What the Education Committee said about higher education funding

The government and the Department for Education has consistently argued that a higher education corporation or a university established by royal charter could continue operating while insolvent. Legal specialists, most notably Mills & Reeve, and sector stakeholders have never been so sure.

The Commons Education Committee has not been convinced by the government’s position. It calls, in a report into higher education and funding in England, for legislation to clarify the legal position, transparent criteria for intervention across the various legal forms of higher education providers, and a bespoke higher education insolvency regime.

The latter could potentially make the Office for National Statistics more likely to reclassify higher education as being in the public sector – the report calls for clear criteria from ONS on this process to help design suitable support that can avoid this.

While it’s been clear to most that the Office for Students’ Student Protection Plans are not fit for purpose for a good while, the committee was “concerned” about OfS admitting to this – and about the lack of any regulatory function that explicitly takes into account risk around “cold spots”. For this reason it calls for strengthened “protection” regulations that extend beyond students to cover the interests of staff and local communities.

This interest in local needs – preserving the wider offer, including employment – extends to thinking about mergers. There has been a lot of interest in the idea of mergers and collaboration as an alternative to insolvency for struggling institutions, and the general conclusion – which the committee largely goes along with – is that mergers are not a panacea and the will to fight through the structural and technical issues to get to uncertain benefits is hardly widespread.

The report calls on government to review VAT treatment and competition rules to enable “productive” collaboration, and while the overall predisposition is that such activity (extending beyond the sector to FE, local government, and other government departments) could help, what it demonstrates is an absence of “strategic oversight of regional higher education provision”. There’s a call for a more thoughtful use of the OfS strategic priorities grant to address this.

The other end of the report deals with international student recruitment. Starting from the widely accepted premise that the recent growth in international student numbers is a direct consequence of the diminishing value of funding settlements for home students and research, it is quick to note that such recruitment is viewed very differently in different parts of Whitehall.

To this end, it recommends that the Home Office (responsible for visa rules and immigration controls) co-owns the international education strategy with DfE (responsible for sector funding and expansion plans). Joined up policy is supposed to happen anyway, but the committee feels that the Home Office has not been required to take the impact on higher education into account when planning to reduce international student visa numbers (via selective pausing of immigration from certain countries, shorter post-study work visas, and tightening compliance requirements).

There’s also a call for an evaluation of Erasmus+ and the Turing Scheme, and closer monitoring of the impact of the above visa reforms.

The sector and its representatives lobbied hard on the international student levy, and the committee goes along with these concerns. It asks for full (and reliable) details of the levy’s costs and distributional impact, and clarity on the way it will support the sector (including the planned maintenance grants).

But not all lobbying operations have been successful. The sector pulls in many different directions on rising Teachers’ Pension Scheme (TPS) costs, with some calling for additional funding to cover increases in employer contributions, and others (perhaps recognising how unlikely this is) calling for legal requirements that mean some universities must offer TPS to be reconsidered. Recommendations here split the difference: the government should take account of these concerns next time the underlying SCAPE discount rate is set (in 2027), and prohibit the use of wholly owned subsidiaries (a common way to avoid TPS requirements) to employ staff.

Despite the policy and financial weather, there is a sense in which some provider-level issues are caused by failures of governance: in terms of expansion planning and entering into finance arrangements without proper oversight. The recommendations here are to develop a governance training and improvement programme, and to require that “performance benefits” are not paid to senior leaders until their term of office is over (as happens in the financial services sector).

After the King’s Speech, and any leadership shenanigans that may be on the way, we might reasonably expect a government response to these recommendations.