Written evidence from GuildHE (WOS0035)
About GuildHE
GuildHE is an officially recognised representative body for UK Higher Education, championing distinction and diversity in the sector. Our 60 members include universities, university colleges, further education colleges and specialist institutions, representing over 150,000 students. Member institutions include some major providers in professional subject areas including art, design and media, music and the performing arts; agriculture and food; education; business and law, theology, the built environment; health and sports.
Executive Summary
GuildHE has been putting together a series of briefings which capture our thoughts on what a good regulatory system would look and feel like. You can find our briefings and blogs here.
We want to maintain a world leading HE system, that is independently regulated, maintains the principles of academic freedom and supports providers to comply. We think this is achievable with some tweaks to the OfS approach. We believe that there are four key ways in which the OfS can become the world-class regulator expected by a world-class sector.
The general duties of the OfS set out in S2 HERA 2017 are clear and appropriate and we feel the OfS has carried out all of the general duties. Many but not all have been carried out successfully but we do not think the OfS has sufficiently prioritised a number of areas including the balance between the need to protect institutional autonomy and to have regard to guidance from Ministers, the need to use OfS resources in an efficient, effective and economic way and the principles of best regulatory practice.
The OfS’ regulatory activities are not always proportionate and sufficiently risk-based. GuildHE institutions tend to be smaller with fewer resources. Demonstrating regulatory compliance where the expectations of the regulator are the same whatever the size of the provider means that the proportionate costs of regulation are much higher in smaller providers.
We do not think the OfS has always struck the right balance between the need to protect institutional autonomy and to have regard to guidance from the Secretary of State. Some recent Ministers have been interventionist, seeking to require particular actions from the OfS. In response, the OfS has at times moved away from being a principles and risk based regulator to a prescriptive one, risking regulatory independence.
The OfS has made several amendments to the regulatory framework over time often with very short timeframes to respond to consultations. Respondents’ concerns and practical views are frequently ignored. We are concerned that, in general, the OfS has added regulatory conditions rather than reduced them. And that, while asserting itself as a “principles based” regulator, the OfS has imposed or is consulting on imposing specific requirements on providers, which add burden and cost and/or restrict institutional autonomy (such as requiring all student assessments to be kept on file for a period of 5 years).
The OfS has a larger administrative cost budget than its predecessor and is, we understand, seeking an above inflation increase in registration fees. We are concerned resources are not being used efficiently. Our members consistently raise issues with a lack of communication and timely action by the OfS. We have many examples of the direct impact of OfS activity (including outcomes of consultations) being delayed which has affected our members’ businesses. Furthermore, we have several members who have joined the OfS register more recently who found the process complex and slow and often held up by administrative delays which had a negative impact on their business. There is currently no mechanism for those that fund the OfS to hold them to account.
The OfS value for money strategy does not sufficiently cover the wider - non-economic – benefits of studying that students (and the taxpayer) value and more should be done to understand and capture this.
The OfS is not the only HE sector regulator. Providers are also regulated by many different organisations including Professional, Statutory and Regulatory Bodies and Ofsted, ESFA/IfATE for technical and professional qualifications and degree apprenticeships. Our members routinely raise the complexity and regulatory duplication that results from the various regulators not working collaboratively. The Regulators Code outlines the principle that “Regulators should collectively follow the principle of 'collect once, use many times''. This is not happening.
In relation to the Designated Quality Body, we have a number of concerns about the OfS carrying out this role longer term. Specifically, we are clear that academic standards can only be assessed by academic experts and are concerned it would negatively affect UK wide coherence, put us out of line with International Standards and remove an independent body from discussions on academic standards and quality - something that was a priority for Parliament during the passage of HERA 2017. We are also concerned that OfS has removed students as full panel members from reviews without consultation or rationale which we think is not in the best interests of students or quality assurance.
Government policy and funding remains the key uncertainty for the stability of HE institutions as it can change rapidly and have a significant impact on institutions’ financial sustainability. The processes by which the OfS monitors financial sustainability are evolving, but there are a number of practical impacts of OfS regulation which feed through into the direct costs of compliance by imposing disproportionate burden and impact indirectly through overly-legalistic threats of enforcement acting as a brake on innovation. The sector has been dealing with the rise in energy costs, inflation, staff salary pressures and pension challenges, all without an increase in the headline tuition fee for 10 years. Institutions are working to diversify income streams but for smaller providers whose margins are tighter and for the many smaller providers with limited access to capital grants including Research Partnership Investment Fund (RPIF) and the Higher Education Innovation Fund (HEIF), there is less money to invest and diversify. This is why funding streams such as the Specialist Institution Funding and the Research England KE funding for smaller providers not in receipt of HEIF are so important.
Overall, we think OfS’ approach to regulation should evolve towards one that encourages compliance rather than focuses on enforcement, builds back trust between the regulator and providers and, critically, seeks to reduce the costs and burdens of regulation.
Consultation Questions
The general duties of the OfS set out in S2 HERA 2017 are clear and appropriate. The OfS has carried out all of the general duties. Many but not all have been carried out successfully but we do not think the OfS has sufficiently prioritised:
S2 (1) a: the need to protect the institutional autonomy of English higher education providers. We think the balance between this duty and the duty to have regard to guidance from the Secretary of State has favoured the latter. Some recent Ministers have been interventionist and the OfS has at times moved away from being a principles and risk based regulator to a prescriptive one. This can most recently be seen in the B4 regulatory compliance guidance about retention of assessments and English language proficiency and the current consultation on the expectations of how providers will comply with new regulatory requirements on Harassment and Misconduct. Both are overly prescriptive of how the OfS expects providers to meet the condition.
S2 (1) f: the need to use the OfS’ resources in an efficient, effective and economic way. The OfS’ administrative cost budget is larger than its predecessor, HEFCE, and HEFCE was also responsible for activity now carried out by another organisation Research England (with approximately 80 staff). Understandably, the OfS needed a high level of resourcing originally when it was carrying out the significant task of creating the regulatory framework and registering providers. But that work has been done and it should now be possible to generate efficiencies and reduce running costs. Instead, we understand that the OfS is seeking an increase in admin costs of 13%. As these costs are levied on providers we are concerned that neither the OfS nor the DfE has enough incentive to focus on administrative efficiency.
S2 (1) g: the principles of best regulatory practice. We do not think the OfS’ regulatory activities are sufficiently accountable or proportionate. When Ministers proposed that providers should pay the administrative costs of the OfS, they argued that paying for the regulator would give providers an incentive to hold it to account. Providers have the incentive but they have no mechanism for doing so. It is the absence of any clear, external accountability that led GuildHE (having raised our members’ concerns many times with DfE and the OfS) to be a co-signatory of the letter to the Education Select Committee, requesting an inquiry into OfS operations. We think the OfS should be subject to regular external scrutiny, for example by Parliament, as well as through its accountability to Ministers.
The OfS’ regulatory activities are not always proportionate. GuildHE institutions tend to be smaller and have fewer resources. This has significant impacts in demonstrating regulatory compliance where the expectations of the regulator are the same whatever the size of the provider. This means that the proportionate costs of regulation are much higher in smaller providers. It was appropriate for all providers to face the same expectations to get onto the register however at that point regulation should become more risk-based and regulation appropriate to the risk and complexity of the organisation. Smaller providers have less money to invest in large compliance teams, highly specialised staff or the systems necessary to capture and analyse the required data. Providers pay to subscribe to the OfS and their fee structure means that small HEIs pay more per head than a large university. This means that the proportionate cost of regulation per student in smaller providers is significantly higher than in larger providers both in terms of actual financial costs and resources. Some aspects of OfS activity recognise the disproportionate impact on smaller providers - for example, the recent approach taken to modify Access and Participation Plans which takes account of the resources of the institution when developing expectations. We would like to see the OfS replicate this approach across its wider regulatory responsibility.
The OfS is not the only HE sector regulator. Providers are also regulated by many different organisations including Professional, Statutory and Regulatory Bodies and Ofsted, ESFA/IfATE for technical and professional qualifications and degree apprenticeships. Our members routinely raise the regulatory duplication that results from the various regulators not working collaboratively. For example, HE providers often have to return data on the same students to multiple regulators in different formats and to different timescales. The Regulators Code outlines the principle that “Regulators should collectively follow the principle of 'collect once, use many times'' when requesting information from those they regulate'' and that regulators should share information with each other “to help target resources and activities and minimise duplication.” This is not happening. There is a lot of regulatory overlap for the HE sector as the vast majority will be delivering degree-level apprenticeships, sub-degree level programmes as well as student loan eligible qualifications. The current approach is stifling innovation and discouraging HEIs from engaging in the Government’s new skills agenda (such as degree apprenticeships and HTQs).
Overall, we think OfS’ approach to regulation should evolve towards one that encourages compliance rather than focuses on enforcement and seeks to reduce the costs and burdens of regulation. You can read more about our general views on what good regulation looks like here.
The OfS has made several amendments to the regulatory framework over time covering the TEF, quality and standards, approach to data collection and the use of algorithms, student outcomes, student protection, the publication of information and reportable events. We are concerned that, in general, the OfS has added regulatory conditions rather than reduced them.
The regulatory framework says “HERA allows the OfS to decide that one or more of the general ongoing conditions of registration may be disapplied for an individual provider when the provider is first registered or thereafter…The expectation is that ongoing conditions will seldom be disapplied, as they are all closely aligned with protecting students.”
We think that this expectation is contrary to the intent of S7 HERA which requires the OfS to ensure these conditions are proportionate to the risk posed by individual providers and to keep the conditions applied under review. The OfS presumption against disapplying ongoing conditions effectively prevents it from reducing regulatory costs and burden for individual providers presenting lower levels of risk. During the pandemic, the OfS suspended certain regulatory requirements reducing reporting in several areas including reportable events, student protection plans and public interest governance among others. The circumstances of the pandemic were, clearly, exceptional, but we would encourage the OfS to use the learning from that time to look again at the scope for meeting the intent of S7 more fully by reducing conditions for individual providers based on assessed risk.
It is also worth noting that it isn’t just those regulated by the OfS that think its approach hasn’t been sufficiently risk based. The Secretary of State’s guidance letter of February 2021 setting strategic priorities for the OfS said: “In my view, to date, the OfS has not been sufficiently risk-based. A risk-based approach to regulation should consider the overall regulatory burden faced by providers, including data gathering, reporting and monitoring, not just the application of conditions of registration..….I would like the OfS to implement a markedly more risk-based model of regulation, with significant, meaningful and observable reductions in the regulatory burden upon high quality providers within the next 12 months.”
We are also concerned that, while asserting it is a “principle based” regulator, the OfS has imposed or is consulting on imposing specific requirements on providers, which add burden and cost and/or restrict institutional autonomy. For example, under its condition B4 (ensuring qualifications awarded hold their value over time) the OfS expects providers to retain the records of students’ assessed work for 5 years after the completion of the course. This means all providers have to keep millions of records - particularly problematic for creative, performance and practice based courses - just in case the OfS thinks at some point in the future that it needs to look at them. We suggest that a sample basis would be sufficient unless the OfS has concerns about the risk posed by particular providers.
In another example, the current consultation on introducing a new ongoing condition of registration, E6 (harassment and sexual misconduct) proposes a number of requirements on providers. While some are understandable (prohibiting non-disclosure agreements in such cases) others are more problematic. For example, the OfS proposes a requirement for “a provider to have the capacity and resources necessary to comply” with the new condition of registration. While dealing effectively with harassment and sexual misconduct is clearly of great importance, it is problematic to single this out for a number of reasons. Other issues are also important - e.g., student mental health, student poverty in the face of the cost of living crisis - but don’t have this sort of resource guarantee proposed by the regulator. There is no additional funding to support this activity so in singling it out for protection within a provider’s budget, the OfS looks to be seeking to use regulatory powers to shape what should be day to day management decisions. We argue that there should be a principle of one-in, one-out for new conditions of registration so that burden does not just constantly grow. Another approach could be the use of temporary conditions - such as Z3 on admissions during the pandemic. Since discontinued but the practices Z3 sought to eliminate haven’t returned.
Since the introduction of the initial regulatory conditions there have been 33 formal consultations on amending and adding new regulatory requirements. These have often had an incredibly short timeframe to respond to (on average 4 weeks) and are highly technical and long consultation documents. Our members have been especially concerned by the OfS’ management of data and information about HE providers which requires a specialist data scientist to be able to respond and there have been significant delays in receiving the outcome of consultations. One of our members has written a blog on this issue which can be found here.
There have also been areas where the OfS has been slow to finalise approaches, such in the case of creating a process for providers to change registration category, and the current published guidance is still unclear as to what the process is. This has had an impact on providers who wish to change their business model to enable growth and better support students. We are currently awaiting the publication of how the OfS will undertake the former DQB duties, and we have a number of members who are halfway through Degree Awarding Powers applications. We also don’t have a clear understanding of how the OfS will undertake investigations, even though they have announced multiple investigatory activities which affect over 30 providers.
The formal relationship between the OfS and the government is shaped by the relevant sections of HERA 2017, enabling Ministers to give guidance and directions. But notably, some Ministers are much more interventionist than others. In most years since 2018, Ministers have issued 3 or 4 guidance letters to the OfS. In 2021, Ministers issued 10 guidance letters in 11 months.
Some of that guidance is highly prescriptive, requiring specific actions from the OfS. Examples include the outcomes expected by Ministers from the “radical root and branch review” of the National Student Survey, free speech, antisemitism, the removal of funding for London weighting and the reduction in funding for creative and performing arts subjects. In such circumstances we think there is a risk that regulatory independence is compromised. The OfS should also give greater consideration to what “due regard” means in the context of ministerial advice, and as they highlight in their own advice to the sector in relation to free speech having due regard is not the same as a duty to achieve the aims.
It is clearly appropriate for new Ministers to be able to set out their priorities but this should include clear guidance on which of the ministerial guidance from previous letters is no longer relevant. Priorities should be just that, priorities, rather than an ever-growing list.
As outlined in question 3 OfS have significantly larger resources than HEFCE to regulate the sector, however, our members consistently raise issues with a lack of communication and timely action by the OfS. The OfS has around 400 staff compared to TEQSA, the Australian higher education regulator, which has fewer than 50 staff for a similarly complex sector with half the number of providers. The OfS has the resources but needs to get much better at prioritising based on risk, as TEQSA has done.
We have many examples of the direct impact of the OfS activity including outcomes of consultations being delayed which has a substantial impact on our members’ businesses (such as in the case of data futures, DAPs and changing regulatory categories), and communications by providers are not always responded to. We have examples of when the OfS have required a provider to respond within 48 hours, but the provider has not heard anything back for months. The recent APP variation process is another recent example where once a provider had submitted their revisions they did not hear back for many months. There is no published list of staff working in different areas of the business and therefore members find it hard to know who to speak to or build relationships with staff.
Furthermore, we have several members who have joined the OfS register more recently who found the process complex and slow and often held up by administrative delays which had a negative impact on their business or required a very swift turnaround to respond to new information or requirements. For example, a lateness in confirming TEF status and APP requirements impacting on the fees the provider was able to charge.
The OfS brought across many HEFCE staff but since then there has been a lot of turnover of staff, and as a consequence there has been a loss in institutional memory of how HE providers operate. We, therefore, see for some staff a limited understanding of the HE sector which we believe has had a significant impact on the effectiveness of the regulator, and our members consistently raise the lack of understanding of institutional context as a substantial issue, especially for a regulator that purports to be risk-based. An example of this is in the case of a specialist provider recently exiting the market. The OfS were slow to recognise that highly specialist and industry-leading equipment was needed to ensure students who needed to change providers had a comparable experience elsewhere.
The statistical indicators used by OfS are extremely complicated and impossible for many institutions to engage with. It should not be the case that a provider has to wait for the OfS analysis of the data that it supplied to the OfS through the DDB to know how it will be regulated. However, this is not the case in many HEIs, and especially in smaller and specialist institutions where it is more challenging to afford this level of specialist data expertise due to their size and resources. One of our members, an expert in HE data, has written a blog on this issue on our website.
In relation to the activity undertaken by the Designated Quality Body there are a number of key concerns that we have in relation to the OfS undertaking these roles in the longer term:
UK-wide coherence
The English higher education system recruits large numbers of international students and has a wide range of international partnerships. Outside this country there is a view of a UK higher education system rather than an English system. There is also significant student and graduate mobility across the four nations of the UK. It is therefore important that the activities relating to quality and standards are coherent and complementary across the four nations. This was previously supported by the role of the QAA as DQB which works across the four nations and curates UK-wide quality infrastructure. There is a real concern that the OfS has not taken enough consideration of this UK-wide coherence to date and a worry if they undertake the DQB activities in the longer-term that this UK-wide coherence will be lost.
International standards
The reason given by the QAA in demitting its role as DQB was that the current quality and standards system is not compliant with international standards. This is reflected by the European Quality Assurance Register describing the English system as only partially aligned with the European Standards and Guidelines. Given the significant international activities that universities undertake this international reputation has been hard won and should be discarded at our peril. To date, the OfS has shown limited interest in our compliance with these international standards and much more effort should be given to maintain our international reputation if the OfS is to continue to deliver DQB activities in the longer term.
Academic expertise
The distinction between quality and standards is an important one. It is right for the OfS to assess the quality of the student learning experience, and it does so through its ongoing conditions of registration. It is also appropriate for providers to be able to come together to define what they believe high quality education looks like above the baseline and they do this through tools such as the Quality Code. But whether academic standards are being upheld can only be assessed by academic experts against sector-recognised standards. In such a diverse higher education sector, delivering a wonderfully diverse range of subjects there will never be a “national curriculum” in the way that it is understood in the school sector. The autonomy of institutions to develop innovative courses based on their academic expertise is part of what makes the UK higher education outstanding and enshrined in an institution’s degree awarding powers. However, the extent to which these courses are meeting sector-recognised standards can only be assessed by other academic experts.
Independent body
We believe that a body that assesses the quality of, and standards applied to, higher education, independent of the regulator was the intent of Parliament. The need for an independent body to assess quality and standards was stressed by the Lords during the passage of HERA and ultimately resulted in the Government amendment to introduce the DQB function. If the OfS were to take on DQB responsibilities permanently it would lead to a loss of independent oversight of quality assurance in England and go against international standards.
Value for money is a contested term, with different stakeholders having different conceptions of what ‘good value for money' is in practice (especially between the taxpayer and students) and it is therefore important for a regulatory approach to take into account many views of value for money. The inaugural OfS CEO noted there could be tensions in how value is regulated, with the taxpayer having a different conception of value for money than students (Dandridge, 2018). Yet to date, neither HEIs nor students have had a say in shaping the current interpretation of what quality and value for money is.
The OfS value for money strategy and its general duties is a representation of the economic consumer model called the Net Value Equation: Choice - Quality - Cost - Benefits = Value for Money Judgement (Wicklow, 2021). So we would argue that value for money should include clear information for students to be able to choose the right course for them, that it is of high quality and enables them to develop and achieve good outcomes.
The OfS has maintained the DiscoverUni and public information tools to support students making choices about what and where to study. They have also undertaken work on supporting the sector to improve equality and diversity. However, we are concerned that the sheer weight of regulation, lack of transparency and the significant overlap in requirements is stifling innovation and impacting on competition in the sector. We represent several ‘new entrants to the sector who have been frustrated by the OfS’ lack of transparency and communication during the process of registration.
In terms of quality and benefits, this is currently measured through a reductive set of data points to measure the outcomes for students, coupled with data on graduate outcomes just 15 months post-graduation.
Whilst the OfS is working on ensuring choice, quality and economic outcomes for students there is not yet enough understanding of the wider - non-economic - benefits of studying that students value and so more should be done to understand and capture this. Both the Robbins report in the 1960’s and the Dearing report in 1997 noted that regulation should take account of the wider benefits of HE - both in terms of wider personal development outside of securing employment, and for society more broadly. There has been little attempt (nor encouragement from government) to develop such an approach. ‘Public good’ is a crucial part of the value of our sector and we are routinely funded for research, development, skills and place making, yet its impact gets very little attention from regulators or government in the value for money narrative. The previous OfS Chair has also written a lot about the social value of higher education, and whilst difficult to measure there should be more effort made at attempting to do so, we should be measuring what counts, not just counting what we can measure.
The OfS Student Engagement Strategy sets out its approach to include students in some of its decision making. While we welcome all the ways the OfS works with students including its student panel and principles of student engagement, we think overall the current approach falls short of what other regulators in the sector do, what individual HEIs have been championing and fails to meet international quality standards which require student participation. We have written a fuller briefing on the issues here.
The current evidence based on consumer engagement suggests that consumers should not just be seen as the prime beneficiaries of regulation but are also co-producers in business development. For co-production to exist they need to both be consulted with, bring their own views to the table, and help develop solutions. The HE sector has a rich history of promoting student engagement as a partnership approach. Yet it is unclear how the OfS are embodying the principles of student partnership in their work.
Since the OfS has taken over the DQBs powers they have removed students from quality investigation panels. There has been no explanation given to the sector as to why students are no longer involved in DAPs and QSR reviews and this decision contributes to the approach not being in line with international standards in quality assurance. Students of institutions being reviewed have historically always been consulted during quality activities, through a separate student submission and a private meeting with the review team. It is unclear if this is a feature of any of the new OfS investigation processes.
The OfS Student Advisory Panel is a good starting point for including student views in decision making, however from public records of meetings it is unclear how students have been able to shape the agenda of these discussions themselves. The timing of OfS consultations are not conducive to student engagement. For example, the consultation on the NSS happened during student summer holidays.
We welcome student involvement in the TEF processes being enhanced. There was a very positive response in the sector to include a student submission, and students are members of the TEF decision panels.
We believe that genuine student involvement in regulation would include:
The intention of Ministers was for providers to have a mechanism to hold the OfS to account, especially concerning the use of its resources, transparency and burden. However, there is no clear mechanism for institutions on the register, or sector representative bodies to do this and we are concerned that the OfS costs are increasing, with no mechanism for regulated providers to challenge them. Their reported KPMs are also limited in their scope for reflecting on internal performance.
We understand that there is a balance to be struck between an effective, independent regulator, maintaining institutional autonomy and the necessarily collegiate approach to the setting of academic standards. We do not currently feel that the balance is right.
Most elements of co-regulation have been removed (for example the status of the UK quality code and a lack of recognition for PSRBs and Subject Benchmark Statements), and whilst there have been a series of consultations for the sector to engage with, respondent's views and practical concerns have frequently been ignored. Good regulation should draw on the expertise and engagement of HE providers - for example, UUK and GuildHE worked together to address concerns about grade inflation. This resulted in 118 universities in England and Wales publishing degree outcomes statements, new sector-recognised standards for degree classification, and principles for effective degree algorithm design and external examining practices.
Providers receive information requests with very tight deadlines and regulatory burden has dramatically increased costs for providers who often need to buy in specific expertise on particular issues, hire consultants because there is no capacity within the business to constantly engage, and invest in ever changing services due to the transient nature of OfS requirements. Our members have told us that they really struggle to engage in OfS consultations and manage their day to day workload and as such are reliant on us to respond on their behalf.
Overall, we feel there has been an erosion of trust between providers and the regulator. Providers feel unable to ask questions of the regulator because of concerns this will be interpreted as a lack of effective governance and a failure to understand regulatory requirements. We are worried that without a reset in communications and relationships with the sector, a culture will develop that damages OfS’ ability to engage providers in genuine research, development and enhancement activities. For example, the OfS wishes to review the impact of B3 on the sector yet can’t guarantee that it won't use the information collected to launch an investigation into an individual provider. We reiterate, we want to maintain a world leading HE system, that is independently regulated and maintains the principles of academic freedom and collegiality. We think this is achievable with some minor tweaks to the OfS approach.
There are two areas where we feel consultation has worked well. The first is in the case of the development of the APP processes. The APP team have been routinely engaged with HEIs to better understand the practicalities of delivering robust and impactful APP work and have included sector organisation in meaningful discussions of the EORR and new regulatory approach. We feel this has led to policy which is understandable and achievable for all providers in the sector, regardless of their size, missions and resources. The second is in the approach taken by the funding team who has recognised the challenges of small and specialist HEIs and has maintained and developed new funding streams to support the diversity of the sector.
To be financially sustainable all organisations in the sector need to be able to make a reasonable surplus to maintain financial stability, invest in the facilities and weather economic bumps in the road. There are many financial risks within higher education, but these risks are exacerbated by the uncertainty in the policy and funding landscape. Most institutions can plan based on current policy but where things change unexpectedly then it can have a disproportionate impact. Recent examples of this would include increasing energy prices following the Russian Invasion of Ukraine and the knock-on inflationary costs causing a cost of living crisis for students and staff that institutions have sought to mitigate but will have longer-term impacts on salary bills. Other unexpected changes can also include funding changes that happen very quickly such as halving funding for C1.2 band subjects and the removal of London weighting.
Undergraduate tuition fee levels have barely increased since 2012 and the headline fee level of £9,250 is today only worth the equivalent of around £6,200. This long-term erosion of fee income has reached the point where institutions are now needing to make very difficult decisions about what to fund and at what level, as all efficiency measures have now all been done. This means that a number of institutions become ever more reliant on income streams that do still generate a surplus to cross-subsidise other activities, including recruiting international students, and so any changes to national policy in this area could have a significant impact. This is particularly true for institutions that receive the majority of their funding from teaching and don’t have the diversity of income streams of other providers (see the response to the next question). It should also be noted that many smaller providers can have limited access to capital grants and constantly moving goal posts for grants both from the OfS and wider government which is exacerbated by some very challenging timescales for use of the grant. This is why funding streams such as the Specialist Institution Funding are so important.
There are also particular pension challenges for all institutions, but they will be differently able to impact on how the scheme is reformed depending on the pension scheme that they are in. For example, whilst the costs associated with the Universities Superannuation Scheme are well documented many providers use other publicly funded schemes such as LGPS and TPS, both of which have had significant increases in contributions but without the ability to influence proposed changes in the way that they can with USS.
The higher education sector is highly diverse with as many business models as there are providers of higher education. There are however a number of key features across providers. In November 2022 the OfS developed a series of typologies of providers which grouped providers either by their financial attributes or the make-up of the student population. This included specialist providers with more than 75% of FTE students in one subject area or 90% in two subject areas; where public funding (defined as Qualifying Income (QI)) is over £200mn and over 70% of income; where QI is over £200mn but less than 70% of income; where QI is £100-200mn; where QI is less than £100mn or unknown; and finally, where a majority of students are studying at levels 4/5.
In this example, QI would include:
It wouldn’t therefore include:
Almost all institutions will be seeking to diversify their income streams so that they are not overly reliant on any one source of income. The challenge - particularly for smaller institutions - can often be the difficulty in wanting to diversify income streams but often not having the capital to invest to enable these developments to get off the ground. We have therefore welcomed funding from Research England to support institutions below the HEIF (Higher Education Innovation Funding) threshold to be able to access funding for the last two years to help pump-prime their knowledge exchange activities.
The OfS typologies whilst potentially helpful as a broad way of grouping institutions for information purposes are not yet fully refined, with some of our members grouped in interesting ways and so these typologies should not be used for anything other than information purposes.
The OfS approach is still evolving and developing. It appears currently to be based upon checking if numbers add up rather than the underlying assumptions and viability of assumptions. This may be a product of the stage in development of the OfS, the ability to understand the diverse models that providers adopt and thus the necessary breadth of experience of OfS staff reviewing financial projections.
The OfS has a number of tools to assess the financial sustainability of an institution including the annual financial return which includes the audited accounts - incorporating the statement of Going Concern which is an important independent analysis of the providers short-term financial sustainability. The financial return also includes a five-year financial projection which can give an indication of where an institution thinks it is going and its plans for growth around student recruitment, international students and a series of other income streams. This five-year projection can prompt a discussion with the institution if the growth figures do not look sustainable and there is not a clear strategic plan to support this, however, there is clearly a time-lag in the annual data collection exercises, with events likely to move more quickly than the annual cycle may pick up. It is unclear the extent to which the OfS does have these conversations with institutions, but since these should be private conversations they may be happening. There is however a risk that the OfS does not know the range of institutions well enough to understand what the data is telling them. The development of a more engaged review process which is less mechanistic and enables an understanding of the uniqueness of each provider will be more beneficial to all parties.
These financial statements are then supplemented by other intelligence including HESES data returns to give an early indication of whether an institution is hitting its recruitment targets. There are also expectations around Reportable Events if an institution projects that they will dip below 30 days cash in the bank. For the vast majority of providers, these will be an appropriate set of processes to monitor their financial sustainability on an ongoing basis.
The difficulty comes when an institution might deliberately try to cover up when something is going wrong and whether the OfS have adequate processes to identify this in a timely manner. Annual reports, with auditor opinions of Going Concern, are only an annual process and a lot can change in between, particularly with multiple student start dates. The OfS are therefore relying on institutions to use the reportable events process which will work in the case of the vast majority of providers but perhaps not all. This therefore requires there to be a good level of trust between regulated providers and the OfS. Providers need to feel confident that they will be able to make disclosures under the reportable events mechanism and be supported through an open and fair series of discussions. Essentially, the level of risk of reporting something needs to be perceived as less than the risk of trying to get away with something.
The processes of ongoing monitoring, reportable events and opportunities for whistleblowing provide a series of good early warning systems to flag when an institution is getting into difficulties. Where the institution reports this early and has clear plans for how to get out of difficulty, the enhanced monitoring and regular meetings with OfS officials feels appropriate. It can feel a bit strange simply giving the OfS information and not receiving anything in return - and if it is the intention for this to remain the process - then they could helpfully clarify that this is intended to be a one-way process of information for them to gather a rounded picture of the situation and assess ongoing progress rather than being a supportive process to test plans and that the institution shouldn’t expect feedback unless something is going wrong. If there is an intention that the OfS provide feedback, or at least an acknowledgement of information, there should be a clear timeline for which providers can expect this.
As noted above the OfS is relying on institutions to use the reportable events process which will work in the case of the vast majority of providers but perhaps not all. Secondly, it is not clear how the OfS might intervene when an institution doesn’t have robust plans for getting out of difficulty and the extent to which they seek to support the provider to find a solution through robust dialogue or whether they wait until the situation gets worse and then they have to intervene with more drastic measures. The extent to which the OfS will stand back and allow an institution to fail has only been tested a couple of times and it is not clear whether they could have intervened earlier.
The ongoing condition of registration C3, around Student Protection Plans (SPPs), is not fit for purpose. The plans seek to reassure students by providing clear information about the provider’s plans and the risk levels, but the inherent contradiction in the plan is that any changes to the Plan and change to the level of risk of institutional failure, will then become a self-fulfilling prophecy. These SPPs should be amended so that there remains a clear plan for how an institution would support students in the case of course closure, campus closure or market exit but this should not include risk assessments. This information of risk assessments should be a core element in the market exit plans in condition C4, which are confidential documents - although the OfS can choose to publish them in extreme situations. This ability to have a more honest assessment of risk and an open dialogue with the OfS in documents not usually intended for the public domain will ensure that these plans are more realistic of the challenges facing the institution and will enable more robust discussions.
The OfS should have a better way of assessing the interests of students in the case of market exit. For most students, they will be seeking continuation of study in a similar location by a provider with a similar level of expertise - and this should usually be the goal. Some students may prefer to seek financial compensation, but this is likely to be the minority of students and the OfS should develop processes to identify what students do want and in a timely way. There will not be a single approach possible to deal with all market exit, as there are different safeguards for those in validation agreements, or providers with significant capital assets but the OfS should have some core principles for how it will act in the case or market exit and work collaboratively with the appropriate sector bodies to do so.
Institutions as autonomous entities will set their strategies and their own priorities and will be responsible for their sustainability. However, these strategies will always have the possibility of being impacted by external factors whether by responding to opportunities or being impacted by changing policy or regulatory environments.
Government policy and funding remains the key uncertainty as it can change rapidly and have a significant impact on institutions’ ability to meet their strategies and therefore their financial sustainability. In recent years this has included:
Institutions are agile and flexible in responding to government policy but this can change constantly or at such a rapid rate that it can have unexpected impacts, especially given the long planning time required to establish new courses, recruit students or develop research. The key clarity that would support sector financial sustainability would be for major changes to government policy and funding to be set and agreed on a multi-year cycle so that institutions are able to better plan over a longer period than needing to react all the time.
The processes by which the OfS monitors financial sustainability could be said to support providers’ sustainability by introducing practical processes for forward planning and monitoring. There are, however, a number of practical impacts of OfS regulation which can be felt through the direct costs of the burden of regulatory compliance - which seems to be ever-expanding rather than responding to the risk profile of the provider - and indirectly through overly legalistic threats of enforcement acting as a brake on innovation. It should also be noted that the more an institution spends on regulation and compliance the less it will be able to spend on enhancing the student learning experience.
6 April 2023
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