Draft Higher Education (Fee Limits and Fee Limit Condition) (England) (Amendment) Regulations 2025
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The Parliamentary Under-Secretary of State for Education (Stephen Morgan)
I beg to move,
That the Committee has considered the draft Higher Education (Fee Limits and Fee Limit Condition) (England) (Amendment) Regulations 2025.
It is a pleasure to serve under your chairship this evening, Ms Furniss. This statutory instrument, which was laid in draft on 20 January 2025, increases the limits on tuition fees that higher education providers can charge students studying undergraduate courses at approved fee cap providers in the 2025-26 academic year. This SI also introduces new lower tuition fee limits for foundation years in classroom-based subjects offered by approved fee cap providers, starting in the 2025-26 academic year.
Our higher education sector is part of what makes our country great. The sector makes a vital contribution to powering our economy, delivering world-leading research and innovation, enriching our society, supporting communities and opening up opportunities for individuals. From my personal experience—I was the first in my family to go to university—I know that the sector is a beacon of opportunity that everyone in this House ought to be proud of.
But this world-leading sector is now facing severe financial challenges. With tuition fees frozen for the last seven years, universities have suffered a significant real-terms decline in their income. Teaching income per UK student has declined in real terms since 2015-16 and is now approaching its lowest level since 1997. The Office for Students reports that a growing number of higher education providers are facing significant financial difficulty. Its analysis suggests that, by 2025-26, up to 72% of providers could be in deficit, and 40% face low liquidity if no mitigating action is taken.
We need to act now to put our higher education sector on a secure footing to face the challenges of the next decade, and to ensure that all students can have confidence that they will receive the world-class higher education they deserve. We also need to ensure that students receive value from their investment.
Taking each of those objectives in turn, this SI is intended to fix the foundations and put this vital sector on a more secure footing. It will mean that, from 1 August 2025, tuition fee limits for undergraduate courses will increase by 3.1%, in line with forecast inflation, based on the retail prices index excluding mortgage interest payments inflation measure. That means an increase to £9,535 for a standard full-time course, £11,440 for a full-time accelerated course, and £7,145 for a part-time course.
The decision to increase maximum fees has not been easy, but it is necessary to ensure that our higher education sector can continue to contribute to our economic growth, our globally important research and our local communities, and can continue to open up opportunities for those who wish to participate in higher education. Members on both sides of this Committee will agree that it is no use keeping tuition fees down if there are no universities for students to attend, or if students are not receiving the quality of education that they deserve and that is needed to meet the skills needs of our economy now and in the future.
I understand that some students may worry about the affordability of higher education, but I reassure them that eligible students will continue to be able to apply for up-front fee loans to meet the full cost of their tuition, and that when they start repaying their loan, they will not see higher monthly repayments as a result of these fee changes. That is because monthly repayments depend on earnings, and at the end of their loan term, any outstanding loan balance will be written off. We will also be working with the sector to ensure that it does more to improve access for those from disadvantaged backgrounds, and to deliver the very best outcomes both for students and for the country.
This SI also focuses on improving efficiency and delivering value for students. Lower fee limits will be introduced for undergraduates starting foundation years in classroom-based subjects in the 2025-26 academic year: £5,760 for a full-time course and £4,315 for a part-time course. The Government recognise the importance of foundation years for promoting access to higher education, but there has been a rapid and disproportionate growth of foundation years in classroom-based subjects that can be delivered more efficiently at a lower cost to students. To be clear, providers offering foundation years in all other subjects, such as those in science, technology, engineering and maths and the creative arts, will be able to charge fees up to the new fee limits of £9,535 for a standard full-time undergraduate course and £7,145 for a part-time course.
This SI will put our higher education sector on a more secure footing, enabling the sector to continue delivering the world-class higher education that both current students and future generations deserve. I hope that hon. Members will support these important regulations, which I commend to the Committee.
Neil O’Brien (Harborough, Oadby and Wigston) (Con)
It is a pleasure to serve under your chairmanship, Ms Furniss.
Through these regulations, the Government are increasing tuition fees to £9,535 a year. The maximum maintenance loan for students not living at home is £10,227, or £13,348 in London, so after a typical three-year degree, a graduate will need to pay back up to £59,000, or up to £68,600 for those who studied in London. If the Government continue to raise fees in the same way throughout this Parliament, those figures will increase to about £66,400 in the rest of the country, or £76,900 for those who studied in London. Those are two very large numbers.
As it happens, this year’s fees hike has not made universities any better off because the cost of the national insurance hike wipes out the benefit to the sector of the decision to increase tuition fees. Effectively, one broken promise on fees is paying for another broken promise on tax. The Secretary of State’s website still has the ironic headline, “Graduates, you will pay less under a Labour Government”, but in reality they are paying higher fees and more tax, too.
The current system produces some incredibly high marginal rates for young people. Those who have a postgraduate loan, or who pay the high-income child benefit charge, face incredibly high marginal rates, even on middling incomes. Sadly, the new Government have abandoned plans to reform the HICBC, so this problem will not go away any time soon. Graduates have 51% of their income taxed away at just £50,000 of earnings, a sum which will not feel like being rich for those renting in an expensive city. At £60,000 of earnings, graduates with kids, particularly postgraduates, face marginal rates in the 58% to 73% range—the kind of rates that used to apply only to super-taxes on the very wealthy.
One way things have changed since the launch of fees is that we have much better data, particularly thanks to the creation of the longitudinal education outcomes dataset under the last Government. This lets us look at a degree’s value added compared with something else, and something else can sometimes be better. The latest data shows that the median first-degree graduate earnings five years after graduation are £29,900, compared with £33,800 for level 4 apprentices; the apprentices are earning substantially more.
The Institute for Fiscal Studies has taken the deepest look at this question. It has considered how graduate earnings are evolving for those who study at different types of institutions and on different types of courses, and it has tried to compare that with counterfactuals for people with similar prior characteristics. It looked at how many people saw their earnings boosted by a degree and what the costs were, and worked out the net benefit for the individual and the taxpayer, and it combined these perspectives to get a final score. The conclusion of its 2020 report was that
“seen over the whole lifetime, we estimate that total returns will be negative for around 30% of both men and women.”
That is a huge share for whom it is proving not to be worth it.
The IFS also noted that
“While getting an undergraduate degree is worthwhile financially for most students, there is significant variation across subjects. Some subjects, such as medicine, law and economics, offer a springboard to very lucrative careers…However, a significant minority of mostly men are likely to not see positive returns as a result of going to university…lifetime earnings returns remain low or negative for subjects such as creative arts and English.”
Today’s Times has a report based on my freedom of information requests to the Student Loans Company. That in itself is telling: the whole process of assessing public spending on higher education needs to be radically more transparent. We should not need to rely on freedom of information requests just to get this data, but now that we have it, it reveals the vast variations between higher education institutions in the share of loans that are being repaid. Where we see that only very small fractions of the money loaned out by the taxpayer is paid back, it often means that the courses are not that great for either the taxpayer or the student, who may feel that their degree has cost them a lot without necessarily taking them to where they hoped. Yet the Government seem to have looked first at jacking up young people’s fees, and they seem to have given up on reforming the system to weed out courses that offer low value for money.
Speaking of value for money, one university that will benefit from these regulations is the University of Greater Manchester. The Minister will have seen the extremely concerning reports in the press, particularly The Manchester Mill, about the attempts to pay huge sums of what is effectively taxpayers’ money to relatives of the university’s managers, and to what appears to be a shell company in Casablanca. Can the Minister assure me that he is investigating those concerning allegations?
I am very sympathetic to the plight of staff at universities where the leadership have got them into financial difficulties, be it through taking out ill-judged, expensive loans, overspending on buildings or becoming overdependent on one particular group of overseas students—I am sympathetic to universities and lecturers more generally, as it is a hugely important job. I am not saying that all universities are awash with cash, but it is worth saying that up-front real-terms funding per student is still substantially above the level of the pre-fees era, even as student numbers have exploded.
There are many wonderful, valuable courses in our universities, which I hope will expand and prosper, but young people in Britain are now facing really large repayments and high marginal rates, which make it difficult to get on in life. We need to do right by our universities, but we also need to do right by our young people. I believe that reforms offer scope to get them a much better deal. We should look first to reforms, rather than simply increasing the burdens on young people. That is why we are sceptical about these regulations.
Rachael Maskell (York Central) (Lab/Co-op)
It is a pleasure to see you in the Chair, Ms Furniss. I speak as an MP with two universities in my constituency. Over the last few years, I have often talked with them about the new financial strains they have experienced. I have therefore followed this debate extremely closely.
Many universities have had a very difficult few years. We need to acknowledge that and congratulate them on the way they have put measures in place to control those costs, but for many it has been at a cost to their courses, with many staff, including academics, being made redundant. That means narrowing the offer at a time when we want our higher education sector to excel, as it is a sector of which we can be immensely proud.
I fully understand why the Government have gone down the path of raising tuition fees by 3.1% to a cap of £9,535, other adjustments aside. However, it would not be right to see this as a long-term solution, and I therefore seek an assurance from the Minister that we will not see further fee increases in this Parliament, and that we will instead look to address the quick succession of financial shocks to which the sector has been exposed.
The student visa changes have had a profound impact on York’s universities, decreasing the number of overseas students. The universities are therefore having to reschedule their costs. I very much hope the Minister will move to enable students to come with their dependents to study in the UK and put into our local economies, which depend on those students and their families making a wider, positive contribution, as well as helping the universities with their finances. I also hope the Minister will ensure that we can continue to have the excellence that comes with the academic study and research base that I see in York’s universities.
I know that universities are trying to plan for the long term. I disagree with what the shadow Minister says about universities overreaching, as the University of York and York St John University have placed themselves in the centre of our city, ensuring that they are part of our economic future. Investing in the technologies and jobs of the future is part of York’s inclusion agenda, which we need to facilitate. Universities are key anchor institutions in places like York, and they can help to address the inequality and huge regional divides we experience.
But we also know that there have been wider pressures. The national insurance obligations have had a real impact on the sector, as has the rise in the national minimum wage. I urge the Government to feed back to the Treasury in particular that the national insurance rises could have been more nuanced so as to assist the sector, particularly given the plans to raise student fees. I welcome the rise in the national living wage, but that of course has had a cumulative impact on universities’ income and expenditure.
As we all know, Brexit has had a real impact on universities. The loss of the Erasmus scheme has not been equalled by the Turing scheme, and there has been an impact on research relationships, academic work and the ability of students to come to the UK—the visa controls. It has also not been long since the covid shock and then the cost of living shock. That has all had a cumulative impact on the budgets of universities, which are trying very much to lead our communities and drive forward the economy of the future.
Despite universities’ excellence in demanding more from their finances, restricting their ability to offset costs has meant that the Minister has had to let those costs fall on students. I have real concerns about that, not least after discussing the issue with students in York. I understand the need for more income for universities, but the impact on students is considerable. Having met student unions in York, I know that the cost of housing there is absolutely astronomical and having a real impact on students. It is the same with travel costs, which are significantly more than in other places outside London.
As a result, students are having to work ever more hours in the local economy to offset the costs. They are being priced out of degrees; many who have started their studies in York have not been able to complete them as they are having to work more or less full time. Academic work is suffering as a result. I have a real concern that placing a greater financial burden on students particularly affects those from families with a lower socioeconomic background, and I note that page 27 of the relevant equality impact assessment says that the fee increase may deter students of lower socioeconomic status from coming to university and discusses the real cost of the increase on them.
I trust that the Minister will look at how to support hardship resourcing through the Office for Students so that no student is turned away. All in all, the tuition fee model is broken when it comes to funding education; the money risks ending up in the wrong places. Now that we are in power, I urge the Government to take a bigger view of funding for higher education. Education should be seen as the most significant investment in our economy. It fuels our research and innovation, drives economic benefit and transforms people’s lives. We need to make sure that no one is excluded. I regret that the failures of the last Administration have brought us to the point of raising fees today. I trust that we can find better solutions for tackling the wider funding of higher education and its broader ecosystem, not least as universities produce the research and innovation to drive our whole economy forward.
In closing, I ask the Minister whether he expects other rises in student fees during this Parliament. What steps are the Government taking to ensure that people of lower socioeconomic status are not impacted by this policy? I note the increase in the money that students will be able to access and what the Minister has said about the amount that students pay back. What future planning are he and his colleagues doing to ensure that there is a better account and better process for funding higher education in future?
Stephen Morgan
I thank the shadow Minister and my hon. Friend the Member for York Central for their contributions. First, I reiterate the importance of the statutory instrument in putting our higher education sector on a secure footing and ensuring that students receive value from their investment. Committee members will know the sector’s importance for economic growth. They will know about its world-leading research and contribution to local communities, as well as how it changes the lives of those who participate in it.
Providers have suffered a significant real-terms decline in their income, following seven years of frozen tuition fees, and we need to act now to ensure that future generations of students can benefit from our world-class higher education sector. However, we are clear that in universities, as across our public services, investment can come only with the promise of major reform. That was why my right hon. Friend the Secretary of State for Education announced in the House on 4 November last year that we will publish a plan for higher education reform in the summer.
The shadow Minister made a number of points about national insurance contributions. As the Chancellor set out in the Budget, raising the revenue needed to fund public services and restore economic stability requires difficult decisions on tax. That is why the Government are asking employers to contribute more. We strongly believe that that is the fairest choice to help to fund the NHS and wider national priorities. The higher education finance and funding system needs to work for students, taxpayers and providers. The fee increase represents a significant additional investment from students into the sector, and we will support higher education providers in managing the financial challenges that they are facing.
On student loan repayments, we understand that some students might worry about the impact that the increased fee limits will have on the size of their loan. We want to reassure students that, when they start repaying their loan, they will not see higher monthly repayments as a result of changes to fee and maintenance loans. That is because student loans are not like consumer loans; monthly repayments depend on earnings, not simply the amount borrowed or interest rates. At the end of any loan term, any remaining loan balance, including interest that has built up, will be cancelled.
The shadow Minister asked about graduate earnings. On average, graduates benefit from their university education by over £100,000 in their lifetime compared with someone who did not go through higher education. He also asked about the press coverage of the University of Greater Manchester. Of course, that is a matter for the university, but we understand that the Office for Students—the independent regulator for HE in England—has been notified of this case. The university is conducting its own investigation and it would not be appropriate to comment any further at this stage.
My hon. Friend the Member for York Central, who is a real champion of higher education for her constituents and her community, made helpful points about quality. Students and the taxpayer have a right to expect a good-quality education in return for their considerable investment in higher education. For their investment, students deserve excellent teaching that supports them to learn and develop the skills that they need to achieve their full potential. That was why we made a commitment to raise university teaching standards in our manifesto, and we want higher education providers to collaborate, share best practice and deliver continuous improvement in the quality of their provision. Students also deserve to know what to expect when making their investment in higher education. We want providers to be transparent about the things that matter to students, such as the number of contact hours that they can expect when studying specific courses.
On international higher education students, the Education Secretary, in her speech in July 2024, made it clear that we welcome international students who have a positive impact on UK higher education, and on our economy and society as a whole. International students enrich our university campuses, forge lifelong friendships with domestic students and become global ambassadors for the UK. Our universities have taught dozens of current and recent world leaders. This gives us an enormous amount of soft power and also builds strong relationships, which is why we offer international students who successfully complete their studies the opportunity to work, or look for work, in the UK on a graduate visa for two or three years after their studies finish, allowing them to live and work here, and to contribute to our society and economy.
Rachael Maskell
I am grateful for what the Minister says, but we know that the changes in visa requirements have had a major impact on higher education. I urge him to take that back to the Department and look at the changes again so that our universities can welcome students and their dependents into our country.
Stephen Morgan
My hon. Friend is being kind to me, as she knows I am not the Government spokesperson on higher education, but I will ensure that my colleague who does lead on it takes that point back to the Department.
My hon. Friend the Member for York Central made a number of helpful points about access and participation. Our mission is to break down the link between background and success that has hampered the life chances of too many in this country. We are committed to supporting the aspiration of every person who meets the requirements and wants to go to university. We know that there are stubborn and persistent inequalities within our education system, and those must be addressed. It is vital that all higher education providers play a stronger role in expanding access and improving outcomes for disadvantaged students.
By summer, we will set out our plan for higher education reform and the part that we expect providers to play in that. Through our reform, we are determined to ensure that universities are engines of opportunity, fairness and growth. I commend the regulations to the Committee.
Question put and agreed to.