A bushel and a peck – OfS subscription fees again

Image: IKON

Following our recent blog challenging the maths behind the proposed new OfS registration fees, DfE has released a new consultation impact assessment clarifying assumptions around the running costs of OfS.

There have been two major changes:

  1. Adding a jaw-dropping 93 new alternative providers to the approved categories (each with more than 501 FTE students). In our previous blog, DfE has modelled the fees with a still impressive 58 new alternative providers, which as we demonstrated didn’t cover the shortfall.
  2. Reducing their estimate of OfS spending by ignoring current payments to QAA and HESA (assuming each will secure the designated body status), this will instead come directly from their own subscriptions.

Consequently, the square has the appearance of being circled and OfS administrative numbers just about add up, meaning DfE can assure the sector that registration fees are unlikely to increase substantially from the indicative amounts in the consultation.

In reality, we will just see OfS administration costs shift to the designated bodies – likely rises in subscription fees to cover these mean that the sector will still see an increase in what they need to pay overall. In the impact assessment, DfE explains that “these bodies will have the power to charge providers fees to recoup the cost of undertaking these statutory activities.” So with HESA and QAA no longer receiving contracted work or grants from a central source, how will they recoup their running costs?

More I cannot wish you

Funding to both agencies from HEFCE has declined in recent years, and – before this latest confirmation that all central funding was to cease – was expected to decline further. So a comparatively small – but not insignificant – sum of money that was expected to come from OfS will now need to be found from elsewhere.

Both the Designated Quality Body and Designated Data Body can charge additional fees for non-statutory duties as optional services for organisations, and bid for additional contracts. HESA and QAA have well-established business development activity and have long looked to increase income through commercial activity. But the loss of funding from HEFCE contracts and grants leaves a hole in anticipated income which is unlikely to be made up through additional commercial activity in the short-to-medium term.  

There have been no announcements concerning designated body funding or subscription models as both QAA and HESA are awaiting confirmation, via sector consultation, that they will indeed become the designated bodies. Both organisations told us that information regarding planned subscription fees would follow this confirmation, and would be subject to ongoing discussions with OfS and the sector concerning the scope and nature of work required.

Overall, we feel that seeking an increase in fee income will be the most likely course of action in both cases. Some of this will flow naturally from the anticipated expansion of the number of subscribing bodies – the rest will need to come from higher subscription fees.

Sit down – you’re rocking the boat

HEFCE’s current arrangement with QAA is contractual. Starting from August 2016 there are four relationships between the two organisations, on assuring quality processes, entry into the HE system, investigating unsatisfactory quality and international activities. These are multi-year contracts –  the first a two-year contract ending in August 2018, the remainder are five-year contracts ending in August 2021.

The template for these contracts was published alongside the invitation to tender back in March 2016. Clause 29(b) is explicit that the contract will be binding on the successors of either party and on the assignees of the Council – this means that the liability will likely pass to OfS via DfE from HEFCE.

And it is quite the liability. Clause 17 of the contract offers a number of cases where the contract could end early without redress, but all of these are based on the (mis-)behaviour of the contractor – QAA – not changes to the contracting organisation. But clause 24 suggests that HEFCE – or its successor – would be potentially liable for ten times the annual value of each contract if it were breached, up to an overall liability cap of £10m.

The idea of OfS was first mooted in a green paper back in November 2015, several months before the contract was drafted, so a claim of “Force Majeure” would seem unlikely to bear any weight. We understand that all HEFCE and OFFA assets & liabilities are likely to transfer to the Secretary of State when those organisations closed. The Secretary of State will then have to decide whether these assets & liabilities will transfer to OfS and/or UKRI.

If I were a Bell I’d be ringing

This confusion over subscription fees is an unforced error, and one which might cost the sector dearly. In Treasury terms, around £30m to regulate higher education is a drop in the ocean – there is no reason that this cost should have been borne by institutions. But a series of rash decisions has meant we are left with an expensive, complex and inflexible system of funding both sector regulation and its associated data and assurance requirements.

This time in 2016 the Bell Review criticised HEFCE, determining that too many agencies that provided sector-level services must seek subscription funding: HESA, QAA, Jisc, the Higher Education Academy, ECU and many others. Bell rationalised many of these into a single agency which will launch shortly – and it required others to work closely together to maximise impact.

At the close of 2017 – and after a flurry of poor assumptions and ill-considered decisions – we must levy the same complaint at DfE: there are too many bodies charging subscriptions. But this time the answer is clearer: these could all be rationalised either into a single payment from the government to OfS, or a single subscription.

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