Welsh universities and colleges have been asked whether they would like recurrent and capital funding to be merged.

A consultation paper issued this week by the Higher Education Funding Council for Wales sets out options for a new approach to financing spending on buildings and equipment, including a possible move to a "single, undifferentiated stream of funding".

The funding council wants institutions to consider a possible single methodology for making allocations, in the light of indications from John Redwood, Secretary of State for Wales, that he "would be ready to consider whether earmarking for capital expenditure is needed at all in future years".

His comments were made in a letter following the public expenditure settlement in December last year. The letter signalled changes in the way capital funding was to be distributed and the way it could be spent.

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Under the new system, the funding council would receive a composite grant for capital and recurrent spending, and would be expected to distribute capital funding by formula.

Institutions could use capital allocations to service and repay loans for new capital projects and meet the costs of leasing.

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The changes are designed to give institutions more flexible spending powers to clear a growing backlog of repairs and maintenance to buildings. But the funding council needs to decide how the new system should operate, including whether there should be earmarking or targets for capital spending, and what kind of funding formula should be used.

Even if HEFCW decides to merge the recurrent and capital funding streams, it could still retain the right to earmark funds for particular purposes such as equipment.

Alternatively, it could set targets for spending on particular elements of capital funding, which would allow institutions to move funds around more freely within their budgets.

Institutions have been asked to comment by the end of July.

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