There’s a fascinating HEPI Debate paper out on marketisation.
It’s not a word that Tom Richmond (former civil servant and EDSK director) ever uses directly in “A degree of regulation: Building a more financially sustainable and resilient higher education sector”.
But the eight problems he describes, along with eight ways to fix them, can pretty much all be traced back to the unplanned competitive market that the lifting of student number controls created.
And his regulatory solutions are all little fixes and tweaks to the market rules – more stuff for a famously effective and efficient Office for Students (OfS) to fail at.
As such, his proposals amount to an inadvertent admission that the market system isn’t working, without ever quite saying so. But it also means that they risk attempting to constrain behaviour that the market actively incentivises – without changing the incentives themselves.
The result is an elaborate game of whack-a-mole. Eight mallets, eight moles, and a blindfold – because the blindfold is the refusal to look at the overall architecture that keeps producing them.
Option 1 addresses provider growth, pointing at Arden, BPP, and the University of Law – providers that have expanded rapidly, in some cases doubling or tripling their student numbers within a few years.
He argues rapid growth means financial fragility and stretches teaching capacity, and proposes capping growth at 5 per cent per year. There’s some sense in that – I’ve certainly argued before that HE is a system profoundly unsuited to rapid expansion or contraction.
But he doesn’t really ask why providers are chasing growth. The answer is that freezing fees in real terms for over a decade meant volume now seems to be the only route to financial viability. Richmond puts a lid on the behavioural response without touching the incentive that produces it.
Option 2 targets international student dependence. Richmond cites OfS data showing that some providers derive over 50 per cent of their income from international students, and warns that sudden shifts in recruitment markets – visa policy changes, geopolitical disruption, cost-of-living pressures – can destabilise whole institutions overnight. His fix is a progressive levy on international fees above the domestic loan cap.
But he doesn’t address why providers are dependent on international income. The cause is that domestic teaching is loss-making at most providers. He’s taxing the coping mechanism. Worse, if providers respond rationally by lowering per-student fees and recruiting more international students to maintain total income, the proposal may well increase the concentration risk it claims to reduce.
Option 3 tackles franchising. Richmond documents the explosion of franchised provision – student numbers more than doubling to over 138,000 by 2022–23, profit margins of 30 to 53 per cent at delivery partners, continuation rates as low as 66 per cent, and the NAO identifying organised fraud and ghost students.
He, as we did a while ago, proposes an approval mechanism for franchising deals and caps on the proportion of university income from franchised provision. But he doesn’t ask why franchising exploded.
The cause is that unregulated volume growth in cheap-to-teach subjects is extraordinarily profitable for universities, franchise colleges and their sales agents under a flat fee with no number controls. He’s regulating the pipeline without turning off the tap.
Option 4 addresses financial fragility. Richmond presents OfS data showing 38 providers with borrowing above 50 per cent of income – some above 200 per cent – and 21 with less than 30 days’ cash. He frames the problem as society-critical institutions that are too important to fail and too exposed to absorb shocks, and proposes banking-style capital buffers, debt limits, liquidity requirements, and stress testing.
But he never explains where the money for the buffer comes from. These are providers that tell us they are already losing money on every domestic student they teach. If you’re running a structural deficit, you can’t build reserves – the only routes are to cut spending (which means cutting teaching), grow revenue (which means recruiting more students, the behaviour his other proposals constrain), or borrow more (which increases the leverage he’s worried about).
He’s prescribing the accumulation of cash to institutions he’s simultaneously proposing to starve of the means to generate it. And the analogy with banking doesn’t hold – banks failed because overleveraged assets collapsed and contagion spread. Universities fail because revenue dries up. A capital buffer is a solvency tool being applied to what is fundamentally a going-concern revenue problem.
Option 5 targets overrecruitment relative to teaching capacity. Richmond cites evidence from the Student Academic Experience Survey showing declining satisfaction with assessment and feedback, and points to providers where student-staff ratios have risen sharply as recruitment has outpaced hiring.
He proposes a “teaching resource cap” – surveying teaching hours across the sector and using the results to set maximum student numbers per provider. But he doesn’t ask why providers recruit beyond capacity. The answer is competitive pressure – if you don’t take the students, someone else will, and their fees go with them. The measurement problem is also fundamental – what counts as “teaching” is genuinely contested, the gaming incentives are enormous, and retrospective application creates legal and financial problems for providers that have made commitments based on current numbers.
Option 6 addresses the accommodation crisis. Richmond describes students arriving at university to find no housing available – living in hotels, commuting excessive distances, or enduring unsuitable and overcrowded conditions – and proposes a guarantee that every first-year student who needs accommodation can secure a suitable living space within a very short travel distance, backed by £50,000 fines per affected student.
It’s blunt, and I prefer a proactive planning duty of this sort, but he doesn’t address why providers recruit into housing markets that can’t cope. Same incentive – volume equals survival. And the enforcement mechanism assumes the existence of reliable, real-time accommodation data that – as detailed investigation of cities like Bristol has shown – simply doesn’t exist. You can’t fine for a breach you can’t measure.
Option 7 focuses on course sizes. Richmond points to courses with hundreds of students crammed into lecture halls designed for far fewer, and to the absence of any published information about how many students a prospective applicant would be joining. He proposes requiring providers to publish a maximum course size and stick to it.
The transparency is welcome in principle, but the cap is self-set – a provider currently recruiting 500 students to a business course can simply publish 500 as its maximum – and the evidence on how applicants actually make choices doesn’t support course size becoming the decision factor Richmond imagines. And anyway. What is a “course”?
Then Option 8 targets grade inflation. Richmond cites data showing the proportion of Firsts awarded has roughly doubled over two decades, and argues that providers are using inflated classifications as a marketing tool to attract students.
He proposes mandating a fixed distribution – 15 per cent Firsts, 35 per cent Upper Seconds, 35 per cent Lower Seconds, 15 per cent Thirds – across every provider. But he doesn’t address why providers inflate grades. Competitive signalling means classifications as recruitment currency. He constrains the output without touching the incentive.
And anyway, the classification system itself is the problem. It was designed for a small elite, it collapses rich and diverse achievement into four bins, and it’s increasingly meaningless in a mass system. Richmond’s Option 8 is an elaborate way of propping it up while pretending to fix it. If the goal is genuinely to give employers a clearer understanding of what graduates can do, the answer is enhanced transcripts that describe competencies – not hammering a broken sorting hat into a more uniform shape.
The removal of student number controls in the last decade was sold as a pro-student reform. A decade on, the evidence tells a different story. Uncapped competition with frozen fees has redistributed students from lower-tariff to higher-tariff providers without expanding the applicant pool. It has closed 31 per cent of full-time undergraduate courses despite rising student numbers. It has collapsed part-time provision. It has left large parts of the country as cold spots for entire subject areas. It has created the conditions for every single problem Richmond describes.
The UK doesn’t have too many graduates. It has graduates concentrated in the wrong places and the wrong fields, studying provision that exists because it’s cheap to deliver and profitable to scale – not because anyone planned it to meet a need. The franchise explosion didn’t happen because of a regulatory gap. It happened because an unplanned market with a flat fee and no volume constraint makes it extraordinarily rational to mass-produce business degrees in converted offices.
Financial fragility didn’t happen because providers lack capital buffers. It happened because competition redistributes a shrinking real-terms resource among providers who can’t all survive on what’s left. Accommodation crises didn’t happen because providers forgot to check the housing market. They happened because the incentive is always to recruit more, and nobody coordinates recruitment with local capacity.
The deepest problem with Richmond’s paper is philosophical, revealing the deep ingrained culture of the civil service from which he emerged. He treats the market as a given – an environment to be regulated, not a policy choice to be revisited. Every proposal adds complexity, administrative burden, and regulatory overhead to compensate for harms the system produces by design.
Market regulation (sometimes) produces compliance minimums, not excellence. Quality becomes about not being caught rather than being good. Innovation becomes about efficiency savings dressed up as enhancement. Student voice gets channelled into proving harm rather than building something better. Students’ union officers spend their time arguing that statutory minimums should actually be met – not co-designing curriculum or shaping provision around student need.
Planning is not the same as regulation. It doesn’t require a larger OfS policing ever more conditions. It requires a different architecture – one where the distribution of provision is shaped by evidence of need, where funding reflects delivery costs, where growth is coordinated with capacity, and where democratic accountability exists for the trade-offs between institutional ambition and community impact.
The moles keep appearing because the machine keeps producing them. You can buy more mallets, or you can fix the machine.