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Must do better: the Office for Students and the looming crisis facing higher education Contents

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Chapter 1: Background

The Office for Students in context

1.The Office for Students (OfS) is the independent regulator of higher education in England and a non-departmental public body of the Department for Education (DfE). The OfS’ stated mission is “to ensure that every student, whatever their background, has a fulfilling experience of higher education that enriches their lives and careers.”1

2.The OfS regulates a total of 425 universities, colleges and other higher education providers across England.2 As the OfS stressed to us, the providers it regulates are diverse, including “big multi-faculty universities, small specialist institutions, private companies, and further education colleges offering foundation degrees and vocational courses tailored to specific industries.”3

3.The OfS is a relatively new regulator. It was established under the Higher Education and Research Act 2017 (HERA), which sets out its statutory duties. It began operating in April 2018 and took on its key regulatory powers in August 2019.4

4.The OfS’ approach to regulation is underpinned by the functions, duties and powers given to it by HERA. In summary, the OfS is required to have regard to institutional autonomy; quality and choice; competition; value for money; equality of opportunity; efficient use of its own resources; and best regulatory practice.5 We discuss these duties, and the extent to which they are clear and appropriate, in further detail in Chapter 2.

5.The OfS is also required to publish its regulatory framework, which sets out how it intends to perform its functions. The OfS must consult bodies that represent higher education providers and students when preparing the framework. Beyond this, however, the OfS largely has freedom to determine how to fulfil its functions. In their own words:

“Unlike other regulators, we do not have primary objectives set out in statute … We have therefore used our regulatory framework to set out policy aims which we consider are consistent with the broad legislative aims of HERA.”6

6.The OfS receives an annual guidance letter from the DfE which sets out their priorities for the coming year, and tells them how much funding to distribute to higher education providers. A framework document, agreed between the OfS and the DfE, sets out details on the governance and accountability framework that applies between OfS and the DfE.7

Box 1: The OfS and HEFCE

When it was established, the OfS inherited the funding responsibilities of the Higher Education Funding Council for England (HEFCE), which existed between 1992 and 2018. The OfS also inherited the Office for Fair Access’s responsibility for promoting fair access to higher education. Although HEFCE was the OfS’ direct predecessor, we heard from many witnesses that the two organisations were quite different in character—the OfS themselves argued that HEFCE had not been a regulator per se.8 Sir Michael Barber, a former Chair of the OfS, also said that while HEFCE had been more akin to a “funding council”, the OfS was explicitly established as a regulator, adding that this change reflected a move away from providers being funded by HEFCE and towards being funded by tuition fee loans.9 Rt Hon Lord Johnson of Marylebone, former Minister for Universities, Science and Innovation, emphasised that the OfS was “a market regulator”.10

7.The OfS’ regulatory framework has already changed during its first few years of operation. Seven amendments between July 2020 and October 2022 are listed on their website, with a particular focus on student outcomes and quality and standards.11 We discuss these changes, and their impact on the sector, in further detail in Chapter 7.

8.Higher Education providers are also regulated by other bodies, such as the Office of the Independent Adjudicator for Higher Education (OIA) and the Office for Standards in Education, Children’s Services and Skills (Ofsted); and cross-cutting regulators such as the Competition and Markets Authority (CMA) and UK Visas and Immigration (UKVI). We discuss this further in Chapter 2.

The higher education sector in context

9.Our inquiry took place against the backdrop of a series of challenges facing the higher education sector, particularly the impact of the COVID-19 pandemic, inflation and the cost-of-living crisis, the loss of EU research funding and ongoing industrial action. Witnesses to our inquiry emphasised this context: Chloe Field, Vice-President for Higher Education at the National Union of Students, said that “higher education is clearly in a crisis right now”, while Rachel Hewitt, Chief Executive of Million Plus, described “a very turbulent time since the OfS was first set up”.12

10.Particular concerns have been raised over the financial sustainability of business models in the sector. In March 2022, the National Audit Office found that higher education providers face “systemic” medium and long-term risks to their financial sustainability.13 In June 2022, the Public Accounts Committee of the House of Commons warned that “some providers are heavily reliant on income from overseas students’ fees to cross-subsidise research and other activities, leaving them potentially exposed to significant financial risks”.14

11.In their written evidence to this inquiry, the OfS identified financial challenges including rising costs, a real-terms decline in income from UK student fees (which have not risen with inflation), a reliance on income from overseas students and barriers to capital expenditure and affordable borrowing.15 Nevertheless, their most recent report in June 2022 concluded that the sector remains financially resilient in spite of these challenges.16 We discuss these issues, and the OfS’ response to them, in further detail in Chapter 3.

Our inquiry

12.Our inquiry into the work of the OfS was launched on 3 March 2023. The inquiry considered whether the statutory duties of the OfS are clear and examined its performance against those duties since its establishment. It looked at how the OfS’ regulatory framework has developed since its inception, its independence from and relationship with the Government and whether it has the necessary resources to carry out its functions. Overall, our inquiry focussed on the current work of the OfS, rather than wider questions about whether the current regulatory model for the higher education sector is correct from first principles.

13.The inquiry also looked at the OfS’ work in relation to the financial sustainability of the higher education sector. This included consideration of the extent of systemic financial risks in the sector, such as the reliance of some universities on overseas students, how the OfS considers and manages these risks, and the potential consequences of and processes for the failure of providers.

14.We held 14 oral evidence sessions with a total of 25 witnesses between March and May 2023, including representatives of universities and students, as well as former ministers and former OfS officials. This culminated in sessions with the current Chair of the OfS, Lord Wharton of Yarm, its Chief Executive, Susan Lapworth and the Minister for Skills, Apprenticeships and Higher Education at the DfE, Rt Hon Robert Halfon MP. We also received 62 pieces of written evidence, including submissions from both the OfS and the DfE.

15.We are grateful to Mike Ratcliffe, our Specialist Adviser, for his support during this inquiry, and to all our witnesses.

This report

16.The opening chapters of this report examine how the OfS has performed the duties specified in its remit. Chapter 2 examines whether the OfS’ duties are clear and appropriate in principle and whether it has prioritised some duties over others in practice, as well as its other responsibilities. Chapter 3 examines the work of the OfS in the context of the financial sustainability of the higher education sector. Chapter 4 looks at how the OfS evaluates the value for money provided by higher education courses, while Chapter 5 considers the OfS’ duties to promote quality, choice and opportunities for students, and to encourage competition between providers.

17.We also examine the OfS’ work beyond the specific duties outlined in its remit. In Chapter 6, we examine how the OfS engages with students and the extent to which student priorities define its work. Chapter 7 assesses the regulatory framework used by the OfS, its relations with the higher education sector and its use of resources. Finally, in Chapter 8 we consider the extent to which the OfS is politically independent from the Government, as well as the Government’s own role.

18.We make this report for debate.

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