Higher education providers in England face long-term, systemic, pressures on their financial sustainability and viability – with the proportion of providers with an in-year deficit having increased in every one of the past four years, from 5 per cent in 2015/16 to 32 per cent in 2019/20.
That’s the rather grim headline emerging from from Commons’ Public Accounts Committee deep dive into financial sustainability, which it launched when the National Audit Office took a pop at the Office for Students’ efforts at regulating the finances and quality of providers back in March.
As such, there are some strikingly similar conclusions. Against the backdrop of deteriorating financial health, the PAC says that the Department for Education (DfE) is “not effectively holding the Office for Students to account” and is particularly concerned that student satisfaction, especially over value for money, has fallen in recent years – pointing out that in 2021, 33 per cent of students viewed their course as good value for money, with 54 percent saying it was not.
As we now know, during Covid the sector survived for four big reasons – the financial resilience of most individual providers, the financial assistance made available by government (mainly via the furlough scheme), the feared interruption to income from overseas students not materialising, and the fact that large-scale tuition-fee refunds were not required. The third and fourth of those will hardly have helped with that 2021 VFM finding, and last week’s dramatic increase to just 35 per cent would hardly have cheered the committee up if that stat had arrived in time.
But now Covid is (hopefully) behind us, problems with finances and the student experience remain. And we do need to know whose job it is to cause that to be fixed.
1. Get a grip
There are six big findings in this PAC report, the first of which is a pretty damning one about the regulator – the committee is not convinced that OfS has made sufficient progress in “getting a grip on the long-term systemic challenges” facing the sector and individual providers, meaning that financial pressures “risk harming students’ experience of university.”
First it notes the long term systemic pressures on providers – pension fund deficits (and predicted rises in employer contributions), inflation and rising costs, a continuing freeze in the cap on student fees rising more quickly than income, the impact of changes to loan repayment terms, further uncertainties arising from the impact of changes to loan repayment terms and potential policy reforms following consultation on, for example, minimum entry requirements.
It then argues two things – first that it lacks an integrated model to understand the combined effects of different pressures (like such as changes in costs, income streams or student numbers) and so risks lacking the information needed to spot, and act on, early signs of distress in vulnerable providers, and second that it has an incomplete picture of the experience of students:
For example, the National Student Survey only covers final-year undergraduates and so the OfS does not have a picture of the experiences of students earlier in their degrees. The OfS similarly does not yet fully understand new issues, such as the impact of hybrid teaching. Some providers do not believe that the OfS has all the information it needs to put financial data into context.
You can see what both the NAO was getting at in March and the PAC is getting at now on this – but you get the sense that neither bodies, nor OfS itself, is really sure about the link between mild financial distress, the subsequent impact on the student experience and how to spot that in the student interest.
It gets closer later when it considers the grade inflationary impacts of two years of Examnishammbles, and the way that caused over and under subscription – but here even an “all years NSS” isn’t going to fix the student experience issues when a provider fills its boots with international PGTs that its academics can’t support.
OfS is told to write to the committee by the end of July 2022, in line with the academic year-end, setting out the actions it will take to increase its understanding of the sector and pressures on providers – and how it will demonstrate to universities and students that it has done so. Six weeks to go!
2. Get a grip on the thing that’s supposed to be getting a grip
As such, the next big finding is that the sponsor department in the form of DfE isn’t effectively holding OfS to account.
Its main beef here is the measures mess that OfS seems to be in – of the 26 performance indicators OfS sets out on its website, eight are still in development or have incomplete performance information, a further 11 indicators do not yet have associated targets, and complete information is available for just seven indicators – all giving “an inadequate picture of performance”.
I’d particularly highlight the failure to set a target for KPM1 here, which is supposed to measure the gap in participation between most and least represented groups. As far back as December 2018, OfS fobbed off by saying that that “there are significant external factors that would critically impact on the achievement or otherwise of any target we set for this KPM”, as if that statement wasn’t true for all of its other targets.
In its “Scenario 1”, to equalise POLAR we’d have had to say “no” to a whole clutch of POLAR 5 parents – taking their kids’ participation from about 60 per cent to around 45 per cent – a scenario that would be both politically unpalatable and fiendishly difficult without active POLAR caps.
In its “Scenario 2” from 2018, we equalise by expanding – effectively keeping the participation rate where it is for POLAR5, and increasing the rate for everyone else. This would involve increasing the size of the sector by about half over the next 10-20 years, on top of the size of the sector growing naturally in line with the number of 18 year olds.
So having set up the regulator in part to focus on access and participation, you can see why having it admit that you either need to massively expand HE or deny access to bunch of middle class families might cause some alarm on Great Smith St. How convenient that a target has still not been set. How odd that the OfS press office never respond when I pose the question, etc etc
And that’s the main problem with this conclusion really. I can make a decent case along the above lines for all sorts of issues. Was it helpful or unhelpful to DfE that OfS effectively blind-eyed a whole clutch of consumer protection law issues during the pandemic to save DfE from having to bail a bunch of providers out or underwrite refunds? I think we know the answer – and it means that PAC is at best a bit naive when it frames the issues in the relationship as an accountability failure when some of that failure was highly convenient for DfE.
Oh – and the committee notes that OfS does not ask providers for structured feedback on its own performance as a regulator, putting it in breach of the regulator’s code – something we pointed out on the site as far back as 2019 to no particular avail.
Working with OfS, the Department is told by the committee to establish a complete set of robust, published performance measures and targets, including structured feedback from providers, and use these to hold OfS to account for its effectiveness. Roll on KPM1!
3. Weak protections
The third finding is one that I’ve been banging on about on here for a few years now – that student protection plans are weak, including over-optimism about risks and weak refund and compensation policies, and despite noticing this in the initial provider registration period, has failed to do anything about it.
I obviously won’t disagree with this – but what I would say is that the PAC fails to get to groups here with two issues – the question of transparency about accurate and up date risks and whether applicants have the right to make their decisions knowing those risks, and the Trigger’s Broom/Theseus’ ship problem when finances go bad – both in the situation of a course dramatically reducing module choice after a round of redundancies, and in the event of a skeleton “core modules” teach out when a course closes.
If you’re going to have a market, I can’t really think of much that’s more important than protecting students over the above, which OfS continues to fail spectacularly in doing. And again, isn’t it more than a little convenient that OfS has made little to no progress on highlighting the risks to students if a provider had to scale back its budgets and provision in the face of DfE policy on headline tuition fees and “low value courses” outcomes?
In the report we are reminded that in the evidence session, former CEO Nicola Dandridge said that protections for students did still need further review, and told the committee that it was committed to doing this over the course of the next 12 months as part of its next business plan. Maybe Nicola forgot to put it into interim CEO Susan Lapworth’s handover note – because that action doesn’t appear in the plan that was subsequently published.
OfS is told by the committee to prioritise ensuring that all providers’ published student protection plans are fit for purpose and sufficiently clear for students to make confident, well-informed decisions about the protections universities are promising them. I won’t hold my breath.
4. International students
There’s a touch of moral panic about foreigners in this one – the PAC says that overseas student numbers are a problem because providers are already highly dependent on cross-subsidy to make up deficits in publicly funded teaching and research.
Part of this is a worry that OfS has in the past found student number projections over international students to be over-optimistic, and the committee is also worried about risks associated with an over reliance on international recruitment which “may not align well with the UK’s wider geopolitical interests”.
What it misses here is the dramatic and spectacular rise in international numbers (esp PGT) in some universities on some courses without proper planning and thought on making that work – a problem for them, their undergraduate counterparts and their local areas that OfS has literally no way of measuring, given the PAC has missed that the NSS doesn’t cover them and doesn’t seem to monitor numbers growth within providers in a way that would trigger concerns.
In some contrast to the tone we get in the International Education Strategy, the Department is told to set out what it considers to be the risks to achieving the continued forecast growth in overseas student numbers universities are relying on for their future financial security, and explain how it is mitigating those risks.
5. Value for money
Everyone seemed to be pretty nonplussed at the HEPI/Advance HE Student Academic Experience Survey of 35 per cent figure when it came out, but given we’re operating a fees system the PAC rightly points out that it is at a worryingly low level.
It also reminds us that OfS used to care about this – one of its four regulatory objectives is that students receive value for money, including that students should receive the academic experience they were promised by their provider and that their interests as consumers should be protected before, during and after their studies. It has now quietly dropped having a VFM strategy.
When asked about the problem, OfS had promised the committee that it remained concerned about the quality of provision where courses had been very heavily oversubscribed and was “now looking at this issue closely” and “working with the universities to ensure that, notwithstanding increased numbers, quality remained good”. Unless it’s been undertaking a secret programme of work, I think it would struggle to prove it even knows about which courses were “oversubscribed”, let alone this fanciful claim that it’s doing something about it – it’s too busy putting “boots on the ground” over the latest concerns of ministers and Sunday newspapers.
In one of those “they might have to take responsibility for improving the sector instead of finger wagging at it” moments, both DfE and OfS are told to set out what action will be taken to improve students’ satisfaction with value for money, including OfS’s assessment of the impact of hybrid teaching on students’ experience and what progress has been made in addressing the causes of dissatisfaction.
6. A shambles over the shambles
Finally – and of course linked to many of the issues above – the committee says that the department failed to adequately assess the current and future financial impacts on providers of disruption to Level 3 assessments for two years’ running.
We know the story here – more students were able to take up places at high-tariff providers, but left many medium- and low-tariff and specialist providers undersubscribed, who therefore lost expected fee income.
We are reminded here that the Department had anticipated the likely impact of locally assessed grades on providers that would be oversubscribed and that could require additional funding for high-cost courses – but it had not considered the impact on those providers that would become undersubscribed.
As the PAC points out, being undersubscribed causes financial pressure on providers for an extended period, as most courses last at least three years. And at the same time, oversubscribed providers risk not being able to maintain the quality of provision they have promised their students as they may not have sufficient teaching facilities or student accommodation.
Learning from the disruption to the higher education market during the pandemic, the Department and the OfS are this time told to model and review the financial impacts on providers of changes to the number and profile of domestic students over the short, medium and longer terms. That they haven’t done so so far, and not promised to do so in the future either, is pretty shocking if you think about it.
A risk-based approach
Overall, we remain broadly where we were in March with the NAO – it’s not especially clear that anyone, including the NAO, the PAC, DfE or OfS is really clear on who should be held to account for poor performance or what the nature of the relationship should be between students, ministers, parliament, providers and the regulator.
I must admit to trying to describe that on a slide for new student officers the other day and instead I’ve replaced it with a cat gif. But I do have another reflection.
The other day you might have noticed that interim OfS CEO Susan Lapworth set out a defence of and explanation of the way in which ministers influence OfS’ work – pointing out that they have the powers to do so and that so-called “politicisation” should be regarded as some kind of new normal and reflective of a functioning democracy.
It was a nice try, but I’m not sure anyone had ever said that government shouldn’t have any influence of OfS, I’m not sure anyone has ever said it should be calling all the shots, and it was always clear that relationship with the sector would need to change in comparison to that that was held between HEFCE and the sector.
The point is that notwithstanding the legal realities, there are legitimate questions about how ministers and OfS behave – and what is prioritised and done. Are ministers leaning too hard on OfS? To what extent does the independent regulator disagree and kick back? And so on.
That’s partly about tone and partly about trolley. On the former, too often it’s hard to discern an OfS quote from a ministerial one (in turn hard to discern the press from ministers etc) and the danger is that regulation looks like it is dictated by Sunday paper editors.
As OfS sometimes says to providers – just because something is allowed doesn’t mean its desirable or the right thing to do.
It’s about the extent to which ministers and the press think we can reasonably hold universities to account for X or Y, and the extent to which OfS plays along when it seems really quite unreasonable to do so. It’s about the role that OfS increasingly seems to be playing in providing cover for DfE controversy and cuts rather than protecting students’ interests.
But it’s also about priorities. Of course ministers change their minds every five minutes – but we need the regulator to take a longer view. The problem is that in constantly “responding”, we end up with failure – dragging heels on sexual misconduct or consumer protection or financial sustainability, and speeding up on spelling projects and grade inflation. If you took a step back and said “objectively, does it feel like the right/biggest risks to students are being focused on by the regulator in the medium/long term” I think it’s hard to get near to a yes.
On the evidence here, both the National Audit Office and the Public Accounts Committee seem to agree.