Higher Education and Research Bill

Lord Mackay of Clashfern Excerpts

Committee: 6th sitting (Hansard): House of Lords
Wednesday 25th January 2017 Lords Chamber

[Baroness Warwick of Undercliffe (Lab)]

My Lords, I support that final point, because we have to get at the principle of whether it is appropriate for a regulator to participate in the market it is regulating. That is the key issue. Based on the very effective arguments put forward by the noble Baroness, Lady Wolf, I urge the Government to think very carefully about this. There was an enormous amount of consultation on the Bill prior to it coming to the Commons and to this House, and yet, although there are lots of other areas where there could have been conflict rather than simple disagreement with the sector, this is the one area where the whole of the sector seems to have come together to suggest that the Government really need to think again.

As the former chair of a regulator, and having worked with other regulators, I cannot think of any regulator which is empowered to act in this way. This seems the key issue that the Government need to address. The current validation process seems to have worked pretty well, but if private providers are having problems, we should address those problems and, if necessary, have an independent validator—possibly more than one if we are going to give the range of processes that might be needed, as described by other speakers, for different courses, for example. We really need to think very carefully about that principle and address it.

[Lord Mackay of Clashfern (Con)]

My Lords, I wonder how this works in view of Clause 47(6):

“Regulations under subsection (1) may include power for the OfS to deprive a person of a taught award or foundation degree granted by or on behalf of the OfS under validation arrangements”.


What sort of validation of a degree is it when it can be taken from you—after you have got it, I assume?

[Viscount Younger of Leckie (Con)]

My Lords, I thank noble Lords for the opportunity to discuss validation arrangements. We believe that they are essential to a fully functioning higher education sector. We have listened to the concerns raised around the potential for Clause 47 to create a conflict of interest. However, I believe that a more substantial conflict of interest already exists within the sector.

At the moment, new providers usually have to find a willing incumbent provider to validate their provision. This gives those incumbent providers significant levers to control which new providers can enter the market, and what kind of provision they offer. Even if established providers are willing to help new providers get a foothold in the sector, there is an inherent conflict of interest if the proposed new provision would directly compete with one of their own courses. Of course, conflicts of interest are not the only problem validated providers can face. We know that some providers still find it difficult to find a partner that is willing to enter into validation arrangements with them, or have established arrangements unexpectedly withdrawn, and not because they are considered poor quality.

The noble Baroness, Lady Garden, stated that there was no evidence, but I have to put her right. We only need to look at events at Teesside University last year. Following a change of leadership, the university unexpectedly withdrew important validation services to 10 local colleges, based on a change of strategic direction and not as a reflection of the quality of the provision. Ensuring new and existing high-quality providers are not locked out of the market via their preferred entry route is essential to ensuring that students are able to access the right type of higher education for them.

The OfS cannot force providers to enter into validation arrangements. If insufficient providers are entering into validation agreements with each other or into commissioning arrangements with the OfS, or these fail to correct the problem, the OfS will need to find another way to promote competition and choice. Without further powers, the OfS could potentially be forced to stand by and watch while good-quality providers that do not want to seek their own degree-awarding powers remain locked out of degree-level provision indefinitely.

The OfS will, if it performs any validation function, have to have regard to the need to encourage competition among higher education providers in England. Its aim will not be to compete with the other higher education providers with a view to diminishing their attractiveness or their ability to offer validation services. It will only offer these services if there is demonstrable evidence that validation services are failing to support the sector. A regulator needing to take a role in the sector it regulates is not totally unprecedented. For example, the Bank of England regulates many aspects of the financial sector in order to maintain financial stability in the UK. In extremis, however, it will also act as the lender of last resort, or a market-maker of last resort, for example by buying and selling assets such as government bonds to provide liquidity at a time of financial stress.

Noble Lords might wish to read an interim report by the Open University and Independent Higher Education on a joint project piloting a streamlined approach to validation. The report highlights several perceived obstacles for providers in developing successful validation partnerships, including restrictive behaviour on the part of some validating universities and,

“insufficient support for alternative delivery models including accelerated and more work-based degrees”.

While the report accepts that this is not representative of all validation partnerships, it recognises the importance of validation as a route into the higher education sector and the need to fix problems which, if left unchecked, could have an adverse impact on student choice.

The report says:

“Validation stands as a critical part of the regulatory infrastructure, and its role as a gateway into the higher education sector means that any dysfunction will have a substantially negative impact on the diversity and quality of provision available to students”.


Relying on incumbents to shape the future of higher education can also curb innovation and result in the entrenchment of the same model of higher education, as providers may be hesitant to validate courses that do not conform to their usual modes of delivery. As the noble Lord, Lord Browne, said, validation can create a closed shop. As part of its work on improving validation services, we would expect the OfS to draw and build on this and other work already carried out.

I also noted the suggestion in the previous debate to create an independent central validation body akin to the CNAA model. As a regulator of the higher education sector, the OfS is ultimately responsible for ensuring that the regulatory framework and its supporting processes are functioning effectively. As the noble Lord, Lord Browne, said, it therefore makes sense for the OfS to have a role in determining how validation problems that could prevent it from fulfilling its responsibilities, such as ensuring that market entry routes and related processes are functioning effectively, are actually fixed.

The OfS’s broader strategic role makes it best placed to identify emerging trends in validation services across the sector and to monitor the impact of whatever solution it puts in place to correct any problems. It will be able to draw on information and advice from all its designated bodies and stakeholders to develop a robust evidence-based approach to address any serious validation failings. I reassure noble Lords that this is not a power easily given or used. We envisage that the OfS would be authorised as a validator of last resort only if it was absolutely necessary or expedient after other measures had been tried and failed.

The noble Baroness, Lady Wolf, said that this would be based only on anecdotal evidence. The Secretary of State may exercise this power if she considers that it is necessary or expedient to do so, having taken OfS advice. That advice is most likely to come in the form of an evidence-based report.

The Secretary of State would need to lay secondary regulations in Parliament. As we all know, it is common practice for these regulations, which use the negative procedure, to be laid before Parliament 21 days before coming into force, giving Parliament the opportunity to see these conditions. As always, Parliament retains the power of veto.

The regulations, should they be deemed necessary, are expected to set out the terms and conditions of any OfS validation activity. I would expect the OfS, as the overall regulator of higher education quality and champion of students’ interests, to be best in class in terms of demonstrating that its validation services abided by best practice validation principles and delivered to the highest standards. I would also expect the OfS to put in place appropriate governance arrangements ensuring that an appropriate level of independent scrutiny was applied to the validating arm of the organisation and the safeguards to protect student interests.

The noble Baroness, Lady Wolf, asked how this would work, who within the OfS would do the validating and whether they would have the requisite skills and qualifications. The regulations by the Secretary of State could attach certain conditions to ensure that the service set up by the OfS was underpinned by the necessary expertise. As we expect members of the OfS board to have between them experience of providing higher education, the organisation will have the necessary expertise to recruit the staff needed to set up a validation function. For further detail on how the OfS validation arrangements would work, I again refer noble Lords to my letter of 19 January enclosing a factsheet published by the Department for Education on validation. With that, I move that this clause stand part of the Bill.

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[Baroness Goldie]

My Lords, I thank the noble Baroness for her contribution. Clause 56 and Schedule 5 as drafted will ensure that the Office for Students and the Secretary of State have the powers needed to investigate effectively if there are grounds to suspect serious breaches of funding or registration conditions at higher education providers. The amendment recognises that these powers are necessary where there are suspicions of fraud, or serious or wilful mismanagement of public funds.

As the noble Baroness indicated, we would expect the majority of cases where these powers would be used to fall into this category, but limiting the powers to this category would risk compromising our ability to investigate effectively certain other cases where value for public money, quality, or the student interest is at risk.

The OfS may, at the time of an institution’s registration or later, impose a “specific registration” condition. This is a key part of our risk-based regulatory framework. For example, an institution with high drop-out and low qualification rates could have a student number control imposed by the OfS if it considered that this poor level of performance was related to recruiting more students than the institution could properly cater for.

A breach of such a condition may not constitute fraud, or serious or wilful mismanagement of public money, as students will still be eligible to access student support. But there is a very real risk that students, quality, and value for public money will all suffer. If the OfS has reason to believe that despite, for example, the imposition of a condition that limits the numbers of students a provider can recruit the provider is nevertheless undertaking an aggressive student enrolment campaign, it will be important that evidence can be swiftly secured to confirm this. If the proposed amendment were made, a warrant to enter and search may not be granted in such cases. That would be an unfortunate and perhaps unintended deficiency in these important powers. I therefore ask the noble Baroness to withdraw Amendment 364.

[Lord Mackay of Clashfern]

Before my noble friend sits down, I was wondering whether the justice of the peace who is to decide such a matter has to give a certificate that he has been satisfied on all the matters required in the schedule at this point in order to grant the warrant, because it sets out conditions about which he must be satisfied. I think it would be quite a reasonable requirement that before the warrant was granted, he should certify that he—or she, I should of course have said—is satisfied on each one of all those rather important conditions.

[Baroness Goldie]

I thank my noble and very learned friend for his contribution. I cannot comment on the specifics of the operation of magistrates’ warrants in England, but I certainly can undertake to write to him with clarification as to how—a very large piece of paper has just been handed to me, entitled, “What will the magistrate take into account when considering whether to issue a search warrant?” If your Lordships, like me, are agog to know this riveting information, here we go.

The magistrate would need to be satisfied on the basis of the written evidence and the questions answered on oath that reasonable grounds existed for suspecting a serious breach of a condition of funding or registration, and that entry to the premises was necessary to determine whether the breach was taking place. Further to this, the magistrate would also need to be satisfied that entry to the premises was likely to be refused or that the purpose of entry would be frustrated or seriously prejudiced. These criteria will ensure the exercise of the power is narrowly limited.

Well, as FE Smith once famously said to a judge, I may not be any wiser, but I am much better informed.

[Lord Mackay of Clashfern]

My Lords, I am grateful for that, but of course it does not deal with the question that I am asking. It is very useful information—or rather, I think I am right in saying that, at least so far as I followed it, it is a repetition of what is already in the Bill. The question, however, is whether the magistrate needs to be aware that these are the conditions. When applications for warrants are dealt with, the degree of speed required sometimes slightly derogates from the detail in which they are considered. This is an important matter: if a higher education institution has a search warrant on its premises that is a pretty damaging thing, especially if it happens to come out in the press that a highly regarded senior institution is being subjected to a search of its premises, which may be quite large, when it comes to it.

It would be useful to have a requirement that the magistrate should certify that he or she is satisfied on these matters and grants the warrant accordingly, or something like that.

[Baroness Goldie]

My Lords, I totally defer to my noble and learned friend on these matters. I do not have the technical information that he seeks, but I undertake to write to him.

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[Lord Liddle (Lab)]

My Lords, the amendments in my name are relevant to the points that the noble Baroness, Lady Wolf, has just made. I am concerned with the scope that the OfS has to levy charges on the sector; effectively, it is a provision to tax the sector for unlimited purposes, which are not clear, and there needs to be some mechanism of control and full consultation on any proposed charges. Just as regulators impose limits on rises in fees on institutions in line with the cost of living, similarly the regulators should be under an obligation to try not to put up their charges on the sector above the rate of increase that universities can themselves charge.

[Lord Mackay of Clashfern]

I think that I am right in saying that some years ago it was decided that a statutory authority did not have power to charge fees unless it was expressly conferred on the body in question. As the noble Baroness said, this is the authority for this fee, so it is exceedingly important that we see that the authority is limited to what it ought to refer to. How exactly it should be dealt with in relation to unconnected matters strikes me as a little strange. I cannot see exactly why something completely unconnected should be regarded as something on which you can reasonably charge other people—taxpayers, or people applying for help.

The noble Lord, Lord Watson of Invergowrie, said that there was no reference to employees in this Bill, but I found one—and I found it a little unsatisfactory, and tabled an amendment to deal with it, Amendment 492. In a moment of reflection, he may see it and come to my help.

[Baroness Brown of Cambridge]

My Lords, I remind the Committee that the people who will pay these fees that the regulator is charging will be the students. Therefore, we very much need to make sure the regulator is charging the absolute minimum it can to perform its duties effectively.

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[Viscount Younger of Leckie]

The noble Lord makes a fair point, but I must go back to the overarching statement that I made at the beginning of the Bill: we have carefully crafted it to look ahead to the future. I have said specifically that we do not consider it right to be too exact in what we put in the Bill. I hope he will accept that.

On Amendment 371, spoken to by my noble friend Lord Lucas, the Government are committed to making data available publicly and in a format that can be easily used wherever possible. However, the data body will collect personal data and it may therefore not be appropriate or lawful to publish identifiers. In accordance with the code of practice for official statistics, the statistics published by the body should not reveal the identity of an individual.

On Amendments 413, 415, 415A and 415B, fees should be fair and proportionate, neither creating disproportionate barriers to entry nor disadvantaging any category of provider. I want to reassure noble Lords that there are several safeguards to prevent a burdensome charging regime. First, the Bill makes clear that the total fees charged by the body must not exceed the total costs incurred. However, I recognise that there must in addition to this be due oversight to ensure that these costs are kept to a minimum—so let me answer some points raised by the noble Baroness, Lady Wolf, the noble Lord, Lord Liddle, and my noble and learned friend Lord Mackay. The data body will be required to publish a statement showing the amount of the fees it charges and the basis on which they are calculated. Also, as part of the triennial reporting process, the OfS must report to the Secretary of State on the appropriateness of any fees charged by the designated body. We are confident that these safeguards are sufficient and that further specific requirements would be overly restrictive.

On Amendment 366, I must stress that we want to minimise the regulatory burden on providers by avoiding duplication. For this reason, it is best for the sector to have only one body designated to collect the information at any one time. However, I also recognise that there are already several sector organisations with an interest in gathering data, and I understand that noble Lords may have concerns about the availability of data and collaboration over their use. I assure Members that Clause 59(7) and (8) set out a clear expectation that the data body must co-operate with those other organisations and have regard to the desirability of reducing burdens on providers.

The noble Baroness, Lady Wolf, referred to unconnected fees. I hope I can give some reassurance that I understand the intention to ensure that fees are calculated fairly. However, I fear the effect would be to damage the interests of both the data body and providers. It would prevent legitimate overheads related to designated functions being incorporated in the annual fee and block the current practice, common to sector bodies, of charging fees varied by the number of students at a provider, which is essential to ensuring proportionate and affordable fees. With these explanations, I hope the Lord will withdraw Amendment 366.

[Lord Mackay of Clashfern]

On the Minister’s last point about connected and unconnected fees, I understand that the Secretary of State has to be satisfied that the fees charged are proportionate. On the other hand, the Secretary of State is not obliged to consider whether they are connected in any way whatever with the provider. That is the problem. The Secretary of State’s power to monitor the fees depends on what the authority is for the fees being charged. Most of the illustrations that the Minister has given are connected in some way with the provider. For example, if it is a question of assembling data, the data will include those provided by the provider who is charged—so that is connected to the provider all right. It is perfectly reasonable to charge for overheads in relation to a function connected with a provider, but charging for those unconnected with a provider seems to open up a large and rather unspecific area.

[Viscount Younger of Leckie]

I will attempt to answer the points made by my noble and learned friend. Surely this is encompassed by the safeguards that I outlined. There will be an opportunity on a regular basis, as I mentioned, to analyse and scrutinise the statement showing the amount of fees, including those that are unconnected, and how they were made up.

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[Baroness Goldie]

I thank the noble Baroness for her intervention. I fully accept that the express text may not have intended that—but we have to look at what the consequences of this new independent committee would be, and infer from that what effect it might have on the broader sector.

At the moment we have a university sector that needs to do more to support its students and the wider economy: it has built up over time to serve only parts of the country; it is not providing employers with enough of the right type of graduate, especially STEM graduates; it can do more to offer more flexible study options to meet students’ diverse needs; and it can to do more to support social mobility. It is not enough simply to ensure that all young people with the potential to benefit have a theoretical opportunity to go to university and secure a good job when they graduate.

Alternative providers are already supporting greater diversity in the sector: 56% of students at alternative providers are aged 25 or over, compared with 23% of students at publicly funded institutions. They also have more BME students: 59% of undergraduate students at alternative providers are from BME groups, compared with 21% at HEIs.

The Government are determined to build a country that works for everyone. That is why we have announced a number of opportunity areas that will focus their energy, ideas and resources on allowing children and young people to fulfil their potential. That, in conjunction with what the Act sets out to achieve—the broad vision that I think universities accept as positive for the sector—holds out hope that we are proceeding on a journey in which we can have a lot of optimism and confidence.

I note the references to skills and would stress that we are carrying out reform programmes in higher education and in technical and vocational education at the same time. This gives us the opportunity to ensure that these programmes of reform are complementary. The Government’s recently published Green Paper on an industrial strategy outlines further our vision for skills and a system that can drive increases in productivity and improvements in social mobility. We are committed to reforms that will improve basic skills, create a proper system of technical education, address regional skills imbalances and shortages in STEM skills, and make it easier for adults to retrain and upskill in later life.

One of the 10 pillars of the industrial strategy is that we will create the right structures and institutions to support specific places and sectors. In some cases, this will mean strengthening existing educational institutions or creating new ones. We recognise the need for accurate information to identify and address current and future skills shortages, and we will work towards a single authoritative source of this information. To ensure a joined-up approach, the OfS’s ability to co-operate with a range of other bodies, including the Skills Funding Agency and the Institute for Apprenticeships, will be important. Clause 58 enables that.

The important issue of part-time education was raised. The Government agree that part-time education, distance learning and adult education bring enormous benefits to individuals, the economy and employers. Our reforms to part-time learning, advanced learner loans and degree apprenticeships are opening significant opportunities for mature students to learn. The OfS must—it is not a question of should, or if it feels like it—have regard to the need to promote greater choice and opportunities for students, and to the need to encourage competition between providers where that competition is in the interests of students and employers. That is alongside the other practical support that the Government are already giving for part-time students, including providing tuition fee loans where previously they were not available. We have also recently completed a consultation on providing, for the first time ever, part-time maintenance loans. We are now considering options. The Bill already provides for the mechanisms to enable the kind of information referenced here to be gathered effectively. I hope my remarks have reassured the noble Baroness, and I therefore ask her to withdraw her amendment.

[Lord Mackay of Clashfern]

Would it be worth considering inserting the phrase from this amendment,

“emerging needs for new providers within the higher education sector”, into the general duties of the OfS in Clause 2? It might well be a mechanism for this being studied.

[Baroness Goldie]

As ever, my noble and learned friend makes a significant suggestion. I undertake that we shall reflect on that.

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The Government’s commitment to alternative student finance is not in doubt. We are the first to legislate for it, we will continue to work on it and we will make it available. In these circumstances, I beg to move Amendment 438 and urge the noble Lord, Lord Sharkey, not to press his amendment.

[Lord Mackay of Clashfern]

There are commencement provisions in relation to Clauses 80, 81 and 82, which is why, I assume, the noble Lords, Lord Sharkey and Lord Willis, have put in a commencement provision. What they have done is not inconsistent, because it says that the provision comes into force as law when the Bill is passed, and the Bill says that it will come in in 2018. This is an important difference between what the Secretary of State proposes, which is pretty open—although it seems to relate only to the Welsh aspect of the matter. So there is a point in this relationship that has to be looked into.

Amendment 438 agreed.