Higher Education: Financial Pressures

Baroness Barran Excerpts

Thursday 30th March 2023 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Education (Baroness Barran) (Con)]

My Lords, I am very grateful to the noble Lord, Lord Knight, for bringing to your Lordships’ attention the important matter of financial sustainability in the higher education sector, and for securing this important debate. As we have heard this afternoon, higher education is of vital importance to this country’s prosperity. Many of our institutions are world leading and provide a top-class education which equips students with the skills they need to get great jobs and to make sure that we have an internationally competitive workforce. For these reasons, higher education providers will continue to play an integral role in supporting this Government’s aim of levelling up productivity and employment.

We know that the finances of HE providers are sound when we look at this at a sector level. The income in the sector has increased from just under £35 billion in 2018-19 to just over £37 billion in 2020-21. But the sector is not uniform, and it might be helpful to step back slightly and look at some of the longer-term structural changes in the sector. We have seen a very significant growth in the number of students over the last five years to 2.34 million in the last year, but we have also seen a very significant increase in the number of institutions, from 153 five years ago to 248 in 2020-21. That includes roughly a doubling in specialist postgraduate providers and almost a quadrupling in smaller specialist providers. So I do not want to suggest that funding is not an issue in all of this, but there are some structural changes in the sector, including the size of some institutions, which are also relevant to your Lordships’ debate.

As your Lordships have mentioned, the number and profile of providers in deficit is not uniform. It is unchanged for high-tariff providers, according to the Higher Education Statistics Agency data. It is down slightly for medium-tariff universities, whereas the number in deficit among specialist providers was up from two to 21 between 2017 and 2021, and for low-tariff providers it was up from 47 to 70, so we have seen a very significant shift. I say this because higher education providers are autonomous and independent. They are responsible for the decisions they make about their operating model and for their day-to-day management and sustainability. My understanding is that your Lordships believe that that is very important.

The Office for Students is the independent regulator of higher education in England and monitors the financial viability and sustainability of providers registered with it. Next month, the OfS is expected to publish its next report on the financial health of the HE sector, based on the analysis of providers’ financial forecasts and annual financial returns for 2022. Officials in the department meet regularly with the OfS, as do Ministers, to oversee the climate of higher education provider financial sustainability and to identify emerging risks and issues for the sector.

At this point, I thank the noble Lord, Lord Austin of Dudley, for highlighting the need for more educational opportunities in areas that traditionally have not had them. That important point was also raised by the noble Baroness, Lady Twycross. I am delighted to hear the noble Lord’s enthusiasm about the local institute of technology in his area. As he will know, we have increased the number of institutes of technology—which are partnerships between colleges, universities and employers—from the original 12 to 21 institutes, and we are investing close to £300 million in them.

On the final point the noble Baroness, Lady Twycross, made—which was not long at all and was very important—about making sure that higher status courses are available to disadvantaged students, I think we all feel that status has traditionally sat with the most academic courses. However, there is a real need to recognise the importance and value of technical courses as well as some academic ones. I think a shift in the narrative is happening about what represents status, and that should be accessible to all. She will be aware that the proportion of disadvantaged students accessing higher education has been on a welcome upward trajectory, but her challenge about making sure that it is always in relation to the highest-quality courses is very welcome.

The noble Lord, Lord Knight of Weymouth, and the noble Baronesses, Lady Wilcox and Lady Warwick of Undercliffe, all raised a number of wider issues in the sector and different aspects of financial pressure that I will try to address. The noble Viscount, Lord Chandos, raised a specific point about specialist institutions. As I am sure he knows, the OfS concluded its review of small and specialist providers in December last year, and those providers that were judged to be world-leading will retain that status for five years. The OfS intends to keep its funding allocations fixed during that period, subject to affordability.

A number of noble Lords raised the issue of tuition fees, including the noble Lord, Lord Davies of Brixton. The Government’s principal priority for students is to ensure that their best interests are protected, and we have taken a number of measures relating to student finance to try to ensure this. To deliver better value to students and to keep the cost of higher education under control, we have frozen the maximum tuition fees for the 2023-24 and 2024-25 academic years. By 2024-25, maximum fees will have been frozen for seven years. We believe that continued fee freeze achieves the best balance between ensuring that the system remains financially stable, offering good value for the taxpayer and reducing debt levels for students in real terms, but we also understand that, of course, this puts pressure on some providers and requires their business model to evolve. I will touch on that more in a moment.

The noble Baroness, Lady Warwick of Undercliffe, touched particularly on maintenance loans and the pressures that students face. In addition to the tuition fees freeze, we have continued to increase maximum loans and grants for living and other costs for undergraduates and postgraduate students each year. This academic year saw a 2.3% increase, while a further 2.8% increase has been announced for the academic year 2023-24. The Government recognise the additional cost of living pressures that have arisen this year and have impacted students. However, decisions on student finance will have to be taken alongside other spending priorities. This will ensure that the system remains financially sustainable and that the costs of education are shared fairly between students and taxpayers, not all of whom have benefited from going to university.

The noble Baroness, Lady Donaghy, asked whether the Government planned to unfreeze tuition fees before the next election. The maximum tuition fees will be frozen until 2024-25, and Ministers will review those fees for 2025-26. The noble Baronesses, Lady Donaghy and Lady Twycross, asked about funding more university places for doctors, nurses and teachers. Teaching and nursing places are not capped by the Government. Medical student number targets are set by the Department of Health and Social Care, based on the workforce needs of the NHS and the availability of clinical training placements. Along with the postgraduate teaching apprenticeships, the Department for Education and IfATE are currently co-designing a degree-awarding apprenticeship that will confer an undergraduate degree alongside qualified teacher status, with a view to launching this as soon as possible.

A number of your Lordships asked what the Government would do in response to a university failure. If a provider were at risk of an unplanned closure, our priority would be to act with the Office for Students, the institution and other government departments to make sure that students’ best interests are protected.

The noble Lord, Lord Parekh, referred to some of the changes in the student finance and loan repayment system, and asked whether the Government were looking at levelling up in relation to the student loan system. We would argue that the system is already shaped in such a way as to protect those people who do not end up on higher incomes. Today, only 20% of student borrowers who entered full-time education in the 2021-22 academic year are forecast to repay their loans in full, with the remainder paid for by the taxpayer. The Government believe that this has to change, which is why we have reformed the system so that 55% of borrowers entering full-time higher education in the 2023-24 academic year will repay their loans in full.

The noble Baroness, Lady Wilcox, asked whether we saw the Office for Students as preventive or reactive. The Office for Students’ approach is very much about identifying in advance where there might exist material risk in a provider, and we have introduced new registration conditions that facilitate that.

The noble Baroness also asked about the proportionality of regulations. The Office for Students has a duty to be proportionate in its approach to regulation under the Regulators’ Code, and it takes that duty seriously. If the noble Baroness has specific examples of concerns that she would like to share, I will happily take them back.

The noble Baroness, Lady Twycross, asked how we can stay in front as an R&D nation. The Government are committed to increasing R&D funding. The Department for Science, Innovation and Technology is responsible for most of the Government’s spending on R&D. This includes an allocation of £25.1 billion for UK Research and Innovation over this spending review period to invest in innovation, foundational research, infrastructure and talent. I hope that the noble Viscount, Lord Hanworth, accepts that some of that spending will also help the environment for staff within universities, which he described so clearly.

UKRI’s allocation includes £6.2 billion for Research England, which will directly support research and knowledge exchange in UK universities and other higher education institutions, as well as £2 billion for a new pooled approach to talent programmes. This funding will help to maintain the world-class reputation of UK research. We have four of the top 10 research universities in the world and our research councils are the envy of the world. With less than 1% of the world’s population, the UK’s share of highly cited publications is 13.4%, placing us third in the world. I thank the son of the noble Lord, Lord Wallace of Saltaire, for his contribution to those numbers—every individual counts.

Earlier this month, the Prime Minister launched the Government’s plan to cement the UK’s place as a science and technology superpower by 2030. The Department for Business and Trade is delivering this vision by harnessing the combined power of our export of and investment in our science and technology sectors. Our science exports are already strong. Life sciences, for example, is one of the UK’s top exporting sectors, with pharmaceutical exports valued at £24 billion in 2022 and medical technologies exports valued at £4.1 billion.

The noble Lord, Lord Knight, my noble friend Lord Dundee and a number of other noble Lords asked about our work in relation to the Horizon programme. Obviously, the Government welcome the EU’s recent openness to discussing this issue after two years of delay. Both the UK and the EU have been clear that they are open to taking forward discussions on UK association, as was set out at the Partnership Council on 24 March.

Along with our life sciences exports, higher education is obviously an important export. The latest figures show that it generated £19.5 billion for the UK economy in 2020, growing even through the pandemic. The Government recognise the cultural and economic importance of international students to the UK and to our universities, where they enrich the experience for all students. International students are also an important part of international partnerships and research, which put the UK at the forefront of tackling global challenges. My noble friend Lord Dundee asked whether the Government support those partnerships; I am happy to say that we absolutely do.

This is about much more, perhaps, than the narrow financial reasons the noble Viscount, Lord Chandos, suggested. In recognition of the importance of education exports, the Government published the International Education Strategy in 2019, and I am happy to confirm to the House that we retain our absolute commitment to it. Regarding how our international strategy links with immigration issues, I reassure the noble Baroness, Lady Twycross, that we work very closely, particularly with the Home Office, obviously, on those issues.

As ever, I am running out of time. A number of noble Lords spoke about the Turing scheme, particularly the noble Baroness, Lady Garden, and the noble Lord, Lord Leong. I am not sure that I have been in a debate with the noble Lord before, but it was a pleasure to listen to his speech, which was a lot better than any of my rambling undergraduate essays—when I even wrote them. As your Lordships know, the Turing scheme is the Government’s global programme to study and work abroad. It has allocated nearly £130 million in grant funds for over 52,000 student placements from higher education providers since 2021. We have confirmed funding for continuation in 2024-25, but obviously we then enter a new spending review period.

The noble Baroness, Lady Garden, asked about the Turing scheme in relation to modern foreign languages. Every country in the world is eligible as a destination for UK students, but of the top 10 most popular destinations in the 2022-23 academic year, only four are English-speaking. I hope that gives the noble Baroness some reassurance. I would like to reject the slightly dismissive description of the scheme from the noble Baroness, Lady Donaghy. I will have to write regarding the contribution of universities to their local economies. We are seeing some exciting partnerships, including one that I am familiar with from the University of Bristol, which is bringing a great deal of economic progress to the city, but there are many others.

The noble Lord, Lord Knight of Weymouth, in his opening remarks, incredibly eloquently, as ever, set out the real value of our universities, and the noble Lord, Lord Wallace, rightly questioned and probed the Government’s commitment to the wider vision we have heard from a number of your Lordships this afternoon. I hope I have in some way reassured the House that we believe strongly and passionately in the value of our universities. We see our role as being to encourage, to focus, to set out our priorities, but we absolutely respect their autonomy in delivering them.

[Lord Knight of Weymouth (Lab)]

My Lords, I thank all noble Lords who have spoken in this debate; I have thoroughly enjoyed it. I have learned a lot—it is not my natural home as a policy area—particularly about the ups and downs of the Turing scheme. I make special mention of my friend, the noble Lord, Lord Austin, and his comments about the importance of universities for community generation. Also, this was the first time I have heard my noble friend Lady Twycross speak from the Front Bench. Clearly, it is her natural home, so I look forward to more of the same from her.

It is good to hear that across the House we are proud of our higher education sector. We want to allow it to continue to pursue excellence, as well as community renewal, and that requires a solid financial foundation. I noticed that in her fine speech, the Minister talked about the seven-year freeze in tuition fees allowing the sector to remain financially stable. I gently put it to her that, having shifted to half the income for the sector being reliant on tuition fees, to then have a seven-year freeze at a time of double-digit inflation is not the best recipe for financial stability.

However, with that note of caution—I do not want to depress anyone—it is still a vibrant sector and is still hugely important, and we are all committed to helping it.

[Baroness Barran (Con)]

With the permission of the House, I quoted one figure incorrectly and would just like to set the record straight. I said that, according to the HESA data, the increase in the number of low or unknown tariff higher education institutions that were in deficit in 2016-17 was 11 and in 2020-21 it was 21. I quoted earlier the number of institutions, which rose from 47 in 2016-17 to 70 in 2021. I would just like to get that right and not have to put it in yet another letter.

Motion agreed.