We aim to ensure that the transition goes as smoothly as possible

In a year that marks the onset of a significant shift in the balance of funding from direct government grants to tuition fees, the Higher Education Funding Council for England's aim is to help students and institutions steer a steady course through the transition.

As set out in last week's funding announcement, Hefce will allocate £5.3 billion to universities and colleges in 2012-13. Of this, there will be £3.2 billion for learning and teaching (including £2.4 billion for students already in the system, £145 million for students starting courses in high-cost subjects in 2012-13 and £383 million for widening participation and retention). Our research funding will support universities to the tune of £1.6 billion and there is £150 million for knowledge exchange, both maintained in cash terms.

The headline figure for Hefce capital funding has reduced markedly, but there is money to support Jisc, high-performance computing and environmental sustainability. There is more flexibility on research capital, augmented by an additional £100 million announced in the Budget. We should also remind ourselves of the benefits the sector has reaped from a decade of investment in campuses and new research platforms.

Increasingly, Hefce will invest on behalf of students to meet the costs incurred by universities that cannot be covered by fees alone: support for widening participation, high-cost subjects, specialist institutions, and strategically important and vulnerable subjects.

Hefce funding is only one of a number of moving parts: others include the prospect of reductions in teacher training and NHS funding; another is fluctuating student demand, at home and overseas. There is concern about the effect of higher undergraduate fees on the postgraduate economy. This is why Hefce is increasing support for postgraduates in 2012-13 with an extra £39 million for taught programmes and a boost to research degree supervision from £205 million to £240 million. We are also committed to working with the coalition to find long-term solutions.

Another key variable is the government's introduction of increased dynamism in student numbers. It remains to be seen how AAB+ and "core and margin" will affect student and institutional behaviour. We will track this carefully. In circumstances where the imperative to control student support costs and the quest for student choice has resulted in a new approach, Hefce has tried to be fair and consistent to all. We have also retained a 20 per cent minimum-threshold control to ensure that institutions with a high proportion of AAB+ students are able to meet their fair-access commitments.

For all these reasons and more, higher education faces uncertainties, but it would be a mistake to hark back to a golden age of stability. I often dwelt on issues like these, although in a different context, when I was a vice-chancellor. My impression today is that the sector is simply getting on with the job. There is strong evidence that the majority of universities and colleges are well prepared for the introduction of the new funding arrangements. Higher education in England is in good financial shape, and I am optimistic about its ability to adapt, change and improve.

This is not to underestimate the extent or significance of the change that is taking place in higher education funding. The move to increased tuition fees for undergraduates signals a fundamental shift in the balance of public and private contributions, although most students will be supported by publicly funded loans repaid over time on an income-contingent basis. As things stand, the overall level of state support for the sector over the next few years is likely to increase.

The challenge for us all is to maintain a sensible balance of public and private funding into the future. The shift in government policy to a greater emphasis on the benefits of higher education to the individual makes it more, not less, pressing to make a convincing case for the public value of higher education. As the next Comprehensive Spending Review approaches, we need to find a way of doing this that makes sense to the government and the public.

In so doing, we will need to square a circle of sorts between legitimate demands for accountability for public funding and the preservation of institutional autonomy, which must remain the cornerstone of higher education success. We should also continue to encourage what Alison Richard, former vice-chancellor of the University of Cambridge, called "deliberate diversity": recognising the strengths of higher and further education while addressing the talents and ambitions of all students and protecting fundamental research.

Hefce funding is a means to an end. We remain committed to promoting the pursuit of knowledge while supporting successive generations of students, the wider academic community and the positive contribution of higher education to the economy and society.