The cost of regulation

Institutions will subscribe to the new Office for Students, but at what level, and how will these levels be determined? And what are the other potential costs in the new system? Catherine Boyd takes a look

The Department for Education (DfE) has launched the second stage of their consultation on the Office for Student’s (OfS) registration fee model. The previous consultation ended in mid-March and lacked detail – making it difficult for the sector to respond in a meaningful way. However, this time, the OfS registration fee consultation has been launched alongside the Regulatory Framework, which makes it feel like a bit of a done deal. Following the Bell Review, where HESA and QAA were left relatively untouched, there are some interesting implications for the Designated Quality and Data Bodies.

How will fees work?

Registered Basic providers will pay a proposed flat fee, indicatively set at £1,000 per annum, while providers in the Approved and Approved (fee cap) categories pay a varied fee based on their size, as measured by their full-time equivalent (FTE) student numbers. OfS will also be able to subsidise fees (the version published initially this morning said “waive”) for new providers when it sees fit. This is to encourage a more open market, a power granted to the Secretary of State in HERA.

The banding criteria for the variable fee is outlined in the table below, ranging from £18,200 to £119,700 per year. Despite concerns that a banding system could create sharp jumps in fee costs, DfE has opted to protect smaller institutions by avoiding smaller incremental leaps in fees.  

Band nameFTE band% increase between bandsIndicative fee amount
Aup to 50-£18,200

They also present an alternative banding model, that ranges from £25,300 to £65,300 and has smaller incremental leaps, but notes that they won’t be considering it. Purely there for illustration, it does present a bit of a tease.

For many, too much still remains unclear, such as what’s included in the registration fee? According to first phase consultation responses, there were a number of ‘other fees’ that could form part of this. So for example, application fees for degree-awarding powers are currently charged by QAA, but under the new framework, this could be rolled into the OfS registration fee. The DfE says this will be largely informed by the final Regulatory Framework.

A calculated risk

However, DfE proposes developing an alternative model that it could move towards in the future. This would mean those requiring a higher level of regulation pay a higher fee, possibly using published information about the provider. The regulatory framework outlines what this data might look like (point 266, page110), which includes a set of lead indicators to understand provider performance and inform regulatory need. Here you can see the influence of other more established regulatory bodies, such as the FCA (Financial Conduct Authority), regularly referenced in the regulatory framework, who run a risk-based fee system.

They have outlined the pros and cons to this methodology clearly. It’s an opportunity to reflect actual costs, would be consistent with a risk-based regulatory framework and benefit low-risk providers. However, it would increase the financial burden on those already experiencing an increased regulatory burden. It could be more complex to deliver and act as a barrier for new entrants.

In a system, where the more established institutions are often subsidising new entrants and riskier institutions, this could be seen as a popular model. For OfS, the link to lead indicators, such as TEF outcomes, produces a quasi-financial penalty for the OfS to enforce on those not meeting conditions set. Thus giving the regulatory body some bite. However, as the sector is more used to a soft, co-regulatory approach, these financial implications based on metrics could lead to some sleepless nights.

Designated fees

The consultations were also launched for both the Designated Quality Body (DQB) and Designated Data Body (DDB) in relation to quality assessments and data collection respectively. Neither are particularly surprising documents but clarify their ability to charge their own fees. However, they must reflect the costs incurred in delivering their statutory duty within 12 months. This is to ensure there is no double-payment in fees. It’s unclear if that’s the cost to the sector as a whole or individual institutions fees, which could result in some subscription problems for the Designated Bodies.

They also have the ability to generate more income with additional non-statutory services that sit outside HERA  that institutions can choose to pay (see HEIDI plus for HESA, and consultancy from QAA as examples). No doubt these will help each designated body to subsidise their statutory duties and generate some more meaningful income.

The DfE plans to review their own registration fee model after two years, to include the possible alternative ’risk-based’ model. There will also be a triennial review which will consider the level and calculation of the Designated bodies’ fees.  

The consultation on the OfS registration fees closes on the 22nd December 2017 and you can respond here.

You can respond to the Designated Quality Body consultation here.

You can respond to the Designated Data Body consultation here.

Find the full Wonkhe index of all documents published by DfE here and all of Wonkhe’s coverage of the new framework at #Regulation.

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