Higher Education (Fee Limits and Fee Limit Condition) (England) (Amendment) Regulations 2025

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Higher Education (Fee Limits and Fee Limit Condition) (England) (Amendment) Regulations 2025.

My Lords, I thank the Secondary Legislation Scrutiny Committee for its scrutiny of these draft regulations. This statutory instrument, which was laid in draft on 20 January, increases the limits on tuition fees that higher education providers can charge students studying undergraduate courses at approved fee cap providers in the 2025-26 academic year. It also introduces new lower tuition fee limits for foundation years in classroom-based subjects offered by approved fee cap providers, starting in the 2025-26 academic year. A separate SI making changes to maximum fees, loans and living costs support for the 2025-26 academic year was laid before the House on 13 February.

As so many noble Lords, including those present today, have witnessed at first hand, our higher education sector is something to be immensely proud of and, as I am sure they agree, to protect for this and future generations. We have spoken recently in this House about how our higher education sector is one of the best in the world, delivering internationally recognised research and teaching. It is an engine for national economic growth as well as providing important local anchor institutions, contributing significant employment, delivering local skills needs, supporting local communities and enriching society. Higher education providers change the lives of individuals by opening up new opportunities and allowing them to follow their passions. We have also heard in the House how higher education is a public good, benefiting not only those who walk through its doors but the wider communities in which the providers sit.

But now that world-leading sector is facing severe financial challenges. This House acknowledged the financial health of the sector when we debated it in the Chamber in September. With tuition fees frozen for the last seven years, universities have suffered a significant real-terms decline in their income. Teaching income per student that higher education institutions receive has declined in real terms since 2015-16 and is now approaching its lowest level since 1997. The Office for Students reports that a growing number of higher education providers face significant financial difficulty. Its analysis suggests that, by 2025-26, up to 72% of providers could be in deficit and 40% will face low liquidity if no mitigating action is taken.

As many noble Lords said during our debate on financial sustainability, the time for action is now. We must ensure that our higher education sector is put on a secure footing in order to face the challenges of the next decade and to ensure that all students have confidence that they will receive the world-class education they deserve. We also need to ensure that students are receiving value from their investment. I will take each of those objectives in turn.

This SI is intended to fix the foundations and put our higher education sector on a more secure footing. It will mean that, from 1 August 2025, tuition fee limits for undergraduate courses will increase by 3.1%, in line with forecast inflation based on the RPIX inflation measure. This means an increase to a maximum of £9,535 for a standard full-time course, £11,440 for a full-time accelerated course and £7,145 for a part-time course. Increasing maximum fees has not been an easy decision, but it was the right decision to ensure that the sector has an injection of funding before it faces irreparable damage. Increasing fees will mean that providers can continue to contribute to our economic growth, globally important research and delivering for our local communities.

I understand that some may worry about the affordability of higher education and the impact on the access and participation of disadvantaged students, but there remain protections in place for students so that eligible students can continue to apply for upfront fee loans to meet the full cost of their tuition. Students start repaying their loans only when they reach a certain earnings threshold.

We are also working with the sector to ensure that it does more to improve access for those from disadvantaged backgrounds and to deliver the very best outcomes for both those students and the country. We are clear that, for higher education providers, as across our public services, investment can come only with major reform. That is why we announced that we will publish a plan for higher education reform in the summer, together with details of the part that we expect providers to play in that reform.

This SI will also improve efficiency and deliver value for students. Lower fee limits will be introduced for undergraduates starting foundation years in classroom-based subjects in the 2025-26 academic year: a maximum of £5,760 for a full-time course and £4,315 for a part-time course. The Government recognise the importance of foundation years for promoting access to higher education, but there has been rapid and disproportionate growth of foundation years in classroom-based subjects that can be delivered more efficiently and at a lower cost to students. To be clear, providers offering foundation years in all other subjects, such as STEM and the creative arts, will be able to charge fees up to the new fee limits of £9,535 for a standard full-time undergraduate course and £7,145 for a part-time course.

To conclude, this SI will put our higher education sector on a more secure footing, enabling the sector to continue to deliver the world-class higher education that current students and those in future generations deserve. I beg to move.

My Lords, I very much welcome this measure. I should declare my interests as a visiting professor at King’s College London and a member of the University of Southampton’s council. I know from seeing universities close up that the situation is indeed serious, as the Minister rightly said. The freeze in the level of fees has meant a 28% cut in the real resource available for universities in the last seven years. This cannot carry on, so I support this measure.

Having heard the Minister’s arguments about the need to strengthen universities’ financial position, I would add that it is a pity that the entire extra revenues for universities from this measure go in meeting the national insurance costs that they face. I hope that the Minister will be able to tell us, in her winding-up speech, her estimate of the extra expenditure on national insurance for universities as compared to the extra receipts from these higher fees. What I conclude from this is that, if the Minister is to live up to the excellent rhetoric about putting universities on a sounder financial footing, she will need to go further in future. I hope that, in her response, she can give some indication of her plans for the future. I would encourage the Minister to carry on with indexation as an absolute minimum—after all, that is what the Blair Government did, automatically indexing fees year after year—because, otherwise, the problem that she described so eloquently will just continue to get worse.

A range of us have, in different ways, tried to find an alternative system for funding higher education. Employers will not put up any more, and the Treasury and the taxpayers are not going to put up any more either. So we all end up reluctantly concluding that this is the only game in town. All three political parties represented in the Committee today have concluded that you have to put up fees in order to sustain our higher education system—and that is the case.

We could all learn a lot from my noble friend Lord Johnson, who introduced the TEF. Clear pressure to raise the quality of teaching is an important part of any future increase. Personally, instead of the rather random process of an Augar review or a freeze, I always wanted to see a quinquennial review—a review every five years—modelled to some extent on the way in which the social security system operates, from which we can always learn. A quinquennial review would enable a judgment to be made about the right level of the repayment threshold and the right level of fees, in the light of what had happened to earnings and the cost of higher education, and it could set out a formula that lasted for the life of a Parliament.

My Lords, I also must declare an interest, as a member of the academic staff of King’s College London. I would also like to note that I was a member of the Augar review. Apropos of the suggestion by the noble Lord, Lord Willetts, of a quinquennial review, I am rather pleased that it has taken only six years since the final report of the Augar review to get to some of the implementation of it.

Obviously, I welcome the Government’s decision finally to raise fees a little, but I would like to say something about foundation years. As the Government’s memorandum points out, this came out of the Augar review’s recommendation: basically, foundation years should go, except in a few specific high-skill and very important subjects, such as medicine. It is worth noting that, although the Government—indeed, their predecessor was in a similar position—decided not to go that far, as has been pointed out,

“there is little evidence that studying a foundation year is always necessary for students wishing to access an undergraduate course in these subjects, and potential foundation year students can choose functionally similar courses—such as Access to HE diplomas—that cost significantly less”—

or, as in the case of A-level resits, cost them nothing at all.

Although I very much welcome the decision to reduce the level of fees on classroom-based foundation years, I recollect for the record that when we first looked at them on the Augar committee, nobody had really noticed, including us. It was pointed out to us by the FE principal member of our committee, Bev Robinson, who basically said, “Do you realise what’s happening?”. She also noted—I cannot tell how widespread this was—that she had come across some very aggressive recruiting by universities of young people who, in her view, would have been much better off either doing access to HE or retaking their A-levels.

My Lords, I also have to declare an interest as a visiting professor at King’s. I have other education-related entries on the register, which I will not list here.

I welcome the Government’s decision to allow the increase of fees in line with inflation. It is long overdue, and I wish that previous Administrations had had the good sense to crack on with it, as this Government have. The feast-to-famine approach to funding higher education is hugely inefficient and leads universities to make job cuts and programme closures that they might not otherwise do, if there were greater certainty over their funding. I echo what my noble friend Lord Willetts said about the need to put this situation on a more stable footing, ideally, with annual indexation. That would be eminently sensible. Like him, I would be interested to find out from the Minister, when she replies in due course, how much of that fee increase will be left to institutions once they have dealt with the increase in national insurance contributions down the line.

The key thing is that inflation is an ongoing cost, and the OBR has made forecasts of near 3% inflation for each of the next three years. If the Government do not allow for further indexation in coming years, universities are going to be looking at another real-terms fall in their income of around 11% or 12% by 2030, so it is really no joke at all. I urge the Government to keep on gripping the nettle and dealing with it. From a political point of view, the sooner in the political cycle they do that, the easier it will be. Making these sorts of decisions should not be difficult, but leaving it to years 2, 3 or 4 of a Parliament means that it becomes much less palatable. I urge the Minister to get on and announce the continuing indexation for the coming few years.

Welcome though this funding is, there cannot be something for nothing. As the noble Baroness, Lady Wolf, said, the sector has to continue to demonstrate value for money for students and taxpayers whose loans underpin the funding of higher education.

It is absolutely critical that the Government stick with this approach based on the TEF and the B3 metrics, rather than flipping to a system of equating value for money with the proportion of student loans by provider that end up being repaid. A very crude equation of value for money with the proportion of loans that get repaid would be a huge error that would lead to serious unintended consequences for our system.

There is, of course, a big difference in full-time undergraduate loan repayment rates over the first five years after graduation by provider. But I think this is an absolutely terrible way of spotting providers that offer poor value for money. Doing so would unfairly penalise institutions serving students in poorer parts of the country where wages are lower and would discourage the provision of courses that lead to low-earning but socially valuable careers, such as teaching or social work. This Government rightly put great weight on widening access and participation in their plans for the reform of higher education. It is critical for them to note that an approach that equates value for money with the proportion of loan repayment by provider would throw sand into the engines of social mobility.

The data behind student loan repayment rates by provider clearly demonstrates that it is less advantaged students who do not repay as quickly as others. Repayment rates have a notable and visible relationship with the proportion of former students from the 20% of postcode areas with the lowest rates of participation. It does not take long to work out why: the combination of higher average borrowing and lower average earnings makes remaining loan balances before interest after five years look far worse in providers with a higher proportion of students from disadvantaged backgrounds. I would be very grateful for the Minister’s thoughts on this in her response in due course.

My Lords, the Minister is right to talk about financial sustainability. She is also right to talk about how we must value students. I remember quite clearly how the noble Lord, Lord Johnson, told us at every opportunity that we needed to increase tuition fees for the sake of the university sector. It always struck me as interesting how we would laud our university sector by saying, “We have three universities in the top 10 in the world rankings” and “We have got x number in the top 100 rankings” and—

Four.