Higher Education (Industry and Regulators Committee Report)
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The Parliamentary Under-Secretary of State, Department for Education (Baroness Barran) (Con)
My Lords, I thank the noble Baroness, Lady Taylor of Bolton, for securing this important debate, and all members of the Industry and Regulators Committee for their work and scrutiny of the vital issues linked to the higher education sector and the Office for Students as its regulator. If I may, I also thank my noble friends Lord Johnson of Marylebone and Lord Willetts for their ministerial insights into the sector.
My noble friend Lord Johnson gave an incredibly helpful analysis and synopsis of the issues which led to the creation of an independent regulator with a focus on quality, competition, choice and value for money. I recognise some of his criticisms in relation to the way that government is structured, with part of the responsibility for the university sector sitting in the Department for Science, Innovation and Technology and part sitting in the Department for Education. I absolutely share his enthusiasm, and that of my noble friend Lord Willetts, for a real focus on innovation in the HE sector and on the lifelong learning entitlement.
I also thank my noble friend Lord Lucas for highlighting some really practical suggestions, which he brings from his experience of listening to students and parents, and the noble Lord, Lord Storey, for the examples of his interactions with the OfS in practice. It was extremely helpful for all of us to hear that.
Before I go into the report itself, I want to touch briefly on the independence of the OfS. I can honestly say that, in my experience within the department, I do not recognise the picture that noble Lords painted of political priorities driving the work of the OfS. If I may say so, I felt a tension between the calls for real independence on the part of the OfS and calls for the Government to influence its direction even more, which is, perhaps, something for all of us to take away and reflect on. I asked colleagues to check how many guidance letters we sent to the OfS in the past 12 months. We have issued four guidance letters to it: two related to the expansion of medical places and two related to funding. I am not sure quite what the threshold is for the number of ministerial letters, but that does not feel too oppressive to me.
I turn not so much to the Government’s response to the committee’s report, which your Lordships have obviously seen, but rather to providing updates to show the progress made against its recommendations. The noble Baroness, Lady Taylor of Bolton, the noble Lord, Lord Storey, and others, dwelled on the importance of the relationship between the Office for Students, the students themselves and providers. I am pleased to see that the OfS has reflected on the committee’s recommendations regarding student interest in engagement. It has made sound progress in reaching out to students and inviting them to engage in its work, including work to reframe the OfS student panel, which I understand is now playing a key role in the development of the OfS’s new strategy for 2025 and beyond.
I know that the OfS has hosted numerous round tables and webinars, inviting students to contribute on its new freedom of speech and academic freedom functions to help inform proposals and consultations. Last month, the first meeting of the OfS’s new disability in higher education advisory panel—fondly known as DHEAP—took place, which will review how universities and colleges currently support disabled students and will make recommendations to improve their experience.
The noble Baroness, Lady Taylor, asked me about annual reports on student engagement. We are not aware that a commitment was made in that regard, and I am not aware that those reports are planned, but if there is a misunderstanding I am happy to pick that up with her afterwards.
Regarding the relationship with the sector, I hope that your Lordships will be pleased to hear how the OfS reflected on the committee’s recommendations to enhance—
The Deputy Chairman of Committees (Baroness McIntosh of Hudnall) (Lab)
My Lords, I am sorry to interrupt the Minister so near the end of the debate, but I am afraid that a Division has been called, so the Committee will have to adjourn. I advise members of the Committee that there are likely to be two or three votes back to back, so it will be not a 10-minute adjournment. It will be substantially more, probably more like half an hour. I advise members of the Committee to keep their eyes on the annunciators, particularly after the second vote has been completed.
Baroness Barran (Con)
My Lords, I was just starting to talk about the relationship of the OfS with the sector, which was a matter of concern to a number of your Lordships. The OfS has both reflected and acted on the committee’s recommendation to enhance its relationship and engagement with the sector. Senior OfS staff have visited over 80 universities and colleges across England as part of its new sector engagement programme, as well as hosting numerous online and in-person events for vice-chancellors, finance directors, institution staff and students alike to raise awareness and understanding of its regulatory work. The OfS recently commissioned a new piece of voluntary research to gather provider views to help improve how it works with the sector.
One of the key recommendations in the committee’s report was around clarity about the OfS’s duties and decision-making. The Government believe that the OfS’s statutory duties are clearly set out in legislation, through the Higher Education and Research Act 2017. In particular, we believe that it is right that institutional autonomy as an important principle should not always be prioritised above other important matters: for example, driving quality improvement.
The noble Baroness, Lady Taylor, talked about the new powers and duties that Parliament has given to the OfS and suggested that those were perhaps not always the priorities of students, if I followed her remarks correctly. We believe that the Higher Education (Freedom of Speech) Act is critical to protecting academic freedom. Issues around the tragic events in the Middle East give us a very recent example of that, as the noble Lords, Lord Wharton of Yarm and Lord Mann, pointed out.
Additionally, we have asked the OfS to focus on tackling harassment and sexual misconduct, in response to evidence of a serious problem in our universities. The noble Lord, Lord Mann, asked for specific reassurances. We are still in the process of the consultation. We need to let that conclude, but I would be more than happy to meet with the noble Lord if that would be helpful. To enhance the OfS as an effective regulator that safeguards students’ interests, the Government announced an independent review of the regulator in December 2023, which is being conducted by Sir David Behan. It is due to conclude shortly and the Government will carefully consider its findings and recommendations.
A number of your Lordships, albeit from slightly different perspectives, talked about issues of financial sustainability in the sector, including the noble Baronesses, Lady Taylor and Lady Twycross, my noble friends Lord Norton of Louth and Lord Agnew, the noble Lord, Lord Storey, the noble Viscount, Lord Chandos, and others. It is crucial that we have a sustainable higher education funding system that meets the needs of the economy and is fair to students and to taxpayers. We keep the funding system under continuous review to make sure that this remains the case and that it offers diverse opportunities for learners to acquire vital skills.
The noble Lord, Lord Parekh, who is not in his place, was the first to focus on the cost side of universities, which is more within their power to control. I will comment on that also in response to my noble friend Lord Agnew’s remarks, even though he asked me not to respond—it is an irresistible opportunity. A number of your Lordships used the term “financial crisis”, and I understand why, but we should remember that in 2022-23, the total income for the higher education sector in England was £43.9 billion, up from £29.1 billion in 2015-16. Of that, approximately £16.3 billion, or about 37%, was provided by the Government. Over the current spending review period, the Government have also invested £1.3 billion in capital funding to support teaching and research through the Department for Education teaching grants and the DSIT research grants.
A number of your Lordships cited the figure of 40% of the sector being in deficit. That was cited in the recent OfS report as an expectation for this current financial year, 2023-24. The noble Viscount, Lord Chandos, asked if it was government policy to see the Rod Liddle projection of two-thirds of the sector disappearing: clearly that is not the case. That is important, I say in response to my noble friends Lord Agnew’s and Lord Lucas’s remarks. I think my noble friend used the term “impending financial collapse”. This is a sector that has grown 50% over the past few years. The OfS report projected a surplus of £2.1 billion for 2026-27, and a margin of 3.9%. Average borrowing in the sector is 30%. While the Government absolutely recognise some of the pressures and in particular some of the risks that the sector faces, that is not the typical picture of a sector facing impending collapse.
We also need to be careful in talking about 40% of providers, or roughly a third of providers this year. I talk here about the UK rather than England only: the aggregate deficit of those providers that were in deficit was just over £330 million; the aggregate surplus of those in surplus was £3.3 billion; and 50% of the aggregate deficit was accounted for by 10 providers. There really are outliers, in both surpluses and deficits. Making sweeping statements about the whole sector is not helpful but I will, of course, write to my noble friend as he requested.
A number of your Lordships, including the noble Lord, Lord Clement-Jones, and the noble Baronesses, Lady Twycross and Lady Taylor, asked about the sector’s dependency on international students and the Government’s position on that. Our international education strategy is absolutely clear that diversification and the sustainable recruitment of international students remain a key strategic priority. This is a core focus of the work of Sir Steve Smith, the UK’s international education champion. We are pleased that the latest figures show that providers are diversifying their recruitment of international students, with many increasing their intake from priority countries that were outlined in the International Education Strategy.
My noble friend Lord Norton of Louth asked me not to talk about how good the sector was, but if he will permit me just one sentence: as your Lordships noted, we have a world-class higher education sector, with four universities in the top 10 and 17 in the top 100. We have also educated 58 current and recent world leaders, and we continue to have an education system that is the envy of the world. We expect the UK to remain attractive to international students from across the globe.
In response to the question from the noble Baroness, Lady Twycross, about our work with the Home Office, we have regular conversations with the Home Office about this issue. I think it is fair to say that my noble friend Lord Norton of Louth was critical of the Government’s position in many areas, including this one. We are very clear that it is important that we have a competitive offer for international students that aligns with our strategic priorities for our economy, but we also need to keep the prestige and the brand of UK higher education.
I turn to the issue of value for money, which the committee’s report acknowledged could be measured in a number of different ways. I note the concerns expressed by my noble friends Lord Lucas and Lord Agnew in this regard. My noble friend Lord Lucas stressed the importance of making sure that students understand the value of and the outcomes from their courses. The noble Lord, Lord Freyberg, was concerned about a graduate’s future earnings being too crude a metric and that creative degrees might get marginalised as a result. I hope he would accept that the Government have had a huge focus on our creative industries. We recognise how important they are for the economy and our well-being as a society, and the great demands for skills that there are in those industries. I hope it will reassure him that we have commissioned the Institute for Fiscal Studies to research a new way of measuring the impact that courses have on a graduate’s future earnings, which we hope will be more sophisticated and incentivise the kinds of behaviours that we heard discussed today.
The noble Lord, Lord Clement-Jones, questioned the OfS approach to quality. We believe that the OfS has introduced a more rigorous and effective quality regime. It regulates quality by monitoring adherence to its conditions of registration, and of course condition B3 sets out minimum thresholds for student outcomes.
The noble Baroness, Lady Taylor of Bolton, talked about the quality assessments that the Office for Students is carrying out. I think she quoted a figure of eight, which might have been the figure published; actually, 32 have been completed in the first cycle and the office is in the process of publishing all those reports. We hope very much that they will have a real impact and provide valuable information for students and providers alike.
How can I have only two minutes? Turning to the regulatory burden, again raised by the noble Baroness, Lady Taylor, and the noble Lord, Lord Clement-Jones, the Government acknowledge the need to reduce regulatory duplication in the HE sector. We have established a new provider data forum, with the OfS and the Education and Skills Funding Agency, to identify and tackle data burden and duplication issues. We are also commissioning independent research to gain an understanding of the nature, scale and cumulative impact of data collection requirements across the sector.
The noble Lords, Lord Freyberg and Lord Parekh, talked about social mobility. I think the Grand Committee will have heard me say before that 18 year-olds in England from the most disadvantaged areas were 74% more likely to go to university in 2023 than they were in 2010.
In closing, I am grateful for the thoughtful contributions that all of your Lordships have made during this debate. There is an extraordinary amount of expertise in your Lordships’ House on both regulation and higher education. The Government are absolutely committed to making sure that we continue to have a higher education sector to be proud of, and to supporting the OfS to deliver regulation that enables that sector to remain world class.