with a modest reduction in public spending could produce the same result without the carnage that the proposed cuts are likely to produce.

My gut feeling is that this is largely idealogical. It is an opportunity for an essentially conservative government to reduce the size of the public sector. Today’s proposal that students fees could be uncapped and could double in the next year or so, seems to be first step in this direction. Furthermore, it is very difficult to see how removing this amount of money from our economy on such a short timescale won’t do some damage. I accept that not cutting the budget will result in an increase in public debt, but at least we could be reasonably confident that the economy should continue to recover. A goal to cut an amount comparable to the 2007-2008 deficit so that within a few years we’re running a balanced budget and can work towards reducing our debt would seem to be a much more sensible option. It’s quite possible that I misunderstand this competely and I’m pretty sure some people will think this to be the case (probably fairly safe from actually being attacked for this as not many people are reading this). Essentially my view is that we are facing ideologically driven cuts that are justified on the basis of a large deficit resulting from us bailing out the banking sector. If we can convince the right people that cuts of this magnitude are suicide, maybe we can also convince them that cutting the science budget will also do much more damage than good.

UKSA no more?

I was talking with someone a few days ago who suspected (thought?) that one victim of the cuts announced a few days ago would be our new UK Space Agency (UKSA). If you’ve read any of my earlier posts on the UKSA you’ll know that I won’t be too unhappy if it turns out to be true. I have no real issue with the UK trying to coordinate its space activities and trying to grow the space industry, but forming a Space Agency with accompanying rhetoric that makes it sound like it will be comparable to NASA is just ridiculous. While writing this post, however, I happened to come across the following article in the Guardian that seems to contradict the suggestion that UKSA is for the chop. A pity in my view.

What I believe is the case is that the new science minister David Willetts was no great fan of the UKSA and has either changed his mind or been pressurised into supporting the UKSA (or maybe he’s just waiting a little while before wielding the axe). UKSA was the brainchild of the ex-science minister Paul Drayson who, although apparently well meaning, wasn’t really – in my opinion – up to the job of being science minister. It was interesting that the same person who suspected that UKSA may be a victim of the current cuts was very critical of Paul Drayson, something that wasn’t openly said prior to the election when everyone was trying to court Paul Drayson in an attempt to protect the physical sciences from any more budget cuts. I have been fairly critical of Paul Drayson in some earlier posts, but since he is no longer science minister, there’s no real need to spend any more time discussing his merits, or lack thereof. There seems to be a general consensus that David Willetts as science minister is a very positive step. There is a sense that he understands the value of science and, in particular, the value of fundametal science. He also seems very skeptical about the so-called impact agenda, something I’ve been pretty critical of in the past. Although I can’t say that I have high hopes for the future, it doesn’t seem quite as bleak as it could have seemed. Only time will tell.