Written evidence from the office for Students (WOS0001)

Contents

Executive summary

Introduction to the Office for Students

Responses to questions in the Committee’s call for evidence

Executive summary

• The Office for Students is the independent regulator of higher education in England. We regulate higher education providers[1] to protect the interests of students and taxpayers. We currently have 413 universities, colleges and other higher education providers registered with us.
• We are a relatively new regulator (with our key powers in place since August 2019). Following a period of registering providers, assessing their quality and financial sustainability, we are now focused on increased investigatory activity and enforcement. We take a risk-based approach to such regulation – focusing on those providers where we have most concern.
• Our main powers and duties are derived from the Higher Education and Research Act 2017. Our regulatory framework sets out how we will perform our functions and provides guidance for providers on how to meet our regulatory requirements. To register – and stay registered – with the OfS, providers must meet a number of conditions of registration. If we find a provider is in breach of any of these conditions we can impose a range of sanctions.
• We have two key areas of focus: teaching quality and standards, and ensuring equality of opportunity in higher education. These areas are closely connected and mutually reinforcing. They are supported by our work on financial sustainability, student consumer protection, and reducing burden where we judge we can without risking students’ interests.
• Our work on financial sustainability includes monitoring individual providers, gathering intelligence to identify risk, and taking regulatory action to protect students’ interests where providers fall into financial difficulty. We have successfully intervened with providers at significant financial risk, ensuring students are supported to continue their studies.
• As we regulate in the student interest, it is important that students influence our work and decisions. We have a student experience board member and a student panel. Students also play an important role in our work, making up around a third of members of our Teaching Excellence Framework (TEF) panel, for example. We also get the views of over 300,000 students a year on the quality of their course through the National Student Survey.
• Unlike our main predecessor, the Higher Education Funding Council for England, the OfS is a regulator, which is new to the sector. As we move into a more active phase of regulation we are refreshing our approach to engagement and communications with providers. Having sought structured feedback, we are making changes, including more direct senior OfS staff engagement.
• Registering with the OfS gives the sector access to significant funding, including £19.8 billion in student loans, £7.8 billion in international students’ fees and £7.9 billion of research and other public funding each year. We also distribute around £1.5 billion a year for medicine and other higher cost courses and policy priorities.
• As providers receive such significant income from students and taxpayers, it is crucial that they are regulated to ensure high quality, fair access and participation and financial sustainability. Our £30 million annual operating costs are 87 per cent funded through registration fees from providers and amount to an average of £12.82 per student.
  

Introduction to the Office for Students

1. Higher education plays an important role in national life. It transforms lives and brings wider benefits to society. Universities and colleges drive local, regional and national economic growth and social mobility, providing skilled graduates, world-leading research, and an environment in which innovation and invention for public good can flourish. They are centres of vibrant intellectual enquiry, supporting important values including the acquisition of knowledge, creativity and critical thinking.
2. The Office for Students (OfS) is the independent statutory regulator of this important sector in England. It is a non-departmental public body and reports to Parliament through the Department for Education (DfE). It was established through the Higher Education and Research Act 2017 (HERA), which sets out its main powers and duties. We began operating in April 2018 and took on our key regulatory powers in August 2019.
3. The OfS was established in response to changes in the way higher education in England is funded. Our main predecessor body, the Higher Education Funding Council for England (HEFCE), distributed teaching and research grants to universities and colleges. From 2012, with the tripling of annual tuition fees, the majority of funding for teaching shifted to government-backed student loans.
4. The new regulatory system aims to empower student choice and incentivise existing and new providers to focus on students’ needs. Students are now making a considerable financial investment in their studies and our regulation is designed to protect their interests. Students are (in general) inexperienced consumers making important choices about what and where to study with limited personal experience to inform that choice. They need assurance that they will receive high quality courses from financially viable providers. The system also aims to ensure that all who are capable have a fair opportunity to attend higher education, and that wider public purposes such as the free exchange of ideas are served.
5. We seek to regulate proportionately. While there are areas where we can develop our approach, we always seek an appropriate balance between necessary oversight and intervention to serve these wider interests while otherwise leaving the system to respond to the choices of students and providers.
6. Some of the OfS’s powers are similar to those of other statutory regulators. For example, we operate a registration system[2] for eligible higher education providers and we set and enforce regulatory standards through ‘conditions of registration’. Other powers are more particular to the higher education sector: for the providers we regulate, we allocate public grant funding; set expectations for students from underrepresented groups to access and participate in higher education; assess the quality and standards of courses; and authorise providers to award their own degrees or call themselves a ‘university’.
7. As of March 2023, 413 higher education providers are registered with us.[3] The sector we regulate is large and diverse. It includes big multi-faculty universities, small specialist institutions, private companies, and further education colleges offering foundation degrees and vocational courses tailored to specific industries. The student populations in providers also vary widely in terms of their numbers – from less than 200 to over 20,000 – and characteristics.[4] In 2021-22, registered providers were teaching or supervising approximately 2.5 million students.

How providers are funded

8. Students’ financial investment can be seen in the £19.8 billion that flows to the sector each year through student loans for tuition fees, maintenance and other support, and £7.8 billion in course fees from international students entering the UK on a student visa. Universities and colleges need to be registered with us to be able to access this income. Registered providers also receive £7.9 billion of public funding from other public funders and agencies each year.
9. In addition, we distribute funding each year to more than 300 registered providers. Our funding supports areas where teaching costs are particularly high (such as medicine) and particular policy areas and government priorities. For 2022-23 we allocated £1.5 billion of recurrent and capital grant funding.
10. Our regulation therefore provides accountability for significant student and taxpayer funding of higher education.

How the regulatory system is funded

11. Our annual operating costs are approximately £30 million. Most costs – 87 per cent – are funded from an annual statutory registration fee paid by each registered provider. These fees are set by ministers; each provider’s fee is based on its student numbers.[5]
12. OfS registration fees cost the sector £26.2 million in 2021-22. On average, the cost to providers of our regulation in 2021-22 was £12.82 per full-time equivalent student.
13.                       Registered providers are also required to pay fees in respect of the work of the designated data body[6] and designated quality body.[7] These fees are set independently by the designated bodies and in 2021-22 the total amount paid to them by registered providers in England was £12.2 million.
14. We also receive around £4 million a year from the government to perform particular functions or deliver discrete projects such as the TEF and our monitoring of the Prevent duty.

Our regulatory objectives

15. Unlike other regulators, we do not have primary objectives set out in statute. For example, we have no principal statutory objective or duty to protect the interest of students. We have therefore used our regulatory framework to set out policy aims which we consider are consistent with the broad legislative aims of HERA. We aim to ensure that every student, whatever their background, has a fulfilling experience of higher education that enriches their lives and careers.
16. The regulatory framework also contains four primary regulatory objectives and we have regard to these as we shape our wider policy approach. These are that all students, from all backgrounds, and with the ability and desire to undertake higher education:

• Are supported to access, succeed in, and progress from, higher education.
• Receive a high quality academic experience, and their interests are protected while they study or in the event of provider, campus or course closure.
• Are able to progress into employment or further study, and their qualifications hold their value over time.
• Receive value for money.

17. Our organisational strategy draws on these regulatory objectives and sets out our priorities for delivery. Our first strategy focused on getting the OfS up and running, registering existing and new providers, and implementing a new regulatory approach.
18. Our new strategy to 2025 has two main areas of focus. The first is quality and standards –ensuring all students have a high quality academic experience which broadens their knowledge and skills, equips them for future work or further study and leads to positive outcomes. The second is equality of opportunity, ensuring that all students – regardless of their background – can benefit from their higher education. It also encompasses our work to tackle harassment and sexual misconduct and support student mental health and wellbeing. These two areas – quality and equality – are closely connected and mutually reinforcing: we are not satisfied if a student disadvantaged by their background is recruited onto a poor quality course with disappointing outcomes.
19. A third area, enabling regulation, covers our work on financial sustainability, good governance, student consumer protection and reducing unnecessary regulatory burden.
20. Our current strategy also sets out our intention to move into more active regulation, making greater use of our investigatory and enforcement powers where appropriate.
21. In 2022, we published new key performance measures (KPMs) to measure the impact of our regulation and the resulting benefits to students, taxpayers and society. We have also published operational measures on the performance of our core regulatory activity.

Our approach to regulation

22. We regulate by reference to our ‘regulatory baseline’. These regulatory expectations represent the minimum performance to which students and taxpayers are entitled. The baseline is expressed through our conditions of registration[8] and all registered providers are required to satisfy them. The conditions are predominantly principles-based: the higher education sector is complex, and imposing a narrow rules-based approach would risk leading to a compliance culture that stifled diversity and innovation.
23. We take a risk-based approach to regulation. We use data and other regulatory intelligence to identify where further scrutiny of particular areas or providers might be appropriate, targeting our work on those providers posing the most risk to students and taxpayers and minimising burden on those that do not pose a specific regulatory risk.
24. We use indicators to signal issues that may warrant further consideration or investigation.[9] Providers are required to notify the OfS of certain changes or events (‘reportable events’) that would not usually be picked up by data alone. We routinely receive notifications from students, their parents, staff of a provider or other third parties.[10] These can tell us about issues relevant to our regulatory remit and, again, can prompt further action.
25. A risk-based system means that we monitor these sources of information, responding as appropriate, but do not systematically reassess the compliance of each registered provider with each of its conditions of registration on a scheduled cyclical basis. This creates incentives for a provider regularly to assure itself of its own compliance rather than waiting for the OfS to conduct a formal comprehensive review.
26. Where a provider’s performance falls below our regulatory baseline, we can take enforcement action[11] to secure improvement and incentivise future compliance. We use our influence and communication too, including publishing information about performance and regulatory interventions.
27. Above the regulatory baseline, we believe that autonomous providers making their own decisions is the best way to ensure the sector can flourish and innovate. We do not prescribe how universities and colleges should operate beyond our baseline.
28. We do, however, influence and incentivise providers to perform beyond these minimum requirements, for instance through the Teaching Excellence Framework (TEF), and through our regulation of access and participation plans. We recognise that student choice has a significant role in shaping the sector to respond to students’ needs and goals: effective information, advice and guidance play an important role in driving high quality outcomes. We therefore take steps to ensure that students and their advisers have access to relevant and targeted information to inform their choices about whether, what and where to study.[12]
29. We also consider choice and competition when making decisions. For example, when registering providers or authorising degree awarding powers, we seek to increase the choice available for students (balanced against other factors we must consider) – we want to facilitate innovative, high quality entrants to the sector. Where possible we take opportunities to reduce burden and barriers to these providers entering the market. We have registered a number of innovative new providers to support wider choice for students.

Our work to date

Registering providers (2018-2020)

30. Our first two years were largely focused on registering providers. Between April 2018 and October 2019 – our busiest registration period – we registered a total of 387 providers. This was a substantial undertaking, and a significant moment for English higher education: for the first time, higher education providers of all types were being judged as part of a single regulatory system, against the same regulatory requirements.
31. The timetable set for us by government was tight. We were managing the transition from the old to the new legislative framework[13] and the registration process was challenging. Gathering evidence to make a proper assessment – we are not permitted to register a provider unless we are confident our initial conditions of registration are satisfied – was necessarily time-consuming and resource-intensive.
32. Providers were grappling with a new and unfamiliar system, with some finding that easier than others. For example, a significant number of providers had based their financial viability and sustainability on optimistic forecasts of growth in student numbers without convincing evidence.
33. We required some improvements from the majority of providers we registered during this time.[14] Many related to our access and participation expectations, reflecting our level of ambition and challenge in this area. We also sought improved student outcomes from some providers.

Responding to the pandemic (2020-2021)

34. During the pandemic we modified our regulatory requirements, reducing the information providers had to share with us to enable them to focus on responding to the pandemic. We prioritised sector financial sustainability and intervened to protect the interests of students in the admissions process and when their provider faced threats to its continued operation. Working with higher education representative bodies we published briefing notes on support for students, and undertook a major review of digital teaching and learning to learn lessons from the shift to online teaching during the pandemic.

Regulatory reform (2020-2022)

35. We consulted extensively on proposals to strengthen our requirements for quality and standards and on a new approach to our regulation of equality of opportunity. These reforms are described in the sections that follow, which also cover our shift to more active regulation focused on investigation and enforcement.

Our current areas of strategic focus

Quality and standards

36. In 2022, following extensive consultation, we introduced strengthened conditions of registration for quality and standards to allow us to take robust action where courses fall below our expectations. One of these, condition B3, requires each provider to deliver positive outcomes for its students, including in the extent to which students continue on and complete their course, and progress to professional employment or further study. It ensures that students from all backgrounds can achieve positive outcomes and are protected from performance below our minimum expectations, whatever, wherever and however they study.
37. We see regulating outcomes in this way as a consumer protection mechanism for students and assurance for taxpayers who invest substantial sums in higher education. We set numerical thresholds to identify where performance may be below our minimum expectations and use contextual information, including benchmarking and provider submissions, to understand whether an individual provider is delivering positive outcomes in its context. We publish the performance of each provider in relation to these numerical thresholds.
38. We are currently undertaking the first cycle of assessments relating to condition B3. We have selected providers that have continuation, completion or progression rates below our numerical thresholds for first degree or postgraduate masters’ courses across the provider. We may focus on performance below numerical thresholds for one or more subject areas. We select providers based on the number of students affected by performance below our numerical thresholds, the distance from thresholds and the statistical confidence that we have those indicators.
39. Successful outcomes for students are important, but students also expect a high quality experience while they study. We have therefore updated our more qualitative conditions to ensure, for example, that every course is up-to-date, provides educational challenge, and ensures students develop the skills they need for their careers. Providers are required to provide the resources and support that students need to succeed. We also expect assessment to be rigorous, all students to be proficient in the use of the English language, and providers to stop the practices that have led to grade inflation over the past decade.
40. In addition to the assessments of student outcomes referred to above, we are currently investigating compliance with our qualitative conditions, for business and management courses, computing courses, and the credibility of awards granted to students.
41. Beyond the high quality minimum baseline set out in our quality conditions of registration, the Teaching Excellence Framework (TEF) drives improvement for all providers. We conduct the TEF every four years, with submissions made by universities and their students. Judgements are made by a panel of independent academic experts and students. We will announce new TEF outcomes from September 2023, rating each provider as gold, silver, bronze or ‘requires improvement’. We expect to publish the panel's judgements in each case.
42. We have recently published a briefing note explaining our approach to regulating quality.
43. Beyond our regulation of individual cases, we also undertake reviews of academic practice where we work with the sector and seek to support providers in their understanding of how to comply with our requirements. In 2022, amid student and public concern about the quality of online learning during the pandemic, we commissioned an expert academic review of approaches to blended learning in higher education.[15] The review helped improve the sector’s understanding of how blended learning approaches might relate to our conditions. Our response to the review panel’s report sets out how providers should approach blended learning to comply with our requirements.
44. Similarly, our review of spelling, punctuation and grammar in the assessment of students’ work found that some providers’ wish to promote inclusivity was leading them to disregard proficiency in written English. We were clear that students should be able to communicate their ideas effectively, with written work of a high standard.

Equality of opportunity

45. Our ambition is that no student or prospective student is prevented from accessing, succeeding or progressing in higher education by factors beyond their direct control. Students should be empowered to make choices about their lives and learning. They should also be confident that no aspect of their life experience or background will limit those choices or their consequences unfairly. This is what we mean by ‘equality of opportunity’.
46. Higher education providers have a significant role in ensuring equality of opportunity. They should ensure that their own processes, culture and teaching are open, fair and transparent. They should also take all reasonable steps to remove external barriers that can affect who accesses, succeeds and progresses in their provider and in higher education more widely.
47. Our most important regulatory tool for enhancing equality of opportunity, set out in HERA, is the access and participation plan. These plans require each provider that wants to charge fees up to £9,250 a year (and have access for its students to student loans) to set out how it will improve equality of opportunity for disadvantaged students to access, succeed in and progress from higher education. The plans also improve our knowledge of the nature, causes and effective mitigations of risks to equality of opportunity.
48. We have approved 250 access and participation plans, with over £2.5 billion committed by providers from 2020-2025 to addressing equality of opportunity. An independent report on the process concluded that the OfS’s work on access and participation had ‘accelerated momentum’ and provided a framework for ‘a more ambitious and strategic approach’.[16]
49. We also required through this process highly selective providers to deliver against previous commitments to evaluate activity designed to improve access for students and to publish both the reports of that work and the steps that would be taken to improve. These were undelivered commitments from the previous system and demonstrated the impact the new regime could have.[17]
50. We recently consulted on a refreshed approach to equality of opportunity regulation. This proposed approach would include a new equality of opportunity risk register, to be published at the end of March 2023, that captures significant sector-level risks to equality of opportunity. Providers would be expected to consider these risks in their access and participation plans.
51. One such risk is poor prior attainment, which damages students’ chances. We are therefore increasing our focus on what happens at school, encouraging partnerships between schools, colleges, universities and third sector bodies to raise the attainment of all pupils. We look also at what happens on a course and on outcomes after graduation. We are also addressing other risks, including the impact of poor mental health on students and a lack of sufficiently diverse and flexible routes into higher education.
52. We are keen to ensure that the right routes into and through higher education are available for all students, whatever their background or aspirations. We have recently announced £16 million to expand the delivery of other higher education qualifications. This consists of £8 million to support the development of Level 6 degree apprenticeship training programmes, and £8 million to increase the provision of Level 4 and 5 qualifications. We are also working with the Department for Education to support the delivery of the lifelong loan entitlement, which will improve flexibility of funding for students.

Responses to questions in the Committee’s call for evidence

Are the OfS’s statutory duties clear and appropriate? How successful has the OfS been in performing these duties, and have some duties been prioritised over others?

53. As described in paragraph 15, the OfS has no primary objectives or duties set out in statute, as is often the case for other regulators, which means that the way we perform our functions is largely governed by our own policy choices. These are shaped by how we have regard to the different duties explained below. We have used our regulatory framework to set out four primary regulatory objectives and HERA requires us to have regard to these and the wider contents of the regulatory framework as we perform our functions.
54. HERA requires us to have regard to the following general duties as we perform our functions:
• The need to protect the institutional autonomy of English higher education providers.
• The need to promote quality, and greater choice and opportunities for students, in the provision of higher education by English higher education providers.
• The need to encourage competition between English higher education providers in connection with the provision of higher education where that competition is in the interests of students and employers, while also having regard to the benefits for students and employers resulting from collaboration between such providers.
• The need to promote value for money in the provision of higher education by English higher education providers.
• The need to promote equality of opportunity in connection with access to and participation in higher education provided by English higher education providers.
• The need to use the OfS’s resources in an efficient, effective and economic way.
• So far as relevant, the principles of best regulatory practice, including the principles that regulatory activities should be (i) transparent, accountable, proportionate and consistent, and (ii) targeted only at cases in which action is needed.
55. We take all our general duties into account as we make decisions about policy and individual cases, giving greater or lesser weight to them as we consider appropriate for that situation.
56. HERA also requires us to have regard to statutory guidance issued by the Secretary of State and we address this in more detail below. Beyond HERA, we are subject to the public sector equality duty,[18] and are required to have regard to the Regulators’ Code when developing policies and operational procedures. Again, these are obligations to ‘have regard’ to relevant matters rather than to seek to achieve them in practice.
57. HERA also gives us some specific duties, for example: to establish and maintain a register of English higher education providers; assess quality and standards; and to monitor and report on the financial sustainability of providers. The emphasis placed on these different areas has varied depending on the circumstances and our priorities. This was reflected in our early focus on establishing the register of providers, or the particular emphasis we placed on monitoring financial sustainability during the coronavirus pandemic, including the potential risks the pandemic posed to providers’ financial positions.

How closely does the OfS’s regulatory framework adhere to its statutory duties? How has this framework developed over time, and what impacts has this had on higher education providers?

58. As we do not have primary objectives set out in statute, our regulatory framework is designed to addresses each of our specific duties. In developing the framework and our conditions of registration we had regard to our general duties and the other relevant matters described above. The regulatory framework remains largely unchanged since it was introduced in 2018. We continue to operate the approach set out in the framework for registration of new providers, risk-based monitoring of registered providers, and degree awarding powers.
59. We have supplemented the content of the regulatory framework with more detailed guidance – often following public consultation.[19] Our view is that these policy documents represent the implementation stages of a new framework that would be expected during the early years of a new regulator. They do not represent a departure from the approach set out in 2018.
60. Our experience of regulating, including during the pandemic, has prompted us to revisit some of the regulatory standards we had set in conditions of registration, including our significant reforms to the conditions for quality and standards. We have also introduced a new ongoing condition relating to student protection in the event of market exit risk, explained below.
61. We are currently consulting on adding a new ongoing condition of registration to the regulatory framework to require providers to address harassment and sexual misconduct. If we introduce a new condition in this area, it would be an extension of the areas in which we regulate rather than a refinement of the 2018 regulatory framework. Our preferred approach was to encourage self-regulation, supported by funding and a voluntary statement of expectations for providers. We launched this consultation after an independent evaluation found that providers had not made sufficient progress through self-regulation.

What is the nature of the relationship between the OfS and the Government? Does this strike the right balance between providing guidance and maintaining regulatory independence?

62. We need to be aware of the wider policy environment in which we operate, particularly given the sector’s economic, social and cultural importance to the country. However, the OfS is required to exercise its functions independently of government – by virtue of HERA and by public law – and we scrupulously adhere to this obligation. Our experience is that ministers and government officials respect our independence and understand its importance.
63. The OfS’s independence from government has sometimes been questioned by sector commentators. Their critiques do not acknowledge sufficiently the legal framework within which both government and the OfS must operate. HERA provides five mechanisms through which ministers can properly and legitimately exert influence over the OfS’s work:
• Through public appointments: ministers appoint members of the OfS board, including the chair, chief executive and director for fair access and participation.
• Ministers can issue statutory guidance to the OfS about the performance of its functions and the OfS is obliged to ‘have regard’ to this guidance. In practice this means that we consider statutory guidance alongside our general duties and reach our own independent view about the appropriate course of action. We publish this guidance on our website.
• Ministers can issue general directions to the OfS, through regulations, about the performance of its functions, with which it must comply. This has not yet happened in practice.
• Ministers can attach terms and conditions to the public grant funding the OfS allocates to providers, and have done so by requiring the OfS to make cuts to funding in particular ways and in a particular timescale.
• Ministers can require information from the OfS about any of its functions or information obtained in the performance of any of its functions.
64. In practice, we recognise there is a difference between our role in distributing public funding and enforcing our regulatory requirements. With funding, the government has a legitimate interest in ensuring that taxpayers money is spent appropriately. We place significant weight on its guidance. By contrast, for our enforcement activity, we have set up an independent decision-making structure for these significant decisions.[20]
65. Our relationship with government is similar to that in place across other regulators, although the volume and frequency of statutory guidance issued to us may be unusually high.

Does the OfS have sufficient powers, resources and expertise to meet its duties? How will its expertise be affected by the Quality Assurance Agency for Higher Education’s decision not to continue as the OfS’s Designated Quality Body?

Powers

66. Some of the OfS’s powers are similar to those of other statutory regulators: we operate a registration system, set regulatory standards through ‘conditions of registration’, and have enforcement powers – monetary penalties, suspension, deregistration – which can be used where we consider conditions have been breached. We also have express powers to compel the production of information from registered or unregistered providers, and to disclose information, and cooperate with third parties.
67. We do not have powers in other areas – which are available to other regulators – such as compelling redress for students, protection of confidential information received from regulated persons or third parties, or powers to obtain court orders to force compliance with regulatory requirements.
68. We have spent much of the past five years understanding the flexibility and limits of our powers and duties. In general, we consider our powers are appropriate, although using some can be cumbersome and time consuming. Parliament has amended HERA to extend our powers, for example by providing an express power to publish information about providers.

Resources and expertise

69. At March 2023, the OfS employs 431 staff – an increase of 11 per cent from the staff complement that transferred from our predecessor bodies.[21] Our functions are significantly greater and more complex than those of the predecessor bodies, and continue to grow, and our responsibilities extend to a larger group of providers.
70. We do not control the size of our budget (see paragraph 11) as statutory registration fees are set by government. While DfE officials and ministers are supportive of our resourcing challenges, our strategy and annual business plans are always subject to difficult prioritisation decisions.
71. We recognise the resourcing pressures on the providers we regulate and that OfS registration fees represent non-discretionary operating costs. We do, however, consider that the constraints on our resources mean that it has not been possible to progress our work in some important areas as we would have wished, or at the pace we would wish, in the interests of students and taxpayers.
72. We retain and have developed staff with deep expertise of the higher education sector, including colleagues who have worked in senior roles in the sector. At the same time, we have worked hard to build regulatory expertise from scratch. This has meant ensuring we have the legal, accountancy and data expertise we need to be an effective regulator. We have also drawn on the experience of established regulators like Ofsted in developing our approach.

The designated quality body

73. The Quality Assurance Agency for Higher Education (QAA) was designated to perform quality and standards assessment functions for the OfS in 2018. It has recently asked for its designation to be removed. We support this request.
74. It is important that a designated body operates in a way that enables the OfS to regulate effectively. We recently reported concerns about the QAA’s performance as the designated body in the triennial report we are required to make to the Secretary of State. Our concerns related to the quality of the assessment reports produced by the QAA; the appropriateness of its methods for assessing quality and standards; its conflicts of interest; and the value for money of its activities. We took the view that the designation of the QAA is no longer appropriate for securing the effective assessment of quality and standards.
75. The removal of the QAA’s designation means that the relevant statutory functions automatically revert to the OfS. From April 2023 we will take on additional assessment activities: for providers applying for registration, for degree awarding powers, and external quality assurance of end-point assessments for integrated higher and degree apprenticeships.
76. In addition to working with the QAA, we have always assessed quality ourselves, for example relating to student outcomes. More recently, we have expanded our investigatory work into concerns about quality in registered providers (see paragraph 40). The OfS team leading this work has considerable higher education experience and expertise. It includes senior academics and administrators, education practitioners, and people who have worked in HEFCE, the QAA, and other sector bodies. We are confident it is well placed to deliver effective regulation of quality in the interest of students and taxpayers.
77. To support our quality investigations we have also recruited a panel of high calibre independent academic experts. These academics are committed to driving up quality across the sector and include good representation from the highest performing providers. We are currently expanding this panel to provide increased capacity as we take on additional assessment activity from the QAA from April 2023, ensuring we can draw on expert academic judgement in this work.
78. We therefore consider that we have the appropriate experience and expertise to undertake all assessments of quality and standards, including those previously performed by the QAA.

How does the OfS measure value for money for students? How can this be measured in an objective, tangible way that is not based on economic or political judgements about the value of subject areas or types of institution?

79. Students rightly expect value for money in their courses and wider higher education experience. HERA gives us a general duty to have regard to the need to promote value for money in the provision of higher education.
80. Other regulators set or control prices for consumers. We do not set or control the cost of higher education for students. We do, however, seek to understand the extent to which students consider that they receive value for money. Our research indicates mixed views, with similar percentages of students reporting that they had received good or poor value for money.[22]
81. This and other research also tells us that students value high quality teaching, feedback and learning resources, and good graduate outcomes. Our conditions of registration for quality address these, and our recent quality reforms allow us to intervene in individual cases of concern and to create incentives for the sector as a whole.
82. Because of the importance of understanding these aspects of value for money for students, we evaluate our performance through these objective measures which comprise our value for money KPM:

• The percentage of undergraduate students polled on behalf of the OfS who say that university offers good value for money.
• The percentage of undergraduate students responding positively to National Student Survey (NSS) questions about aspects of quality – NSS questions related to assessment and feedback, learning resources and ‘the teaching on my course’.
• The proportion of students at providers with student outcomes indicators – for continuation, completion and progression – above our numerical thresholds.

83. The first measure uses data from our polling that asks students directly about their views on value for money. The second measure also uses student survey data but is targeted on students’ assessment of specific aspects of their experience: teaching quality, assessment, feedback and learning resources. The third measure is based on the same continuation, completion and progression data indicators as those used in our regulation of student outcomes.
84. None of these measures is influenced by political judgements about value for money – they apply in the same way to all subjects and types of provider. The progression indicator includes an element of economic judgement, because graduates progressing to professional or managerial employment are likely to earn higher wages than in other types of employment. However, other non-economic outcomes, such as further study, caring for someone else, or voluntary/unpaid roles (if within a managerial or professional occupation), are counted as positive in that indicator.
85. If our interventions to make progress on quality and student outcomes have the desired effect, then we would expect the second and third measures of value for money under this KPM to improve, which should also be reflected in improvement in the headline polling figure.

How does the OfS engage with students? To what extent does input from students drive the OfS’s view of their interests and its regulatory actions to protect those interests?

86. Our student engagement strategy sets out our approach to involving students in our work. A key priority of our work with students is to empower them to be active participants in the drive for improved quality and outcomes at their provider. We ensure their views play an important role as we develop our policies. To support this, we have a student representative on our board who also chairs our student panel.
87. Our student panel advises our board and informs our policy development and implementation. Panel members include undergraduates, postgraduates, those studying at pre-higher education levels, and those from underrepresented groups in higher education such as care leavers and mature students. Examples of the panel’s work and impact include: highlighting the impact of the pandemic on students; helping to shape our review of the National Student Survey; informing our digital teaching and blended learning reviews, advising on access and participation plans; and informing our work on tackling harassment and sexual misconduct.
88. We engage regularly with student representatives, including the National Union of Students, and host opportunities to hear the views of the wider student population. We run sessions for new student union officers about our role and the wider regulatory landscape.
89. A good example of engagement is the significant role students play in the Teaching Excellence Framework (TEF). They contribute independent evidence for assessment: we received a student submission for 204 out of the 228 providers that are participating in TEF 2023. Current or recent students make up one third of the membership of the TEF panel that is responsible for conducting the assessments and making decisions about TEF outcomes.
90. Students also routinely submit notifications which tell us about concerns or issues they have about registered providers that are relevant to our regulatory remit. We have received over 500 notifications from students since April 2018.
91. We operate the annual National Student Survey (NSS), which gathers the opinions of over 300,000 final year undergraduate students about their course each year across the UK. The survey informs prospective students’ higher education choices; supports universities and colleges to make improvements to their teaching, assessment, and other aspects of the student academic experience; and supports public accountability.
92. We also conduct an annual poll of around 3,000 students which contributes to our key performance indicators and helps inform our policy development. We have run other student polls and focus groups including on the impact of the pandemic, cost of living increases and disability issues to help inform our understanding of student concerns and inform policy development.

What is the nature of the OfS’s relationship with higher education providers? Does the OfS strike the right balance between working collaboratively with universities and providing robust challenge?

93. Our risk-based approach is central to how we interact with providers. Our engagement with an individual provider is intended to allow us to make appropriate regulatory decisions to address risks associated with that provider. This means that our dialogue with providers focuses on specific regulatory issues and on the risks we identify rather than discussing with a provider all the regulatory intelligence we may receive.
94. It is not our role to provide support for improvement activities, or to develop an understanding of the general circumstances and activities of the provider.
95. Where we have regulatory concerns about a provider, we may want to gather more information. The approach we take depends on the circumstances. We may engage with a provider, including to ensure it is aware of issues arising from a reportable event or third-party notification and is taking the necessary steps to address them. We may gather further evidence and information on a voluntary basis, from a provider or elsewhere. We may also compel the production of documents and information.
96. We also support and work with partners to deliver our regulatory objectives. Examples include our topic briefings on effective practice in access and participation; our funding for ‘what works’ resources for supporting student mental health; and our Uni Connect programme, which brings together 29 partnerships of universities, colleges and other local partners to offer activities, advice and information on the benefits and realities of going to university or college. We also engage extensively with individual providers on funding-related issues such as capital funding competitions, specialist provider funding, and medical and dental intake targets.[23]
97. Our approach to engagement necessarily differs from that of our main predecessor, the Higher Education Funding Council for England – a funding body with a mission to support institutions to succeed, rather than a regulator with a focus on the interests of students. We recognise that this shift to a regulated sector was significant for providers and this change in the purpose and nature of engagement to some extent still feels new.
98. We also understand that our recent move to more active regulation and increased investigatory work, particularly in relation to quality and student outcomes, has put more pressure on our relationships with providers. In this context we recognise the importance of good, constructive relationships and effective communications with the sector we regulate.
99. We have therefore recently acknowledged the need to refresh our approach to engagement and communications with providers and to build understanding in how we regulate and why. We informed the Public Accounts Committee in July last year that we planned to commission structured feedback on providers’ views and perspectives. An independent report, published in January 2023, identified areas for improvement on which we are acting, including:

• Longer consultation response periods: More time for responses to our consultations wherever possible, and short executive summaries to make responding easier.
• More direct engagement: Senior OfS leaders already meet regularly with representative bodies. We are developing more regular online interactive sessions for vice-chancellors and other accountable officers, and scheduling visits to providers for senior staff and board members. We are currently meeting groups of university and college finance directors to explore the financial challenges facing different types of providers.
• Updates and contact information: We are planning further improvements to our website and better promotion of existing contact routes so that providers are clear about how to ask questions about our approach to regulation.

100. We know there is still more we can do to improve providers’ understanding of our powers and duties and we see engagement as an important mechanism to explain how we work.

Regulatory burden

101. Our regulation is designed to protect students from poor experiences and outcomes. It also protects taxpayers’ investment in higher education and ensures that the sector itself is successful and respected. We seek to ensure that these benefits of our regulation outweigh the burden we place on providers. Our strategic goal is therefore that we minimise the regulatory burden we place on providers, while being effective in delivering our regulatory objectives.
102. We recognise that registered providers vary in size, complexity and business model and that providers will have a range of arrangements to ensure they meet the ongoing conditions of registration. We do not prescribe these arrangements, other than to be clear that they need to be adequate and effective to comply with our expectations. We encourage providers of all sizes to make best use of their autonomy, for example, in deciding the extent to which a governing body needs to sign off regulatory returns. We are challenging providers to take purposeful steps to dismantle their internal bureaucracy that has grown over time and is not needed to comply with our regulatory requirements.
103. For providers that are further education colleges (FECs), we work closely with the Education and Skills Funding Agency (ESFA) as their principal financial regulator to avoid duplication wherever possible.
104. As described above, our approach to regulation is risk-based. We rely on the data we collect from individual providers, and third parties, to construct indicators showing student outcomes and financial performance. We use these indicators to understand sector-wide patterns and to provide signals of change in an individual provider’s circumstances or performance. Such change may signal that we need to consider whether a provider is at increased risk of a breach of one or more of its ongoing conditions of registration.
105. It would not be possible to generate credible indicators in this way if we did not collect the same set of structured and validated data from all providers. For example, we would not be able to model financial risks, or to impose requirements for student outcomes. This means that access to a wide range of high quality data is essential if we are to continue to operate a risk-based regulatory system. We do, however, continue to invite providers to identify areas where we could reduce the burden of data collection, and we have taken a number of steps to reduce the data and information requirements we place on providers.
106. More generally, we continue to identify areas in which we can reduce regulatory burden. For example, from 1 January 2022 we made changes to our requirements for reportable events to make our requirements less burdensome by introducing an explicit expectation that a provider should exercise judgment about the materiality of an issue in deciding whether or not to report, leading to a 7 per cent reduction in the number submitted.
107. Those providers likely to pose the lowest risks experience less regulatory burden. We reduced the enhanced monitoring requirements across registered providers by 75 per cent between November 2019 and March 2022, removing 376 separate requirements for additional information or reports. More recently, we have removed the requirement for all providers with an access and participation plan to send us a detailed monitoring return in 2022.
108. We welcome feedback from providers on specific examples where they feel the balance between burden and benefit could be improved and aim to support a clearer understanding of our expectations through our refreshed approach to engagement.

What systemic financial risks are present in the higher education sector? Is there the potential for significant provider failures if these risks crystallise, for example through an unexpected reduction in numbers of overseas students or an unexpected increase in pension costs? Are these risks limited to particular groups of providers or are they widespread or systemic in nature?

109. We regularly publish analyses of the financial sustainability of the sector and of different types of providers. We report on the trends in the current and forecast position of providers and on current and likely future challenges facing the sector. The purpose of this is to play back to the sector useful information to support providers’ financial management and planning. It is also valuable information for government and other sector stakeholders, including banks and other lenders. The OfS has a duty under section 68 of HERA to monitor and report on financial sustainability, including patterns and trends.
110. Our most recent report in June 2022, concluded that the sector remains financially resilient overall, despite the combined pressures of the pandemic, rising inflation, and a changing international market, although we warned of the dangers of over-reliance on particular international markets. Strong cash balances, increased but sustainable borrowing (including through government-backed loans), and a less steep fall in income from international students’ fees than anticipated over the pandemic period have combined to leave the sector in a reasonable financial position. This said, considerable future challenges exist which will put pressure on providers’ finances and there is already significant variation in the performance of individual providers. We apply a risk-based approach to monitoring providers’ finances and we continue to monitor the financial performance of a number of individual providers more closely.
111. We are currently analysing the most recent annual financial data submissions from providers. Provisional data shows that, overall, providers outperformed their expectations in 2021-22 through efficiencies and consolidating cash reserves reflecting the need to prepare for future financial risks. Providers forecast less positive financial performance in 2022-23 and beyond.
112. There are a number of continuing and emerging systemic risks facing the sector. Many providers will face, to different degrees, a combination of some or all of the following:

• Rising costs: Providers face higher pay and pension costs, increased energy bills and the wider impact of inflation. To an extent, these affect all providers, though some have significant cash reserves to manage their short to medium term sustainability. However, longer term sustainability in the face of continued high pressure on costs is a concern.
• Real terms decline in UK student income: Aside from a small increase in 2017, undergraduate fees for UK students have been fixed since 2012, a real terms fall of around 28 per cent by 2025 using a GDP deflation measure. This affects the vast majority of providers. Updated inflation figures in the coming months may further deflate the real terms value of statutory fees.
• Reliance on income from overseas students: Reliance on overseas income varies significantly across providers. For some, higher tuition fees from overseas students can support other activities, such as research. These fees have become a significant part of the higher education financial model for some providers in the last decade. With a large proportion of students from countries like China and India, political and geopolitical risks could affect the flow of international students studying in England.
• Ability of the sector to access affordable borrowing: Borrowing is a significant part of the financial model for capital developments and the sector has generally enjoyed good access to borrowing and favourable borrowing costs. Borrowing costs have increased across all sectors, including higher education. For providers with significant assets and reasonable financial performance, borrowing continues to be readily available, but where providers face financial challenges, there will be less scope to access affordable borrowing and this could have consequences for future capital investment and the higher education estate.
• Capital expenditure and the higher education estate: In response to the immediate financial risks posed by the pandemic and by rising inflation, some providers paused or suspended capital development expenditure to protect their cash reserves. Providers need significant investment to develop their estates to keep them fit for the purpose, and to pursue net zero carbon emission targets. This is against a backdrop of rising costs, both operating costs and the increasing costs of construction materials. The scale and age of estates has a significant impact on these pressures and varies significantly across the sector.
• Competitive pressure: Providers that are more selective in their recruitment and able to increase their student numbers may do so at the expense of other providers in the sector.

What business models are present in the UK higher education sector? Are these models resilient to the financial risks of the sector, and are universities focusing sufficiently on having a viable business model?

113. The sector includes a wide range of provider types: research-led institutions; teaching led-institutions; specialist providers (for example, performing arts colleges); providers delivering Level 4/5 qualifications in partnership with other awarding bodies such as Pearson Education. We have seen providers in all of these categories generating significant surpluses or facing financial challenges. It seems that financial challenges are likely to be connected to weaknesses in a provider’s approach to financial management rather than a particular business model, although established providers with a large asset base are often better placed to respond where financial sustainability issues do arise.
114. However, different models can mean providers face different types of financial risk, and we reflect this both in our confidential assessments of individual providers and our published reports. For example, providers with substantial numbers of overseas students (in particular if a high proportion are from one country of origin) may be vulnerable to changing international relationships or immigration rules; and for smaller providers (in particular those with substantial donation income) it can be harder to have certainty in advance over the future financial position of the provider.
115. Recent events including the coronavirus pandemic and changes in pension schemes have put pressure on providers’ business models and it appears that this has prompted providers to place greater focus on these matters. Where we identify a provider as being at financial risk, our engagement and interventions can include pressing the provider to address longer term issues in its business model to reassure us that it is sustainable in the long term rather than just viable in the short term.

How does the OfS oversee the financial sustainability of higher education providers and the higher education sector? Is its approach clear, and is its oversight sufficient to spot potential risks early on and take action accordingly?

116. To register and stay registered with the OfS, each provider must show that it is financially viable and sustainable. Consideration of these issues is a central element of the registration process, and includes judgements about the credibility of a provider’s financial forecasts and ensuring we have legally binding commitments if its financial plans rely on funds from a parent entity. We will refuse to register a provider that does not meet our financial requirements, but can also impose additional requirements where a provider is judged to meet the requirements but to represent increased future risk.
117. We are required by HERA to monitor and report on the financial sustainability of registered higher education providers. Our approach is risk-based and data-driven. This enables us to understand and communicate broad themes in the sector, to identify providers that could be at risk of unplanned market exit and to intervene as appropriate to protect students. Where a provider faces closure or merger, our interventions are designed to protect the ability of students to complete their course with their original provider or in a suitable alternative.
118. Registered providers are required to submit structured information about their financial performance and strength at least once a year, covering the most recent audited year and forecasting ahead for the following five-year period. Each provider also returns qualitative information in the form of a written commentary and reports from its external auditors.
119. We use this, and our understanding of sector trends and risks, to assess the financial viability and sustainability of each provider. We take a risk-based approach, focusing attention on those providers that present most risk. We undertake detailed assessment for providers where indicators suggest that there may be increased financial risk, and on those for which we have existing specific concerns. In our detailed assessment we consider disclosures in a provider’s audited financial statements, the credibility of its financial information and any interdependencies between the provider and other entities.
120. Alongside routine data returns we require providers to report certain matters to us that may indicate financial risk: for example an expectation that liquidity will drop below 30 days or banking covenants will be breached. This ensures we can respond to issues promptly rather than waiting for the annual data return.
121. We tailor our engagement with a provider on the basis of our judgement of risk. For example, we routinely engage informally with a provider’s senior staff – vice-chancellor, finance director and chair of governors – to test our understanding of its financial position, the risks in its operating environment, and the credibility of any steps it is taking to remain sustainable.
122. Where we consider that risk remains high, we use our formal powers. We are likely to require additional and more frequent reporting from a provider on its financial position, and may require it to develop a turnaround plan. We describe below the condition of registration we have introduced to the regulatory framework to impose legally-binding requirements to ensure students could continue on their course if a provider is no longer able to operate.
123. We currently have formal enhanced monitoring requirements in place for eight providers in relation to their financial position. We have imposed formal student protection directions, or otherwise required planning to deliver an orderly exit, six times since we began operating in 2018.
124. We also analyse financial data to understand patterns and trends across the sector and for different groups of providers. This is informed by wider contextual factors, which could affect providers’ financial positions, for example changes in government policy or lending trends. We gain important intelligence through our engagement with providers, banks, other lenders, sector representative bodies and government. Taken together, this gives us a good understanding of system-level financial risks and we model the potential impact of these risks on providers’ future financial performance.
125. We identify providers with the following characteristics for detailed assessment:

• Unreliable forecasting – material differences between the forecast submitted in the previous year and the actual outturn in the current audited year could indicate weak financial management.
• Limited ability to generate cash from operating activities – shortage of cash resources to pay expenses when due. We gather data on liquidity at the year end and at the lowest cash point during the year.
• Reliance on rapid student number growth – where there are doubts that this may not be achievable.
• Start-up providers or providers with small student numbers – these have smaller margins to absorb adverse events.
• Reliance on third party support – where a provider is dependent on a parent company or investor and we want to assess the financial position of the third party.
• Poor working capital – the ability of a provider to pay short-term liabilities (payments within the next 12 months) with its short-term assets (cash and things that can reasonably be converted to cash by the provider within the next 12 months).
• High levels of borrowing – gearing, debt burden and a provider’s capacity to raise additional finance should it need to.
• Reportable events that indicate financial risk – such as a breach of bank covenants or going concern issues.

126. Our experience is that providers at risk of exiting the market in an unmanaged way typically have one or more of the financial characteristics listed above. They may also have some or all of the following features:

• Higher turnover in senior staff.
• Limited capability of senior staff.
• Weaknesses in governance.
• A focus on the provider’s survival rather than the interests of current or potential students.
• Reliance on growth that may not be achievable or that may generate other operating risks, for example to quality.

What is the OfS’s tolerance for the failure of higher education providers, and what processes are in place to manage provider failure? Would the failure of a large provider follow a clear regulatory process or is there the potential for political considerations to play a role in such decisions?

127. Each autonomous provider is responsible for its financial sustainability and the approach it chooses to take to deliver that in practice. It is not the OfS’s role to prevent financial failure in the sector and we accept that some providers will leave the system because of unresolvable financial difficulties. Our role is to minimise the likelihood of an unmanaged and disorderly exit, because this is how we minimise the impact of any provider closure on the interests of students. We have described above our approach to monitoring and responding to financial risk for individual providers.
128. We amended our regulatory framework in 2021 to introduce a new condition of registration – condition C4 – to enable us to impose legally-binding student protection directions on a provider where we consider there to be a material risk of market exit. This power allows us to respond rapidly to issues as they become visible. A student protection direction can require a provider to produce a detailed plan for our approval setting out how it will manage its closure. Our focus is on supporting students so they could continue with their studies if their provider is no longer able to operate, rather than on preventing the provider’s failure.
129. We consider imposing a student protection direction when a provider is unable to demonstrate that it is likely to have access to sufficient funds to meet its day-to-day costs and any other liabilities due within the next 12 months. This includes where we judge that there is material uncertainty about factors such as securing additional borrowing or investment, delivering significant business restructuring or other cost saving measures, or the decision or actions of a third party.
130. In 2022, a registered higher education provider – the Academy of Live and Recorded Arts (ALRA) – closed due to financial difficulties. Working with the DfE, the Student Loans Company, the Office of the Independent Adjudicator for Higher Education and others, we were able to ensure that all students were offered a suitable alternative place and received credit for their studies to date. Our actions in relation to ALRA are publicly visible. We also act in these situations less visibly and, as described above, we have imposed formal student protection directions, or otherwise required planning to deliver an orderly exit, six times since we began operating in 2018.

To what extent is the financial sustainability of providers determined by government policy and funding rather than the OfS’s regulation? Is there a need for policy change or further clarity to ensure the sustainability of the sector?

131. Ministers decide on any changes to the system of fees and funding in place for higher education and other relevant policy matters such as the rules for visas for international students. Our focus is to ensure that providers can offer their students high quality courses and equality of opportunity, with assurance that their studies will not be disrupted by a disorderly market exit. Our work on financial sustainability, as set out above, is designed to ensure we understand and can act on financial risk for individual providers and for the sector more generally. We will continue to gather data and intelligence on these issues, including through discussions with providers and their lenders, and to publish our analysis and judgement of sector-wide patterns and themes.

13 March 2023

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