Higher Education (Fee Limits and Fee Limit Condition) (England) (Amendment) Regulations 2025
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Baroness Smith of Malvern
That the Grand Committee do consider the Higher Education (Fee Limits and Fee Limit Condition) (England) (Amendment) Regulations 2025.
Relevant document: 16th Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)
The Minister of State, Department for Education (Baroness Smith of Malvern) (Lab)
My Lords, I thank the Secondary Legislation Scrutiny Committee for its scrutiny of these draft regulations. This statutory instrument, which was laid in draft on 20 January, 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. It 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. A separate SI making changes to maximum fees, loans and living costs support for the 2025-26 academic year was laid before the House on 13 February.
As so many noble Lords, including those present today, have witnessed at first hand, our higher education sector is something to be immensely proud of and, as I am sure they agree, to protect for this and future generations. We have spoken recently in this House about how our higher education sector is one of the best in the world, delivering internationally recognised research and teaching. It is an engine for national economic growth as well as providing important local anchor institutions, contributing significant employment, delivering local skills needs, supporting local communities and enriching society. Higher education providers change the lives of individuals by opening up new opportunities and allowing them to follow their passions. We have also heard in the House how higher education is a public good, benefiting not only those who walk through its doors but the wider communities in which the providers sit.
But now that world-leading sector is facing severe financial challenges. This House acknowledged the financial health of the sector when we debated it in the Chamber in September. With tuition fees frozen for the last seven years, universities have suffered a significant real-terms decline in their income. Teaching income per student that higher education institutions receive 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 face significant financial difficulty. Its analysis suggests that, by 2025-26, up to 72% of providers could be in deficit and 40% will face low liquidity if no mitigating action is taken.
As many noble Lords said during our debate on financial sustainability, the time for action is now. We must ensure that our higher education sector is put on a secure footing in order to face the challenges of the next decade and to ensure that all students have confidence that they will receive the world-class education they deserve. We also need to ensure that students are receiving value from their investment. I will take each of those objectives in turn.
This SI is intended to fix the foundations and put our higher education 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 RPIX inflation measure. This means an increase to a maximum of £9,535 for a standard full-time course, £11,440 for a full-time accelerated course and £7,145 for a part-time course. Increasing maximum fees has not been an easy decision, but it was the right decision to ensure that the sector has an injection of funding before it faces irreparable damage. Increasing fees will mean that providers can continue to contribute to our economic growth, globally important research and delivering for our local communities.
Lord Willetts (Con)
My Lords, I very much welcome this measure. I should declare my interests as a visiting professor at King’s College London and a member of the University of Southampton’s council. I know from seeing universities close up that the situation is indeed serious, as the Minister rightly said. The freeze in the level of fees has meant a 28% cut in the real resource available for universities in the last seven years. This cannot carry on, so I support this measure.
Having heard the Minister’s arguments about the need to strengthen universities’ financial position, I would add that it is a pity that the entire extra revenues for universities from this measure go in meeting the national insurance costs that they face. I hope that the Minister will be able to tell us, in her winding-up speech, her estimate of the extra expenditure on national insurance for universities as compared to the extra receipts from these higher fees. What I conclude from this is that, if the Minister is to live up to the excellent rhetoric about putting universities on a sounder financial footing, she will need to go further in future. I hope that, in her response, she can give some indication of her plans for the future. I would encourage the Minister to carry on with indexation as an absolute minimum—after all, that is what the Blair Government did, automatically indexing fees year after year—because, otherwise, the problem that she described so eloquently will just continue to get worse.
A range of us have, in different ways, tried to find an alternative system for funding higher education. Employers will not put up any more, and the Treasury and the taxpayers are not going to put up any more either. So we all end up reluctantly concluding that this is the only game in town. All three political parties represented in the Committee today have concluded that you have to put up fees in order to sustain our higher education system—and that is the case.
We could all learn a lot from my noble friend Lord Johnson, who introduced the TEF. Clear pressure to raise the quality of teaching is an important part of any future increase. Personally, instead of the rather random process of an Augar review or a freeze, I always wanted to see a quinquennial review—a review every five years—modelled to some extent on the way in which the social security system operates, from which we can always learn. A quinquennial review would enable a judgment to be made about the right level of the repayment threshold and the right level of fees, in the light of what had happened to earnings and the cost of higher education, and it could set out a formula that lasted for the life of a Parliament.
I will not comment on foundation years. I recognise the political and popular anxieties about measures such as this. Such measures never poll well, but the reason for that is often a misunderstanding. A lot of people still think that students have to pay up front, and a lot of people, including parents, think that the debt is like a credit card debt or an overdraft, meaning that, if their child has a £50,000 debt, they can take out £50,000 less as a mortgage. Those are misconceptions. The fundamental case for these measures is that they are in the best interests of students. Students will have a well-financed and well-funded higher education and, as the Minister rightly explained, will pay back only on a repayment formula that is not changed by these measures.
Finally, I urge that, now that the Government are operating with a model that they themselves were crucial in designing, the Minister and the Government own it. All three parties have a shared interest in trying to communicate the reality of this system. If ever we lapse into saying that the fees should not go up because there is a cost of living crisis, that feeds misunderstanding and is extremely irresponsible.
I hope that the Minister will be able to spare the time for a meeting where we could go through the painful lessons I have learned about how one tries to communicate the reality of the system. I also hope that she might consider a more strategic approach, so that universities know that the real resource they have will at least be protected in the years to come.
Baroness Wolf of Dulwich (CB)
My Lords, I also must declare an interest, as a member of the academic staff of King’s College London. I would also like to note that I was a member of the Augar review. Apropos of the suggestion by the noble Lord, Lord Willetts, of a quinquennial review, I am rather pleased that it has taken only six years since the final report of the Augar review to get to some of the implementation of it.
Obviously, I welcome the Government’s decision finally to raise fees a little, but I would like to say something about foundation years. As the Government’s memorandum points out, this came out of the Augar review’s recommendation: basically, foundation years should go, except in a few specific high-skill and very important subjects, such as medicine. It is worth noting that, although the Government—indeed, their predecessor was in a similar position—decided not to go that far, as has been pointed out,
“there is little evidence that studying a foundation year is always necessary for students wishing to access an undergraduate course in these subjects, and potential foundation year students can choose functionally similar courses—such as Access to HE diplomas—that cost significantly less”—
or, as in the case of A-level resits, cost them nothing at all.
Although I very much welcome the decision to reduce the level of fees on classroom-based foundation years, I recollect for the record that when we first looked at them on the Augar committee, nobody had really noticed, including us. It was pointed out to us by the FE principal member of our committee, Bev Robinson, who basically said, “Do you realise what’s happening?”. She also noted—I cannot tell how widespread this was—that she had come across some very aggressive recruiting by universities of young people who, in her view, would have been much better off either doing access to HE or retaking their A-levels.
I underline that the Government recognise this, and that the Secondary Legislation Scrutiny Committee also noted:
“While we welcome attempts to encourage under-represented groups into HE, we would be concerned if these came at the expense of poor value for money for those students and for taxpayers”.
The consultation process resulted in a small majority of people saying that they did not want the fees to go up. However, the majority of non-higher education provider respondents definitely wanted the fees to go down. That is where we are.
My view is that there is still a question mark over these years. I thank the Minister for cutting the fees for foundation years in classroom-based subjects, but can she assure us that the Government will continue to monitor enrolments to see whether that does in fact put an end to the enormous growth that there has been? Will she consider asking the department to study the impact of foundation-year study on young people who go by that route, and how successful they are? It is very easy to forget about it again, and it crept up on everybody unawares—and I think everyone is agreed that it is a good thing that we are taking some action.
Lord Johnson of Marylebone (Con)
My Lords, I also have to declare an interest as a visiting professor at King’s. I have other education-related entries on the register, which I will not list here.
I welcome the Government’s decision to allow the increase of fees in line with inflation. It is long overdue, and I wish that previous Administrations had had the good sense to crack on with it, as this Government have. The feast-to-famine approach to funding higher education is hugely inefficient and leads universities to make job cuts and programme closures that they might not otherwise do, if there were greater certainty over their funding. I echo what my noble friend Lord Willetts said about the need to put this situation on a more stable footing, ideally, with annual indexation. That would be eminently sensible. Like him, I would be interested to find out from the Minister, when she replies in due course, how much of that fee increase will be left to institutions once they have dealt with the increase in national insurance contributions down the line.
The key thing is that inflation is an ongoing cost, and the OBR has made forecasts of near 3% inflation for each of the next three years. If the Government do not allow for further indexation in coming years, universities are going to be looking at another real-terms fall in their income of around 11% or 12% by 2030, so it is really no joke at all. I urge the Government to keep on gripping the nettle and dealing with it. From a political point of view, the sooner in the political cycle they do that, the easier it will be. Making these sorts of decisions should not be difficult, but leaving it to years 2, 3 or 4 of a Parliament means that it becomes much less palatable. I urge the Minister to get on and announce the continuing indexation for the coming few years.
Welcome though this funding is, there cannot be something for nothing. As the noble Baroness, Lady Wolf, said, the sector has to continue to demonstrate value for money for students and taxpayers whose loans underpin the funding of higher education.
I am very pleased that my noble friend Lord Willetts mentioned the TEF. I was also glad to see that the Office for Students strategy—now out for consultation—gives a prominent role to the TEF in how it plans to ensure quality in the system. The TEF plays a valuable role in driving excellence and good student outcomes above the baseline ensured by the B3 metrics. It has a really useful role to play in that respect, so I am pleased to see that it is going to be part of the future quality arrangements.
Lord Storey (LD)
My Lords, the Minister is right to talk about financial sustainability. She is also right to talk about how we must value students. I remember quite clearly how the noble Lord, Lord Johnson, told us at every opportunity that we needed to increase tuition fees for the sake of the university sector. It always struck me as interesting how we would laud our university sector by saying, “We have three universities in the top 10 in the world rankings” and “We have got x number in the top 100 rankings” and—
Lord Storey (LD)
It always seemed to me that were almost gloating about this, but what a fine way to show that in the financing of our university sector, or in how we look after our students in many cases.
As I think has been said by the noble Lord, Lord Willetts, last year the Minister very bravely said the Government were going to increase tuition fees to get over that difficulty. Then, of course, along came national insurance and all that wonderful extra financial resource is completely lost.
My knowledge of the university sector has increased over the years with my children going to university and I also served on the governing council of Liverpool Hope University, so my interest has grown. I always think that we do not really grapple with some of the issues that face us; we try to push them away. I thought that when loans were introduced, it would put students in the driving seat of a university education. I do not think that has happened. In some universities, the way students are regarded is not as good as it should be.
I also wonder whether Tony Blair saying he wanted 50% of young people to go to university was the right way of deciding how we grow the university sector. I look now, and I see some universities really struggling, offering very low grades to get into university. I see universities almost competing with each other on courses when they are in the same city, for goodness’ sake—I just do not understand that. I look at private universities, which, obviously, get finances from the system. I was heavily involved in the Greenwich School of Management, where the Government were able to say, “We’re taking all these young people from deprived backgrounds and giving them a university education”—but, at the end of the first year, they took the money and ran. What went on in that particular private institution, along with others, was completely wrong. When it was highlighted on “Panorama”, the college was closed down, along with others. In one case, police took action. So we have to look carefully at how we use the money as well. Some of the practices that we currently carry out are, in my mind, just not acceptable.
I want to see students really value their university education. I will give an example of something that is a great pity. When I was at university, I stayed on Merseyside, but I loved the fact that I met people from all over the country, who are some of my best friends—from the north-east and elsewhere. Nowadays, students cannot afford that and, increasingly, they go to the university in their home area or even their home city. The figures for Liverpool John Moores or the University of Liverpool, for example, increasingly show that the students come from that city, that conurbation or that region. We have lost something in losing that opportunity.
I am delighted that the Minister talked to us about how we need to look at this properly and come forward with some proposals in the summer. I am delighted and excited by that, to be quite honest, but I hope those proposals will give us the opportunity to give our ideas and thoughts on what that might be. But, in terms of this SI, I very much support what the Government are doing.
Baroness Barran (Con)
My Lords, as we have heard, this statutory instrument increases by 3.1% the maximum tuition fees that higher education providers can charge for the majority of courses and, in turn, the amount of tuition fee loans that students can take out. It also reduces the maximum amount of tuition fees that can be charged for foundation year courses in certain classroom-based subjects, such as business studies, humanities and social sciences. These Benches very much welcome the Government’s decision on foundation year courses; we have seen potentially troubling increases in the number of students taking these courses, particularly where franchise providers are used to deliver them.
However, I have three main concerns about the approach that the Government are taking to the tuition fee increases. First, this increase, in line with inflation, sets a precedent for future fee increases. I absolutely hear the points made by the Minister and my noble friends about the importance of giving universities visibility and stability in their financial model. But if we assume, in line with the OBR, that inflation remains at around 3%, it will take only a further two years of this policy before students will have to pay more than £10,000 a year in fees. So, after a typical three-year degree, students will leave with debt of around £59,000, or up to £68,600 if they live in London. Echoing the requests of my noble friends, I ask the Minister to clarify whether the Government plan to increase fees again in this Parliament in line with inflation—taking my noble friend Lord Johnson’s advice and doing that quickly—or is this a one-off decision?
Secondly, the Government have stated that they increased university fees for 2025-26 to
“help cement higher education providers’ roles as engines of growth in the heart of communities”.—[Official Report, Commons, 20/1/25; col. 19WS.]
The Secretary of State for Education deemed that this action was necessary to
“secure the future of higher education”.—[Official Report, Commons, 4/11/24; col. 47.]
However, as we have heard from all speakers this afternoon, this increase will not result in a net improvement in university budgets; indeed, the Secondary Legislation Scrutiny Committee commented in its report on this SI that the increase will “not reduce those difficulties” that higher education providers are facing. Our understanding is that the Government’s choice to increase employers’ national insurance will cost the university sector around £372 million, which will more than offset the increase in fees. So we are left in a situation where the Government have increased costs for all parties—students and taxpayers—without fixing the root of the problem. Indeed, the Secondary Legislation Scrutiny Committee noted that
“the ultimate costs of increases in tuition fee loans (and presumably also of maintenance loans, for the same reason) fall on the public purse to a significantly greater extent than the costs of those loans overall”.
So, although the focus is on students, the committee clearly believes that, ultimately, it will be the taxpayer who picks up the bill.
Thirdly, although, as I noted previously, we very much support the Government’s decision to reduce fees on foundation year courses, again, the SLSC notes that about 12 or so institutions will be most affected by the drop in income, which it estimates—or, perhaps, the Government estimate—as being between £154 million and £239 million annually. What assessment have the Government made of that impact? Can the Minister update the Committee on it?
More broadly, I hear and respect the comments of my noble friend Lord Johnson but I think it is fair to say that, as the number of degrees has expanded, some degrees have—my noble friend does not want to use the term “value for money”; I am fine with that—resulted in the taxpayer picking up a greater proportion of the costs than was the case in the past. The IFS noted in its 2020 report that total returns from a degree will be negative for about 30% of the men and women undertaking them. I totally understand that a degree is about much more than one’s earnings power, but one’s earnings power, particularly if you come from a disadvantaged community, is not insignificant either.
So I would be interested to know what the Government are doing to try to give students greater transparency about the degree choices that they are making in terms of future employability, career options and earnings power. The Minister will know that even a degree such as maths, depending on where you do it, will end up with very different outcomes in terms of earnings. It is important for students to understand the implications of their degree choices. The latest data showed that the median first-degree graduate earnings five years after graduation were £29,900 as compared to £33,800 for a level 4 apprentice. I appreciate that they are not interchangeable; I just use that as a demonstration of the point I am making.
It has taken a freedom of information request from my honourable friend Neil O’Brien to reveal the wide variations in the share of loans that are being repaid between different higher education institutions. In some cases, we see only very small fractions of what is being loaned out getting paid back, which means that these courses are definitely not great for the taxpayer but are arguably not great for the student either, who may feel that their degree has cost them a lot but not taken them to where they had hoped to get to.
Baroness Smith of Malvern (Lab)
I thank noble Lords for their contributions to this debate. It should perhaps have been sponsored by King’s College; there was clear quality from King’s on display in the quality of the contributions made. I will endeavour to answer noble Lords’ questions but, before I turn to those questions, I would like to reiterate the importance of this SI in putting our higher education sector on a secure footing and ensuring that students receive value from their investment; I will go further into some of the challenges and questions from noble Lords on that.
First, there is recognition that this a decision made for one year. That is why I was keen to emphasise in my opening comments that, in the summer, the Government will return to a fuller programme of reform that will include a longer-term answer to the question of the financial stability of higher education. It will also recognise the considerable investment in higher education that we are asking students to make and the responsibility, therefore, on the higher education sector to maximise its contribution to the growth of the economy in its role as a civic player and an anchor in communities; to ensure the quality of both teaching and the student experience; to close the gap in access and participation in higher education; and to ensure that that is done on the basis of efficiency and value for money.
I hear the call from the noble Lord, Lord Storey, for the Government to listen widely to contributions made on those reform pillars. That is the reason why, at the point at which we announced our decision to increase maximum tuition fees, we set out our determination to come back with that programme of reform. I will certainly reflect on many of the points that noble Lords have made today as we go forward on that work. I will want to hear—even if I did not want to, I am sure that I would—noble Lords’ views on all of those areas of reform.
On the point made by several noble Lords about the impact of national insurance contributions, I draw noble Lords’ attention to the Office for Students’ estimate that the employer national insurance contribution changes will result in additional costs for the sector of £133 million in 2024-25 and £430 million each year from 2025-26. However, although noble Lords have rightly called for recognition of the value of higher education and its impact on other areas of public service, it is also important to recognise the Chancellor’s challenge, as set out in the Budget, in raising the revenue required to fund public services and restore economic stability. It is important to recognise that that required difficult decisions on tax, which is why this Government are asking employers to contribute more through national insurance contributions. We strongly believe that this is the fairest choice to help fund the NHS and wider national priorities.
The HE 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. As I say, that will both support higher education providers in managing the financial challenges that they face and bring a responsibility for them to engage in the type of reform focus that I outlined earlier.
Several noble Lords asked about not only the process for repayments but the way in which students starting their higher education, and others, understand the consequences of taking on the loans that enable them to cover the cost of tuition up front. We understand that some students may worry about the impact that the increased fee limits will have on the size of their loans. As other noble Lords have done, we want to reassure students that, when they start repaying their loans, they will not see higher monthly repayments as a result of these changes to fee and maintenance loans.
That is, of course, 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. I hope, therefore, that those considering higher education will recognise both the enormous and broad benefits that come from higher education and the fair and manageable way in which they will be expected to repay out of their higher earnings—from higher education—the contribution that has been made towards their education.
I will be very pleased to meet the noble Lord, Lord Willetts—I am sorry that we have not already organised it—to learn from his experience, to consider his scars and to think about what we could gain from that as part of our longer-term thinking.
The noble Baroness, Lady Wolf, talked about her contribution to the independent Augar review and the conclusion it came to on foundation years. She welcomed the Government’s approach on this, but it is fair to challenge us to continue to monitor the levels of enrolment and see what the impact is. We could undertake to do that. She also made the important point that we need to be clear that students are accessing this level of education preparatory for higher education in the right institution. That is why another important area of focus for this Government and for the higher education reform process will be a greater emphasis on routes for students—particularly in the collaboration between higher and further education—and ensuring that they get the opportunity to learn at the appropriate institution, cost and time. We are clear about the contributions that institutions in further and higher education can play in that.
A couple of weeks ago, I was very impressed to see the relationship between the University of Birmingham and an FE college in Birmingham, where students were studying the first two years of an engineering degree before going on to gain that degree at the University of Birmingham in the third year. That is the type of innovative approach to opening up access and to high-quality pathways that we are keen to see more of.
The noble Lord, Lord Johnson, rightly emphasised and recognised the arguments that the Government have been making around value for money. He also described how that is not always necessarily best measured by a direct correlation with earnings from a particular degree, quite often within a relatively short period of time. It is important to think about how we measure that: how it might be influenced by the different types of institution, particularly those which might be contributing more to social mobility, and what the impact of that quite crude measure would be on those choosing to go into our public services.
I was taken back to an event I attended where the noble Lord, Lord Willetts, spoke about his recent pamphlet on precisely this issue. It is complex, and it is important that we do not make a direct correlation, as occasionally the last Government fell into, between earnings levels and the quality of particular courses, particularly when that tips over into a suggestion—I am sure that the noble Baroness never did this—that there are Mickey Mouse courses and others. There is quality in higher education courses. Although it is important, as the noble Lord rightly says, to ensure that that quality is properly and broadly measured, including through the TEF, crude measures may not necessarily help us make the best decisions here. However, ensuring quality in higher education is an important element of the Government’s reforms that we will say more about.
The noble Lord, Lord Storey, rightly focused on the student experience. He makes a fair point that we should have high expectations of higher education, increasing expectations such that students not only can access university but succeed in their time there, whether they choose to stay close to home—there are benefits to that—or to travel. We also need to ensure that universities are working closely with local authorities and others to make sure that the costs and quality of accommodation and the impact on students of the broader need for accommodation in university areas are properly considered. As I have said, the noble Lord volunteered to contribute ideas towards the higher education reform work that we are doing, which I welcome.
I have covered some of the points and questions raised by the noble Baroness, Lady Barran, but she made a specific point about the foundation fee reduction falling on a few providers. It is likely not to fall equally across providers and to fall on particular providers. It will be important for the OfS to consider that in its analysis of financial stability.