Higher Education Watchdog to Focus on Financial Stability of Universities

A graduation ceremony at the University of Suffolk's campus in Ipswich, England, in October 2015. PA

The Office for Students (OfS) will be reorientated to focus on monitoring the financial sustainability of higher education (HE) providers, the government has announced.

The Department of Education (DfE) said that the universities watchdog will also concentrate on regulating the quality of higher education, acting on behalf of student interests, and protecting how public money is spent.

The DfE made the decision on Friday following the publication of a report which said the OfS needed to reduce its number of strategic objectives, with financial sustainability being a prominent issue the government admitted requiring oversight.

The report—“Fit for Future: Higher Education Regulation Towards 2035”—said that “financial sustainability is the most significant, growing challenge for the sector.

Multiple risks are currently converging and crystallising into material issues, which pose a potentially existential threat to some providers“ which requires ”urgent and decisive action” to address it.

The OfS and government should “continue to build an infrastructure to offer advice, guidance and support for providers experiencing financial sustainability challenges, considering options such as early warning identification, management of emerging risk and prevention of disorderly market exit,” the report recommended.

The OfS has a duty to monitor and report on the financial sustainability of HE providers, which it conducts by using data provided by universities.

This redoubling on those responsibilities comes as HE faces “unprecedented challenges,” the report said, and as a result, the OfS must evolve as a regulator.

Responding to the report, a Universities UK (UUK) spokesperson said: “Sir David Behan’s review is thorough and we welcome many of its recommendations. Its findings underline the importance of an independent regulator for higher education in England and the need for a focus on the financial sustainability of the sector.

“This will continue to strengthen the sector’s relationship with the OfS and ultimately help deliver better outcomes for students.”

Trade-Offs Need to Be Made

The reorientation comes after the OfS released a report in May warning that by 2026–2027, nearly two-thirds of HE institutions will be in deficit and that 40 percent will face low liquidity at the end of this year.

That same month, a then-Conservative minister, Baroness Barran, told universities that they must adapt their business models in order to remain financially viable, reminding the institutions that they are independent and are in charge of their own finances.

Parliamentarians and HE sector leaders have raised the issue of possible bailouts for failing universities, after the last year has seen institutions closing down courses and departments and making staff redundant.

Last week, the University and Colleges Union called on the government to issue emergency rescue packages to universities struggling with their finances.

The response from the Labour government appears at present to mirror that of its Tory predecessor, with Education Secretary Bridget Phillipson saying universities are autonomous and are expected to manage their own budgets, “and I would expect them to do that without seeking any calls on the taxpayer.”

The “Fit for Future” review heard the sector expressing concerns over rising costs due to inflation and home tuition fees having been frozen at around £9,250 for over a decade. Report authors acknowledged these concerns, but told HE institutions that “trade-offs will need to be made” for the sector to remain viable.

“Not every provider will be able to grow their way out of this period of financial contraction. Many will need to review current operating models, and some will need to plan to deliver their offer with more limited resources, as income declines in the future.

“As autonomous institutions, this is for providers to consider in the first instance,” the report said, advising sector leaders to seek support and guidance from the OfS at an early stage “if they believe they cannot adequately address these issues alone.”

Fund for Struggling Universities

The OfS’s restructure comes after a report from the University of Warwick and consultancy firm Public First advised the government establish a £2.5 billion fund to support universities at risk of closure, arguing a proactive approach to risk management was needed in the face of so many HE institutions experiencing financial difficulty.

The proposed Higher Education Enhancement and Transformation Scheme would offer repayable state-backed loans to HE institutions if they can make a compelling case that they can deliver sustainable and high-quality provision.

In instances where restructuring is not possible, a special administration regime could be introduced to manage institutions so they can have a “more orderly form of exit,” mitigating against wider damage to the sector and to protect students.

Authors warned of the “risk of contagion” the sector faces if a university closes down “in a disorderly way,” which could result in lenders being more cautious about lending to other institutions, as well as damaging the confidence of current students and applicants in the sector.