Higher Education and Research Bill

Baroness O'Neill of Bengarve Excerpts

Report: 3rd sitting (Hansard): House of Lords
Monday 13th March 2017 Lords Chamber

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[Baroness O'Neill of Bengarve]

146: After Clause 84, insert the following new Clause—
“Unincorporated higher education providers: financial support
Students enrolled on a course provided by a higher education provider that is not incorporated under the law of the United Kingdom do not qualify for publicly funded student support.”

[Baroness O'Neill of Bengarve (CB)]

My Lords, the purpose of this amendment is to try to help to ensure that higher education providers, including new ones, have adequate standards of governance, and in particular standards that support the integrity of the student loans scheme. The intention of the Bill is to permit a wider range of higher education providers to offer university education in England.

The novel term “English higher education provider” has a capricious definition: it is simply an organisation that offers higher education in England. It could be a public body, a charitable body, a company limited by guarantee or a for-profit company. It could also be an organisation with a single proprietor. In our debates so far, we have tended to speak of such providers as having governing bodies. This can sound reassuring and familiar, but there is nothing yet in the Bill that requires an English higher education provider to have a governing body that meets specified standards, let alone UK standards. The term “English higher education provider” is therefore somewhat misleading. We would not, I think, speak of a Chinese textile company that sells cotton t-shirts and socks here as an English cotton clothing provider. However, the English higher education providers that the Bill envisages are to count as English merely if this is a market for which they provide something.

We all hope the new entrants that the Bill when enacted may attract will offer high-quality university courses—ideally, courses that are not sufficiently available in the current spectrum of UK university offerings. For example, we might hope that some new providers would offer the quality of undergraduate education that the best American liberal arts colleges or the best technical universities in Germany or Switzerland offer. However, I think that that is very unlikely. The cost base for these institutions is extremely high. The US liberal arts colleges—I have in my time taught on five well-known undergraduate programmes of that type—require a four-year degree and charge extremely high fees. These institutions are typically part-supported by endowment funding and could not function without it. The cost of STEM provision, such as that offered by technical universities in Germany or Switzerland, is evidently also high, as it is for their counterparts here. Such institutions are not likely to see a ready market for their standard offering here, particularly as there would be very high competition from the best existing UK institutions.

At most, such institutions might offer a restricted, downmarket set of courses only in subjects that are cheap to teach but whose graduates are assumed to be well paid—typically law, business, accountancy or subfields of these. That approach to their franchised overseas provision has been taken in other jurisdictions by some prestigious US institutions. However, I am not going to name names, because I think that that would be unfair.

The major risk is that institutions of quite other sorts would seek to enter the market to provide higher education in England, lured by the prospect that their students might have access to publicly funded tuition loans. At present, somewhat surprisingly, there is nothing to ensure that those who seek to provide higher education will have even adequate, let alone high, standards of governance. We have talked rather cosily about the governing bodies of higher education providers, but that need not be the situation. Noble Lords who followed the story of the collapse of Trump University and the compensation settlement that was reached a few months ago will recognise the sort of risk that I am talking about. Noble Lords who have not yet had the enjoyment of following the gory story might start with Wikipedia. It is not an edifying tale.

The amendment seeks to address this problem by requiring incorporation under UK law for any English higher education provider whose students may gain access to publicly funded tuition loans. This requirement would allow the Office for Students to discover something about the governance, and therefore the finances, of any would-be English higher education provider that hopes to franchise its offerings in the UK. The OfS might even be minded to set a fit-and-proper person standard for members of such governing bodies and university leaders. We do this for banks; should we do less for universities? I beg to move.

[Lord Stevenson of Balmacara]

My Lords, this is a golden thread in our debate that has been pursued with considerable vigour by the noble Baroness, who has on every occasion, I think, asked difficult questions. In fact, she has been quite free with her favours, asking questions of me and of other noble Lords around the whole Chamber when we have failed to measure up to her high standards of accuracy and precision when mentioning the words “English”, “higher” and “education” in sequence.

Here we are at the crunch point. The noble Baroness has put down a very specific amendment that would have quite strong repercussions for any body attempting to recruit English higher education students, because along with students comes public money. The main argument as I take it—and we look forward to hearing about it from the Minister—is that we are risking public money on bodies when we have no certain knowledge about where and how they are incorporated and what rights and responsibilities they have to the students. She could have mentioned several other areas and it is important to get them on the record. Under the Consumer Rights Act, students are owed a duty of care by the providers of their course. Specific issues must be supplied by the institutions and remedies for students lie in legal protections, which would be exercised in court. If the bodies are not incorporated in the UK, how are they going to manage that? I think the Minister should respond to that in a positive way.

We are also concerned with insolvency issues. It is quite interesting and instructive that most of the Technical and Further Education Bill—which is accompanying this Bill through Parliament—is taken up with measures that apply if a college of further education goes into insolvency or is wound up. There is a special education administration regime with particular powers for the insolvency practitioner appointed to ensure that students rank above all other creditors and that their courses will continue, if possible, or be transferred to a similar institution if not. Creditors, who in insolvency law—as I am sure your Lordships’ House is well aware—are normally given primacy, are relegated to second place. We have no such system for higher education institutions in the UK. There is therefore no provision for what happens when a private company, in particular, decides it no longer wishes to teach its students. Where will the students seek redress? The cases mentioned by the noble Baroness are relevant in this jurisdiction as well as abroad. It will be very interesting to see how students will recover their loans and their opportunities if there is no incorporation which allows them to do so.

We are discussing this when there has been a change of ownership of a very distinguished private provider, BPP. That situation is not nearly so dire as the one I have been discussing but nevertheless reflects a very major arrangement. The ownership has changed. The senior management have decided to not continue and there is still uncertainty about how the overall firm will be run. This is a real situation involving large numbers of students, lots of money and very difficult legal and jurisprudential positions.

The Government are taking this seriously. I had a letter delivered to my hand as I walked into the Chamber. It deals in four pages with some of the issues that the noble Baroness raised. I am not in any sense wanting to make slight of the letter because it is useful to have it on the record, but the Government seem to be broadly of the view that the existing arrangements under which the Office for Students—surely we will be shortly be calling it the Office for Higher Education, as we prefer—will have responsibilities under the registration and degree-awarding powers will make sure that nothing untoward happens. That is not sufficient. We need greater certainty about what institutions are responsible for our students, how they are responsible, in what way they are incorporated and what the legal position is.

I look forward to hearing the Minister’s response, but I do not think that he will be able to measure up to some of the very strong critiques that have been made so far.

--- Later in debate ---

[Viscount Younger of Leckie (Con)]

My Lords, the Government want to provide students with options and choice, and to enable them to pursue the path through higher education that is best for them. We want a globally competitive market that supports diversity, where providers that demonstrate that they have the potential to offer excellent teaching and can clear our high quality bar can compete on a level playing field. To deliver that competitive market, we are introducing through the Bill a single, simple regulatory system appropriate for all providers, with a single route to entry and, for the first time, a risk-based approach to regulation.

It is through imposing conditions of registration that are directly linked to risks that we are able to improve and strengthen regulation of the sector. The Bill will enable us to go further than ever before and protect against the very issues that I know noble Lords are concerned about, in that, for the first time, we can focus attention where it is needed, rather than having the current one-size-fits-all approach. This means we do not have to take such a blanket approach as proposed by the amendment, which would automatically exclude potentially excellent providers.

Let me be absolutely clear: we are talking about providers which are carrying out their activities principally in England, so inevitably there will be a presence of some kind in England. Although each case will depend on its own facts, in determining where a provider carries out its activities, questions such as where the provider’s management activities take place, where its courses are designed, where course material is prepared, and where supervision, marking or other evaluation takes place, will need to be considered. It is not simply a matter of where students are studying.

Clauses 4 and 79 are clear that only those providers which carry on, or intend to carry on, their activities wholly or principally in England can successfully apply for registration. Only registered higher education providers can benefit from their students having access to student support. While there is no requirement in the Bill that providers must be incorporated in the United Kingdom, this does not mean that the Bill has inadequate safeguards in respect of foreign-established registered providers. If, following its assessment of risk, the OfS considers that particular risks arising from the fact that a provider is incorporated outside the United Kingdom need to be addressed, these will be mitigated through the imposition of specific registration conditions.

I can commit today that the Government will give clear guidance to the OfS about carrying out its risk assessment in the case of providers that are not incorporated in the UK, and outlining factors for the OfS to consider and address when it decides what registration conditions to apply to these providers. As an example, the OfS will need a clear understanding of how it can effectively regulate this sort of provider, backed up through registration conditions where appropriate. This will include understanding how the necessary verifications on matters such as quality and financial sustainability can take place before a provider can be granted entry to the register, as well as how effective enforcement action can be brought by the OfS and how students’ complaints can be dealt with.

To provide some specifics, it will be open to the OfS to seek financial guarantees from parent or holding companies so that it may have sufficient confidence that the provider can deliver ongoing high-quality provision. As happens now, we would expect the designated quality body to have in place arrangements with overseas quality assurance bodies to share information about higher education providers operating in their respective jurisdictions. It is also open to the OfS, through Clause 15, to impose a public interest governance condition on registered higher education providers that requires the provider’s governing documents to be consistent with public interest principles listed by the OfS. The list must include, but is not limited to, the principle that all academic staff have the freedom within the law to question and test received wisdom, and put forward new ideas and controversial or unpopular opinions without placing themselves at risk of losing their jobs or privileges.

Furthermore, it is clear that in respect of a registered higher education provider’s activities in England and Wales, the applicable law will be that in the Higher Education and Research Bill, and other relevant English and Welsh law. For example, its activities in England will be subject to the relevant applicable law as it applies in England, such as tax and equalities legislation. It is not necessary for a provider to be incorporated under the law of the United Kingdom for English courts to have jurisdiction. It is worth noting that English higher education providers operating overseas are not subject to restrictions that relate to where they are incorporated. The noble Lord, Lord Stevenson, hinted at this in his speech. If we were to unilaterally impose such restrictions this could be seen as a barrier to free trade and consequently there is a real risk that other countries might retaliate. This risks damaging a valuable export industry for the UK.

We must also be mindful that until we exit the EU we should not legislate in a way that conflicts with EU law. A requirement that a provider is incorporated in the UK may breach EU law on freedom of establishment and freedom to provide services. As such, we do not believe that there is any benefit to be gained from insisting on a requirement that registered higher education providers are incorporated in England and Wales or another part of the United Kingdom.

I hope the House will bear with me while I speak briefly about a slightly different issue before I ask for the amendment to be withdrawn. We have been looking again at Clause 114, on the pre-commencement consultation. Noble Lords will recall that this enables the Office for Students to rely on consultations carried out by the Secretary of State, the Director of Fair Access or HEFCE before the OfS has the power or duty to do so. Where the power or duty would, once it exists, require the OfS to consult registered higher education providers, we want it to be as clear as possible that the Secretary of State, the Director of Fair Access or HEFCE may satisfy this requirement by consulting an appropriate range of English higher education providers before any such providers have been registered. To this end, the Government undertake to bring forward at Third Reading a minor and technical amendment to provide that clarity. I hope that Amendment 146 will therefore be withdrawn.

[Baroness O'Neill of Bengarve]

My Lords, I thank noble Lords who have spoken in this short debate, and I thank the Minister for taking the time to give a detailed and, I think, useful reply. The issue may not be just incorporation. However, some franchise operations will leave the student in the other jurisdiction with remarkably slender forms of redress. That is the fundamental issue.

I will withdraw the amendment at this stage but I hope to bring back an improved amendment at Third Reading and, if possible, to have conversations with the Minister before then. This is a problem that I am sure we would all wish to get right and it is not clear to me that the elastic definition of “English higher education provider” plus great faith in the regulatory competence of the OfS are sufficient. We have all known the happy thought that a free market provided with a capacious regulator will deliver everything that is desired. The experience of the past 30 years has not borne that out so we need to take due care. With that, I beg leave to withdraw the amendment.

Amendment 146 withdrawn.