Higher Education: Financial Sustainability

(Limited Text - Ministerial Extracts only)

Thursday 5th December 2024 Westminster Hall

[The Parliamentary Under-Secretary of State for Education (Janet Daby)]

I begin by congratulating my hon. Friend the Member for Erewash (Adam Thompson) on securing this important debate. As he eloquently expressed, he has a keen interest in the financial stability of the higher education sector and many other areas, and so do this Government. I agree with him how great our universities are and I will attempt to respond to many points that he has raised.

I join the hon. Member for Cheltenham (Max Wilkinson) in acknowledging our fantastic lecturers, as well as some of the excellent work of our universities up and down the country. I thank my hon. Friend the Member for Luton South and South Bedfordshire (Rachel Hopkins) for her many contributions, including around international students.

I will respond to the shadow Minister, the hon. Member for Harborough, Oadby and Wigston (Neil O'Brien). However, I find it difficult to hear the many things he said about the pressures on young people when the last Government had 14 years to take our universities out of the dire situation they now find themselves in. I find it quite astonishing that the previous Government and the shadow Minister have taken no responsibility, offered no apology and shown no acceptance of the disadvantaged situation our universities are in.

[Neil O'Brien]

Will the Minister give way?

[Janet Daby]

I am going to make some progress and respond to the many points that have been raised—unless he would like to make an apology.

[Neil O'Brien]

The Minister is complaining about the lack of resources in real terms for universities. Can she confirm that because of the national insurance increase resources in real terms are going to go down, wiping out the impact of the tuition fee increase, with the price of everything going up?

[Janet Daby]

Indeed: no apology, no recognition of what I just said, and no recognition of having been in Government for 14 years previously.

There are many questions to respond to, and I will focus first and foremost on my hon. Friend the Member for Erewash, who secured the debate. The Government recognise that our world-leading higher education sector makes a vital contribution, as both education and research institutions, to our economy, to society, to industry and to innovation. They contribute to productivity and growth, and play a crucial civic role in their communities. However, the sector needs a secure financial footing to face the challenges of the next decade. We recognise that the financial position of the sector is under pressure, and the Government have already acted to address that.

In July, Sir David Behan was appointed as interim chair of the Office for Students, the independent regulator of higher education in England. Sir David is overseeing the important work of refocusing the role of the Office for Students to concentrate on key priorities including the sector’s financial stability. In recognition of the pressures facing the sector, on 2 December the Office for Students announced temporary changes to its operations to allow greater focus on financial sustainability. To protect the interests of the students, the OfS will work more closely with providers that are under significant pressure. The OfS has rightly stated that an increasing number of providers will need to take bold action to address the impact of these challenges. All providers must continue to adapt to uncertainties and financial risk.

While the OfS has statutory duties in relation to the financial sustainability of the higher education sector, the Government have a clear interest in understanding the sector’s level of risk. My Department continues to work closely with the OfS, higher education representative groups such as Universities UK, and other Government Departments such as the Department for Science, Innovation and Technology. That helps us to understand the financial sustainability in the sector. If a provider was at risk of unplanned closure or found itself in the process of exiting the sector, my Department would work with the OfS, the provider and other Government Departments to ensure that students’ best interests were protected.

Of course, higher education providers are autonomous bodies. As such, they are ultimately responsible for the decisions they make about their operating model, day-by-day management and sustainability. However, the Government very much recognise the need to put—and sustain—our world-leading higher education sector on a secure footing to ensure that all students have the confidence that they will receive the world-class higher education experience they deserve.

After seven years of frozen fee caps under the previous Government, on 4 November the Secretary of State for Education announced that maximum fees for undergraduates will increase in line with inflation. In the 2025-26 academic year, fees will increase by 3.1%, from £9,250 to £9,535 for a standard full-time course, from £11,100 to £11,440 for a full-time accelerated course and from £6,935 to £7,145 for a part-time course. I am aware that yesterday the Welsh Labour Government also announced that tuition fees will rise from £9,250 to £9,535 for standard full-time courses. While this was a difficult decision, I believe the right decision has been made for UK higher education. I want to be clear, however, that in return for the increased investment that we are asking students to make, we expect our providers to deliver the very best outcomes for students, their areas and the country.

The Government also recognise the impact that recent inflation has had on students. That is why, in addition to increasing tuition fees to support our higher education providers, the Secretary of State announced that maximum loans for living costs for undergraduate students will also increase in line with forecast inflation. In the 2025-26 academic year, maximum loans for living costs will increase by 3.1%, from £10,227 to £10,544, for an undergraduate student living away from home and studying outside London. That will ensure that the most support is targeted at students from the lowest-income families, while keeping the student finance system financially sustainable.

As part of the Secretary of State’s announcements on 4 November, she set out our five priorities for reform of the higher education system. We will expect our providers to play a stronger role in expanding access and improving outcomes for disadvantaged students; to make a stronger contribution to economic growth; to play a greater civic role in their communities—many already do excellent work in this area—and to raise the bar further on teaching standards to maintain and improve our world-leading reputation and drive out poor practice. I am very sure that that is also their ambition. Underpinning all that, the sector must undertake a sustained efficiency and reform programme. We will publish our plan for higher education reform by summer 2025 and will work with the sector and the OfS to ensure that the system delivers those priorities.

I take this opportunity to respond to my hon. Friend the Member for Erewash and reaffirm the Government’s commitment to a United Kingdom that is outward looking and welcomes international students, as commented on by my hon. Friend the Member for Luton South and South Bedfordshire. For too long, international students have been treated as political footballs and not valued guests. This Government will take a different approach and will speak clearly. Be in no doubt: international students are welcome in the UK. That is why we offer international students who successfully complete their studies the opportunity to remain in the UK to work, live and contribute to our national life. I know there have been other questions on that issue, and I will endeavour to get back to Members on them.

I am aware that there have been calls to bring back maintenance grants. The Government continue to provide means-tested, non-repayable grants to low-income students with children and/or adults who are financially dependent on them. Students undertaking nursing, midwifery and allied health professional courses qualify for non-repayable grant support through the NHS learning support fund. As we know, this is a space where much more needs to be done. We need to rebuild our NHS and put it back on a secure footing.

These are just some of the ways in which this Government are trying to mend the failures of the past. However, we recognise there is much more to be done to support students from disadvantaged backgrounds, and we are determined to reverse the decline in participation rates for disadvantaged students. We expect the higher education sector to do more to support students by working with the Government and the OfS and by making the most of the lifelong learning entitlement. We will be setting out our longer-term plans for the sector next year.

I understand that there have been some concerns regarding the recent OfS announcement that it is enacting temporary changes to its operation to allow a greater focus on financial sustainability. As the Minister for Skills explained in the House of Lords yesterday, this decision by the OfS reflects the Government’s determination to move our providers towards a firmer financial footing. The refocusing of the OfS on the issue of financial sustainability and our decision to increase tuition fees demonstrate our ambition to create a secure future for our world-leading higher education sector.

Before I close, I will briefly set out the Government’s position on research funding, which is the responsibility of the Department for Science, Innovation and Technology. We committed to record funding for research and development in the recent Budget. We are increasing core research funding to more than £6.1 billion to offer real-terms protection to the UK’s world-leading research base and to support UK Research and Innovation in delivering on the UK’s key research priorities. This Government are determined to work with the sector to help it to transition to sustainable research funding models, including increasing research grant cost recovery.

I again thank everybody who has contributed significantly to this debate—

[Neil O'Brien]

I just wanted to rephrase my question. Do this Government think it is okay not to answer basic questions about how much the national insurance increase is costing education providers—be they nurseries, schools or universities? Can the Minister confirm that she will answer those questions?

[Janet Daby]

I understand that there are some concerns regarding how the sector will contend with increases to employers’ national insurance contributions. As the Chancellor set out in the Budget, raising the revenue necessary to fund public services and restore economic stability requires difficult decisions on tax, which is why the Government are asking employers to contribute more. We strongly believe that this is the fairest choice to help to fund the NHS and wider national priorities, which were failed by the previous Government and strongly need a greater focus on building up public services and public provision.

As set out in the November update on the financial sustainability of the sector, the OfS estimates that the fee uplift will represent up to an additional £371 million of annual fee income. The national insurance contribution changes for employers will result in additional costs for the sector of £133 million in 2024-25 and of £430 million in each year from 2025-26. The Department plans to publish its own estimates shortly, as part of its assessment of the impact of the planned tuition fee and student finance changes.

We are committed to creating a secure future for our world-leading higher education sector so that it can deliver for students, taxpayers, workers and the economy. Although the Government have already taken action to help to move the sector towards a more sustainable and stable financial footing, we recognise that a real change of approach is needed, both from the Government and from the sector itself, to support our broader plans for higher education. For that reason, we look forward to working in partnership with the sector, the Office for Students, the Department for Science, Innovation and Technology, and UK Research and Innovation to shape the changes to Government policy.