The white paper kept quiet on market exit

Despite previous indications that movement was afoot, the post-16 education and skills white paper had nothing to say about institutional closure. Michael Salmon tries to work out what’s changed

Michael Salmon is News Editor at Wonkhe

The Department for Science, Innovation and Technology’s annual report in early July said that the government was working on a legislative programme to “ensure higher education sector access to an insolvency regime.”

Yet for all that Monday’s post-16 white paper compiled together much of the ongoing work that had been trickling out of Whitehall for the previous 12 months, such plans were notable by their absence.

Similarly, the Office for Students’ 2025–26 business plan said it was putting together proposals for a system whereby a “validator of last resort” for the English sector, which would protect students if the provider that validates their degree exits the market, as well as a possible “bespoke clearing system” for students in the event that their institution closes.

Again, neither of these ideas got airtime in the white paper, despite skills minister Jacqui Smith having given her endorsement to the latter in comments to the media.

The white paper in fact steers wholly clear of policy thinking around what would happen in the (ever more likely) event that a large English higher education provider finds itself in severe financial distress threatening its very viability. This omission is even more stark even against a background where we know that this risk has been scored “critical” and “very likely” on the DfE risk register, and the Office for Students has told the Commons education committee that it would be unlikely that it could “secure reasonable outcomes” for students if a large multi-faculty university closed, reeling off a list of all the ensuing risks ranging from students losing access to their academic records to PGRs whose work is tied to a particular supervisor finding transfer “difficult or impossible.”

Perhaps the government simply wanted to steer clear of any negative news as it seeks to pat itself on the back for putting higher education on a “firm financial footing”, by way of keeping tuition fees at the same level in real terms (as long as inflation forecasts do not prove to be underestimates) while piling on additional costs to universities in areas including national insurance, pensions and a future fee levy. But – especially given that the white paper rounded up almost every policy initiative that is currently underway elsewhere in government, OfS and UKRI – it does feel, rather, that the idea of making legislative change to pre-empt issues around “market exit” has disappeared from the government’s to-do list.

Pros and cons

The education committee’s ongoing inquiry into higher education funding, which has the risks around insolvency as one of its central concerns, is shedding some light on the issues involved, both in the written evidence that has come the committee’s way and the first hearing which took place on Tuesday this week.

Neil Smyth of lawyers Mills & Reeve told the committee that the fundamental answer to the question of what happens to an insolvent university which is not incorporated as a company – a large slice of the sector – is that “no-one quite knows”. He emphasised that there is debate about what the law entails, noting:

At the moment, it is believed that the only insolvency process that would be available for a royal chartered entity or non-corporate entity would be to be wound up by the court as an unregistered company. That is a terminal process, it is a shutdown process, it is not a process that allows you to continue to trade.

This uncertainty complicates what advice can be given to university governors about their responsibilities and liabilities – and also makes it difficult to see how student protection can be regulated for in such a situation. Mills & Reeve’s evidence to the committee adds that the unclear dispensations for unsecured creditors has, in their experience, led to something of a “land grab” among creditors:

Key creditors, including pension providers, have sought to improve their position by demanding legal mortgages over land as these confer the contractual remedy of fixed charge receivership. This leads to highly expensive and time-consuming legal due diligence at just the point where the HEI can ill-afford those costs.

Smyth, as he has previously argued on Wonkhe, told the committee that the advantages of some kind of restructuring regime being introduced included clarity for governors, confidence for lenders, and – as exists in the relatively new further education special administration regime – the potential for legal protections for students’ academic interests. That said, he warned that he couldn’t see a university coming out intact from such a process, given that student demand would inevitably collapse once the institution went into administration.

However, Universities UK – represented at the committee hearing by chief executive Vivienne Stern – has moved away from advocating for a special administration regime. As the representative body’s evidence to the committee puts it:

Universities UK’s current view is that it would be preferable to work with government, regulators and other sector bodies to clarify how existing arrangements can apply to higher education institutions, supported by stronger contingency planning at institutional level, and at the level of government, regulators and funders.

The consequences of a large scale institutional failure would be so significant that policy effort should be primarily focussed on averting this outcome, rather than on mitigating its impact after the event.

Stern highlighted the risk that a formal administrative process could be drawn out and expensive, and might even make it more likely that an institution collapses once entry into regime had taken place.

The committee’s report will make a recommendation – it could be that Universities UK’s line of thinking has already swayed the government away from such a move. Committee chair Helen Hayes hinted that the committee will conclude that formal systems are needed, via her question to the effect of what would happen if there were a slew of insolvencies in short succession which compromised governmental and regulatory capacity to thrash out suitable arrangements behind the scenes.

Fuzzy logic

Keeping the threat of market exit – and the massive and unpopular clean-up job that would accompany it – hanging over the government’s head rather than handing off responsibility to a predetermined legal and fiduciary process is, sad to say, probably one of the few trump cards the sector still has to play around advocating for greater government investment.

The lessons from FE, where a special administration regime has been in place for a few years now, are that the government seems reluctant to let things go as far as formal processes. In higher education, while it would depend on geography and circumstances, the smart money is probably still on Labour stepping in before push came to shove in a similar way to how the SNP felt forced to in Dundee.

But there won’t be a Labour government forever. Future ministers who were relaxed (on paper) about universities going bankrupt would almost certainly be less keen to have to step in and make the final decisions in the places affected – while perhaps not being so worried if it ended up being purely a matter for the courts and the banks – and so keeping things fuzzy might end up being a sensible long-term strategy for the sector with an eye beyond 2029.

That said, the apparent move away from government interest in legislating for a higher education insolvency regime doesn’t really explain why the white paper was quite so silent on other mitigating actions and the whole question of student protection (especially given its inclination towards “consolidation”). Is it really betting the house on the magical healing properties of holding tuition fees stable in real terms?

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