Universities: Financial Sustainability

Angela Rayner Excerpts

Monday 11th February 2019 Commons Chamber

[Angela Rayner (Ashton-under-Lyne) (Lab) (Urgent Question)]

To ask the Secretary of State for Education if he will make a statement on the financial sustainability of universities in England.

[The Minister for Universities, Science, Research and Innovation (Chris Skidmore)]

I thank the hon. Lady for the opportunity to discuss the higher education sector today in what is my first urgent question.

This Government recognise the importance of the higher education sector and the massive contribution that it makes to this country. We recognise the multiple challenges that the sector is facing and that these will require institutions to adapt to a more competitive and uncertain environment. It is true that the current context presents significant challenges to institutional management, efficiency and financial planning in the HE sector, but it is wrong to characterise the HE provider sector as teetering on the brink of financial collapse. In its final annual report on the financial health of the sector published in March last year, the Higher Education Funding Council for England—the Office for Students’ predecessor—concluded that the HE sector continues to be in a sound position financially.

The new regulatory framework under the Office for Students brings a risk-based approach to monitoring financial viability and sustainability in order to protect students’ interests. Financial sustainability is a condition of registration. This means that the OfS, as regulator, will pay greater attention—and, importantly, require more specific action—where there is greater institutional vulnerability. Where the OfS identifies particular risks to a provider’s financial sustainability, it will indeed take action. This may include enhancing its monitoring or imposing a specific condition of registration on a provider to improve its financial performance. It may also require a provider to strengthen its student protection plan. This will enable action to be taken before a provider faces major financial difficulties.

The Department for Education is also working closely with the OfS to understand the sector’s wider financial risk in worst-case scenarios. We are working with the OfS, other Departments and other relevant national partners to develop full contingency plans to deal with unforeseen and/or major HE provider failure. This will set out roles, responsibilities, triggers and actions to be associated with instances where HE provider market exit falls outside the normal business-as-usual approach of the OfS in implementing its regulatory framework and requires Government action. But ultimately, as autonomous bodies, the financial viability of universities is a matter for the leadership of the HE providers themselves.

The terms of reference of the post-18 review that has been led by Sir Philip Augar include a focus on ensuring choice and competition across a joined-up post-18 education and training sector. The review will look at how it can support a more dynamic market in provision while maintaining the financial sustainability of a world-class higher education and research sector. We have been clear that the review recognises the need to preserve and protect the existing strengths in the system, and the stability of providers is key to a strong system.

The HE sector does face challenges, but we are confident that universities will rise to these challenges and continue to be providers of world-class higher education.

[Angela Rayner]

Thank you for granting this urgent question, Mr Speaker. I want to take this opportunity to wish my comrade, my hon. Friend the Member for Bolsover (Mr Skinner), a happy birthday.

Serious concerns were revealed this weekend about the financial situation of Reading University and there are reports of at least three more universities facing a significant risk of insolvency. I hope that the Minister will tell us in a little more detail what steps he is taking to address the situation at Reading, as well as across the sector, because the consequences of such a failure would be disastrous for students, staff and entire local communities and economies. Can the Minister reassure us that it is the Government’s policy to prevent such a disaster? I do not feel reassured from his response that he has a grip of this.

The Minister said that he is working with the Office for Students towards establishing student protection plans. Can he clarify how many universities do not have plans in place? When will he ensure that they all do? What will it mean in practice? Will students be left with a refund but no qualification after years of study? HEFCE had a list of universities of financial concern. Can the Minister tell us whether the new regulator has such a list and how many providers are currently of concern? Last year, it granted at least one £1 million emergency loan. Can he tell the House how many others have been issued? The new regulator has now said:

“The OfS will not bail out providers in financial difficulty.”

Is that Government policy and from when does it apply?

Can the Minister confirm that his Government have also handed universities a £200 million pensions bill but no new funding to meet those costs? Is he lobbying the Treasury to change that? The Office for National Statistics has demanded that the Government end the “fiscal illusion” of pretending that all loans for fees are repaid. When will the Government follow that ruling? Given the uncertainty that universities now face, can he tell the House whether the Augar review will be published this year? Will he guarantee that any proposals on tuition fees will not lead to cutting universities’ funding?

This crisis is a direct result of the Government’s failing free market experiment. Is it not time they faced the fundamental fact that education is best provided as a public service for the public good? If this Government will not change, it is time for a new Government.

[Chris Skidmore]

I will respond to several of those points, but I do not think it is appropriate for the Government or the OfS to comment on the position of individual providers.

In terms of the role of the Office for Students in HE financial sustainability, as I have stated, the new regulatory framework that has been created brings a risk-based approach to monitoring financial viability and sustainability, in order above all to protect student interests. The reforms have provided for that framework, and it means that the OfS, as regulator, can pay greater attention and require more specific action if there is institutional vulnerability.

Ultimately, these are autonomous bodies and leaders of HE providers are responsible for ensuring their institutions’ financial viability. They are not part of the public sector; they are autonomous institutions. During the passage of the Higher Education and Research Act 2017, a key point voted on by Labour Members was that universities would remain independent and autonomous. The OfS will therefore work closely with providers in financial difficulty, but neither the OfS nor the Department for Education will prop up failing providers. The OfS may enhance its monitoring or impose a specific condition of registration, requiring a provider to improve its financial performance, but we need providers at risk of any financial difficulties to come forward, so that we and the OfS can work with them on improving those registration conditions, which may require a provider to strengthen its student protection plan.

I turn to the issue of HE provider failure. The aim of the new HE regulatory approach is that the Office for Students will be able to act in anticipation of developments such as course closure or market exit, rather than in reaction to them. As I have said, under the new regulatory framework, providers must meet a set of registration conditions aimed at ensuring that they are financially viable, sustainable and well-managed organisations. The new HE regulatory framework has been designed to promote diversity, innovation and choice in HE, in the interests of students, and achieving that does not equate to propping up any particular failing HE provider.

In a competitive market, providers that fail to meet quality standards for students’ expectations may see their financial position come under even greater pressure. There is an expectation that providers may, in a small number of cases, exit the market altogether as a result of strong competition. However, the OfS’s primary interest is ensuring that any such closures do not adversely affect students and their ability to conclude their studies and obtain a degree. Students are making a considerable investment when they commit to a programme of study—investing their time, energy and money—and it is important that they should be able to complete those studies.

On protecting students and student protection plans, the OfS has the powers to ensure that all registered HE providers have these plans in place to safeguard students’ interests against the risk of financial failure. It is a registration condition that they have such a student protection plan in place. Student protection plans will set out what students can expect to happen in the event of a course, campus or department closure or if an institution exits the market. The plans must address the specific risks faced by the provider, and may include measures such as the transfer of students to another provider or financial compensation. In addition, the new regulatory framework sets out that all providers must have a refund policy.

On the pensions issue that the hon. Lady mentioned, the Government’s consultation on the teachers’ pension scheme changes closes this Wednesday—13 February. I encourage all providers to participate in that consultation, which is an important one. It is right that this live consultation should seek views on the impact of the proposal on higher education institutions, and we will finalise funding decisions once the consultation has concluded.

The hon. Lady mentioned the post-18 review being led by Philip Augar, which is still ongoing. More information on the review will be available in due course, and it will be published in due course. I will not speculate on what recommendations the independent panel will make on HE tuition fees, or on what the final conclusions will be. However, the post-18 review terms of reference include a focus on ensuring choice and competition across the joined-up post-18 education and training sector. The review will look at how to support a more dynamic market in provision while maintaining the financial sustainability of a world-class higher education and research sector. I look forward to the review being published in due course.

When it comes to the hon. Lady’s own position on the financial sustainability of the HE sector, I have to say that of all the universities I have visited and all the vice-chancellors I have spoken to, not one supports Labour’s position of removing tuition fees and completely crippling the HE sector’s financial position. The removal of fees completely would ensure that instability returned and student number caps returned. When it comes to access and participation plans, the money spent on them has risen from £430 million to £860 million in recent years, and that money would end up being capped. Labour does not have any answer on what it would do to ensure that the finance of our universities is protected for the longer term.