Universities: Financial Sustainability

To ask the Secretary of State for Education if he will make a statement on the financial sustainability of universities in England.

I thank the hon. Lady for the opportunity to discuss the higher education sector today in what is my first urgent question.

This Government recognise the importance of the higher education sector and the massive contribution that it makes to this country. We recognise the multiple challenges that the sector is facing and that these will require institutions to adapt to a more competitive and uncertain environment. It is true that the current context presents significant challenges to institutional management, efficiency and financial planning in the HE sector, but it is wrong to characterise the HE provider sector as teetering on the brink of financial collapse. In its final annual report on the financial health of the sector published in March last year, the Higher Education Funding Council for England—the Office for Students’ predecessor—concluded that the HE sector continues to be in a sound position financially.

The new regulatory framework under the Office for Students brings a risk-based approach to monitoring financial viability and sustainability in order to protect students’ interests. Financial sustainability is a condition of registration. This means that the OfS, as regulator, will pay greater attention—and, importantly, require more specific action—where there is greater institutional vulnerability. Where the OfS identifies particular risks to a provider’s financial sustainability, it will indeed take action. This may include enhancing its monitoring or imposing a specific condition of registration on a provider to improve its financial performance. It may also require a provider to strengthen its student protection plan. This will enable action to be taken before a provider faces major financial difficulties.

The Department for Education is also working closely with the OfS to understand the sector’s wider financial risk in worst-case scenarios. We are working with the OfS, other Departments and other relevant national partners to develop full contingency plans to deal with unforeseen and/or major HE provider failure. This will set out roles, responsibilities, triggers and actions to be associated with instances where HE provider market exit falls outside the normal business-as-usual approach of the OfS in implementing its regulatory framework and requires Government action. But ultimately, as autonomous bodies, the financial viability of universities is a matter for the leadership of the HE providers themselves.

The terms of reference of the post-18 review that has been led by Sir Philip Augar include a focus on ensuring choice and competition across a joined-up post-18 education and training sector. The review will look at how it can support a more dynamic market in provision while maintaining the financial sustainability of a world-class higher education and research sector. We have been clear that the review recognises the need to preserve and protect the existing strengths in the system, and the stability of providers is key to a strong system.

Thank you for granting this urgent question, Mr Speaker. I want to take this opportunity to wish my comrade, my hon. Friend the Member for Bolsover (Mr Skinner), a happy birthday.

Serious concerns were revealed this weekend about the financial situation of Reading University and there are reports of at least three more universities facing a significant risk of insolvency. I hope that the Minister will tell us in a little more detail what steps he is taking to address the situation at Reading, as well as across the sector, because the consequences of such a failure would be disastrous for students, staff and entire local communities and economies. Can the Minister reassure us that it is the Government’s policy to prevent such a disaster? I do not feel reassured from his response that he has a grip of this.

The Minister said that he is working with the Office for Students towards establishing student protection plans. Can he clarify how many universities do not have plans in place? When will he ensure that they all do? What will it mean in practice? Will students be left with a refund but no qualification after years of study? HEFCE had a list of universities of financial concern. Can the Minister tell us whether the new regulator has such a list and how many providers are currently of concern? Last year, it granted at least one £1 million emergency loan. Can he tell the House how many others have been issued? The new regulator has now said:

“The OfS will not bail out providers in financial difficulty.”

Is that Government policy and from when does it apply?

Can the Minister confirm that his Government have also handed universities a £200 million pensions bill but no new funding to meet those costs? Is he lobbying the Treasury to change that? The Office for National Statistics has demanded that the Government end the “fiscal illusion” of pretending that all loans for fees are repaid. When will the Government follow that ruling? Given the uncertainty that universities now face, can he tell the House whether the Augar review will be published this year? Will he guarantee that any proposals on tuition fees will not lead to cutting universities’ funding?

I will respond to several of those points, but I do not think it is appropriate for the Government or the OfS to comment on the position of individual providers.

In terms of the role of the Office for Students in HE financial sustainability, as I have stated, the new regulatory framework that has been created brings a risk-based approach to monitoring financial viability and sustainability, in order above all to protect student interests. The reforms have provided for that framework, and it means that the OfS, as regulator, can pay greater attention and require more specific action if there is institutional vulnerability.

Ultimately, these are autonomous bodies and leaders of HE providers are responsible for ensuring their institutions’ financial viability. They are not part of the public sector; they are autonomous institutions. During the passage of the Higher Education and Research Act 2017, a key point voted on by Labour Members was that universities would remain independent and autonomous. The OfS will therefore work closely with providers in financial difficulty, but neither the OfS nor the Department for Education will prop up failing providers. The OfS may enhance its monitoring or impose a specific condition of registration, requiring a provider to improve its financial performance, but we need providers at risk of any financial difficulties to come forward, so that we and the OfS can work with them on improving those registration conditions, which may require a provider to strengthen its student protection plan.

I turn to the issue of HE provider failure. The aim of the new HE regulatory approach is that the Office for Students will be able to act in anticipation of developments such as course closure or market exit, rather than in reaction to them. As I have said, under the new regulatory framework, providers must meet a set of registration conditions aimed at ensuring that they are financially viable, sustainable and well-managed organisations. The new HE regulatory framework has been designed to promote diversity, innovation and choice in HE, in the interests of students, and achieving that does not equate to propping up any particular failing HE provider.

May I congratulate my hon. Friend on the excellent start he is making on what is the best job in government? Universities’ financial sustainability and our soft power as a country depend on our ability to compete successfully for international students around the world. Does my hon. Friend agree with me that we should put in place a competitive offer for international students by restoring the two-year post-study work visa that we mistakenly abolished in 2012?

I thank my hon. Friend for the work he put in as one of my predecessors as Universities Minister. The establishment of the Office for Students was very much down to his hard work. I remember the Higher Education and Research Act as the most amended piece of legislation in the history of this place, and he did a sterling job in making sure that we have the regulatory framework in place to ensure that we protect against financial failure in the market.

When it comes to international students, the Government are absolutely determined to press forward and look internationally at what we can do. Our universities are world-class and world-leading organisations. We have had roughly 460,000 applications from the EU and internationally this year—the highest level of applications ever seen. We will be publishing an international education strategy in the spring. We are clear that we have removed the cap on international student numbers, and we want to do more to ensure that we can increase our ability to compete not just nationally but internationally with other countries that also recognise the value of higher education at the international level.

The University of Reading is an example of the recent trend of universities running into financial difficulties. It has got a short-term loan, but it is very unclear what this Government intend to do, as the Office for Students said last year that it would not bail out universities any more. Is it or is it not the Government’s position to offer financial aid to universities with cash-flow issues?

Universities UK is extremely concerned about all the issues that universities are facing, such as pensions and the Brexit strategy being pursued by the present Government. Will the UK Government look at universities—the place they hold in society across the UK and the amount of cash they generate for the UK economy—and help them to get through this real and immediate crisis?

I made it clear in my opening remarks that the Government do not intend to bail out any independent, autonomous institutions, which is what HE providers are. What we have done is provide the regulatory framework by which the OfS can step in to help universities by signposting and working with them in advance to ensure that market failure does not occur. I have to say that our ability to provide record levels of investment in universities has been the result of increased tuition fees, which we have not seen in Scotland. As a result, some of the poorest students are able to access universities in a way that does not happen north of the border.

Just before I ask my question, will the Minister join me in congratulating Trinity College, Cambridge on appointing its first ever woman master, Dame Sally Davies?

Students are right now thinking about which courses to accept for next year and what university to go to. Can the Minister confirm that the regulator, the Office for Students, has given all registered institutions the bill of health that means they are financially secure for at least the next three years?

The Office for Students is currently undergoing a registration process for all HE institutions, including FE providers. I understand that around 250 institutions have now been registered and, having spoken to the OfS, I am confident that it will finish the process over the course of this year. I of course congratulate Dame Sally Davies on her appointment. We need more women in leadership positions in higher education—the more, the merrier—so I offer many congratulations.

Reading University is an outstanding, research-intensive university with high-quality teaching, as I am sure the Minister is aware, as it scores excellent marks in the Government’s own teaching excellence framework. It also provides thousands of high-quality jobs in Reading and the wider Thames valley region. Will he reassure students, the university and the many local people who rely on it that he is willing to help, and will he meet me and the university’s vice chancellor to discuss the issues involved?

I am happy to meet the hon. Gentleman, as a constituency Member of Parliament, at his request. However, the Government’s position is not to comment on the financial sustainability of individual institutions. I will arrange the meeting, but I urge him and Reading University to contact the OfS to begin discussions on any concerns they might have. The OfS is there to provide early signposting and pick up on issues, rather than to react to late decisions or financial circumstances.

The Minister will have seen the growth in the universities sector over the past few years, particularly as the student caps have been removed, and he will be aware that Torbay hopes at some point to have an institution of university status. Will he reassure me that we will not return to the era of caps, which would make that impossible?

I entirely agree. I am proud to be a member of the Government who reduced the student number cap between 2012 and 2015, and eventually abolished it in 2016, allowing a record number of students to access higher education. We know that, going into the 2020s, we will need a knowledge-based economy, so it is right that we allow more people the opportunity to succeed in their ambition to achieve a degree. Abolishing student finance by looking at fee levels would simply give away a fee freeze to the children of millionaires while capping the number of students who could attend university.

The Minister has said that the Government will not bail out universities in financial difficulties, yet virtually his first act as Universities Minister was to take through Parliament a 20% increase in tuition fees, albeit just for accelerated degrees at this stage. Can he reassure the House that he has no plans to allow other degrees to see a 20% hike in tuition fees as a result of the financial problems currently facing universities?

I welcome the measures we are putting in place to increase course innovation and flexibility within the HE sector. I passionately believe that that is the future and where we need to go. People may need to train and retrain across the course of their lives, so we will need course provision that allows people to access the HE market at every stage of their lives, right the way through their 20s and 30s. Two-year degrees are not a silver bullet—in fact, they were put forward in a Labour party amendment to the Higher Education and Research Act—but we have tried to ensure that they open up the market and we have encouraged more HE providers to take up two-year degrees. At the moment, they have been capped by the financial ability or the lack of financial ability to do so. Ultimately, it is £22,000 for a degree as opposed to £27,000. It is not necessarily an increase in fees; it provides people with an opportunity to study at a time of their choosing.

What would make universities less financially sustainable than making them entirely dependent on Government finance, particularly if it is a Labour Government?