Universities: Financial Sustainability

Statement

My Lords, with the leave of the House, I will now repeat an Answer to an Urgent Question given by my honourable friend the Minister of State for Universities, Science, Research and Innovation in the other place today:

“I thank the honourable Member for the opportunity to discuss the higher education sector today in my first Urgent Question. This Government recognise the importance of the higher education sector and the massive contribution it makes to this country.

We recognise the multiple challenges 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 overall 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 would also work closely with the OfS to understand the sector’s wider financial risk in worst-case scenarios. We are also working with the OfS, other departments and other relevant national partners to develop a full contingency plan to deal with unforeseen or major higher education provider failure. This will set out roles, responsibilities, triggers and actions to be associated with instances where an HE provider market exit falls outside the normal “business as usual” approach of the OfS implementing its regulatory framework and requires government action. Ultimately, the financial viability of universities, as autonomous bodies, is a matter for the leadership of the HE providers.

The post-18 review terms of reference 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.

In conclusion, the HE sector faces challenges, but we are confident that universities will rise to these challenges and will continue to be providers of world-class higher education”.

My Lords, I thank the Minister for repeating the Answer to the UQ in the form of a Statement. Two impending great unknowns have combined to leave many universities feeling vulnerable. The first is, of course, that the Augar review, whose publication date remains shrouded in mystery, seems likely to recommend a significant cut in tuition fees. Can the Minister give a commitment that should that be the case, it will not lead to a reduction in university funding? The more serious problem facing universities is the uncertainty after we leave the EU, particularly if that should happen without a deal, which the Prime Minister has consistently refused to rule out.

Now we learn from media reports that at least four universities have serious financial problems. I hope the Minister will tell noble Lords how many institutions his department understands to be at risk of insolvency. Reading we know of, but it seems the Government do not have a handle on the situation there because when the Urgent Question was heard in another place this afternoon, the Universities Minister suggested that Reading should contact the Office for Students, even though the university has said that it did so last week.

The Minister caused some astonishment in the Urgent Question exchanges when he stated:

“There is an expectation that providers may, in a small number of cases, exit the market altogether as a result of strong competition”.

It was almost a throwaway remark. The Government seem not to have considered that not the least important factor when a university finds itself in financial difficulty is the potential knock-on effects in the local community, because it is a matter of concern not only for students and staff at the institution but for the local area in which it is based.

There also remains some doubt about the fundamental role of the Office for Students in this situation. Is it merely the regulator or is it a player? Last year, its chair, Sir Michael Barber, stated unequivocally that the OfS would not bail out any institutions that found themselves in financial trouble, yet soon after we learned that an unnamed institution had been provided with an emergency loan when it ran out of cash at the start of this academic year. Will the OfS remain a lender of last resort? That question, I fear, may be put to the test in the not-too-distant future. Will the Minister clarify government policy on this?

I thank the noble Lord for multiple questions. I shall first address the Sir Philip Augar review. As the noble Lord would expect, I cannot comment on what might come out of the review, but I say again that it is ongoing and more information on its outcomes will be available in due course. When that happens, the Government will be in a position to respond.

The noble Lord also asked about reports in the papers of some universities with serious financial problems. We are certainly aware of them, but I am not in a position to speak about any universities that have these issues and do not want to do so. The OfS continues to say that it will not bail out providers. That is not its role. The noble Lord asked about student protection plans. I will need to write to him on the number of universities with protection plans in place. The noble Lord raises a very important point. One of the most important aspects of the reforms that we brought forward in the Act was to ensure that students have proper protection plans in the unlikely case that providers do not make any.

The problem of funding is compounded by the financial issues arising from pension liabilities that universities face. The Government are offering additional funding to schools and colleges to cover the shortfall created by the revaluation of the teachers pension scheme. Will the Minister tell us why not universities too?

The thread of Brexit runs through the problem of funding. Vice-chancellors warned as far back as 2017 that British universities were already losing out on millions of pounds of funding from, for example, the Horizon 2020 programme, as a result of the outcome of the Brexit referendum. Will the Minister tell us how far the UK’s share of funding from that programme has fallen since the referendum? What additional moneys will the Government put into scientific research this year, given the assurances made about underwriting scientific research funding?

I shall first answer the question about the pension scheme. The noble Lord may know that Her Majesty’s Government have a consultation on the teacher pension scheme changes which closes on Wednesday—in two days’ time. The Department for Education has limited financial resources and can afford to fund only part of the increase in employer contribution costs relating to the TPS. Schools, further education colleges and other publicly funded training organisations are in great need of additional support for those costs. The live consultation seeks views on the proposal’s impact on higher education institutions. We will finalise funding decisions once that consultation has concluded.

On the Horizon programme, the noble Lord may know that negotiations are ongoing. As he said, it is important that we continue to engage in that programme, and we very much hope that will be the case.

My Lords, does my noble friend agree that some university funding might be made easier if the whole process of receiving bona fide students from overseas were made somewhat less complicated? Does he agree that that in turn would be much easier if we took the student immigration figures out of the overall immigration figures and dealt with them carefully and sensibly in a separate way, and that this would be particularly beneficial for links with the Commonwealth, and especially with India?

My noble friend would expect me not to agree with that point, but I think the whole House would agree it is very important that we continue to attract students from overseas—from EU and non-EU countries. It is very encouraging that the number of applicants from the EU has increased by 1% to 43,890. There is still a lot of work to do in that respect but, in terms of students being included in the migration figures, we have had much discussion in the Chamber about that, and I do not want to go into it today.

My Lords, I declare an interest as listed in the register. Perhaps the noble Viscount would contemplate how we can provide much greater certainty as a global player in higher education. It is not just a question of the Augar financing review, Brexit, the pension fund or even the very temporary drop in the demographic in relation to early entry to university; it is also a question of our place in the world. Will he speak to the Secretary of State and, for that matter, to the Chancellor about the critical importance of retaining our reputation and removing uncertainty, which would undermine the willingness of students to come from abroad and undermine the reputation of our universities worldwide?

There are a lot of uncertainties around, and the noble Lord makes an extremely good point. One of the most important points coming through, perhaps as a result of the reforms that we are making, is the opportunity for current and new providers to market themselves effectively. There are a lot of issues connected to this, including the teaching excellence framework. As we know, we are beginning to look more at how subjects can be assessed, so that students from abroad can see with much greater transparency and clarity what courses are available and what their ratings are like, and hopefully choose Britain rather than other countries to come to and study.

My Lords, two very specific questions were asked by my noble friend on the Front Bench which the noble Viscount did not reply to. When precisely will the Augar report be published, and can the noble Viscount give an undertaking to the House that its recommendations will not diminish funding for our universities?

I answered the question by saying that I cannot give a precise date for when the Augar review will report, but I have said consistently that it will do so very shortly, and here we are early in 2019. I am not going to be drawn into speculating on what the Augar review will say; we will have to wait. When the report is published, the Government will want to make a full response.

My Lords, does the noble Viscount agree that when he uses the word “marketing”, in this context it is a rather dangerous word? One reason why some universities are in trouble is that they have been marketing a great deal too hard and getting into debt as a result. Does he accept that it will now be necessary for the regulatory agency—the OfS—and others to keep a very close eye on the finances of universities, and to ensure that rumours that spring up about one do not spread to others? There is a danger here of a contamination effect.

My noble friend is right. When I mention marketing, I stick to my view that universities, just like employers, need to market themselves and explain what they do and who they are. Equally, he is right that the Office for Students, with the greater teeth that it has been given, must look ahead with the strong level of provider registrations that it is operating at the moment. Part of that is being sure it can keep an eye on the viability of each and every registered provider, anticipating rather than reacting to any issues that might crop up.