Governance News Alert: Department for Education: Guidance to the Office for Students (OfS) from the Secretary of State for Education

Department for Education: Guidance to the Office for Students (OfS) from the Secretary of State for Education on Strategic Priorities Grant funding and capital funding for the 2025-26 Financial Year and associated terms and conditions.

The two letters to the regulator from Education Secretary Bridget Phillipson set out, for the first time in her tenure, the government’s budget and funding priorities for higher education. She warns that the allocations were made “against the backdrop of the extremely challenging fiscal context inherited from the previous government” and also alludes to the Spending Review which is expected in June.

The letter on the strategic priorities grant funding can be found at: Guidance to the Office for Students from the Secretary of State for Education on Strategic Priorities Grant funding for the 2025-26 Financial Year and associated terms and conditions

The letter on capital funding can be found at: Guidance to the Office for Students from the Secretary of State for Education on the allocation of Strategic Priorities Grant capital funding for the 2025-26 Financial Year 

At-a-glance:

• The total Strategic Priorities Grant (SPG) for 2025/26 is £1,348 million, down from £1,456 million in 2023/24
• High-cost subject courses in strategically important subjects including nursing, midwifery and allied health, and very high-cost STEM subjects, will be prioritised. High-cost course funding will be “reprioritised” away from other subjects such as media studies, journalism, publishing and information services courses
• The overall amount of money provided for student premium (for disadvantaged access and success) will be reduced by disregarding it on courses delivered at franchised providers, except where providers are in the OfS “Approved” category
• The OfS will also “explore options” for removing high-cost subject funding from non-registered franchised providers to “protect the integrity of the HE sector and maximise value”
• The budget allocation of £56.8 million for world leading specialist provider funding will be maintained
• Capital funding of £84 million in total will be made available for the financial years 2025-26. Funding should be allocated to projects that “meet the needs of local employers and regional economies”, as identified in Local Skills Improvement Plans
• The OfS will consider the case to withhold formula-based capital allocations from providers who are successful in receiving capital funding from competitive processes
• Environmental sustainability will continue to be considered within the capital bidding process
• Uni Connect funding will drop by a third to £20 million
• Per-student funding rates for the full-time, part-time, disabled premium and mental health Student Premiums will be maintained at their current level unless not possible due to fluctuation in student numbers
• Funding will be stopped for the additional targeted allocations for accelerated full-time undergraduate courses; Intensive postgraduate courses; Postgraduate taught supplement; Overseas study programmes; the degree apprenticeship development fund; and level 4 and 5 skills top up funding
• From the academic year 2026-27, the SPG will be reformed so high-cost funding “can be more effectively targeted towards priority provision which supports future skills needs and the Industrial Strategy”

Implications for governance:

At a time when finances are already strained for some universities, news of a £108 million fall in the teaching grant will inevitably add to the pressure faced by institutions and will no doubt be of great concern to senior managers and governors.

Universities UK (UUK) has said that on top of the fall in international student recruitment, and the hike in national insurance and pension contributions, the drop in the funding allocations will “make an already difficult situation worse”.

For individual institutions, the shifting of funds away from media studies, journalism, publishing and information services towards health care and STEM subjects could have significant consequences for the provision of courses in these areas. 

Governors will also want to note the action taken on removing student premium from students at unregistered franchise provision. Similarly, the OfS is looking into whether the grant for high-cost teaching should also be disapplied from unregistered franchise arrangements.

On Capital Funding, the Education Secretary has told the OfS she would like it to continue allocating the majority of funds to providers through a competitive process to support specific projects and activities that “will help address the government’s missions and priority sectors for growth”. She also wants it to support projects that meet the needs of local employers and regional economies, as identified in Local Skills Improvement Plans (LSIPs), and that align with Skills England priorities.

This is an area that may warrant particular attention from governors given that, according to the Association of University Directors of Estates (AUDE), capital estates programmes have failed to rebound following the pandemic, with total capital expenditure sitting at £2.5 billion for the second year in a row in 2024, £1bn below the pre-Covid peak.

Uni Connect funding has dropped from £30 million in 2023/24 to £20 million. The SPG letter mentions “clear demonstration of impact of interventions”, echoing one of the points raised in the OfS-commission review of the programme published last year. Boards will want to be assured that evidence of impact is a key consideration in the Access and Participation plans that they have responsibility for signing off. 

Looking further ahead, the education secretary says that the SPG will be “reviewed and reformed” so high-cost funding “can be more effectively targeted towards priority provision which supports future skills needs and the Industrial Strategy” (elsewhere the letter highlights the expansion of degree apprenticeships and the wish to see more providers offer the pathway).

On student access and success, the reform of the SPG will be aimed at targeting funding more effectively towards students from disadvantaged and underrepresented groups. The review will also look at the impact and effectiveness of the SPG more broadly to ensure it can “demonstrate through improved and proportionate evaluation” that it is aligned with wider regulatory requirements and value for money guidance.

Governing and leading transformation – co-creating a different future 25 June 2025

Find out more about our services for Governance professionals

Good governance is critical to success in higher education. We produce and share a wide range of guidance, research, news, toolkits, training, governance effectiveness reviews and tailored consultancy to help institutions thrive through robust, effective governance.