Summary

Context

The higher education sector faces a looming crisis. Long-term problems with financial sustainability were compounded by the challenges of the COVID-19 pandemic, with in-person teaching disrupted and acute financial pressures on providers. Subsequent inflation has increased costs for institutions, staff and students alike and eroded the value of the income providers receive from tuition fees. Reduced EU research funding is a major concern, as is the ongoing industrial action which is both caused by and has contributed to the instability in the sector. Given these problems, it is therefore vital that the sector’s regulator is fit for purpose.

The Office for Students

The higher education sector is regulated by the Office for Students (OfS), a relatively new regulator established in 2017 under the Higher Education and Research Act (HERA). The providers that the OfS regulates are diverse, and not limited to traditional universities. As its name suggests, the OfS was established explicitly as a higher education regulator with a brief to support the interests of students rather than those of higher education providers—perceived as a contrast to what had come before.

Despite this laudable aim, the OfS has so far found itself in the worst of both worlds—as a direct consequence of its own approach and Government pressure. It is not trusted by and does not have the confidence of many of the providers it regulates. But it has arguably not acted in the real interests of students either. In this report, we examine the work of the OfS and recommend actions that both the OfS and the Government should take to improve its work.

The OfS’ duties and decision-making

It is claimed that the statutory duties of the OfS are clearly set out in legislation, but they have been applied inconsistently and unequally. The regulator, and by extension the Government, has significant freedom to pick and choose which duties it prioritises, creating uncertainty. It appears not to have prioritised the autonomy of higher education providers and the principles of best regulatory practice, causing friction between the regulator and providers. Moreover, we are concerned by the OfS’ apparent view that “having regard” to its duties merely means it has to think about them, rather than evidence that it has given weight to the underlying objectives. This makes it difficult for the OfS to be held accountable. When the OfS makes changes to its regulatory framework, it should set out how it has taken its statutory duties into account, and, where it has not done so, explain why.

In addition, the OfS has now become involved in issues such as freedom of speech and sexual harassment. The Government should review the activities of the OfS with a view to focusing on the strategic issues facing the sector.

We also found that there has been a proliferation of regulators in the higher education sector, causing duplication and red tape. We were pleased to hear that the Minister recognises this problem and intends to tackle it but request more details on how and when the Government will do so.

Financial sustainability

The current system of funding higher education is not sustainable and will lead to growing issues in the coming years, and it is far from clear to us that the OfS has paid sufficient attention to these systemic challenges. The sector faces a number of risks, particularly the freezing of the cap on tuition fees for home undergraduate students, the sector’s main source of income. Providers often make a loss when teaching domestic students and conducting research, partly because of the loss of EU research funding. This has led them to become increasingly reliant on cross-subsidy from international and postgraduate students, whose fees are not capped. This dependency comes with risks and there is a worrying complacency that this premium from international student fees can be banked for the long-term, despite an increasingly competitive international environment and the risk that geopolitical shifts could cause changes in student numbers.

While providers are responsible for managing their finances, the Government controls their main sources of income through the tuition fee cap and its influence on international student recruitment through immigration policy. It is vital that the Government urgently puts in place a stable, long-term funding model for the sector.

The OfS monitors and reports annually on financial sustainability in the higher education sector. However, it appears to focus heavily on data and less on communicating sufficiently with institutions. We heard that some providers would be unwilling to engage with the OfS in the early stages of falling into financial difficulty for fear of a punitive response, hampering their ability to plan together. We welcome that the regulator has now begun engaging with providers directly and call on it to prioritise regular discussions with providers about their finances. More broadly, however, we were surprised by the OfS Chair’s assertion that the sector’s finances are “in good shape”, which is not an assessment we share.

Although there seems to be an expectation that providers will merge and consolidate in future, it is not clear that either the OfS or the Government provides strategic oversight of the long-term financial sustainability of the sector. They should clarify whether this function exists and if not, consider whether it is necessary and where it should sit.

Value for money

Given the substantial fees higher education students pay and the young age of many applicants to undergraduate courses, we welcome the OfS’ focus on value for money and the quality of education. The information students receive when they apply for courses can differ greatly, which is unacceptable given the scale of the financial commitment students undertake. In order for students to be able to judge whether their courses provide value, the OfS should ensure that they receive clear, digestible information from higher education providers.

Value for money in the context of higher education is a difficult metric to measure. However, the OfS’ approach to student outcomes, and particularly its focus on employment outcomes for graduates, is too simplistic and narrow. Employment outcomes are affected by a broad range of factors, and this approach has the potential both to penalise providers that take on students from disadvantaged backgrounds and to underplay the benefits of courses that are less directly vocational. We believe that the OfS should conduct further work to assess the broader value of higher education, particularly for those from disadvantaged backgrounds and including the need for future skills.

Quality, standards, choice and competition

During the passage of HERA, the sector was assured by the Government that quality and standards would be overseen by a designated body that commanded the confidence of the sector. This body was expected to be the Quality Assurance Agency for Higher Education (QAA). However, the QAA was recently de-designated from this role, following a series of events that included its suspension from the relevant European body for quality, which the QAA blamed on the OfS’ regulatory approach. Although the circumstances of these events remain unclear and contested, there is a suspicion that in its handling of them, the OfS prioritised gaining direct control of quality assurance rather than working to sustain an independent assessor as Parliament envisaged.

It is concerning that England’s regulatory framework has shifted away from European quality standards. This has the potential to damage the sector’s international reputation, which is key in attracting international students. We call on the OfS to align its framework with international standards and appoint the QAA or another arms-length body to perform the Designated Quality Body (DQB) role.

A crucial part of the Government’s vision for HERA was increasing competition in the higher education sector through encouraging new providers with innovative methods. We heard that delivery in this area had fallen short of these ambitions and that new providers had struggled with long, bureaucratic processes. It is welcome that the OfS is seeking to address this through guidance, but it should streamline its processes further.

With the introduction of the Lifelong Loan Entitlement (LLE), the Government is promoting a more flexible higher education system which includes shorter courses and new forms of delivery. This is to be welcomed. However, there are concerns that the OfS’ approach to regulation may stifle this innovation. The OfS will need to review whether its approach is flexible enough to cover short courses and new forms of provision.

The student interest

Although the OfS was explicitly established to regulate in the interests of students, it has never clearly defined what it sees “the student interest” to be. In the absence of this, there is a suspicion that “the student interest” is used as a smokescreen for the political priorities of ministers. We call on the OfS to conduct detailed scoping work, informed by engagement with students, to define “the student interest” and explain how this drives its work.

The OfS has a number of mechanisms for engaging with students, including the National Student Survey, the inclusion of a student representative on its board, and its Student Panel. Although these mechanisms are welcome, it is unclear how far they drive the OfS’ work. Students often feel their views are not acted upon, especially where they were not aligned with what the OfS wants to do. It was particularly concerning to hear allegations that the OfS issued veiled threats over the future of the Student Panel when panellists raised issues deemed to be of importance to students.

The OfS should set out how student input informs its decisions and open up more of its work to student involvement. It should respect the Student Panel’s right to raise issues and add an extra student representative to the OfS board.

Regulatory framework and sector relations

We heard consistently from providers that the OfS’ regulatory framework has become overly prescriptive and has shown a willingness to direct providers’ activities, with insufficient explanation and little regard to the need to protect institutional autonomy. The OfS appears to have given insufficient attention to the impact of its requests and decisions. These have generated a significant burden for providers, particularly the volume of requests for data, often duplicating requests from other regulators but in different formats. The OfS should be more transparent about its approach, including through the publication of case studies and by making clear why it makes particular requests and decisions. The Government should reconvene the Higher Education Data Reduction Taskforce to reduce unnecessary burden on providers.

It is clear that the poor relationship between the OfS and providers has been in part because the OfS’ approach has been overly distant and combative. It gives the impression that it is seeking to punish rather than support providers towards compliance, while taking little note of their views. The OfS appears to be concerned that it will be captured by the sector if it engages with providers. We welcome that the OfS has recently recognised that sector relations are an issue and we call on it to rebalance its approach and engage more with providers.

Moreover, despite its own focus on value for money to students, it is unclear whether the OfS provides value for money to providers, who pay the OfS a registration fee. The recent increase in OfS registration fees of up to 12% at a time of rising costs is challenging, particularly because it partly reflects the OfS’ own expanding remit. This has alienated providers: the OfS appears to be adding to their regulatory burdens and then charging them more as a result.

Political independence and the role of the Government

The OfS is meant to be an independent regulator and describes itself as such. Yet we found that it lacks both real and perceived independence. Both the OfS and the Government bear some responsibility for this, and both should explain how they will address this state of affairs.

The OfS’ own actions often appear driven by political priorities. While it does occasionally push back against the Government, too often it translates ministerial and media attitudes into regulatory burdens. The perception that the OfS lacks independence is not aided by the fact that the OfS Chair continues to take the whip of the governing party in the House of Lords, whilst simultaneously claiming that the organisation, as a regulator, is independent of the Government. This contrasts with the recent approach of several other Members in similar positions.

As for the Government, there is a perception that their guidance letters to the OfS are too prescriptive and unusually frequent. Meanwhile, further challenges have been created by political instability and ministerial churn: since 2018, the OfS has had to work with seven Education Secretaries and six Universities Ministers.

Overall conclusions

Across these different areas of the OfS’ work, there are several common threads. The first is that its relationships with many of its key stakeholders are not satisfactory: this applies not only to providers and other bodies such as the QAA, but also to students, the very people whose interests it is supposed to defend. The OfS does not engage with its stakeholders as well as it should and, when it does, there is a perception that it gives insufficient attention to their feedback.

Moreover, the OfS’ approach to regulation often seems arbitrary, overly controlling and unnecessarily combative. It has been selective in choosing which of its duties to prioritise, expanded its remit into new areas and created the impression that it seeks to control and micro-manage providers. Whether in its treatment of the QAA or its requests for data from providers, it is often unclear why the OfS does many of the things that it does.

Finally, from imposing spelling and grammar requirements on providers to its opaque approach to defining student interests, there have been too many examples of the OfS acting like an instrument of the Government’s policy agenda rather than an independent regulator. It is vital that regulators have both real and perceived independence from Government, and the OfS has a lot of work to do on this.