Written evidence from University Alliance, UA (WOS0040)

About University Alliance 

University Alliance (UA) unites the UK’s leading professional and technical universities: the places where the knowledge and skills that will power the UK’s future are built. We are always looking for new and exciting ways to teach and research, and working hand in glove with business, industry and public services to keep the UK at the cutting edge. Alliance universities promote the best of British higher education worldwide, with campuses and partnerships across the globe, while remaining rooted in their local communities. The Alliance is committed to driving regional prosperity and social mobility, and our universities have the power to deliver growth across the UK. 

Summary

Alliance universities are deeply committed to providing a high-quality academic experience and excellent outcomes for all students. We strongly believe that there is need for a higher education regulator to protect the interest of students in a highly diverse and growing sector. The current regulator, the Office for Students (OfS) has now been in place for five years. We have several concerns about how it currently operates, outlined below. UA is calling on government and the OfS to make higher education regulation more risk-based, transparent and stable. The OfS should stop continually moving the regulatory goalposts and allow for a prolonged period of stability with regulatory activity clearly and transparently focused on the areas of highest risk.

Q1. Are the OfS’ statutory duties clear and appropriate? How successful has the OfS been in performing these duties, and have some duties been prioritised over others?

1.1                        The Higher Education and Research Act 2017 (HERA) endowed the OfS with broad objectives: to help students access higher education; ensure they have a high-quality experience of higher education; protect their interests while they study; make sure they can progress to employment or further study; and ensure they receive value for money. The OfS’ statutory duties are therefore relatively clear albeit ambitious, but they are also expanding at an unsustainable pace, and we are of the strong view that not all are appropriate.

1.2                        In recent years, the OfS’ remit has expanded to include unexplained grade inflation, harassment and sexual misconduct, mental health and wellbeing, freedom of speech, and diversity of provision.[1] There has also been an extension of OfS regulatory oversight to modular provision, transnational education (TNE), partnership and franchise provision, and non-OfS funded provision such as Initial Teacher Training (ITT) and degree apprenticeships. It is clear from our experience that the OfS does not have expertise in all the fields it regulates due to the extensive range of activities and types of provision it now oversees.

1.3                        During the first few years, the OfS overwhelmingly prioritised registering providers; this was a longer process than initially envisaged. In the last few years, it has spent a great deal of time continually revising its regulatory framework and processes, including the B conditions of registration on quality and standards, the Access and Participation Regime and the Teaching Excellence Framework (TEF).

1.4                        The OfS’ current strategy asserts that the sector is “generally high performing” with “outcomes that are among the best in the world.”[2] Nonetheless, to root out “pockets” of lower quality provision, it has imposed absolute minimum baselines related to continuation, completion, and progression across up to 48 indicators per provider, accompanied by detailed data dashboards. No provider is expected to meet the baselines for every indicator. We posit that this is disproportionate given the scale of the perceived problem. The UK has the highest completion rates for students on bachelor’s degrees among comparable developed countries,[3] and 91.5 per cent of starters in 2019-20 are predicted to get a degree – the highest on record.[4] The 2022 Graduate Outcomes Survey found that most graduates were in employment, unpaid work, or study fifteen months after graduation despite the huge challenges posed by the pandemic.[5]

1.5                        The OfS has recently moved into a phase of “active” regulation, but it has sought to do this before it has had the prerequisite processes and staff in place. For example, it announced “boots on the ground” inspections[6] before publishing the results of the B3 consultation, information about investigation and assessment processes or even hiring inspectors. There remains a significant lack of transparency over the regulatory definitions and processes pertaining to investigations. There is also no clear articulation of the evidence threshold for launching an investigation, or even information about frequency, processes, timescales, and costs of OfS investigations.

1.6                        We share the view of some legal experts that the OfS’ regulatory framework “lacks basic safeguards around transparency, fairness and accountability.”[7]  It is under no obligation to notify or engage with providers if there is a compliance concern. Crucially, a decision to investigate will be based on its own interpretation of the data and intelligence it has gathered. The OfS recently announced it will have a policy of normally publishing the identity of any provider under investigation and of the matters being investigated.[8] However, as the OfS has previously acknowledged,[9] the publication of information about a regulatory decision could have a serious impact on a provider and both direct and indirect impacts on its students, with consequences for the provider’s financial viability and its ability to provide services to students, and the perceived value of students’ degrees.

Q2. How closely does the OfS’ regulatory framework adhere to its statutory duties? How has this framework developed over time, and what impacts has this had on higher education providers?

2.1                        As noted above, the regulatory framework has undergone a great deal of change and expansion during the past five years. It is complicated and lengthy at 222 pages,[10] up from 166 pages in the first version.[11] At times it has felt as though the OfS is revising all its regulatory activity at once. During its five years of operation, it has published 35 consultations, many concurrently. It published 600,000 words in regulatory documents in 2020–21, almost double the word count of 2017–18.[12] Nearly all have resulted in significant regulatory changes. Although it continually professes to be adopting a risk-based and proportionate approach to regulation, this does not reflect the experience of providers, who have found that OfS’ regulatory requirements have taken up “significant administrative resource.”[13]

2.2                        There is also too much scope for duplication of regulation between various regulators and sector bodies such as Ofsted, OIA, QAA and HESA. The relationship between the OfS and other regulatory bodies remains ill defined. UA would like to see more of a co-regulatory approach between OfS and other regulators that is aimed at reducing unnecessary duplication and red tape.

Q3. 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?’

3.1 There is a very widely held belief in the higher education sector, captured in a recent independent report on provider engagement,[14] that the OfS operates too closely to government and is highly reactive to the government agenda, which is seen to conflict with its independent, arm’s-length position. This perception has been shaped by several factors.

3.2 There has been a significant increase in the number of letters of strategic guidance from ministers to the OfS. Between 2018 and 2023, the OfS has received 22 letters from ministers, more than four per year on average. Moreover, the guidance in the letters – which was characterised by the OfS’ former chair and CEO as “over detailed” and “too prescriptive” respectively in their oral evidence to this committee has almost always become OfS policy, notwithstanding one or two exceptions such as the retention of the National Student Survey (NSS).

3.3 The priorities outlined in OfS’ 2022-25 strategy align very closely with those of the current Government – particularly the issues of low-quality courses, grade inflation, free speech, equality of opportunity and levelling up. It has become commonplace for higher education providers to receive a letter from the minister directly followed by a communication from the OfS relating to the same area, e.g., grade inflation or grammatical standards.

3.4 Four of the OfS' senior executives are directly appointed by the Secretary of State. It is impossible not to view the current chair in particular as an explicitly political appointment. Lord Wharton was the previous prime minister’s campaign manager and is a sitting Conservative peer who still takes the whip.  He has no previous higher education or regulatory experience.

Q4. 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’ Designated Quality Body?

4.1 It is not clear whether the OfS has sufficient resources to meet its duties. It frequently fails to meet its own deadlines resulting in what GuildHE has termed an “asymmetrical regulatory relationship” with providers,[15] which suggests it does not. It particularly lacks the expertise to meet its expanding remit around areas such as TNE, sexual harassment and misconduct and free speech.

4.2 We do not believe the OfS has the necessary expertise – and crucially independence – to take on the DQB role on a permanent basis. It took over two decades for the QAA to build a sophisticated, world-renowned quality assurance (QA) infrastructure in partnership with the higher education sector that has global influence and reach. Countries such as Malaysia, the UAE, and Sri Lanka have modelled their own QA systems on the QAA model. The QAA was uniquely well placed to act as the DQB in England, and it will continue to fulfil a similar role in the other nations of the UK.

4.3 We are strongly of the view that the higher education sector needs an independent DQB that is separate and independent from the OfS to maintain high quality and standards and protect the sector’s international reputation. During the passage of HERA, the House of Lords stressed the need for an independent body to assess quality and standards. One of the key reasons cited was to enable judgements to be made about quality without fear of undue influence from individual providers or political interference. This resulted in the introduction of the DQB function via a government amendment at Report stage in the Lords.

4.4 The CEO of the OfS has outlined the mechanisms through which ministers can lawfully exert influence over the OfS[16]; in her view it was designed to be reasonably responsive to the government of the day. As higher education quality increasingly becomes the subject of political scrutiny, the need for an independent DQB is stronger than ever.

4.5 We remain extremely concerned about the divergence of the regulatory approach to quality and standards in England from the rest of the UK, as well as European and international norms. This puts the sector’s global reputation for quality at risk.

4.6 Given the QAA’s wish to demit, we reluctantly concur that the OfS should undertake quality and standards assessments on an interim basis. This is reasonable under the circumstances, as there is no other organisation with the prerequisite expertise that could fulfil the DQB role right now. However, it is vital that these interim arrangements are not made permanent by default, and that there is a robust, independent assessment of their impact that takes in the views of a wide range of stakeholders, including higher education providers.

4.7 We would like to see the OfS and DfE commit to publishing a clear timetable for when and how a review will take place as soon as possible. Following the review, we need a full public consultation on the longer-term arrangements for quality assurance in England.

Q5. 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?

5.1    In 2022, the National Audit Office found that the OfS lacked clear measures for assessing the value for money that students get.[17] Subsequently the OfS published a Key Performance Measurement (KPM) on value for money which uses the National Student Survey (NSS) and student outcomes indicators as proxies.[18] Whilst Alliance universities are justifiably proud of our student outcomes, and do not object to OfS making use of these in principle, the three key indicators of continuation, completion and progression to skilled employment or further study – are too narrow and wholly metrics-based. We do not believe that data alone is ever sufficient to measure higher education quality and value.

5.2    There is a multitude of evidence, including from the OfS, to show that both continuation and completion are closely linked to socioeconomic and family background.[19] Students stop studying for a range of reasons, many of which are wholly unconnected to their experience of higher education. Moreover, many differences in student outcomes cannot be attributed to education. For example, the Institute for Fiscal Studies has found that the earnings of graduates from poorer backgrounds are lower, even conditional on studying the same subject at the same university.[20] It would better reflect the performance of providers if an element of the distance travelled by students were introduced for these indicators.

5.3    We remain concerned that the absolute minimum thresholds recently implemented by the OfS create perverse incentives for providers to reduce risk by moving away from key areas of provision, such as: underrepresented students[21]; flexible provision (which is not well-served by student outcomes data); and diverse and innovative provision (which may lack a clear or well-established progression pathway but is nonetheless vital to the resilience of the UK knowledge economy). Academic standards could also be lowered to meet continuation and completion targets. This gaming of the measures will be exacerbated if they are incorporated into university league tables, which seems likely.

5.4    In other parts of the public sector, a preoccupation with a narrow set of nationally defined targets has led to huge failings, demonstrated notably by the Mid Staffordshire hospital scandal.[22] There is evidence that the use of data as an accountability tool in education in both the US and UK has encouraged leaders to ‘game’ the system and focus on a small handful of issues rather than broader priorities.[23] In recent years, management experts have recommended a reorientation away from targets.[24]

5.5    UA and much of the rest of the higher education sector have been calling on the OfS to benchmark the thresholds to mitigate the potential for unintended consequences. However, given that this recommendation has been firmly rejected, we are recommending that the OfS monitors and regularly reviews the impact of the policy.

5.6    We would also like to see the OfS make better use of other important indicators of quality and value such as student engagement, satisfaction, and wellbeing. The recent removal of the summative question on course satisfaction on the NSS – which was opposed by 90 per cent of consultation respondents[25]  – is another step in the wrong direction.

Q6. How does the OfS engage with students? To what extent does input from students drive the OfS’ view of their interests and its regulatory actions to protect those interests?

6.1                   The Regulators’ Code requires regulation to be driven by the interests of those the regulation is seeking to protect. However, it is unclear how OfS is balancing its obligations to students. Student engagement and priorities are noticeably absent in its current strategy. Some of the priorities articulated arguably may even go against the wishes of students. There is no evidence to suggest a majority of students would like to see more of their courses closed or tuition fees used to fund free speech litigation or support local secondary schools.

6.2                   The extent of student engagement seems to be a (postgraduate) student representative on the OfS board; a student panel to inform strategy; regular meetings with the National Union of Students (when it was recognised by government); and student representation on the TEF panel. However, there is a lack of information about how student engagement helps to shape the OfS’ definition of the student interest. In our experience what the OfS determines to be in the “student interest” almost always aligns with ministerial statements and reports in government-supporting newspapers and think tanks.

6.3                   One of the key reasons the English quality regime is no longer viewed as compliant with international standards, notably those outlined in the European Standards and Guidelines (ESG), is due to the lack of inclusion of students on quality review teams. This suggests the OfS’ approach to student engagement is out of step with global norms and putting our reputation at risk.

Q7. What is the nature of the OfS’ relationship with higher education providers? Does the OfS strike the right balance between working collaboratively with universities and providing robust challenge?

7.1    Our members’ experiences of working with the OfS have been challenging. In evidence to this committee the previous chair characterised the regulator’s relationship with higher education providers as ‘uneasy.’ However, in UA’s experience this is not because the sector does not wish to be regulated or desires a return to the era of regulation by the Higher Education Funding Council of England (HEFCE). It is instead a direct response to the actions of the OfS itself, which has sought from the beginning to distance itself from providers to an extent which has hampered a constructive working relationship between the two. 

7.2    The OfS recently commissioned independent research into provider engagement, and the report’s findings echo the feedback we have heard continually over the past five years from UA members. It found that the majority of providers interviewed “expressed strong disagreement with some aspects of the OfS approach, seen as unnecessarily tough, seeking conflict with all providers as a means to achieve standards across the sector.”[26] There is fundamentally a lack of trust between the regulator and those it regulates.

7.3    Contributing to this is the perceived lack of independence from government (see Q3 above), and an overall sense that providers are not listened to, and their views are not taken on board. The independent report found that providers believed that “consultations did not always influence decision making, despite the significant resources they require,” and that “even larger providers could struggle with the resourcing required to complete them effectively.”[27]

7.4    The National Audit Office found that the OfS “does not yet have the full confidence of all providers” and criticised the “absence of mechanisms for the OfS to gain structured feedback from providers on its own performance.”[28] Whilst there were purportedly plans for a KPM based on an external survey of perceptions of OfS, this was ultimately dropped.

Q8. 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?

8.1                        The main systemic risk is that the sector’s primary source of income – domestic undergraduate tuition fees – is capped by government and hasn't increased since 2017. At the same time the sector faces rising and volatile costs – notably around pensions and energy – and more is being demanded and expected of university services than ever before. It therefore faces a rapidly diminishing unit of resource which is certainly increasing the risk of provider failures, although there have been very few in reality.

8.2                        The Public Accounts Committee concluded last year that the higher education providers face “long-term, systemic, pressures on their financial sustainability and viability.”[29] The NAO reported that the proportion of higher education providers with an in-year deficit increased from 5% in 2015/16, to 32% in 2019/20.[30]

8.3                        The sector’s reliance on international students is increasing. Since international student fees are not capped by government, increasing international student numbers is one of the only ways of managing the shortfall created by rising costs and frozen home fees. This is only possible because demand for UK higher education remains strong[31] and there is a government commitment to increasing international students in the International Education Strategy.[32] However the sector is vulnerable to changes in UK government immigration policy, and/or economic and political developments in key overseas markets (China, India, Nigeria) and competitors (Australia, Canada).

Q9. 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?

9.1  The UK higher sector is highly diverse, with different funding models in operation in England, Scotland and Wales. Within England, there are a range of different business models in operation based on factors such as size and subject mix. However, among larger, established universities, the model is quite similar due to the fact they have a similar cost base and are funded and regulated in the same way. Provider business models have proved to be remarkably resilient in the face of constant change. This is due to a mixture of factors, not least competent and innovative financial stewardship, and high ongoing domestic and overseas demand for higher education. All providers must continually review their activities and focus on those that are core to their business. Scenario planning is key to stress-test the impact of financial risks.

9.2  However, there is limited room for manoeuvre. Most universities attempt to make some financial surplus each year to allow for re-investment. The amount of grant funding available for capital projects is very restricted, which leads to the need for either higher surplus and/or additional borrowing.

9.3  There are several steps that a university could take to manage struggling finances. This could include cancelling capital projects, cutting staff or closing individual courses. The last resort might be to merge rather than close universities. 

Q10. 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?

10.1     The OfS requires all providers to submit a highly detailed annual financial return (AFR), as well as a longer-term 5-year financial forecast. However, providers receive limited feedback from the OfS on these, and the overall impression that is given is that monitoring is infrequent. For example, beyond the annual financial return there is little in terms of updated financial stability checks. There is no clear or published approach to how the OfS reviews and assesses financial viability and sustainability.

10.2     The OfS does not regularly speak to most providers, so it is perhaps difficult for the regulator to get a full understanding of the levels of risk within an individual provider. The Public Accounts Committee and the National Audit Office both found that the OfS lacks an integrated system for assessing financial risk.

Q.11 What is the OfS’ 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?

11.1 We do not know very much about the OfS’ tolerance for failure. The previous chair made it clear that the OfS will not bail out a higher education institution that falls into financial difficulties, a point he reiterated in his evidence to this committee. However, in the same session he also disclosed that the OfS had helped to lobby for Treasury support to avoid closures.

11.2 The closures of the Greenwich School of Management (GSM) and the Academy of Live and Recorded Arts (ALRA) suggest that the existing regulatory system is not very good at detecting problems or managing them once they happen.

11.3 The regulatory framework imposes a requirement on all providers to be financially viable and sustainable, and to have the financial resources necessary to deliver their courses and comply with the conditions of registration. The reportable events guidance requires providers to report if their institution cannot comply and indicates factors that might trigger a concern by the OfS: a drop in liquidity below 30 days’ average expenditure; the likely breach of financial covenants; withdrawal of financial support; an assessment that the provider is not a going concern; and the inability of the provider to pay its debts.[33] The OfS has a range of powers at its disposal from requiring “enhanced monitoring/engagement” to the imposition of more severe sanctions such as specific registration conditions or suspension/withdrawal of registration. In 2021 the OfS issued a new registration condition (C4) that relates specifically to market exit which gives it the power to issue “student protection directions” to providers which they believe are at risk of market exit.[34] Student protection directions can include the requirement to develop a “market exit plan” setting out measures to protect the interests of students in the event of a provider exiting the market (e.g., teach out, transfer arrangements, refunds).

11.4 The insolvency arrangements for a higher education provider, including the role of the Secretary of State and the OfS, are unclear. In some other sectors a special administration regime exists which is clear for the provider and its third-party funders and creditors.

Q12. To what extent is the financial sustainability of providers determined by government policy and funding rather than the OfS’ regulation? Is there a need for policy change or further clarity to ensure the sustainability of the sector?

12.1 The financial sustainability of providers is primarily shaped by government policy and funding. The main source of income for most providers – domestic undergraduate tuition fees – have been frozen by government since 2017, their value seriously eroded by inflation. At the same time, the costs to universities are going up. Research has long been underfunded, and the funding shortfall has grown to £4.0 billion for England and Northern Ireland.[35]  Pensions contributions and pay are rising and insufficient government maintenance support for students means that universities increasingly need to provide hardship support.[36]  Changes to government policy (e.g., the new Lifelong Loan Entitlement[37]) compound uncertainty. We believe that the higher education funding system should be reviewed and are working with our member Vice-Chancellors to discuss alternatives.

12.2 However, there is no doubt that OfS regulation can also have an impact on financial sustainability. UA members report they are having to dedicate more resources to managing regulatory demands and risk than ever before. In addition, the lack of regulatory stability makes long-term planning extremely difficult. Following guidance from the Secretary of State, the OfS made cuts to top-up funding for high-cost C1 subjects and removed London weighting,[38] which have had an impact on affected providers. It must not be forgotten that the regulator also has the power to impose severe penalties, defund specific courses or deregister providers altogether, all of which could have severe repercussions on the sustainability of the sector.

06 April 2023