This guide describes the principles that underpin the allocation of funding to institutions of higher education in England by the Higher Education Funding Council for England (HEFCE) and explains the components of an institutions grant. It is intended both for those working in higher education and for those who want to understand funding methods. Formulas are used to determine how most of the money is allocated among institutions. These formulas take into account certain factors for each institution. The allocated funding is provided as a block grant that institutions may spend according to their own priorities within the broad HEFCE guidelines. In the 1996-1997 academic year funding methods were revised and the method used at present was first applied in 1997-1998. Because the HEFCE wants to be open about allocation methods and policies, the document describes the annual funding cycle, funds for teaching, funds for research, and other related funding. An annex gives some examples of funding for teaching. A glossary is also included. (SLD)