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Higher education must learn from other sectors on living with a regulator

Like it or not, the higher education sector will soon have to deal with an active and well-armed regulator. Jonathan Nicholls looks at the challenges this might pose and the lessons that can be learned from other sectors' experiences.
This article is more than 7 years old

Jonathan Nicholls is Director of Strategic and Policy Services (Education) at Shakespeare Martineau.

The Higher Education and Research Bill goes to great pains to respect, and now potentially to codify, the principle and protection of the institutional autonomy of higher education institutions. But anyone who believes that these insertions in the Bill will mitigate the impact of an active and well-armed regulator is sadly deluded.

The Barlow Report of 1946 established the principal active function of the University Grants Committee (Later the University Funding Council, and now HEFCE):

“…the State has perhaps been over-concerned lest there should be even a suggestion of interference with the independence of the Universities and … it is clear that the University Grants Committee was originally intended to be a somewhat passive body whose main function was to criticise proposals put forward by the Universities and which was not itself expected to make any attempt to suggest possible developments involving expenditure to University authorities. We gladly recognise that the Committee has not in fact been content to accept so passive a role but we think that circumstances demand that it should increasingly concern itself with positive University policy.”

Legislation since 1946 has progressively added new powers of intervention and direction for the UGC and its successors. They have however remained valuable stewards and critical friends of the sector, translating and mediating between government and universities to the benefit of both. There is little correspondence between this relationship and how a regulator will operate.

In the meantime, the new opening section of the Bill warrants its own lengthy textual analysis:

UK universities: Functions

(1) UK universities are autonomous institutions and must uphold the principles of academic freedom and freedom of speech.

(2) UK universities must ensure that they promote freedom of thought and expression, and freedom from discrimination.

(3) UK universities must provide an extensive range of high quality academic subjects delivered by excellent teaching, supported by scholarship and research, through courses which enhance the ability of students to learn throughout their lives.

(4) UK universities must make a contribution to society through the pursuit, dissemination, and application of knowledge and expertise locally, nationally and internationally; and through partnerships with business, charitable foundations, and other organisations, including other colleges and universities.

(5) UK universities must be free to act as critics of government and the conscience of society.”

For a start, let’s note that alongside the guarantee of institutional autonomy there is the specificity of the functions, such as the adjective “excellent” placed before ”teaching”, and the detailed ways in which a university “must make a contribution to society” (e.g. through partnerships with business and other universities and colleges, regionally, nationally, internationally). This leaves little to discretion – if the amendment survives, public benefit statements in financial statements will become rather more interesting.

Crucially, none of this precludes the establishment of a regulator. In fact, the regulator will now have legislative tools to hold institutions to account if they apparently fall short of the expectations outlined above.

Regulation, regulation, regulation

It is worth taking note of what life is like in other sectors living under the regulatory cosh.

Take for example the Financial Conduct Authority and Ofgem. The duties of the FCA are, simply put: protecting consumers; enhancing market integrity; promoting competition. Ofgem’s principal objective “is to protect the interests of existing and future consumers”; “to further this principal objective … by promoting effective competition”; and “to promote efficiency and economy on the part of those licensed [to supply gas and electricity].” There is also a duty on Ofgem to promote the security of supply and to take specific account of customers with disabilities, those who are chronically sick or have other specified disadvantages.

How do you feel about your energy supplier or your bank? Warm and positive? Disengaged? Cynical? Well, then consider how students might feel about universities in a few years’ time. If one makes a few substitutions of nouns, the duties of the Office for Students are very similar to those of the FCA and Ofgem: competition, choice, value for money, the integrity of the system (the register function), and making reasonable adjustments on various social and protected grounds.

A big difference, however, for the retail consumer of banking and energy is that switching provider is now relatively easy, with third-party agencies happy to do this for you or smooth the way. Not so for students. No wonder the government is making another push to find the long-sought Shangri-la where credit accumulation and transfer is universal and transfers common. As an aside, one could argue that the Bill, while purporting to focus on the rights of students, in fact focuses on the duties of the provider. The remedies and protections for students, especially current students – contrast these with those for bank depositors and energy customers – remain limited under the provisions of the Bill.

The visible hand

This may all change over time as future Secretaries of State exercise their right to give guidance to the Office for Students. There is a second lesson here for universities from the experience of the commercial banking and energy supply sectors. For the first 25 years after privatisation, regulation in energy was principally exercised by the imposition of limits linked to inflation on prices and was light-touch. More recently, however, Ofgem has developed a new model for network providers, entitled RIIO: Revenue = Incentives + Innovation + Outputs. This places a duty on providers to provide fair prices during a period of significant investment in energy networks by putting stakeholders ‘at the heart’ of decision-making, by investing efficiently, by innovating to reduce costs for consumers and to play a full role in delivering a low carbon economy. Sound familiar?

It is easy to see how this model could translate to a framework that the OfS might want to set for higher education. When failure is found in financial services (arguably quite frequently…), new regulation and burdens of compliance have been introduced by the FCA to the point where it is too easy for banks to fall short or are compelled to establish high-cost elaborate internal functions to ensure compliance. Again, the parallels with higher education are clear.

In both energy and financial services there is a trajectory of greater intrusion over time, greater regulatory burdens because of offshore competition, the creation of new onshore franchises in energy (ring any other bells for the post-Bill landscape?), and the expectation that one delivers what one has promised to deliver. The powers of remedy or penalty are also significant.

The third lesson is that active and cordial engagement with the regulator is essential for providers. There is no benefit in outright confrontation or a fragmented approach to important issues for both sides. The regulator has a role to play just like providers do. There will be times when battles need to be fought and won. But the timing and place of those need to be planned carefully, and be seen as isolated events that do not spill over into creating general rancour in the relationship.

Office politics

There will be a year between the set-up of the Office for Students and its formal opening of operations. During that period much good may come from informed engagement by universities with the Office as it begins to organise itself and create the frameworks and procedures for fulfilling its duties under the new Act. Sector bodies, mission groups, and universities would do well to consider how best to manage this engagement and not assail the proto-Office from all sides. There are common interests here which do not cut across the duty to promote competition among universities. Much, of course, will depend on the background of the soon-to-be-appointed chief executive.

While I have chosen to focus on OfS, much of the issues considered here are relevant to the duties of UKRI, and of course the still ambiguous relationship between the UKRI and OfS. There is still much that the sector can do to influence these new entities as they begin to operate in shadow-form. Insights from other regulators and regulated sectors are valuable. The establishment of OfS and UKRI is only just beginning. So is the work which higher education providers and their representatives need to do to understand and respond to the changing nature of regulation.

One response to “Higher education must learn from other sectors on living with a regulator

  1. Thank you for this insightful analysis, Jonathan – the comparison to other regulated markets is incredibly instructive and it is vitally important the English HE sector begin the understand the implications of moving from a funding-based to a market-based regulatory regime.

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