Written evidence from Department of Education and Skills (WOS0061)

 

The work of the Office for Students

Cover letter

Alongside developing intellectual education and high level research, the purpose of higher education is threefold. It must:

1. meet the skills needs of the economy.

2. provide high-quality qualifications leading to excellent jobs.

3. advance social justice, ensuring that everyone, regardless of background, can not only access a high-quality education, but are also supported to complete their studies and develop the skills and knowledge needed to move up the ladder of opportunity.

The Office for Students (OfS) has a critical role to play in ensuring that the higher education sector can deliver these priorities. 

Skills

Our ambitious skills agenda is backed by £3.8 billion of extra investment over this Parliament. We are using this to expand and strengthen both higher and further education, ensuring skills training is aligned to the needs of employers. This will ensure that everyone, regardless of background, has access to a range of high-quality education pathways. In the context of higher education, this might be an academic degree, a higher technical qualification, a degree apprenticeship or a level 4 course. 

We’ve already taken action to strengthen higher education. For example, the Lifelong Loan Entitlement will be introduced from academic year 2025/26, providing individuals with a loan entitlement equivalent to four years of post-18 education over their working lives. This will offer a flexible skills system that delivers choice in when and how individuals study to acquire life-changing skills. Moreover, the OfS is offering £40m of Strategic Priorities Grant funding over the next two years for higher education providers to fund capacity building projects and boost/expand their degree apprenticeship starts. Funding will be delivered by the OfS to their registered providers through a competitive bidding process. This will open later this year and be accessible to new and existing providers.


Jobs

Many of our higher education providers deliver a top-class education and equip students with the skills they need to get excellent jobs and make sure that we have an internationally competitive workforce. There is plenty of evidence to suggest that the higher education system is preparing students for high-quality employment.  Almost three quarters (71.5%) of graduates from full-time, first degree courses offered by English higher education providers progressed into high-skilled employment, or further study 15 months after graduating. Additionally, across the whole working-age population of England, the median annual salary of graduates was around £10,000 more than that of non-graduates in 2021. However, it should also be noted that the Institute for Fiscal Studies found that 25% of male graduates and 15% of female ones will take home less money over their careers than peers who do not get an undergraduate degree.

We recognise that more must be done to tackle the pockets of poor quality that persist in our higher education system. For example, for full-time first degrees in Computing, 24 out of 137 providers have an average completion rate below the OfS’s minimum threshold of 75%. The Government is committed to tackling low-quality courses and ensuring that students and the taxpayer see returns on their investment.

Social justice

Above all, higher education should advance social justice. This means that everyone, no matter their background, is able to access the education and skills opportunities which lead to good job outcomes. I was delighted that in 2022, a record number of 18-year-olds were admitted into higher education, including those from disadvantaged backgrounds. Indeed, data from 2022 shows that in England, 18-year-olds from disadvantaged backgrounds were 86% more likely to go to university that year than in 2010. Higher education is a vital rung on the ladder of opportunity and it needs to continue to be open to all who have potential to succeed. It must also support students to complete their studies and be of a high enough quality to give graduates the best possible start to their careers.


The Office for Students

The work of the OfS, as the independent regulator for higher education in England, is essential to the effective functioning of the higher education system. Its work on access and participation and quality and standards is also essential to the delivery of the three priorities outlined above.

The OfS protects students as consumers, ensuring that they receive value for money in terms of quality education that equips them with the skills they need to get on in life. It has recently implemented reforms to its quality regime. This includes updated conditions of registration (which providers must meet in order to join, and remain on, the OfS register) which offer improved clarity for providers on minimum expectations and enable the OfS to investigate compliance and enforce requirements with greater confidence. The OfS also provides assurance to taxpayers that public funding is being well spent. I am clear that a robust and fair regulator, which engages regularly with students and the sector, and takes a risk based approach to regulation, is vital to ensure that our higher education sector remains world leading.

I commend the work that the OfS has done over the last five years to put in place its regulatory framework in line with its statutory duties, to register providers and to revise its registration conditions in relation to quality and standards to ensure that they are robust. Its work is fundamental to achieving this government’s priorities on skills, jobs and social justice. I therefore strongly support its current focus on quality and standards, including outcomes, and equality of opportunity. We need to ensure no student is excluded from higher education because of their socio economic background and all students should expect to receive a high-quality academic experience and be supported to fulfil their ambitions by securing high quality jobs. The OfS’s role remains critical to protecting students’ interests and the quality of their higher education.

Given the importance of higher education in delivering this government’s priorities, and the public funding it receives, it is vital that the Department for Education (DfE) and the OfS have a constructive working relationship on important issues. This approach, in line with the Cabinet Office Code of Practice on Sponsorship of Arm’s Length Bodies, does not in any way undermine the OfS’s regulatory independence. 


This government is clear that financial sustainability of the higher education sector is essential to the future success of our economy and society. High-quality higher education and research across the country are key to delivering successful outcomes, providing students with fulfilling jobs, the skills our businesses and services need, and injecting innovation into our economy.

Through the Strategic Priorities Grant (SPG), we are investing an additional £750m over the three-year period from 2022/23 to 2024/25 to support high quality teaching and facilities, including in science and engineering, in subjects that support the NHS, and in degree apprenticeships. The recurrent SPG budget is £1,454m this financial year, 4% higher than last year.  This additional investment includes £450m of capital funding to the HE sector for financial years 2022-23 to 2024-25. Almost £400m of this was allocated through an OfS-run competition to target funds at Government’s strategic priorities, including high-cost STEM subjects, Level 4/5 courses and degree apprenticeships. A hundred providers – universities and further education colleges – were successful in securing funding for capital projects that will directly help us achieve our skills reform ambitions to strengthen higher education and better align skills training to the needs of employers to enable communities to thrive.

Moreover, UK Research and Innovation (UKRI) have been allocated £25.1 billion over this Spending Review period to invest in innovation, foundational research, infrastructure and talent. UKRI’s allocation includes £6.2 billion for Research England, who are responsible for funding and engaging with English higher education providers, to create and sustain the conditions for a healthy and dynamic research and knowledge exchange system in the higher education sector.

The OfS plays a vital role in monitoring the financial sustainability of the higher education sector, and the DfE works closely with it on the financial issues the sector faces.

I look forward to giving evidence to the Committee in May.


Introduction

This paper sets out the government’s evidence for the inquiry into the work of the Office for Students.

Questions

1. 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?

The OfS was created by the Higher Education and Research Act 2017 (HERA) and its powers and duties are derived principally from HERA. Prior to the establishment of the OfS, public funding for higher education was administered by the Higher Education Funding Council for England (HEFCE) under the Further and Higher Education Act 1992. Under this system, university competition was limited, student numbers were controlled, and the majority of university teaching was funded by public grant.

Reports by the Higher Education Commission in 2013 and Universities UK in 2015 (the Gaskell Report) suggested that, with the introduction of student tuition fees and a diminished reliance on public grant funding, HEFCE’s role, purpose and powers had become outdated. HERA addressed this by creating the OfS as a new non-departmental public body, with clear statutory powers to regulate and fund higher education in England, and a focus on fostering a more competitive system with the aim of driving up quality and outcomes for students, taxpayers and the economy, while maintaining protections for academic freedom and institutional autonomy. HERA also made provision for significant reform to the funding of the research sector through the establishment of UK Research and Innovation (UKRI).


HERA sets out the OfS’s general duties, and requires the OfS to have regard to:

  1. the need to protect the institutional autonomy of English higher education providers.
  2. the need to promote quality, and greater choice and opportunities for students, in the provision of higher education by English HE providers.
  3. the need to encourage competition between English higher education providers, where 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.
  4. the need to promote value for money in the provision of higher education by English higher education providers.
  5. the need to promote equality of opportunity in connection with access to and participation in higher education provided by English higher education providers.
  6. the need to use the OfS’s resources in an efficient, effective and economic way.
  7. so far as relevant, the principles of best regulatory practice, including the principles that regulatory activities should be:
  1. transparent, accountable, proportionate and consistent.
  2. targeted only at cases in which action is needed.

As set out in the Post Legislative Scrutiny report, the establishment of the OfS, the introduction of the register and conditions of registration, and the initial registration process for higher education providers have each been successfully achieved. The OfS is a functioning regulator, with an established board with a wide range of experience (including a student representative on the board who also chairs the OfS's student panel). It delivers the functions and duties required of it in legislation and is starting to use the full range of its powers. There are areas where the OfS continues to develop and refine its regulatory approach, including through consultations and new guidance on conditions of registration. For example, the OfS has recently consulted on, and published, changes to the ‘B conditions’ relating to quality and standards. However, the content of the regulatory framework remains broadly the same as when it was initially conceived.


Since being established in 2018, the OfS has undertaken significant work to protect students. It has already taken forward significant regulatory reform which has introduced a more rigorous and effective quality regime to protect students and ensure they have a high-quality academic experience and good outcomes – ensuring that graduates go on to high quality jobs. In addition, it has delivered a revised approach to access and participation, including launching the Equality of Opportunity Risk Register, and in doing so supports social justice, ensuring students from all backgrounds can participate and succeed in higher education. It has made strong progress on priority issues such as mental health, preventing harassment and sexual misconduct, and distributing hardship and other funding. During the pandemic, the OfS collected valuable Covid-related data from providers to inform planning and decision-making. It also reacted quickly to ensure stabilisation of admissions behaviour and the funding system. 

The OfS sets out its own priorities through a published strategy and business plans which are discussed with Ministers. The OfS published its three-year strategy for 2022-2025 in March 2022, with quality and standards and equality of opportunity being its two key areas of focus (which align to this government’s priorities). A third area – enabling regulation - underpins all of the OfS’s work.

Any organisation must have areas of focus and priority, as the OfS does, but this does not undermine its approach to carrying out all of its duties. The government has issued regular guidance letters to the OfS, encouraging focus on certain areas, and we are confident that the OfS has had regard to that guidance, as is required under HERA, when making decisions on prioritisation.

Ministers are also clear that they fully support the OfS moving its focus to enforcement, particularly in relation to quality.


2. 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?

Following extensive consultation, the OfS prepared and published its regulatory framework (as required under section 75 of HERA) in February 2018, and began the process of registering providers from April 2018. The regulatory framework sets out how it intends to exercise its powers and perform its functions and provides guidance for registered higher education providers on the registration conditions. The OfS has made subsequent amendments to the framework, including to revise the quality conditions, and will likely need to continue to do so to protect the interests of students, and as the higher education sector and wider context evolves. Further changes to the regulatory framework will be required when the Higher Education (Freedom of Speech) Bill receives Royal Assent (subject to approval by Parliament) and may be required in the context of the Lifelong Learning (Higher Education Fee Limits) Bill to enable regulation of modular HE provision

As set out in the regulatory framework, the OfS seeks to ensure that students from all backgrounds (particularly the most disadvantaged) can access, succeed in, and progress from, higher education. The OfS’s four primary regulatory objectives centre around this to ensure that:

  1. students are supported to access, succeed in, and progress from, higher education;
  2. students receive a high-quality academic experience, and their interests are protected while they study or in the event of provider, campus or course closure;
  3. students are able to progress into employment or further study, and their qualifications hold their value over time; and
  4. students receive value for money.

It is clear that the regulatory framework adheres to the OfS’s statutory duties. It sets out the registration conditions and their legal basis and provides guidance on how providers can comply with them. It also details the OfS’s approach to regulation, monitoring and enforcement.


There are areas where the OfS continues to develop and refine its regulatory approach, including through consultations and new guidance on conditions of registration. This is to be expected, and the OfS has recently revised the B conditions and implemented a new approach to the Teaching Excellence Framework (TEF). It is currently consulting on putting its statement of expectations on harassment and sexual misconduct on a regulatory footing. Notwithstanding these changes, the content of the regulatory framework remains broadly the same as when it was initially conceived.

We recognise, and higher education providers have regularly highlighted, that revisions to the OfS’s regulatory framework add burden for providers, due to the need to respond to consultations and then to embed any new regulatory requirements. We also recognise the additional regulatory burden of multiple regulators across the skills landscape (for example in relation to Higher Technical Qualifications and degree apprenticeships). Seeking to minimise regulatory burden, particularly across the skills landscape, is a continuing priority for Ministers and a key focus for the OfS as set out in its strategy to 2025.

3. 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?

HERA created the OfS as an independent regulator. It is not a Crown body and does not form part of central government. This status is reflected in interactions between Ministers and officials in the two organisations.

The Secretary of State’s powers in relation to the OfS are set out clearly in HERA. The Secretary of State may (a) give guidance to the OfS under section 2(3) of HERA (the OfS must have regard to this guidance when performing its functions); (b) give general directions to the OfS under section 77 of HERA (this is done through regulations and the OfS must comply with directions); (c) impose terms and conditions on grant funding under section 74 of HERA; and (d) appoint members to the OfS board, including the OfS Chair, Chief Executive Officer, Director for Fair Access and Participation and ordinary members.


When giving guidance, issuing directions or imposing terms and conditions of grant funding, the Secretary of State must have regard to the need to protect the institutional autonomy of English higher education providers. There are also express limits on the matters to which guidance, directions and terms and conditions may relate. For example, they may be framed by reference to particular courses of study but must not relate to the content of such courses, the manner in which they are taught, supervised and assessed, or the criteria for the appointment or dismissal of academic staff, or for the admission of students.

The Secretary of State uses the power under section 2(3) to set out Government’s priorities, for example in relation to skills, outcomes and social justice, and strategic aims through published guidance, and sets terms and conditions of grant funding under section 74. The power to give directions has never been used. 

In line with other arm’s length bodies (ALBs) across government, the way that the relationship with ALBs is managed is through sponsorship, and we adhere to the same Sponsorship Code of Practice as departments elsewhere in government. In line with that Code of Practice, a published OfS Framework Document sets out the governance and accountability framework that applies between OfS and the Department, the OfS’s core responsibilities and how the day-to-day relationship between OfS and Department works in practice. It also outlines how the Department seeks assurance in relation to the OfS’s performance and delivery through performance reviews, finance reviews and board attendance.

Nothing in HERA, the Code of Practice or the Framework Document prevents the OfS from operating independently. By way of example, there are some occasions when the OfS has not followed guidance from Ministers or indicated that it would not do so – for example in relation to moving away from using a universal sample for the National Student Survey, the approach to its review of online learning, and in relation to some past funding decisions. The mechanisms for giving guidance and imposing terms and conditions of grant are well established, and the Department ensures that the requirements and restrictions in HERA are adhered to. 

The OfS, Ministers and officials have an effective and constructive relationship, which allows us to work with the OfS to support its regulatory regime to be effective. This aligns with the approach contemplated by HERA and the Code of Practice on Sponsorship.

 

4. 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?

The OfS is funded primarily through registration fees paid by the sector: this is currently around £26 million per year. These fees are set by Government through regulations under section 70 of HERA. In addition, the OfS receives some departmental funding for specific projects..

Ministers, DfE officials and the OfS meet regularly to discuss and negotiate the OfS’s funding, finances and efficiency, including the level of resource it needs to deliver its priorities, and to review its business planning for the year ahead, as required under the Framework Document. This is particularly the case where it is expected to take on new functions, including those under the Higher Education (Freedom of Speech) Bill and the assessment functions previously performed by the designated quality body (DQB). There are also separate discussions about how it spends public grant funding, as for any arm’s length body.

Assessing quality and standards is an integral part of the application process for providers to join the OfS register, which enables providers to access student finance, sponsor visas for international students, and become eligible to be granted degree awarding powers. It is only right that, to access these benefits, providers must demonstrate that they equip students with the skills they need to progress on to excellent jobs. The assessment functions were previously performed by the Quality Assurance Agency (QAA) as DQB. Following QAA’s decision to step down from the DQB role, we consulted on de-designation, as required by HERA. The Secretary of State decided to de-designate QAA, and a de-designation notice was issued on 30 March 2023.

Expectations for quality and standards – set out in the B conditions of registration - are set by the OfS and have not changed because of de-designation. The OfS continues to uphold quality provision, reliable standards and positive outcomes for all students, no matter their background, ensuring higher education equips them to go on and achieve their goals.


We understand it is important to the sector that there is expert academic input into regulatory decision making. We know the OfS has recruited expert academics to its panel of quality and standards assessors. These academics are already supporting the delivery of the OfS’s quality investigations programme and regulatory decision-making and will ensure expert judgements can be applied to quality and standards assessments following de-designation of QAA. We support this approach and will continue to work with both the regulator and the sector to ensure the assessment functions are performed effectively.

5. 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?

HERA sets out the OfS’s duty to have regard to the need to promote value for money in the provision of higher education.

The OfS evaluates its own performance as a regulator using Key Performance Measure (KPM) 9, which explores value for money using student survey and outcomes data. This KPM looks at the extent to which students believe university offers good value for money and how they feel about the quality of their academic experience. It also looks at the proportion of students at providers with student outcomes indicators above the minimum thresholds, effectively evaluating the extent to which the OfS supports the sector to propel students into excellent jobs and other opportunities to develop. We expect to see improvement on the second and third measures of this KPM in particular as the OfS’s revised quality regime takes effect.

The OfS has only recently introduced its revised quality regime, which includes reinforced conditions of registration. This includes more stringent minimum thresholds for student outcomes under condition of registration B3, setting stricter expectations for providers to ensure that their courses are leading to high-quality jobs for graduates.

The OfS is an independent regulator and, whilst it must have regard to guidance issued by the Secretary of State, it operates separately from government. The regulatory framework that underpins the OfS’s activity, which sets out expectations and requirements for quality and standards, was subject to extensive public consultation before being finalised.


Under the OfS’s regulatory framework, all types of institution and subjects are held to the same standard. Whilst the progression indicator somewhat reflects a judgement of economic value, in that graduates progressing to professional or managerial employment are likely to earn higher wages, this is balanced by the fact that other outcomes not associated with high earnings (such as vital public sector roles like nursing and teaching, along with voluntary/unpaid roles and further study) are also considered positive.

The OfS will consider appropriate context and make well-rounded judgements when considering the performance of individual higher education providers. This may include factors such as the relative proportions of students from disadvantaged or underrepresented backgrounds and performance against benchmarks. This could also include information from the provider about the actions it has taken, or plans to take, to improve quality, and external factors that may be outside of a provider’s control.

6. 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?

Ensuring that it understands the views and challenges of students is an important part of the OfS’s work. The OfS has a Student Engagement Strategy which enables students to contribute to shaping the OfS’s work to regulate higher education and regularly sets up round tables with students on particular policy areas (most recently on harassment and sexual misconduct). The OfS also has a student panel and a student representative board member, appointed by the Secretary of State, who is responsible for representing and promoting the interests of students on the OfS board. I recently appointed a new student representative board member some months ago and having interviewed all the shortlisted candidates I recommended an extremely capable individual who I am confident will make a positive impact in representing his fellow students, given his experience at undergraduate and postgraduate and in undertaking a degree apprenticeship.

The OfS uses student experience measures from the National Student Survey (NSS) when assessing providers to award TEF ratings. The evidence assessed by the TEF panel includes, where available, qualitative information submitted by the provider’s students. The independent TEF panel also includes student membership. NSS data also feeds into OfS risk monitoring on quality and may prompt further regulatory action, such as quality investigations, where concerns are raised.

7. 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?

It is for the OfS to determine its approach to sector engagement and its relationship with the sector it regulates. In doing so, it should be guided by the Regulators’ Code, which sets out the need for regulators, including the OfS, to provide simple and straightforward ways to engage with those they regulate and hear their views, and to carry out their activities in a way that supports those they regulate to comply and grow. HERA also requires the OfS to have regard to the principles of best regulatory practice, including the principle that regulatory activity should be transparent, accountable, proportionate and consistent.

We believe that the approach taken by the OfS as a regulator must be different to that previously taken by HEFCE as a funding body, but strongly support positive, constructive engagement between the sector and the OfS.

The OfS already consults the sector on its approach to much of its regulatory activity. In addition, it engages with the sector through round tables on particular issues like regulatory burden, through its nominated contacts with providers, and through its meetings with mission groups and Vice Chancellors.

As the regulator of higher education in England, the OfS will sometimes take decisions which some in the sector may not support. This is part of the regulator’s role. We recognise that higher education providers would often prefer a different approach, and that there have been ongoing disagreements between the OfS and the sector on a number of regulatory issues and its approach to communications and engagement. Tension between regulators and those that are regulated is normal, particularly where a sector is being newly regulated, and this always requires careful management.

In the recent independent review[1] of the OfS’s engagement, elements that drew positive responses included accountable officer mailings, issue-focused events, the OfS website, and individual interactions with staff. However, the OfS has acknowledged that there is more to be done on sector communications and engagement and is considering the recommendations from the  review, which included positive and negative feedback from the sector. Government, too, has a role in engaging the sector on a range of issues they are impacted by, and designing policy in consultation with both the sector and the OfS as regulator.


8.  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?

Under section 68 of HERA, the OfS has a statutory duty to monitor and report on the financial sustainability of registered providers eligible for grant or student loan funding in England. Its analysis, which is able to draw on confidential forecast information submitted by each provider to OfS as regulator, is the principal source of intelligence on HE sector financial sustainability issues. DfE works closely with the Department for Science, Innovation and Technology, His Majesty’s Treasury, the OfS and UK Research and Innovation to ensure a common current understanding of financial sustainability issues affecting the higher education sector. The OfS evidence to this Committee sets out the current analysis.

Higher education providers may face a wide range of risk and challenges to their financial sustainability. These may relate to the recruitment of domestic students, the dependence on international student fee income (and in particular the focus on higher number of overseas students from certain countries), government policy which determines the real value in funding per student, and the impact of wider macroeconomic shocks on the providers’ cost base (e.g. rising energy costs and inflation).

The extent to which providers are likely to be affected by these different risks and challenges will vary, depending on how exposed their income and funding streams are to these risks and the ability of providers to take appropriate action which mitigate the potential financial impacts.

9.  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?

The English higher education sector is highly diverse: there is a wide range in the size of organisation and there are very different types of providers. There are large research-intensive universities with world-leading reputations. Teaching intensive general universities of all sizes deliver higher education across the whole country, as do many further education colleges. There is a host of small specialist institutions, including leading business schools and prestigious performing arts conservatoires. This enables the sector to serve a range of students, provide a pipeline of graduates into many industries and public services, and support the economy and society across English regions and localities. Providers have different funding models, with some relying proportionately more on certain public and private sources of teaching and research related income and funding than others do; likewise some may be proportionately more affected by certain cost pressures than others on account of differences in the composition of their cost base.

For example, small specialist providers and some teaching-intensive general universities, small and large, have business models which are likely to be strongly affected by changes in student numbers, particularly sudden change. This was a factor closely monitored when considering financial risk during the pandemic. Many universities, especially larger ones, have diversified missions and funding streams, including commercial sources of income, which can mitigate some of the prominent financial risks affecting the sector.

The diversity of the sector is not the only complexity in assessing the sector’s financial position. Provider financial sustainability depends not just on income and expenditure.  Reserves, borrowing, asset sales, cost savings and efficiencies all come into play. For some providers, cross-subsidisation across activities is a significant element of their business models.

The OfS evidence to the Committee makes observations about providers’ focus on viability and sustainability, drawing on its experience as regulator of interacting with individual providers on an ongoing basis. It underlines the important point that financial resilience is determined by the effectiveness of an individual provider’s approach to financial management, which is vital given providers’ reliance on public funding.

10.  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?

In its evidence to this Committee, the OfS has set out detail of its approach to fulfilling its duty to monitor and report on higher education provider financial sustainability. The evidence covers its approach to identifying financial sustainability risk and taking regulatory action to mitigate that risk.  

DfE obtains assurance in relation to the OfS’s performance and delivery through performance reviews, finance reviews and board attendance. This encompasses all of the OfS’s statutory duties, including that on financial sustainability. DfE and the OfS continue to work together to identify lessons learned and areas for improvement in our systems and information sharing on financial sustainability matters?

11.  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?

DfE recognises that higher education providers are autonomous bodies responsible for their own business planning and financial management and does not seek to intervene in their business models or day to day management. It is for the governing body and management of each provider to ensure its viability and financial sustainability. 

The OfS evidence to this Committee has set out its regulatory approach in the case of provider failure. This focuses on minimising the likelihood of unmanaged or disorderly provider market exit and the risk of adverse impacts, in particular on students, rather than preventing failure. As that evidence notes, DfE supports the OfS to ensure the protection of students in the event of higher education provider failure but does not work directly with the provider in question.

There is no established mechanism within DfE to support failing providers. However, DfE established a temporary Higher Education Restructuring Regime in 2020 to support providers facing financial difficulties due to COVID-19. This has now been wound down given there are now no COVID-19 restrictions in the UK.


12. 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?

As noted above, and in the evidence from the OfS to this Committee, the financial sustainability of the diverse higher education sector is a highly complex matter. It is impossible to make meaningful generalised observations about the relative weight of different factors in the financial sustainability prospects of individual higher education providers. 

Government funding policy and the OfS’s regulatory approach are clearly important factors. At the sector level, publicly funded teaching (tuition fees for domestic students) accounts for a significant amount of providers’ income. In addition, the SPG, with a recurrent budget of £1,454 million this financial year and £450m in capital funding across 22-23 to 24-25, provides additional funding to support teaching and students in higher education, including in expensive-to-deliver subjects, such as those in science, engineering and medicine; students at risk of discontinuing their studies; and our world-leading specialist providers. But a range of external economic and market factors are influential. Crucially, a combination of internal factors is central to a provider’s financial health: the mix and balance of its income streams, only some of which relate to government policy; developments in its cost pressures, where major factors such as pay are independent of government policy decision; and the effectiveness of the organisation’s business planning and financial management. 

The government is conscious of the importance of its policy and funding decisions in ensuring that the higher education system in England can provide the high-quality education which enables people to fulfil their potential and delivers the skills our economy needs in order to thrive. Policy decisions on higher education carefully weigh the balance between the student and the taxpayer in terms of meeting costs, and the balance of responsibilities between autonomous providers, the regulator and government. These important matters are kept under continual review, as appropriate. 

19 April 2023

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[1] Report on provider engagement with the Office for Students - Office for Students