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 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—
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.