Government support for higher education providers facing financial peril was always going to come with strings – and there are some big ones here.

Autonomy is a revered shibboleth in policymaking, but the point at which you approach the Treasury as funder of last resort is that point at which you also need to accept that you no longer have power to determine your future. Fifteen short pages of guidance on the planned restructuring regime for higher education providers is economical with its language but manages to say quite a lot about government priorities for the sector.

What happens if a provider gets into financial trouble

There’s three policy objectives that determine whether DfE and the Treasury would get involved:

  • Protecting the welfare of current students
  • Supporting the role HE providers play in regional and local economies through the provision of high quality courses aligned with economic and societal needs
  • Preserving the sector’s internationally outstanding science base (noting specific support is being made available for research activities)

In essence, if you feel like you are getting into financial trouble in February 2021, though you’re advised to continue to talk to the OfS about it, there is now a special batphone-like email address on which to contact the DfE. This does not dispatch the Williamson-mobile direct to your boardroom with a telethon-size cheque. Quite the opposite – it “initiates a discussion” with the DfE Restructuring Unit.

This takes place on an “open book” basis (no secrets), and there is an option to bring in independent business review advisors. As the clock ticks down towards payroll being due, the Secretary of State takes advice from a Restructuring Regime Board as to whether to let you go to the wall or instigate an Independent Business Review (IBR). This will form a part of an evidence-based and costed restructuring plan.

We get a wall of “specific attention” prompts which offers a window into DfE’s values at this point. Provision should avoid duplication, focus on “high-quality courses” defined as having “strong learner outcomes” – repeating the Additional Student Number definition of low non-continuation, highly skilled graduate employment, that develop skills linked to local and national economic and social employment needs.

There’s also an opportunity to think about levels, and whether any provision could be more effectively delivered at levels 4 and 5, either by the provider itself or a local FE college (although, of course, FE colleges may already have their own HE offer).

Governance needs to be “strengthened”, efficiencies identified (special mention for senior executive pay, which of course is unlikely to be a material financial consideration) such as as “closing unviable campuses” or considering merger and related options, and students need to be supported in completing their current course or an equivalent course.

Finally, mixed messages on research – this needs to be internationally excellent (as defined in REF 7 years ago) or of “direct and demonstrable value” to the local or regional business community. It might not be intentional, but this does appear to exclude research of value to local public services – think healthcare research delivered in partnership with NHS Trusts, or to not for profit – think charities working with migrants – which arguably undercuts the government’s supposed civic agenda for universities.

The independent business review spits out a restructuring plan working with the provider and restructuring unit – ministers making the final decision whether or not to support the plan or offer “any loan funding” – all support is to be offered in the form of a repayable loan. OfS gets to feed in on regulatory compliance. Monitoring of conditions attached to support will be determined on a case by case basis.

What does it mean?

It’s important to remember that this is a backstop to a backstop, a last-ditch effort to save what is worth saving from providers unimproved by the government business lending and corporate finance schemes, and the additional funding devoted to research based on international recruitment losses. If you remember the IFS spotting the “unlucky 13”, were probably at that order of magnitude if current pessimistic projections of student enrollment play out.

The model of the second winter wave of Covid-19 infections that is growing in acceptance plots the point at which final decisions on whether to apply by students (August/September) as a safe point – coupling this with encouraging news from UCAS, the Student Loans Company, and (to an extent) the British Council suggests that this epidemiological liminal space is very good news for sector finance.

So it could be that literally nobody at all has to send that ill-boding email. As the minister herself notes, betraying departmental hopes that some providers will perform surgery on themselves without DfE intervention:

The majority of providers will not need additional support from the Restructuring Regime, but will nevertheless be looking to undergo their own restructuring to ensure they are better suited for the post-Covid world.”

All this applies to Approved (fee cap) providers only – mainly universities. With FE colleges having their own system, this seems to mark the end of a presumption of a sector expansion via market entry from private and alternative providers. We spoke to IHE’s Alex Proudfoot on this point – he told us:

“We welcome the Government’s recognition that some providers may run into difficulties through no fault of their own, and the decision to make this emergency support available as a last resort. But this support is not to be available to the small independent providers at greatest risk, only to those larger institutions which already take public funding. The complexity and length of the process also makes it unsuitable for helping the SME providers with the most urgent cashflow needs.”

So what we are looking at here is, in many ways, is the government’s idea of what a modern HE provider should look like. What do we take away from this?

It is the very model of a modern university

An emphasis on digital and new online delivery, that could recruit internationally and raise accessibility, is just one of many possible paths to financial recovery. As is a “truly outstanding” offer for the regional economy. A benefit that graduates all realise from their studies aligning with societal and economic needs.

To anyone that has listened to recent speeches by Williamson or Donelan – or indeed read the 2019 Conservative manifesto these ideas will not be a revelation. The direction of travel has long been clear, and to gain government backing providers are expected to follow the priorities of ministers rather than just regulatory requirements from OfS.

You see this particularly in the appearance of the “hot button” issues – vice chancellor pay, a painfully earnest warning that “the funding of student unions should be proportionate and focused on serving the needs of the wider student population rather than subsidising niche activism and campaigns”.

Senior staff pay is a tiny proportion of institutional expenditure, and if there has been an epidemic of over-funding in SUs that could have a material effect on university finance then we haven’t spotted it. But the culture war battles will rage regardless, and SUs remain in the firing line as they always have been.

There are hints of a new stick to shake at the sector in lines about reversing growth in spending on university administration activities “that do not demonstrably add value”, as if growth in regulation had not been the reason for such changes. Government may well be “actively considering how to reduce the burden of bureaucracy” (the line is repeated twice), but we heard that language at the start of the Cameron/Clegg coalition and yet OfS requirements are far steeper than the old HEFCE/OFFA ones.

The document asks universities to “do much more to strip back bureaucracy, allowing academics to focus on the front-line” but this seems rather at odds with the call, in the same paragraph, for less administrative activity. We know an academic or two that would have something to say about the amount of administration already required of them. It seems obvious that dismantling the university administration around them is unlikely to allow for more time on the “front line”.

The illustrative template for a provider plan includes a strategic business case, assessment of the market for courses, a provision plan, a research plan, an estates plan, a recruitment plan, a financial plan and a delivery plan. Under the financial plan it’s suggested that providers should give specific focus to finding efficiencies in senior pay, pensions costs, marketing costs, administration costs and funding for student activism and sabbatical officers. Any one of these items might find agreement in part of the university; the list in full ensures that nobody would escape pain in the event of a restructure.

What about OfS?

The Office for Students has both the legal power (HERA2017, s39(2)) and the capacity to administer this funding and the processes associated with eligibility and to set terms and conditions (s41(1)). It already has apparatus to spot oncoming financial problems, either from the data or from Reportable Events. And it has the power to request more information as required, and even to literally break the front door down if it does not get what it wants.

The decision to place this scheme within DfE could be seen to imply a lack of government trust in England’s regulator – a theme that has played out in the background to OfS’s (largely sensible, if slow and unadventurous) response to the pandemic. Ministerial frustrations could well have led to the resignation of the chair, but have also brought about a partial return of a direct governmental funding model of a type last seen in the days of the Universities Funding Council.

A counter-argument could be made that the role of OfS is to focus on “pure” student interest rather than provider sustainability. A further consultation, to be published soon, on enhancing OfS’ powers of intervention on student protection in the event of a material risk to the sustainability of providers, if carried through, would enable OfS to intervene to secure the interests of students at any point in the restructuring process.

But the effect, as in other areas of government, is that the desire for direct ministerial control and stronger lines of accountability into the centre means that the fashion for arms-length bodies, a policymaking constant since the “Next Steps” (Robin Ibbs) review in the 1980s, may be coming to an end. Are we about to see another tertiary regulatory rethink?

6 responses to “The restructuring regime – money, but at a cost

  1. The decision-making structure (independently chaired committee, single-task unit, review commissioned to evaluate options), the documents requested (Restructuring plan, 8 sub-plans) and the support on offer (individually negotiated government loans with conditions) are all quite familiar to those working in English colleges from the 2017-9 restructuring period which supported 38 transactions at a time when an equivalent number of colleges implemented change without support because the restructuring T&Cs were too difficult (deliberately so).

    If a university needs this support, their size and the complexity of their activities, debts and pensions may mean it’s an even longer timescale than the typical 2017-9 college restructuring application (c9 months). The only people who benefit from this sort of delay are consultants on open-ended retainers. One takeaway from our sector.

    If an alternative provider applies (conservatoire, theological college etc), then the process might be quicker.

  2. You’re right that section 41 of HERA allows the OfS to impose terms and conditions on grants or loans. But this wouldn’t cover the type of conditions the government wishes to use as part of its restructuring regime.

    So it’s entirely appropriate for the government itself to operate a ‘last resort’ lending scheme of this sort, and to decide the financial and policy conditions attached to that support.

    We’ve always said that the OfS’s job, when it looks as though a provider may close, is to find ways for students to complete their courses. We’ll continue to focus on intervening in this way to protect students from the consequences of a disorderly market exit.

  3. The parallels between this regime and what has been in place for FE Colleges is quite obvious and one would expect the outcomes to be quite similar. Takeover of financially weak institutions masquerading as mergers, possibly incentivised by loan write offs. Regionally important provision being maintained but with significant reshaping of the institution.

    One difference may be the willingness to let a provider exit the mark completely and that can be seen in the carefully crafted wording by looking at the types of institutions who would be within the remit of the regime by being Approved (fee cap) providers but will be excluded by the policy objectives. Of the 332 Approved (fee cap) providers around 20 are small ‘independent providers’ often in London with overlapping provision, and it is clear this regime is not designed for them. I highly doubt GSM (if it had ever made it onto the register) would have been given access to loans beyond supporting students to transfer in an orderly manner. There is also a lack of mentioning the role of validating universities in these arrangements where an institution doesn’t have its own awarding powers, as they have undertaking to students on their provision at these institutions.

    In addition to these ‘independent providers’ it would seem other providers in London (where there is often a perception oversupply) are most at risk of, if not complete market exit, the most serve conditions to restructure and merger if they get into financial difficulty.

    Whilst there may be many holes to pick at with this regime and we won’t see the true implications until it is used, at least it is something where there was previously a complete absence of what would happen in the most dire of circumstances.

  4. Nothing in here is surprising – we know that subject level TEF will never happen and that the plan is to limit access to the loan box via graduate outcomes and progression metrics – so everything in this document has to match up with that.

    I am curious how some of this will shake out with a couple of very specialist providers (mentioning no names) who are about to go to the wall and are entirely unsuitable for restructuring towards STEM or merger with an FE college.

  5. As ever … “government” is mentioned 13 times in this article without any qualification that the “government” being referred to is the UK government, whose remit for teaching funding/fees and HE regulation only covers England. There’s a tangential reference to the OfS as “England’s regulator” but no proper UK-wide context. Of course for the 80% of people that live in England the usual implied caveat applies: who cares about mentioning the far flung other parts of the UK HE system?

    Rather than qualify all the points with a reference to “in England” a few dozen times, which I appreciates disrupts the journalistic style, can I suggest you just have a sentence at the start or end of each article of this nature that says something like:
    “The UK operates education devolution such that there are four partially distinct HE systems each with their own separate legislature, ministerial and government departmental control mechanisms. This article mainly covers issues relating to the HE system in England only, responsibility for which rests with the UK government, parliament and civil service departments based in Westminster.”?

  6. If anyone from Gov’t took more than 2 minutes to actually work in a university, they will know that it is regulation and legal compliance that is driving bureaucracy: OfS conditions, Prevent, consumer law, GDPR, funding Ts and Cs, listed building regs, equality act, and health and safety. All of these requirements are very well intentioned but come at a very significant cost.

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