Lords debate on Higher Education (Industry and Regulators Committee Report) - May 21

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Baroness Taylor of Bolton

That this House takes note of the Report from the Industry and Regulators Committee Must do better: the Office for Students and the looming crisis facing higher education (2nd Report, Session 2022-23, HL Paper 246).

Baroness Taylor of Bolton (Lab)

My Lords, I thank the members of the committee, who put so much work into compiling this report, and our staff, who were extremely helpful. The noble Lord, Lord Hollick, was the chair of the committee when we started this report in March last year, but we also had a lot of help from our special adviser, Mike Ratcliffe, and from the committee staff of Dom Walsh, Dominic Cooper and Itumeleng Osupeng. I should also mention Alec Brand.

As I say, we started our inquiry into the OfS and higher education in March 2023, a time when we felt that the higher education sector was facing a whole raft of challenges. They have intensified since then, and I think we were right to decide that this should be our priority at that time. The challenges that higher education is facing pre-date but were exacerbated by issues such as Covid. It is important to remember that some of these are very long-standing challenges that higher education has been trying to deal with for quite some time. We had the raft of difficulties, and we have had issues such as the loss of EU research funding that have challenged universities even further. There have, of course, been industrial disputes, which have not helped, but I think that all the issues such as inflation, the cost of living and the lack of funding have made industrial action more likely.

The committee's overarching finding was that the Office for Students was performing poorly; it is important to make that basic point. We did not choose our title casually—in fact, we had many alternatives that could have been a bit more colourful, shall we say. We said it “Must do better” because this is an important institution that regulates a very important sector of the British economy, and for it to be performing poorly is extremely important and a very real problem for us all. I think that this report is one of the strongest of recent House of Lords committee reports, and therefore should be taken seriously.

The name of this organisation, the Office for Students, was chosen deliberately by the Government to imply that it would put the interests of students before the interests of providers, yet our investigations found that neither students nor providers of higher education have confidence in the OfS. There were poor relations with both providers and students, and a very clear perception of a lack of independence of the OfS from government.

I will talk about several of our conclusions; I know that colleagues will venture more widely. My overriding concern as we went through this inquiry was the complacency on the part of the OfS about what we described as “the looming crisis” in higher education. There is more discussion of it now—just recently we saw some alarming figures—but even when we were taking evidence more than a year ago, we could identify severe difficulties in the whole sector, not just the odd institution.

The freezing of tuition fees for so long meant that many universities were in real difficulty. The Russell group has suggested that its universities are losing £4,000 for every domestic student. Perhaps not surprisingly, that has pushed universities to become increasingly dependent on cross-subsidisation from international and postgraduate students, whose fees are not capped. That has been a feature for many universities, not just one or two. On the other hand, recent statements and comments from Government Ministers that there should be a reduction in the number of international students are causing real concern and may already be impacting international applications.

We raised alarms about the information we had on the financial challenges but, at the time, the OfS gave very general assurances about the health of the sector and did not share our concern about the direction in which things were going. However, in its most recent financial sustainability report, published just last week, the Office for Students says that 40% of HE institutions are expected to be in deficit this year. That is after many institutions have made severe efficiency savings— or cuts, as they are probably better called. In many institutions there is little leeway for further cuts without significant consequences, and this could affect the quality of the education they offer.

I have a couple of specific questions for the Minister. What action are the Government taking in relation to the looming—indeed, current—crisis facing the HE sector? What is the Government's attitude to international student recruitment? Clarity on that point would be very helpful all round. I wonder whether the Government really understand the danger of institutions collapsing and/or a decline in the quality of the education provided.

One of my main memories of the evidence we received was that of a vice-chancellor who said that, were his institution to see financial problems looming, he would not talk to the OfS about possible solutions and long-term viability because he thought that its attitude would not be supportive but combative, and that it would look for problems and criticisms of the institution. It is really worrying that the reputation of the OfS is so bad within the sector.
I have heard anecdotally from some in higher education that our report has prompted some change in tone and that the OfS is sometimes using different language in its visits and contacts. If that is the case, it proves that the House of Lords can have a positive impact.

I said earlier that the name OfS was deliberately chosen to imply that it was on the side of students. The committee found that, despite its name, it was unclear how the OfS defines student interests. Indeed, it was said that there was a suspicion that the term was used as a smokescreen for the political priorities of the Minister. We were given the example of free speech, which we heard was not a priority concern of students. We took direct evidence from students on the concerns about OfS engagement. We particularly heard allegations that the OfS issued veiled threats over the future of its student panel when individual students on it were making their concerns known. The OfS responded to our criticism and said that it would expand its plans for a review of its approach to student engagement. That is to be welcomed, as is the fact that it will take up our recommendation to report annually on student engagement. Does the Minister have any information about when we might see a report on that?

There is another area of real concern and puzzlement. Why has there been such a breakdown in the relationship between the Office for Students and the Quality Assurance Agency for Higher Education? The QAA, which assessed quality and standards until 2023, was widely accepted as a significant and independent body doing a very good job. Things are now being changed, and this is possibly going to result in a move away from European standards. This in turn could damage the international reputation of some of our universities, which have such a high reputation historically. The Minister needs to clarify this because I am not sure that the OfS has the capacity to assess the quality of all HE institutions. The OfS has completed only eight such studies and reports so far. Can it do it for the entire sector and in a timely way? Will it be as professional, comprehensive and reassuring as the system we had with the QAA? What happens there really matters.

Other concerns that we had were about the burden of regulatory compliance. We needed some clarity on the OfS's priorities. UUK says that in each university 17.6 staff, on average, are involved in compliance. Those people are having to deal with the bureaucracy that the Government often say they wish to reduce. It would be good if the Minister could comment.

I must also say a word about political interference. There is clearly a concept throughout higher education that the OfS is there to do the wishes of the Government, rather than act as a totally independent body. I am sure that the Minister is well aware of the criticisms that have been made—the idea that if there is a headline in the Daily Mail, the Minister will tell the OfS to go hard on that particular issue. That is the perception, and it rings true in many respects. I must also mention other issues because the perception of interference is not helped by the fact that the chairman of the OfS takes the Conservative Whip in this House. The all-party committee as a whole thought that anybody in such a significant role should not be taking any party Whip when it came to activities within Parliament.
Our report has shed light on the very widespread concerns that exist. The challenges in HE are intensifying and are very real indeed. The OfS is now beginning to recognise that some of the issues we raise are pertinent and need attention, but the challenges facing the sector are very significant. I have long believed, and have said for many years, that pre-legislative scrutiny is helpful to Parliament and to government in getting things right. What we have never done is sufficient post-legislative scrutiny; I have now suggested to our committee that we should do post-report scrutiny to see whether our committee's report has had a real impact and made a difference. I think it is beginning to, but the committee will return to this issue to try to make sure that the OfS improves its performance.

4.30pm
Lord Wharton of Yarm (Con)

My Lords, I draw attention to my registered interests. Clearly, as chair of the board of the OfS I am also bound by the Addison rules, so I cannot reply directly to observations that noble Lords may make or to committee reports in this House. I am rather restricted to making what will be a short contribution to this debate and I am here to speak as a Member of this House, rather than as the chair of that body. That said, there are some things that I can say. While I should not stray into comments on the day-to-day operations of the OfS, I wanted to be here to make a few general points.

Any public body must have regard to its stakeholders. There must also be a robust and honest two-way conversation and communication. A regulator cannot always be appreciated by the regulated, and one of the challenges in higher education in England is that, until recently, it did not have a regulator at all. This has been a significant transition, and a large number of people have worked extremely hard to bring it about. I pay tribute to all those who worked diligently to register providers after the Higher Education and Research Act 2017 came into operation. It is particularly good to see the noble Lord, Lord Johnson of Marylebone, here; I particularly recognise the role that he played in creating the accountability and protection that exist today.

Since the initial creation of the OfS, the pace of registrations has of course slowed. There are, though, still new entrants to the higher education system in England, and it is more important than ever, given some of the challenges that the noble Baroness mentioned, that we have a robust and thorough approvals process in place. The Office for Students regulates more than 400 higher education providers. Put another way, there is more than one higher education provider for every two noble Lords in this House. Given the range of activities they undertake and the importance of what they do, the task of regulating them is not a small one, but I think it is generally accepted that regulation of some form is much needed, even if there is debate about the shape that the regulation should take.

Any regulator must undertake a significant sector engagement programme, in this case including ongoing dialogue with students and providers. This does not mean that everyone at all times necessarily likes what needs to be said, but openness and engagement matter to any public body or regulator—and, of course, this is no exception.
We live in challenging times for higher education. Events have highlighted a range of issues for the sector and the outlook for the financial sustainability of higher education has worsened, though the sector itself predicts some, albeit limited, improvement in the short term. This is a topic on which I have had a number of conversations with the noble Lord, Lord Willetts. I do not know what comments he plans to make today, but his advice to me and ongoing support are much appreciated and I recognise his quite exceptional knowledge of the workings of the higher educational sector.

The Higher Education (Freedom of Speech) Act means that matters of free speech at higher education providers will fall under a new regime and, for the first time, student unions will also be regulated. This comes at a time of increased debate over issues such as current events in the Middle East, in particular, which can lead to quite passionate views being held and expressed. They can also lead to tensions, and it is no small task getting the balance of that regulation right. It is important that the will of Parliament is reflected, given that the Act was passed by Parliament and the requirements created in legislation, and that the correct approach is taken.

I look forward to the comments of the noble Lord, Lord Mann. I do not know what he plans to say today but, if he touches on some of his excellent work in the area of anti-Semitism, I am sure that will be of interest to noble Lords and certainly to me. Similarly, protection from harassment and sexual misconduct is a live topic and must be seen in tandem with the free-speech debate changes that are to come. The student interest is central to all this and must of course remain so in the future.

I have to be careful not to stray into what may breach convention. As much as I would like to say a lot more, these brief points are very general as a result. It is for the Minister to respond and I look forward to her contribution. It is, though, reassuring to see the continued interest in the future of higher education from across this House. I know that many in the broader higher education community will be listening to what is said today with interest, and that the words of noble Lords in here will certainly have an impact outside this place.

4.35pm
Lord Parekh (Lab)

My Lords, I congratulate the Industry and Regulators Committee on its excellent report, which raises some important issues. Precisely because it ranges over a large number of issues, different people will pick up on different bits of it. I thought I would pick up on an aspect that may not be picked up in a gathering such as this, a conversation on what is happening to the higher education system in general; on the problems that the higher education system faces; and on what we can do about it. This issue requires a national conversation about what we should be doing.

I want to contribute three ideas to that conversation today. First, it is clear that our universities are passing through a difficult phase. Some 40% of England's universities have budget deficits. Courses are being closed. Staff are being retrenched and so on. We know all this, but I think there is a danger of panicking and creating a situation where we end up following courses of action that we might regret. It is important to bear in mind that this is happening mostly with universities in England. For universities in Scotland, the score is slightly different; it is therefore difficult to arrive at a single homogeneous national perspective.

Secondly, this kind of crisis is not new. We have been hearing about it for the 40 years that I have been in this country. It is important to note that, happily, the crisis we are facing is financial, not intellectual—as I discovered when I went out to India as a vice-chancellor of one of the finest universities, where the crisis is intellectual. Teachers have few commitments. Academic pursuits are not valued. Happily, our crisis is largely financial; I say “happily” because it is in contrast to the academic and intellectual crisis that countries such as India and even China face. On the financial level, it is worth bearing in mind that we are not bankrupt: nearly £40 billion is contributed to universities from public funds. I say all this not to calm things down but simply to suggest that there is no need for immediate action. There is a need for immediate reflection. We need to look at ourselves and ask where our universities need to go.

With that in mind, I start with the three ideas that I want to propose. First, it is important to bear in mind that we need to find new sources of revenue. I will talk about overseas students in a minute. I do not like the category of overseas students, and I find the division between domestic and overseas dangerously colonial. I have objected to this in the past in writing and shall do so today, but that is a different story.

The first thing is that we need to find new sources of revenue. This can come from not only going out and getting new sources of revenue but cutting down on our expenditure. I must say that some universities—some of those that have gone bankrupt or have been talking about passing through a budget deficit—have not been administratively competent. We need to look at ourselves and ask whether universities have been administratively competent and whether university salaries have been manageable. I hate to say all this but, when vice-chancellors collect about £350,000, I ask myself, “Is this the real world in which I live?”. When I went out to India as a vice-chancellor, I did not get a penny because the vice-chancellor was supposed to be sinecure. They are retired professors and eminent people so they serve for free. Here, vice-chancellors fatten themselves off the backs of their university colleagues. The first question to ask ourselves is this: is there no room for reducing our expenditure before we talk about ways to raise revenue? That is point number one.

On point number two, higher education is a basic medium for structuring the relations of power and status between different social groups. It is through higher education that one acquires a certain status, money and power. There are people in any society—certainly in our society—who have never been to university, who are poor and marginalised. The question then is: what is being done about them? In any fair system of higher education there must be a provision for the poor, the marginalised and those who have never been to university.

Therefore, the fees we charge students should be progressive, in the sense of being proportionate to the parental capacity to pay. This is how things happen in many parts of the world, including provision for the blacks in the United States. It should be possible for us to say that people earning less than a certain amount of money or who have never been to university do not pay any fee or maintenance fee. As for the rest, they can be taken care of by the loan system that we operate, provided it is opened up in such a way that the period for repayment is extended over a period of time and the conditions of return are not so harsh.

This second point is important. I really want to emphasise this: there are people in any society for whom it should be possible for us to give a complete freeship—no tuition fee, no maintenance fee. That kind of provision has to be made in a society, otherwise you have a society that is totally unfair.

The third point I want to make is on the distinction between domestic and overseas students. I do not know how it came to be made. In many countries there is no such distinction. The noble Lord, Lord Willetts, will correct me if I am wrong, but I think there is no differential fee between domestic and overseas students in Germany; it is the same fee. There are other countries where the same fee is charged to domestic and overseas students.

In the mid-1970s, we introduced this distinction between domestic and overseas students. I may be mistaken, but that seems to be when it came into our vocabulary. What does it mean? It means “ours” and “theirs”. These are our students; we look after them. Over there are “they”, whom we do not have to look after; they come to us. The stereotype is that they are rich and loaded with money, so we can raise their fees. There is no limit to how much we can raise their fees, whereas with ours we have to be careful. The Government have to make sure that our students' fees are not increased beyond a certain point.

This distinction between ours and theirs—between domestic students, which we even call home students, and overseas students—is dangerously similar to the colonial distinction between our country and one over there. If I may say so, it smacks of the spirit of some degree of mean nationalism: that our people will benefit at the expense of them, so when we have overseas students we make sure they pay the salary of the redundant staff. I have been told that five overseas students means one lecturer. When I first heard this I was alarmed. I was asked by my vice-chancellor at the University of Hull, “Look, can you not recruit five students? You'll save the job of one university lecturer”. I almost felt that I was being blackmailed into saving the job of a young lecturer by recruiting five students. We need to be careful.

The other thing is that we have become so harsh. Our attitude to overseas students is totally ambivalent and confused. At one level we want them, because one student means a fifth of a lecturer's salary or whatever. At another level, we put overseas students in the category of immigrants. We put all kinds of restrictions on visas for graduate students coming to us. We say, “They can work” or, “They cannot work”, and create all kinds of wretched complexities. On the one hand we seem to resent them, while on the other hand we are anxious to have them. Where do we stand?
I go to India fairly often every year, and I am confronted by Ministers and others who ask me, “What is Britain's attitude to overseas students?”. Do we want them, as the Americans do—or did until recently—when the doors are open and all kinds of facilities are thrown open? The Australians do that; Australia is now taking many of our students. What is Britain's attitude? Do we want them or not? If we do, are we being hospitable to them or are we going to be mean in terms of not wanting them, putting all kinds of restrictions on the number of visas and increasing the minimum amount of money that they should earn before they can qualify? All these categories with which we play around have been dangerously obnoxious, and I very much hope that we can take a consistent attitude to overseas students, in the sense of welcoming them subject to certain conditions. Certainly, whatever attitude we take, it has to be one on which the nation is agreed, not resentful.

4.46pm
Lord Clement-Jones (LD)

My Lords, it is a pleasure to follow the noble Lord, Lord Parekh. I declare an interest as chair of the council of Queen Mary University of London. I thank the noble Baroness, Lady Taylor, for her comprehensive and very fair introduction to our report. I thank her too for her excellent marshalling of our committee, with the noble Lord, Lord Hollick, and I add my thanks to our clerks and our special adviser during the inquiry.

I will speak in general terms rather than specifically about my own university. In higher education, there have been challenges aplenty to keep vice-chancellors and governing bodies awake at night: coming through the pandemic, industrial relations, cost of living rises for our students, pensions and research funding, to name but a few. But above all there are the ever-eroding unit of resource for domestic students, which was highlighted extremely effectively by the noble Lord, Lord Johnson of Marylebone, on the “Today” programme last week, and the Government's continual policy interventions, including, above all, their seeming determination to reduce overseas student numbers.

In the face of this, I have to keep reminding myself that in 2021-22 Queen Mary University delivered a total economic benefit to the UK economy of £4.4 billion. For every pound we spent in 2021-22, we generated £7 of economic benefit. Universities are some of our great national assets. They not only are intellectual powerhouses for learning, education and social mobility, making a huge contribution to their local communities, but are inextricably linked to our national prospects for innovation and economic growth.

The committee's report was very well received outside this House. Commentating in Wonkhe, the higher education blog—I do not know whether there are many readers of it around; I suspect there are—on the government and OfS responses to our report, its deputy editor noted:

“If you were expecting a seasonal mea culpa from either the regulator or the government … on any of these, it is safe to say that you will be disappointed”.

For him, the four standout aspects of our report were:

“the revelations about the place of students in the Office for Students … the criticism of the perceived closeness of the independent regulator to the government of the day … the school playground level approach to the Designated Quality Body question … and the less splashy but deeply concerning suggestion that OfS didn't really understand the financial problems the sector was facing”.

As regards the DQB question, which the committee explored in some depth, the current approach being taken by the OfS is extremely opaque. We clearly need a regulatory approach to quality to align with international standards. It is clear that the quickest way to get the English system realigned with international good practice would be to reinstate the QAA—an internationally recognised agency. Most of us cannot understand what seems to be the implacable hostility of the OfS to the QAA.

It is notable that the OfS, perhaps stung by the committee's report, has now belatedly woken up to the fragility of the sector's financial model and the fact that the future of the overseas student intake is central to financial underpinning. In its 2023 report on the financial sustainability of HE providers, the OfS confirmed that the

“overreliance on international student recruitment is a material risk for many types of providers where a sudden decline or interruption to international fees could trigger sustainability concerns”

and

“result in some providers having to make significant changes to their operating model or face a material risk of closure”.

Advice that they need to change their funding model and diversify their revenue streams is not particularly helpful, given the options available.

The Migration Advisory Committee's Rapid Review of the Graduate Route, published last week—which recommends retaining the graduate visa on its current terms and reports that the graduate route is achieving the objectives set for it by the Government, finding

“no evidence of any significant abuse”—

is therefore of crucial importance. There is absolutely no doubt about the importance of the work study visa to the sector and the broader UK economy. In answer to the question from the noble Lord, Lord Parekh, we want it, and I hope that the OfS will play its part in trying to persuade the Government to retain it.

The Wonkhe blog also asks the fundamental question about the Government's response regarding the regulatory burden on higher education. I hope the Minister can tell us: do the Government think it necessary and acceptable to keep ratcheting up regulation on universities? We are going in the wrong direction. Additional resource is required to monitor and provide returns in a whole variety of areas, such as the new freedom of speech requirements.

With the extraordinary contribution that universities make to society, communities and the economy as a whole, will university regulation benefit from the proposals set out in Smarter Regulation: Delivering a Regulatory Environment for Innovation, Investment and Growth, the Government's recent White Paper? We will discuss this in a future debate on the response to our subsequent report, Who Watches the Watchdogs? For instance, the White Paper proposes the adoption of

“a culture of world-class service”

in how regulators undertake their day-to-day activities, and the adoption by all government departments of the

“10 principles of smarter regulation”.
It says:

“All government departmental annual reports must also set out the total costs and benefits of each significant regulation introduced that year”,

and says that the Government will

“strengthen the role of the Regulatory Policy Committee and the Better Regulation Framework, improve the assessment and scrutiny of the costs of regulation, and encourage non-regulatory alternatives”.

It says:

“The government will launch a Regulators Council to improve strategic dialogue between regulators and government, alongside monitoring the effectiveness of policy and strategic guidance issued”.

Finally, it says that

“it is up to the government to better assess its regulatory agenda, to try to understand the cost of its regulation on business and society”.

What is not to like, in the context of higher education regulation? Will all this be applied to the work of the OfS?

That all said, I welcome some of the way in which the OfS, if not the Government, has responded to our report. There is an air approaching contrition, in particular regarding engagement with both students and higher education providers. I welcome the OfS reviewing its approach to student engagement, empowering the student panel to raise issues that are important to students and increasing engagement with universities and colleges to improve sector relations.

As regards the Government, a dialling down of their rhetoric continually undermining higher education, a pledge to ration ministerial directions given to the OfS, and putting university finances on a more sustainable, long-term footing would be welcome.

It is clear that continued scrutiny and evaluation— I very much liked what the noble Baroness, Lady Taylor, had to say about post-scrutiny reporting—will be essential to ensure that both government and OfS actions after their responses effectively address the underlying issues raised in our report. Sad to say, I do not think that the sector is holding its breath in the meantime.

4.55pm
Lord Norton of Louth (Con)

My Lords, I declare my interests as a serving academic at the University of Hull and as chair of the independent Higher Education Commission. The commission produced a report in 2013 on regulating higher education that included a recommendation for a protection or insurance scheme to insulate institutions against possible future financial difficulties or failure.

However, my starting point today is that regulators need a mindset of existing to get the best out of the bodies that fall within their responsibility. It is not just a mindset but an issue of how regulators are trained. The same applies to administrators within universities. They are trained in a particular set of skills related to their area of responsibility. They are not necessarily trained in what the body they regulate or work within exists to achieve. In terms of this debate, they are not grounded in what universities are for, which is to teach and research. Administrators need to focus on what they can do to ensure that universities deliver the best. That means going beyond a narrow focus on tick-box exercises, and concentrating instead on how regulations and rules can be utilised to facilitate, not constrain.
Doing so is important at all times but it is especially so now for the reasons advanced by the Industry and Regulators Committee in its excellent report. As it says:

“The higher education sector faces a looming crisis”.

That crisis is already upon us, having worsened since the report was published. As the report states, given the problems facing universities,

“it is … vital that the sector's regulator is fit for purpose.”

I should stress that that is necessary but not sufficient. The conditions giving rise to the crisis also need to be addressed. The committee's recommendations need to be seen as part of a wider strategy for enabling universities to thrive and remain world class, and to produce graduates who are essential to a healthy and vibrant society. If we are not proactive in addressing the problems, we will be left behind by other nations. It is not sufficient to say how many of our universities are in the top 20 globally; it is the trend that matters. The higher education sector is under threat.

On the OfS, the committee has produced a powerful and hard-hitting report. As it in essence argues, and as we have heard, the Office for Students has not lived up to its name. However, as the committee also recognises, there has been “a proliferation of regulators”—a virtual alphabet soup of bodies—in the sector, which has just added to the regulatory burden. The more regulators there are, the greater the chilling effect on universities, not to mention the demand on resources. As the noble Baroness, Lady Taylor, mentioned, research commissioned last year by Universities UK found that, on average, a university has almost 18 full-time equivalent staff dedicated solely to regulatory compliance. That is bigger than many university departments. Universities are meant to be autonomous institutions and are encouraged to be innovative, but they are notably risk averse and tend to treat guidance from regulators as fixed law, which some will then gold plate. Like the committee, I welcome the fact that the Government recognised the problem and intend to tackle it. I look forward to the findings of the review due this summer.

However, the principal value of the report is in demonstrating what is missing. The OfS lacks the power and, arguably, the mindset for enabling universities to thrive. That mindset may change but the OfS cannot expand its own powers. As we have heard, it has just published its report, in which it recognises the crisis facing universities. It is pressing them to have realistic funding models but it lacks the capacity to do much beyond that, not least in terms of protecting students in the event of some institutions failing. The Government have the power to help universities but appear to have gone AWOL. The Government constitute a significant part of the solution but they first have to recognise that they are a major part of the problem.

The report before us is hard-hitting and I endorse its recommendations. I very much agree with the argument on accountability. There need to be clearer lines of accountability. It may benefit government that the lines are not too clear, enabling it to eschew responsibility. I also very much agree with the recommendations on quality assurance. As we have heard, that is a task for the QAA or a similar body, not the OfS. We cannot continue with a situation where England, unlike the rest of the UK, is not aligned with internationally recognised standards.

I welcome the recognition that the OfS and government adopt narrow means of assessing the value of degrees. There remains a tendency to see graduates as economic units, with metrics that fail to reflect the value to the individual and to society, as well as the fact that it is difficult to measure economic value when we do not know what form future jobs will take.

The principal problem, though, is to be found in the Government's response to the report. There is a tendency to ascribe responsibility to the OfS for problems that require action on the part of government. The OfS does not have the capacity to deal with the problems that it recognises now face the sector. Its recent report highlights the risks and the fact that some HE institutions have been overly optimistic in their planning assumptions. It also acknowledges the decline in the real-term value of income from UK undergraduates. Universities are having to subsidise the teaching of home students with income from overseas students.

In their response, the Government recognise the value of overseas students. As the response says, they

“bring significant economic and social benefits to the UK”.

The response welcomes the fact that universities are seeking to diversify their recruitment of international students. It then goes on to say:

“The UK continues to be an extremely attractive destination for international students, with an array of world-class universities, a competitive post-study work offer in the Graduate Route and a welcoming environment”.

That no longer bears a relationship to the reality. The Government have contributed to a chilling environment for overseas students based on presumption rather than fact regarding the graduate visa route. This has been exacerbated by the comments of some Members of the other place. The Migration Advisory Committee found little evidence of abuse of the system and that it was not undermining the quality of the UK higher education system.

It is not just universities that benefit from attracting overseas students, in terms of funding and contributions to research, but local economies; many local businesses are dependent on student patronage. There is also the long-term effect on trade. The export of higher education contributes significantly to the UK economy as well as to the UK's global reach in terms of soft power. Overseas students are not taking the place of home students. The benefits are substantial—a fact recognised by the public. A recent Survation survey found that the public recognise the value of recruiting overseas students and support the retention of the graduate visa route.

People appear to recognise what separates overseas students from people who migrate to the UK. First, they pay to be here; secondly, they go home. Most return to their home country and contribute to its development. The UK benefits all round: the Treasury, the Foreign Office and the Department for Education all appear to recognise the value, but that benefit is disappearing. Applications from overseas students are declining. The Government are sending out completely the wrong signals.
The Government say there is overreliance on overseas students but make no acknowledgement of the fact that they are in large measure responsible for that situation. Despite inflation, the student fee has remained unchanged, so overseas student fees are needed to subsidise home students. The decline in recruitment of overseas students puts HE institutions in a difficult situation. Yet the Government act as if entirely detached from what is happening, putting responsibility on the OfS to monitor what is happening. That is unfair on the OfS.

The OfS can be more resilient and supportive in its approach, but it is the Government who need to act, and swiftly. Their response to the committee's report is dripping in complacency. Basically, they are monitoring the situation, saying:

“The government keeps the HE system under review … and … plans to consider”

the funding position

“ahead of the next Spending Review”.

There is no self-reflection and no active recognition of their responsibilities to maintain a healthy HE sector.

I trust that my noble friend Lady Barran will not take up time telling us how good the HE sector is—we already know that—but instead devote her time to saying precisely what action the Government are taking, in relation to not just the Office for Students but the second part of the title of the committee's report: “the looming crisis facing higher education”. Recognising that there is a crisis is necessary but it is not sufficient. What will the Government do, that otherwise they would not have done, because of this excellent report? That will be the measure of what my noble friend says.

5.07pm
Lord Freyberg (CB)

My Lords, it is a huge pleasure to follow the noble Lord, Lord Norton, with his wide and extensive experience in this area. I too thank the noble Baroness, Lady Taylor of Bolton, for giving us the opportunity to discuss this critical report. My contribution today will focus on the urgent need for a review of higher education funding and student outcome indicators for creative arts students.

I start by echoing the calls of several noble Lords for an urgent review of higher education funding. The near 10-year tuition fee freeze for domestic students is jeopardising the sector's long-term viability, particularly at post-1992 universities. Substantial job cuts and forced course closures are, unfortunately, becoming commonplace. The report warns that if the domestic undergraduate funding freeze continues, some universities will have to merge or, in the words of the noble Baroness, Lady Taylor, exit the sector. This is completely unacceptable and entirely preventable. At the very least, fees should rise in line with inflation. Here I entirely agree with the noble Lord, Lord Johnson, in his comments on the “Today” programme last Friday.

In addition, substantial evidence shows that the financial hardship that students have faced in recent years has been a real concern. Joint research in October 2023 by student housing charity Unipol and the Higher Education Policy Institute indicates that rent consumes nearly the entire average loan, leaving students with just 50p per week for all other expenses, including necessary resources such as textbooks. The National Student Money Survey 2023 states that the average monthly shortfall between maintenance loans and student living costs is £582. The Sutton Trust's 2023 student maintenance analysis report found that median loans of £8,500 in London and £7,000 in the rest of England do not cover the median essential spending costs of £17,287 and £11,400 respectively.

This financial strain impacts on students' education and university experience. Many students, facing significant gaps between their loan income and expenses, must work to subsidise their costs, often taking on more hours than recommended or feasible for full-time study. Opinium's 2023 poll of 1,000 university students across the UK found that seven in 10 students have considered dropping out of higher education since starting their degree, with nearly two-fifths citing rising living costs as the main reason. Research by COSMO—the COVID Social Mobility and Opportunities study—also shows that young people from working-class families are more likely to forgo university because they cannot afford it. Here I echo the second point from the noble Lord, Lord Parekh.

Maintenance grants, which provided non-repayable financial support to students from lower-income households and helped mitigate financial barriers to higher education, were abolished in 2016. Under the current system in England, the poorest students incur the highest level of debt. England is the only UK nation without some form of maintenance grant provision for students. As Victoria Tolmie-Loverseed, assistant chief executive at Unipol, said:

“We risk excluding those from poorer backgrounds, forcing middle-income students to take on unsustainable debts, and damaging the student experience for all”.

Another issue identified in the committee's report was the OfS's method of evaluating value for money through its student survey results, which was described as “simplistic and narrow”, particularly due to its focus on employment outcomes. This focus on employment outcomes—specifically the jobs that graduates hold just 15 months after finishing their studies—disadvantages creative degrees. The regulator uses these outcomes to measure a degree's value for money but, as noted in the House of Lords Library briefing, the current measure fails to reflect the value of creative degrees.

Outcomes are important, and it is crucial that universities equip students with the skills they need to succeed. However, this narrow focus overlooks a wide range of valuable outcomes and fails to recognise the unique nature of the creative industries, where many creative graduates find employment. The creative sector is characterised by a high proportion of start-ups and micro-businesses, with graduates often experiencing non-linear career paths, frequently working freelance or on short-term contracts. Graduates may also work part-time while pursuing creative endeavours or building portfolios. Self-employment accounts for 32% of creative industry employment in the UK, compared with 16% for the economy more broadly. Therefore, measuring employment outcomes at a fixed point shortly after graduation is ineffective for determining the success of creative degrees.
This narrow measure has also contributed to the perception of creative higher education as offering low-value and poor-quality courses, despite these degrees being crucial to the UK's creative industries and the economy. The University of the Arts London, which nurtures the largest talent pipeline to the creative industries, with 22,000 students from 130 countries, advocates for a change in how the Office for Students measures high-quality provision, suggesting a broader approach beyond just graduate outcomes. This should involve a sector-wide dialogue with the Government and the regulator to develop a more holistic way of measuring the value of higher education. At the very least, the context of the non-linear careers of creative graduates should be considered.

The Government urgently need to review higher education funding. Additionally, they should embark on a major reform of the student maintenance system, and rapidly improve how student outcomes are measured by undertaking and publishing a review of this area.

5.14pm
Lord Johnson of Marylebone (Con)

My Lords, it is a pleasure to follow the noble Lord, Lord Freyberg. I echo the points he just made about the creative industries and the need to measure properly value for money in that respect. I declare my interests as a visiting professor at King's College London, chairman of FutureLearn, and someone who, in my previous ministerial role in the other place, was very much involved in the creation of the OfS and the high-level regulatory framework it is now implementing. I come at this with a certain baggage, and I lay that on the table; your Lordships do not need me to be clearer about it.

I very much want to defend the OfS rather than join the chorus of people seeking to bury it and condemn it for problems which, by and large, are not its responsibility but the responsibility of government policy. It is important that we are very clear in assigning responsibility correctly in this debate as we consider this report.

As the noble Lord, Lord Norton, said in his excellent speech, we have in the UK a world-class higher education system. It is one of our greatest national assets. However, it has some faults: some resistance to accountability, a quickness to take affront at suggestions that there are areas for improvement, and occasionally some short-sightedness in the way it opposes legitimate demands for reform. I fear that the report resulting from this inquiry is to some extent evidence of that phenomenon, because the inquiry and the report that came out of it were in part—probably quite a considerable part—the result of some very self-interested lobbying by university mission groups whose universities have over the years been very well represented in this place.

I am not saying that there is not room for improvement in the way the OfS operates—of course there is. However, it is also important that we do not lose sight of what this report is in part—not in totality—all about. We have to be honest that the report and the inquiry that led up to it are in part a continuation of battles that many in the sector and in this place waged against the very creation of the OfS in the first place.
Just to take us back a little, the fight about the OfS was actually about the change from a funding council acting on behalf of providers to an independent market regulator looking out for the student interest. This shift, as the OfS's brilliant first chair Michael Barber noted in his evidence to the committee, was very much overdue given the massification of the sector and the change in the tuition and maintenance funding regime from one of government grants to income-contingent loans. My view is that for as long as we have a mass higher education system, as we will have, and this system of funding—to my mind, these two things are very closely and inseparably linked—we will need an independent market regulator rather than a funding council model.

Many in the sector and perhaps in this place might romanticise the Higher Education Funding Council for England. Indeed, there was a lot that was great about it, including its formidable last chief executive, Madeleine Atkins. But of course, by the middle of the last decade it had long passed its sell-by date as a mode of regulation for the sector. Indeed, in some senses it did not even recognise itself as a regulator. It came out of the University Grants Committee model, which was suited to a very different world of very small, limited tertiary participation and a much smaller, narrower system of university providers.

HEFCE was good for a world that had passed, but it was no longer fit for purpose for an era of mass higher education. Its function was very limited: to spread available grant funding around the providers in the system to ensure that everybody got a fair crack at the funding that the Treasury was making available. What HEFCE was not effective at was acting as a regulator to promote quality, choice and competition in the student and taxpayer interest. It is not going too far to say that there is a general consensus that, by the end, HEFCE had become essentially captured by the sector and urgently needed reform.

That is the backdrop to why the OfS was set up. Of course, this was not a popular change in the sector. The battles leading up to the passage of the Higher Education and Research Act 2017 were ferocious. It was one of the most heavily amended bits of legislation in recent memory. We should not ignore all that history, including the way the sector and its outriders lobbied hard against the new accountability regime that the Office for Students represented. To some extent, there are undertones of all that lingering around today at the five-year to six-year mark.

The creation of the OfS represented a move away from co-regulation to something that is much sharper and has greater consequences for institutions that deliver poor quality and poor student outcomes. All the stuff about co-regulation and how it is a better approach is, to my mind, a thinly disguised plea for self-regulation—a stance that I do not think any party in government will return to. As I said at the start, as long as we have a mass higher education system funded by a system of income-contingent loans—we will have this for the foreseeable future because it is the least bad system and is the only game in town from a fiscal perspective—we will need an organisation such the OfS acting in the student and taxpayer interest.
As Michael Barber told the committee, many universities thought that, notwithstanding the clarity of its legal duties, the OfS would be HEFCE under another name. They were very wrong and were surprised to discover that it was different. Some in the sector might think that, if they undermine the OfS enough and throw enough mud at it, they will suddenly get nice old HEFCE back, with its big pot of grant money administering the teaching grant and a system of student number controls that constrains competition and choice and allocates students to providers on the basis of government quotas. That is highly undesirable as an objective and highly unlikely to arise as government policy.

Even in the unlikely event that a future Government did want to replace our current funding system of income-contingent loans and return to a world of grants, they would still want an independent regulator to ensure value for money for taxpayers and hold universities to account for quality and outcomes in a mass higher education system in pretty much the same way the Office for Students does. Although the student focus of the regulator might change in such a scenario, I do not believe that any Government will return to the funding council model of the past.

Respectfully, I disagree with the report's main contention that the Office for Students is performing poorly. To be honest, I think that Michael Barber and Nicola Dandridge did a brilliant job in leading the establishment of the new regulator in very difficult conditions, which their capable successors are continuing. I remind Members that its initial priority was to set up the new organisation. It managed the considerable task of registering a large numbers of providers at pace and putting in place the new regulatory framework in its first strategy. It then coped admirably with the challenges of the pandemic, suspending some of its regulatory requirements while providers adapted to the changed environment.

In its second strategy, the OfS has moved on to focus on quality. This has seen it reset the TEF, toughen up the B3 outcomes metrics, and reset the indicators for non-continuation, completion and progression. Again, that has generated a fair amount of angst in the sector, but this is absolutely necessary in terms of both the student interest and upholding quality and standards in the sector.

I do not want people to think that I am just a lackey praising the OfS without any self-awareness or criticism. I recognise that it has problems and is not in all respects operating as well as it might. I will be brief: there are three areas that I would focus on. The first is the question of distance from government. The problem here is not the OfS but the DfE—I say that with all respect to the Minister. The problem is clearly Ministers. It is also about where universities sit in government. The mistake is to have universities in the Department for Education, which does not understand institutional autonomy and treats universities like failing schools. My noble friend Lord Willetts made the point before.

In his great report on higher education sometime in the early 1960s, Lionel Robbins warned against moving universities to the education department because he feared that such an interventionist department would not understand or value the autonomy of universities. His warning has proved sadly accurate. The DfE treats universities like poorly performing secondary schools and now intervenes in them so much that the Office for National Statistics may well propose bringing universities back into the public sector.

When I was working on the HERA legislation, I was lucky enough to be Minister for both universities and science, like my noble friend Lord Willetts was when he was in the other place, with responsibility for both aspects of government policy towards the sector. That coherence has to some extent been lost by the move to the DfE and the splitting of ministerial responsibility in that way. It would be preferable to have universities back in a growth department of government, such as the business department or the new DSIT, where universities would be reunited with the rest of the research base.

The layering on of ever more conditions of registration has become slightly crazy. Ministers should adopt a self-denying ordinance of one in, one out—or better still, one in, two out.

My second area for improvement is that the Office for Students has to do much more to support innovation and promote new forms of provision. Now that it has established its bona fides as a tough and independent market regulator it has space to address parts of the role that Parliament has given it that have been neglected in the first five years. New providers—I have been intimately involved with a number—have been stunned by the bureaucracy they encounter in trying to get on to the register and establish new modes of provision. The consultants they have to recruit to advise them tell them that to succeed with the OfS they must, above all, look as much like an established university as possible. This is hardly the recipe for innovation that we want in our system.

My final point is that the Office for Students must make a real go of the lifelong learning entitlement. This policy is flailing at the moment. I think the name of the Office for Students should change to the office for lifelong learning, and it should grip this policy urgently so that it has a fighting chance of delivering the skills revolution that Ministers say they want for it. The detail of how that might work is for another day but that is an urgent priority.

I urge anyone in this Room who believes that the solution to the sector's troubles is to attack and dismantle the Office for Students to think again. A strong regulator that enjoys the confidence and trust of the sector and of government is vital to the future of our HE system. Everyone should focus on working hard to that end.

5.28pm
Lord Mann (Non-Afl)

My Lords, I begin by referencing my entry on the Register of Lords'Interests: I am the unpaid and independent adviser to government on anti-Semitism. I was warned on coming in by my advisory team—a small one—that I should attempt to persuade, not to berate. My independence may come through a little bit, but I want to reference one page only in this report of 104 pages, page 17. There is a current Office for Students consultation on draft regulatory advice arising from the Higher Education (Freedom of Speech) Act 2023, which is due to be enacted on 1 August. My suggestion to the Minister and the Committee is that the currently proposed guidelines appear to remove crucial and hard-won safeguards for Jewish students, potentially allowing anti-Semitism to grow on university campuses.

The OfS was directed to produce regulatory guidance on the free speech Bill. It released it at the end of March but, as of today, several questions remain unanswered about how the guidance will work in practice. It is my understanding that there are only two weeks left in the consultation process. If the proposed advice proceeds as it currently stands it will be acceptable to do and say the following things in our universities, leaving them with no power to intervene. I shall give three examples. The first is to have “intifada until victory” posters on approved university noticeboards. The second is to have a Holocaust denial society registering at a university freshers' fair, having followed the correct registration processes. The third is to have “free Palestine” graffiti on a Jewish society poster on an official noticeboard.

All three are quite separate and distinct and are serious issues that are not conducive to the establishment of good relations on university campuses, which universities are, of course, legally bound to foster. I suspect that the Government and Parliament would both be horrified to discover that, in just over two months' time, it might be possible to defend Hamas's “inalienable right” to commit the 7 October attacks, or to argue that the Holocaust never happened, in one of our universities—not just to say such things but to do so by citing the Government's own legislation on free speech, as passed by Parliament.

Over the past 30 years, we have driven Holocaust deniers out of any legitimate space for debate. The current flaw in the guidance that is circulating risks throwing away that agreed rejection of the falsification of the murder of 6 million Jewish men, women and children, and many more Nazi victims. When this legislation was going through, the Minister at the time stated that there would be an explicit—I repeat the word “explicit”—rejection of Holocaust denial, but that has not been forthcoming from the OfS. That is contrary to the promises made by the Government, in all good faith, to the House during the progress of the freedom of speech Bill.

It is not legitimate to intimidate and harass Jewish students in the name of free speech. The OfS's director for freedom of speech and academic freedom, Professor Arif Ahmed, has been one of the leading critics of the IHRA definition of anti-Semitism, which this Government were the first in the world to adopt in 2017, and which has been adopted by all political parties represented at Westminster to great impact and positive effect. The current proposals are likely to lead to some universities revoking their use of the IHRA definition as a reference point in looking at anti-Semitism. Jewish communal organisations in this country united in supporting the Government when they adopted the IHRA definition in 2017. It is a globally agreed definition, and there are no credible examples at all—not a single one—of its use in our universities prohibiting or restricting in any way any freedom of expression or of academic study, but it will fall foul of the guidance as it currently stands.
The advice as it stands will also stop the mandating of most forms of training on anti-Semitism, despite the fact that the Department for Education has tendered such work for contract in recent months. It will impede universities' ability to take action against those who intimidate, ostracise and harass Jewish students and staff. The crux of the problem for universities will then be that this approach of purist free speech, to which the guidance currently works, will lead to aggressive legal actions against universities. This will distract universities from their core role and divert their attention away from safeguarding and strengthening intercommunity relations in the university population, which become more important and more prescient by the month. I put it to the Minister that the proposed regulatory advice is not fit for purpose and that the negatives that will impact will be detrimental to Jewish students.

I listened to the noble Lord, Lord Johnson. One of the purposes of the Office for Students was to be for students. Jewish students are entitled to that right alongside—no more than but no less than—any other group of students. The safeguards that universities are using at the moment are needed now more, not less, than ever before, and have generally been working. This current draft, on which consultation is about to end and which is to be enacted by 1 August, needs a fundamental rethink. Jewish students across the country have indicated in great detail their serious concerns about how the guidance will operate. I endorse their concerns. I suggest that the Government pause the enactment of the free speech Act until these issues have been resolved.

I offer my services, as well as those of others who have worked in this field in great detail over recent years, to try to ensure that government policy on the equitable treatment of Jewish students and the objectives of the OfS can be brought together in a way that has practical application and does not undermine the good work that has gone on in universities in challenging the scourge of anti-Semitism and protecting both Jewish students and Jewish staff.

5.38pm
Lord Agnew of Oulton (Con)

My Lords, I refer to my interests in the register, which include being a member of the Industry and Regulators Committee that produced this report. I thank the noble Baroness, Lady Taylor, for her highly effective stewardship of the report to publication.

I have spent the last 14 years involved in primary and secondary education, but there are many who would tell you that there is no connection between this and tertiary education. I respectfully disagree and will try to show noble Lords why in the next few minutes. I should probably issue a trigger warning to those noble Lords who will disagree profoundly with many of my points today.

First, there are still people out there who think that the British university system is wonderful. I am sorry to be blunt but, other than a few exceptions, these people are living an illusion. The OfS was set up in 2018 to provide better governance. Perhaps it was just bad luck that it received the hospital pass, but the main outcome has been to see the future prospects of so many of our young people simply benighted.
The sixth sector hides behind the financial constraints that it suffers from. Of course, it is tough to live off the same £9,250 a year that has been the settlement for several years, but have a look at the secondary sector. I set up an academy trust in 2012. Today, we have 17 schools with 11,000 pupils and dozens of ageing buildings, many that pre-date university campuses. In our sixth forms, per student funding is £6,073 in Norwich for the so-called elite subjects of maths and science and £5,421 in Thetford.

Time and again during our inquiry, I was told by university luminaries that it was much more expensive to educate young people a year or two older than those for whom I have responsibility. This is despite a sixth-form phase providing 24 hours a week of face-to-face education in small settings of 20 or so students. How many undergraduate courses provide even two-thirds of that? Of course, the academic year of a university is substantially shorter, so why are there such differences in the operating model?

First, universities have indulged in a binge of building. Their buildings are funded on cheap debt, but they have to be maintained and interest rates have now normalised. Secondly, there is a vast bureaucracy. Vice-chancellors are broadly overpaid, in my view; they have recently awarded themselves another 5% pay rise, on average, while of course the people doing all the work at the front line—the lecturers—are underpaid. Universities have created a Ponzi scheme based on growing student numbers. Not one of the university managers we interviewed was able to provide a clear financial model of how their institution worked, other than relying on foreign students.

This year, my academy trust will receive an increase in its general annual grant of about 1.5%. The local LEA has taken a larger chunk to fund SEND. Despite this, we provide an extended school day to every secondary school pupil, costing about £1 million a year but adding a whole year of education over their five years in that school. We spend £400,000 subsidising musical instruments for pupil premium children and a further £500,000 hiring reading mentors to deal with a post-Covid literacy crisis. We have found that we have 1,500 pupils with reading ages between three and seven years behind their chronological age. Yes, we receive some odd capital sums to build a new school block, which is additional to those funds, but from September this year we will be educating around 270 children for free. So-called lagged funding means that we will not get the £1.7 million per pupil settlement that would have operated if we were paid for all those children on our campuses.

How do we achieve this? We achieve it through relentless and ruthless cost control at every level. Every photocopier is tracked for excess output of colour printing; every light bulb has been replaced with LED; every invoice has to be pre-validated via a central electronic purchase ordering system; every head teacher has to learn the principles of curriculum-led financial planning to control timetabling and resource allocation. I heard none of this during our inquiry.

No one could tell me why an undergraduate needed three years to complete a degree with six hours of contact time a week, why it was acceptable to take six weeks to mark and provide feedback on an essay or why, during the lecturers' strikes, they did not use the money that they were not paying in wages to provide alternative mechanisms for those abused young people who could not get their degrees to apply for their jobs. This is before I get going on foundation years—a cynical way of luring young people for an additional paid year of study, having failed their A-levels—or unconditional offers, removing aspiration from young people as they knew they could glide in whatever happened, or offering lower grades for pupils in so-called areas of deprivation, even though they were in private schools. This happened to my own son and the next year to the daughter of the noble Earl, Lord Leicester, at the same institution. All this is for £50,000 of debt that hangs over them for up to 40 years. There were no solutions, just an agonising moanathon about how difficult everything is.

I turn to the vexed issue of overseas students. The idea that our universities have been hoovering up the world's best and brightest is one of the most blatant sophistries of modern times. I am grateful to my honourable friend Neil O'Brien for his detailed research on this. Using data from the Migration Advisory Committee review of the graduate route to visas, he has shown that the median person on the graduate route earns about half of what the median full-time worker does. A staggering 41% earn less than £15,000 a year. Put that against the minimum wage of £24,000 and the threshold of a work visa at £30,000, and the whole grisly story unfolds.

On the point of the noble Lord, Lord Parekh, about colonialism, there is an unpleasant truth emanating from the MAC's report. Since 2005, the number of overseas post-study visas issued to the US, Canada, Australia, New Zealand and Japan has been almost utterly consistent at around 20,000 a year. However, since study visas were reintroduced in 2019, visas for India have increased by 900% and for sub-Saharan Africa by 700%. Should students from these countries really be paying a huge premium compared to domestic fees, and then earn less than the minimum wage?

I challenge the statement of the noble Lord, Lord Norton—I paraphrase—that overseas students then return to their home countries. The MAC's statistics show that, although only 6% of US students stay, that figure rises to between 25% and 35% for Pakistan, Nigeria and Bangladesh. The OfS claims, of course, that it has no remit on any of this. It seems that its energies are directed into meddling in a performative way on second-order and third-order issues, such as insisting that artwork from degree courses be stored for five years. So the full-size papier mâché Brontosaurus has to lurk in a basement serving no purpose to anyone. If the OfS had focused on demanding proper accountability in the financial management of the sector, it is possible that we would not be faced with upwards of 60 higher education institutions facing serious financial challenges.

I read today that my noble friend Lord Cameron, straying from his international brief, warns of widespread closures. Well, that is what happens if organisations are mismanaged. The problem should not be solved by dragging in hundreds of thousands of migrants and dependents to prop up a failing system. The current crisis represents a once-in-a-generation opportunity to repurpose many HE institutions into training institutions that reflect the needs of today's British society and economy —think my noble friend Lord Baker on steroids. The public debate agonises about our decline in productivity and lack of economic growth but we hear virtually nothing emanating from these organisations to lead the charge.

I have only one question for my noble friend the Minister—I know that this is not her day job—and would prefer a written answer. How aware is the DfE of the impending financial collapse of dozens of our universities, and what is it doing about it?

5.47pm
Viscount Chandos (Lab)

My Lords, it is a great pleasure to follow the noble Lord, Lord Agnew, who is a stimulating and enjoyable colleague on the committee—even if he probably classifies me as one of the madmen who believe that the British higher education system is something that we should be proud of and do everything to protect.

Being privileged to be another member of the committee, I am very grateful to my noble friend Lady Taylor for her incisive introduction and for her leadership of the committee, now and during the inquiry, along with the noble Lord, Lord Hollick. Noble Lords have already heard from other members of the committee and can judge the strength of both the individual views and the consensus that was reflected in the report. I will try not to repeat the many excellent points made by all speakers this afternoon. I will leave it to my noble friend Lady Taylor to respond, if she wishes, to the suggestion of the noble Lord, Lord Johnson, that the committee has been captured by providers, just as HEFCE allegedly was in the past.

I draw the attention of your Lordships to my entries in the register of interests, in particular as a vice-chair of LAMDA and as a co-opted member of the investment committee of Worcester College, Oxford.

If the crisis in higher education was looming at the time of the report's publication, it has well and truly arrived nine months later, although the Government are doing their best to exacerbate the crisis with new measures, most of all through the threatened change to the visa regime. We cannot, as a committee, claim paranormal levels of foresight in predicting the crisis; the evidence that we heard and received, as well as the data that we analysed, told us only too clearly that all was not well in the state of higher education. It was deeply frustrating that, in our interactions with the OfS at the time of the inquiry, it seemed to be in denial. It is hard to judge whether this was complacency —a smoothing snooze at the wheel—or a regrettable lack of transparency.

Of course, the OfS is not responsible for setting government policy. We should be careful not to attribute failures on the part of the Government to the regulator, even though, as the committee found, there was a worrying lack of distinction between the Government and the OfS—a subject to which I will return.

In its report published last week, Financial Sustainability of Higher Education Providers in England, the OfS writes that it

“has an important role in monitoring and reporting on financial sustainability, and intervening to protect the interests of students, as far as is possible, if a provider is at risk of closure”.
It goes on to note that it does not

“have the powers or remit to intervene … in support of sustaining the system as a whole”.

However, has it given, on a timely basis, firm, clear and objective advice to the Government as to the threats to the system? I do not know what may have been said behind closed doors but what the OfS said to our committee—a committee of Parliament to which it owes a duty of transparency—did not instil confidence in either its grasp of the situation or its willingness to speak truth to power.

Here we come back to the strong discomfort felt by the committee about the independence of the OfS from government, or the lack thereof. If the OfS's financial sustainability report shows belated recognition of the developing crisis, the accompanying document, Navigating Financial Challenges in Higher Education, is not encouraging. It says:

“A focus on cash management may help with short-term resilience but, in the longer term, more significant mitigating action is likely to be required”.

That is fair enough. So, what might the mitigating action comprise? This could involve, says the OfS,

“rethinking an institution's business model, for example rebalancing the resources spent on teaching and research, phasing out some courses, or seeking to recruit different students to different types of course”.

That prescription manages to combine the banal with the ominous.

My noble friend Lady Taylor referred to cuts already implemented. At Oxford Brookes University, the music and mathematics departments are being closed outright, while staff cuts are also taking place in English and creative writing, history, film, anthropology, publishing and architecture. These are not departments failing to deliver high levels of education, nor are they training for industries in which the UK is not a leader. In a dynamic society and economy, change is inevitable and to some degree desirable, but the cuts at Oxford Brookes are damaging to the institution and the sector and are a deeply worrying trailer of what the OfS is advocating in rebalancing resources.

If the OfS will not fight the higher education sector's corner, Parliament can. The committee's report challenges the Government as well as the OfS. Financial sustainability in the HE sector cannot be achieved through cuts alone; funding must be increased in real terms, whether through an increase in the cap on fees or, as I would prefer—whatever pressures on the Exchequer the next Government face—a return to the hybrid combination of fees and direct grants that existed before the Conservative-led Government, in place from 2010 onwards. Or do the Government actually agree with that profound political thinker, Rod Liddle, who argued this Sunday that the number of universities should be reduced by two-thirds and that the proportion of young people going to university should be reduced to 15%? Can the Minister reassure the Committee that that is not the Government's objective? If not, does she agree that, to avoid this happening accidentally, significant real increases in funding must be put in place?5.55pm
Lord Lucas (Con)

My Lords, I congratulate the committee on an excellent report. However, as someone whose life revolves around schools—as in the Good Schools Guide—and parents, noble Lords will not be surprised if I find myself in many aspects standing, as well as sitting, beside my noble friend Lord Agnew.

I am a fan of the Office for Students. For a couple of decades, I have been trying and failing to get universities to take suicides seriously and to involve families in dealing with the problem. The OfS succeeded where I had failed. I am immensely grateful to it, as are many parents. I am pleased to see that the OfS is taking up cudgels on freedom of speech. As Jo Phoenix, the professor who was so disgracefully driven out of the Open University, said today:

“Imagine a world where those who go to university are taught to value diversity of viewpoints and what knowledge and evidence are”.

I do not have to imagine—I went to a university like that—but that is not the university my daughter is at, and nor is it the university that many of her friends are at. It is disgraceful how their ability to think, talk and discuss is depressed—and, in some subjects, absolutely excluded. We need to do something about this. I am proud of the Government for having taken steps in this direction but that has not been supported by the university sector as a whole, with some honourable exceptions, in the way that I should have hoped.

Look at the latest decision by UCAS to show for university courses the grades that people who got on to the course in the previous year achieved. I have been asking for this for 20 years. Not to provide that information is outright lying. It is misrepresenting what the course is, and this has been supported all the way through by UCAS. It has been absolutely defended, because UCAS is owned by the universities and is not independent of them. The great virtue of the Office for Students is that it is not the university's creature. That is immensely important in looking after the interests of students.

I therefore hope that the Office for Students will carry on down that course. The first thing that I would like it to focus on is getting universities to provide real information on the value of their courses. What do students who follow a particular course go on to do? When they look back, two or five years later, what do they think of the education they received? That is absolutely basic, vital information that the university should be wanting in order to improve its courses and to do better, and to understand what it is doing and achieving.

The noble Lord, Lord Freyberg, hymns UAL. It is absolutely hopeless when it comes to that. When one looks at the education it is providing, in what way does it fit its students for the life that the noble Lord describes? There is so much that universities can do to improve what they are offering students, and it will take a vibrant Office for Students to persuade it to go in that direction. However, it will be a much better place for universities. They will be selling what they really do and will be appreciated for what they achieve. Their place in all our hearts will be much stronger, and that is something really to aim for.
Another area where I hope the OfS will make improvements in universities is in their relationship with schools. Why do universities not pay attention to the references that schools give their students? Schools have looked after these children for seven years; they know and understand them. There is a whole load of information about how to help, respond to and educate each of these students as individuals, which universities just discard.

In the early days of this discussion, I asked whether universities could employ modern technology to really get under references, understand what they are saying, and, to help schools make better references, feed back to schools what they thought of the students. The response was, “We never get to know our students well enough; we couldn't do that”, to which my answer is, “Yes, but you ought to have a duty of care. You ought to be doing that. You ought to be looking after students and you ought to know them well enough”. If they did that, they could also help schools make better A-level predictions. At the moment, it is well known that schools are rubbish at making A-level predictions, but the universities do nothing to improve the matter.

What do universities learn when students are with them about what they could have been taught better at school so that they would succeed more at university? How is that information fed back to schools? If it is not collected, it does not get back to schools. What should universities do to influence the examination system? At the moment, they are absolutely rigid in what they expect. They expect a particular pattern of examinations; they are really narrow in what they are prepared to accept. However, when it comes to what they will take from overseas students, they will look at anything. In essence, the flexibility that universities have to respond to the way that students learn and to their differences and individuality is just not extended to our children, and it is important that it should be.

Lastly, I hope that the Office for Students will pick up on the real need to look after the interests of individual students when a university ends a course. It is not satisfactory just to offer them another course. Does that suit them? Is it right for that student? No; they are just offered the package: “We aren't doing archaeology any more. Go on to history”. That should not be enough. Universities—and, in particular, we, the Government—should take responsibility for looking after the interests of these people. We need to do better than we are.

There are things that the Government should do, too. The state that we have got ourselves into on immigration is ridiculous. Collect proper data; take proper decisions. I have never won an argument with the Home Office—although I once managed to get it to collaborate with Imperial College, which took a lot of effort—but, for a university, this is a really important part in knowing where it can go, what it can do and how it can run. As the Government know, it makes a big difference to our country; they just have to run it properly. The continued impression of running around blindfolded and bumping into trees is not what we should be doing. We need to do a lot better, and I hope that that will happen soon.
On a more minor point, I hope that the Government will look at enabling co-funding of degree apprenticeships so that there is some blend between the debt that a university student takes on and the complete lack of debt that happens in degree apprenticeships. We need to expand degree apprenticeships much more than we are. I really hope that the Government will look seriously at lifelong learning and really involve universities in it. Obviously, the Open University is there, but the world is moving so fast that we all need to keep learning and adding to our knowledge. My university seems to think that, having spent three years studying physics, that was the end of my interest in the subject—just because I went to become a chartered accountant. It has made no effort in the past 50 years to keep me up to date. I would have paid for that. I think that most people who go to university would like to keep learning and extending their knowledge, but the sector does not seem to respond to that at all.

It is not an easy time for universities. There are many politicians, like me, who are out of love with them and extremely reluctant to burden our children with even more debt. As my noble friend Lord Agnew says, one of the first things we need universities to do is to be open about their costs. How can it cost 50% more than a sixth form? They are providing so much less. What is the reality? Be open about it. Let us see what is going on and really understand how these costs are made up: “You are asking us for more money; how do you justify it?”. It is not just words; we want some figures and an understanding. Really collaborate with Alumni UK. This was something I asked for when my noble friend Lord Johnson was taking his Bill through—that universities work together to support their international alumni, make a group out of them and make them a joined voice for this country and for working with this country.

The British Council has at last launched something like this. It has some support from universities, but much less than it should have. This ought to be the universities' contribution to our national effort. They will talk to us a lot about soft power, but when it comes to providing it and sharing it, they do not seem so keen. I really hope that they will change their minds on that, get behind Alumni UK and embrace the idea of being self-critical, self-improving organisations, collecting the data they need to do that, so that they do not find it necessary to close courses in panic but close courses in the ordinary course of business when they are not doing what they should do. They should evolve new courses and be constantly trying to improve, change, evolve and—to come back to something I said to the noble Lord, Lord Freyberg—really focus on the needs of their students and make sure their courses are really fitted to that.

I enjoyed and benefited from university. I want as many of our young people as possible to do that, but we really need the universities to improve.

6.07pm
Lord Willetts (Con)

My Lords, it has been a very interesting debate, stimulated by this excellent report. I declare my interests as a visiting professor at King's College London and a member of the council of the University of Southampton. There is a lively debate about universities going on, particularly on this side. Let us have a proper debate about what is going on.

I want to comment on some of the interventions, particularly from some fellow Conservatives in this Committee. I very much agree with the key point by the noble Lord, Lord Johnson, that we need a regulator. I do not actually think that the old regime was as bad as is sometimes made out. HEFCE was the regulator, in reality, but its regulatory power was the power of the purse, because it was handing out grants. As the grants disappeared, so its capacity to exercise authority by attaching conditions to the grants was going, which is why, right from early on, I said that we needed a new legislative framework. I congratulate the noble Lord on bringing that in. In today's world, the HEFCE model of regulation was very discretionary. The regulatory regime needs to be more explicit, rules based and clear, so that people know where they stand. A rules-based, transparent regulator was another of the prizes we all wanted to see from the new regime.

Also, one of my frustrations was that, having to deal with an agenda of trying to promote new players coming in, it was incredibly frustrating that they were not properly regulated. A regulator extends the capacity to regulate new arrivals. The noble Lord eloquently made the case for the OfS, but where I think I part company from him is that one reason why this report is interesting and important is that it is not the old lags who always turn up and we all enjoy our debates on higher education. This is a committee of experts on regulation who are looking at the OfS from the perspective of people who look at how regulatory regimes operate in other sectors, in other contexts. I attach some weight to their assessment, as fellow Members of this House who devote their committee time to studying regulation in different places, of how it is working in the world of HE. I understand the frustrations of my noble friend who chairs the OfS that because of this previously unknown Addison rule, he was not able to engage directly with the points that the committee makes. I am sure that there are good answers on many of them, but having this perspective from a committee that specialises in looking at regulation is a good thing.

The funding model has come up: it came up at the beginning with the noble Lord, Lord Parekh, then with the noble Lord, Lord Johnson, and from others in referring to debt. The new funding model is here to last. It was begun under the previous Labour Government. I will turn later to some of the things that we heard from the noble Lord, Lord Agnew, but from the tone of the remarks it is absolutely clear: the Department for Education is never going to find a large public budget to fund higher education. In my experience, almost every Education Secretary who turns up cares about early years and primary school. They have no desire, in any battle with the Treasury, to say, “I'm not going to ask you for more money or primary or secondary education. Please can we have more money for universities?”. They just do not, so we need another way of funding it. We have that, and it is not debt in the sense of commercial debt.
For me, it was a low point, when the argument was being made that we needed to have some increase in fees, to hear the then Minister say that we could not put up fees because it would contribute to the cost of living crisis, pandering to a deep and dangerous misconception that somehow this is money that students pay up front. It is not; what matters is the repayment formula, which of course ensures—I look again at the noble Lord, Lord Parekh—that people on low incomes do not pay back. In reality, they do not pay for their higher education; the generality of taxpayers pay for the higher education of people who are subsequently not able to afford to pay back. That is the right and progressive way of doing it.

As to how this funding compares with the money going into primary and secondary schools, I will make some quick comments on what the noble Lord, Lord Agnew, said. I can remember the negotiations with the Treasury. There used to be capital grants for higher education, in the same way as there are for schools. When people compare the figures of £6,000 for schools and £9,000 to universities, that schools figure does not include capital spend, which is a separate and substantial line item in the DfE. I remember the negotiations, and one reason why we put the fees up to such a high level was that the Treasury said, “We're getting rid of all capital grants for higher education. In future, institutions will finance capital by borrowing on the commercial markets, and one reason for the fees is to cover the interest payments on the capital now that we are stopping having a public capital budget for HE”. That is part of the logic of the system. Their borrowing money to fund development is the new model; it was another form of expenditure saving.

Secondly, that £9,000 includes £1,000 of access spending, which is an absolute social mobility challenge but is not there to pay for the cost of educating a student. It is money to meet a social mobility objective. There are other extra costs. One of my regrets is that we call them tuition fees; they are university fees, for all the other activities that are provided for at a university.

When you look at the historical trends, as measured by organisations such as the Institute for Fiscal Studies, it is clear that in the English system the long-term trend, over 20 or 30 years, has been for public expenditure on primary and secondary education to rise relative to expenditure on students in higher education. That is the underlying long-term trend, so it is not a soft option for higher education.

It is, however, certainly the case that universities need to account for how they spend the money. This was done most recently in the Augar report, which was quite tough-minded. It commissioned an accountancy firm—I think it was PwC—that estimated the costs of higher education and provided an estimate which showed, even in those days, five years ago, that something like the £9,250 fee was barely sufficient to meet what an independent accountancy firm assessed as the cost of higher education. So the fee is looked at, and needs to be looked at, from time to time.

On data, one of my frustrations with the OfS is partly because of the flow of letters and requests that it gets from Ministers on every subject under the sun. Again, my noble friend Lord Johnson made a good point: a great self-denying ordnance would be a restriction in the number of ministerial letters so that there is some sense of strategy and capacity to get on with things. It is the basic information that students rightly care about that matters, as my noble friend Lord Lucas said. In every engagement that I had with students they made practical points. They want more contact hours but they did not want all them to be in incredibly crowded lectures; they had some views about the amount of direct contact that they had. They wanted their academic work back promptly with some kind of useful academic feedback. That is the kind of information that they wanted.

In the old days—looking back, it was perhaps a naive hope—we actually got the NUS to talk to the Consumers' Association about the kind of data that it and the NUS could obtain to provide to prospective students by working together. There was then an outbreak of anxiety that thinking of students as consumers and working with the Consumers' Association was ideologically incorrect. That is the kind of information that students should have good access to, and we can still do better on it. Incidentally, if one needs more information about what happens after one leaves university, the Student Loans Company is a hidden and unused resource from which the data should be liberated to make that kind of information possible.

Briefly, I have some final observations on how this argument has gone. There is an issue about promoting innovation. Again, my noble friend Lord Johnson made that point. For example, I hear that an exciting new model for engineering education in Hereford will say that showing that it has a plan for each individual student if it goes bust—it has to be a plan based on the innovative education model it is operating—is quite a barrier to it getting through the regulatory process, becoming fully entitled to give any degrees and, one hopes, getting a university title. This should be a regulatory regime that promotes innovation. That is an issue.

I turn to my noble friend Lord Agnew and his obvious unhappiness about higher education. If only some aspects of the school agenda were transported to higher education. Academies, such as the Mossbourne academy, have thrived and newcomers have come in, but the DfE assesses higher education in a different way. A Mossbourne academy higher education institution would get nowhere in the Department for Education's model because it takes prior attainment as a measure of the quality of a university. It does not use that with schools: it looks at value added. It is prior attainment that counts for status in the world of higher education, which rewards incumbents.

That model even has a specific measure of school performance in terms of getting students through to the Russell group. I love the Russell group—it is a set of research-intensive universities—but it is massive producer capture to allow a self-organised club to become a measure of performance of a school. One goes to universities that say that the prospective students turned up and rather like what they saw but the school was keen for them to go to a Russell group university. This is a system that rewards incumbency. That is completely different from the agenda at the school level.
Of course the Russell group is excellent and research intensive, but we need to be a bit more relaxed about the different missions of different types of university. Of course many of them will deliver training, and a university can do so. We should not have our view of universities totally shaped by the Oxbridge model. The technical Hochschule in Germany that we all love are actually universities and increasingly take the title “universities of applied science”. In the Republic of Ireland, the university title is being spread. I sometimes think that if people—even, dare I say it, some on my Conservative Benches—could ritually humiliate some of these institutions and say, “You're not really a university”, they would feel so much better about it. The truth is that those institutions are legitimate universities in almost every other western country. We should accept them and welcome them to the diversity of missions that we have in higher education today.

The OfS is doing a necessary and important job. It needs to be liberated from some of those ministerial letters and to be able to focus on the data that really matters to prospective students. I hope that the OfS will understand the importance of the context of the students that it recruits and I very much welcome this important report from the committee.

6.19pm
Lord Storey (LD)

My Lords, it is a great privilege to follow so many colleagues who have, or had, positions in universities. I have enjoyed listening to their detailed knowledge. I thank the noble Baroness, Lady Taylor. In a sense, her opening remarks absolutely hit on my understanding of the situation. I was slightly concerned when she used a one-word judgment about the Office for Students—I have written it down somewhere and forgotten it. I thought we were against one-word judgments and that, like Ofsted, we did not want to go down that route. I am just teasing. All the issues were very carefully and considerately focused.

We have world-class universities and we ought to be proud of them. They have amazing leadership and staff, but that should not blind us to the fact that there are major problems in some of our universities. There is a great danger that we wallow in praise but do not tackle some of the issues happening around us. One has only to look at the private higher education sector to know that there are big problems, or to listen to students talk about their experiences of simple things such as chasing up and trying to get back a thesis or assignment, or their complaints of there being hundreds of other students in lectures. Those issues may be small and insignificant to noble Lords in this Committee, but to students themselves they are really important.

I have a background as an ordinary primary teacher and headteacher. I did a certificate of education and then went on to university because I realised that I needed a university degree if I were to get a promotion. Like probably everybody in this Room, I thoroughly enjoyed my time at university. University is not just about learning; it is about playing as well. How sad it is that, these days, many students cannot afford, for example, to go to university away from their home. Students increasingly stay in their own locality. I do not know the exact figures but at Liverpool University the students increasingly come from Liverpool, Merseyside or the north-west. When I went to teacher training college, my friends came from the north-east, Northern Ireland and all over the country. I gained so much from that experience of talking to people from different regions and cultures. We have lost that. Universities also provide the opportunity to learn different things and offer extracurricular activities. We talk about the importance of extracurricular activities in schools but they are equally important in universities.

I will come to the issue of funding in a moment. I want to single out a few comments that I feel must be addressed at some stage. The noble Lord, Lord Agnew, was either bonkers or brave—or both—to raise those hugely important issues. Somebody has to address them. We cannot just say, “He would say that, wouldn't he?” I want to know the answers to his questions. Similarly, the noble Lord, Lord Lucas, went on and on, quite rightly, about linking higher education, schools and student satisfaction, but we never get any answers on that. At some stage, I would like to hear the answers. Finally in my general comments, I say to the noble Lord, Lord Johnson, that yes, I like the title, “office for lifelong learning”, so let us try to make that happen. It seems to be the right phrase.

When student loans were introduced—we remember all the furore about them; I had forgotten that they were introduced by a Labour Government, of course, although the coalition Government increased them enormously—my party leader and others signed pledges that they would abolish them. However, I thought to myself, “Do you know what? If students are getting a loan and paying for their university education, they will be in the driving seat. They will actually have a say in what is going to happen”. Similarly, when the Office for Students was established, I thought to myself, “Ooh, this is good: it has ‘students' in its title. It will mean, again, that students are in the driving seat”.

The report is quite worrying but, actually, I can look at it in a positive way. You have to know where you are to find out where you are going. Remember, the Office for Students has as its mission

“to ensure that every student, whatever their background, has a fulfilling experience of higher education that enriches their lives and careers”.

I can tell noble Lords that, as a city councillor, I have referred three cases to the Office for Students. The first was that of a PhD student who was awarded only a master's degree, not a PhD. She complained and said, “Hang on a second. I didn't see my supervisor for three years. Covid came along and nobody from the university contacted me”. The university was not at all interested. I contacted the Office for Students and it was very proactive for that young woman. It ensured that she got a year's extension and was paid some compensation. That would not have happened without the Office for Students, I guess.

The second case involved a mature student who had special educational needs and wanted another year. She had already delayed her degree by two years, and she wanted a third year. The university said no. The Office for Students sorted it out.

The final case was a failure. It involved a student at a Russell Group university. On the day of her final exam, her father died. Imagine that. The university said, “Well, we're very sorry about that”, but nobody contacted her; I mean, nobody actually said that. Her personal tutor did not contact her. What is that all about? That is another complaint from students when you talk to them. She was told that she could sit the exam in the summer. How crazy is that? She was not given a date; she just had to wait until summer came along. Then, sometime in August, she was allowed to re-sit the exam. That is not the way to treat a young woman whose father has just died. I contacted the Office for Students but, sadly, nothing happened on that occasion.

As we have heard from so many colleagues, the higher education sector faces a looming crisis. It is mainly to do with long-term financial sustainability, compounded by Covid; the freezing of student fees; inflation leading to higher costs for institutions, staff and students; a lack of EU research funding; and ongoing industrial action, as we have heard from a number of colleagues. The financial sustainability of the funding system for the higher education sector clearly needs to be sorted. Has the Office for Students paid sufficient attention to this challenge? It should be questioned on a number of issues. Has it lived up to its promise? Is it trusted by the providers it regulates? Has it acted in the real interests of students? On the last point, my experience is that it has. Have the Office for Students' duties been applied consistently and equally? Should it focus more on communicating with institutions, rather than relying on data from those institutions?

The freezing of the cap on tuition fees for domestic students and the loss of EU research funding have led to higher education providers becoming reliant on cross-body subsidy from international and postgraduate students. This dependency comes with huge risks. It will be interesting to read Robin Walker MP's inquiry into university funding's reliance on international students. As Simon Marginson, a professor in higher education at Oxford University, says:

“If today's decline in the real-terms value of fees continues … then within a decade even the UK's most elite institutions will find themselves diminished. This could be further exacerbated as countries such as China … pour money into their own higher education systems”.

Vivienne Stern, the chief executive of Universities UK, says that there is a

“need to have a … conversation about how universities are funded”.

Over 100,000 more young people will be seeking university education by 2030, when there is little space or incentive to accommodate them. Let us get to the real issue. Political parties, particularly in an election year, are unwilling even to acknowledge or to face up to the problems in this field. At the moment, they would rather keep quiet. Can you blame them? “Well, Mr. Starmer, Mr. Sunak and Ed Davey, how are you going to deal with the matter? Are you going to put the funds or the loans up?” Of course they are not going to say anything now. Once the election is over, whoever is in Government, whether it is a coalition Government or whatever else, I hope that those political parties will have the honesty and the integrity to realise that the funding issue is crucial to the continued success of our universities. If they do not do something about it, we will see our world-class universities become second-class universities.
We can already see how this lack of action is affecting universities. Just one recent example, if your Lordships remember, was the University of Essex, which forecast a £13.8 million shortfall, blaming the 38% drop in applications from overseas students for its plans to freeze pay and promotions. In response, the plea for more government assistance puts universities at odds with government. It is argued that the sector has become bloated, providing too many courses that do not offer a return on student investment. But we cannot just leave silence to rule. Perhaps we need to find a new funding model. Is it increasing the level of fees or allowing universities to charge what they want, or do we just let the weak wither and close, and the strong and successful prosper? Do we look—dare I say it—at Vince Cable's idea of a graduate tax? I do not know, but we have to do something about it. I hear only one or two voices, and they are not from political parties, saying, “Universities need more money”.

Returning to the Industry and Regulators Committee report, I hope the Minister in her reply will want to comment—I am sure she will—on some of the quite concerning conclusions of that report. The Office for Students

“does not engage with its stakeholders”,

whether students or providers; its approach to regulation seems

“arbitrary, overly controlling and unnecessarily combative”;

and,

“there have been too many examples of the OfS acting like an instrument of the Government's policy agenda rather than an independent regulator”.

6.33pm
Baroness Twycross (Lab)

My Lords, I commend my noble friend Lady Taylor for securing this debate on the report of the Industry and Regulators Committee, and all members of the committee. Like the noble Lord, Lord Storey, I felt privileged to hear from such well-informed contributors.

Having reread the report in preparation for this debate, its title, Must Do Better, felt like an understatement. The committee was damning in its criticism of the Office for Students, and, as my noble friend highlighted in her opening speech, the committee's overall finding was that it is performing poorly. I am not sure that many positive points were raised in the report, besides those attributed to the noble Lord, Lord Wharton, the chair of the Office for Students, although the noble Lord, Lord Johnson, provided a defence of the regulator in his contribution, as did the noble Lord, Lord Lucas. The examples which the noble Lord, Lord Storey, just provided in his speech gave context, with the engagement he has had with real-life examples, which was helpful.

I look forward to the Minister's response to the many points that have been raised and, in particular, to hearing what has changed in the interim since the committee's report was published. It was clear from many contributors to the debate, including my noble friend Lady Taylor, the noble Lord, Lord Clement-Jones, and others, that over recent years universities have faced many issues, from having to deal with the pandemic to research funding being limited and pressure on the funding model.
The “looming crisis” the report cites is, as a number of noble Lords have stated, clearly already here. The Office for Students appears, unfortunately, be part of the problem whereas it should be a major part of the solution. A regulator should do what it says on the tin. This is a regulator that, as the noble Lord, Lord Norton, said, has not lived up to its name. It should not be rocket science: indeed, the mission statement for the Office for Students says:

“We aim to ensure that every student, whatever their background, has a fulfilling experience of higher education that enriches their lives and careers”.

However, despite the good intentions described by the noble Lord, Lord Johnson, the Office for Students has not delivered for students yet, or for the sector, and lacks clarity over even what it defines as a student interest.

The noble Lord, Lord Wharton, highlighted the freedom of speech Act, and its implications are significant for universities. As the noble Lord, Lord Mann, made starkly clear, the regulatory guidance proposed by the Office for Students on freedom of speech has led to a situation that, as Labour warned it could and would, will allow Holocaust deniers and their ilk to potentially spread hate on our campuses. Will the noble Baroness commit to intervene to ensure that the rollout of the regulatory guidance described by the noble Lord, Lord Mann, is paused until such time as it is fit for purpose and has appropriate safeguards for all students, not least for the protection of Jewish students? Moreover, will she explain how the Government will ensure that the Office for Students will reset its work to be less simplistic and narrow in its approach? Will the Government require the Office for Students to refresh its approach to student engagement? Will they insist that the regulator defines what it sees as student interests?

The noble Lord, Lord Willetts, spoke about the social mobility aspect of universities, which I would hope would be among the key issues that should be promoted and measured by the OfS. The committee recommended that the OfS should take on the role of providing students with clear and digestible information on costs, outcomes and contact time, which, as the noble Lord, Lord Willetts, said, is a real concern to prospective students. As the noble Lord, Lord Storey, said, there needs to be a key focus on what students want, including getting their essays and assignments back quickly. Students deserve to get the information they need to make what is a significant life decision. What conversations has the department had with the regulator to ensure that this now happens?

The noble Lord, Lord Freyberg, spoke powerfully about the impact of the cost of living on students, which leaves them with a shocking shortfall. Many have to work, and prioritise work, in order to get by, and the pressures can cause students to drop out. Surely an office that is genuinely for students must address these concerns. Labour believes that regulation matters, and questions of what regulation should look like have come up throughout the debate. As my honourable friend the Member for Warwick and Leamington, Matt Western, said in a Westminster Hall debate last year, we need

“good, fair-minded, proportional regulation, which is needed in any sector, especially the higher education sector. For a sector that benefits from £30 billion in income from public money, educates over 2 million students and contributes £52 billion to our GDP, supporting more than 800,000 jobs, the need for regulation is clearly self-evident[”.—[Official Report, Commons, 26/4/23; cols. 427-28WH.]](/search/column?VolumeNumber=&ColumnNumber=427-28&House=1&ExternalId=CB67348F-2C26-484B-8AD8-16D4C0DF5C8C)

The need for proportionate, appropriate regulation was a point made succinctly by a number of speakers today, including the noble Lord, Lord Norton, who stated that the starting point is that regulators need a mindset that gets the best out of bodies. I welcomed the point made by the noble Lord, Lord Willetts, that this committee's view on regulation should be taken seriously because it knows what it is talking about and this is its area of expertise. The committee report found that the regulatory framework has become overly prescriptive over time, and the OfS is too willing to direct higher education providers' operations and activities, showing little regard for the need to protect institutional autonomy.

Of particular concern is the lack of co-ordination by the OfS with other regulators in the HE space, in particular in relation to degree apprenticeships. The committee recommended that the DfE should reconvene the Higher Education Data Reduction Taskforce—although a better acronym could probably be found—to address duplication and unnecessary burdens on providers. Can the Minister confirm whether the DfE will be doing this? Is she satisfied with the quality assurance agency now also being the regulator? Does she agree with the committee, and a number of speakers today, that this is a concern?

A thread through this debate has been the growing concern over recent weeks and months about the financial instability of the sector. This was also the subject of a Question that raised cross-party concern in your Lordships' House this afternoon, following the recent report published by the Office for Students. My noble friend Lord Parekh spoke of an ambivalence towards overseas students, and a number of noble Lords —including, among others, my noble friend Lord Parekh and the noble Lords, Lord Clement-Jones and Lord Norton—spoke about the sector's overreliance on international students, where their fees currently act as a subsidy for domestic students; the noble Lord, Lord Agnew, likened this model to a Ponzi scheme. What conversations has the DfE had with the Home Office on the implications for our HE institutions of further limits on international students? Even the rhetoric around limits on international students appears to be having an impact already.

The noble Lord, Lord Norton, said that the Government are sending out all the wrong signals on overseas students. Does the Minister agree with that point? Is she concerned by the fact that the Office for Students did not share the committee's concerns on the financial health of universities just over a year ago but now judges that, as my noble friend Lady Taylor said, 40% of universities are expected to be in deficit? Can the Minister outline what more the Government are doing to ensure that the unsustainable financial situation facing many higher education institutions is resolved? Does she agree with the Office for Students' report that we might see some changes to the shape and size of the sector, for example through mergers, acquisitions or increased specialisation? Does she agree with the noble Lord, Lord Johnson, that the Office for Students should be doing more to promote innovation and new forms of provision?
During today's debate, there were varied views on how universities' financial management is in practice but it is clear that cuts alone are not the solution. Many higher education institutions have already made fairly drastic efficiencies. Labour will reform the higher education funding system. It is looking at ways to make the system fairer and more progressive; it will change the system to give students, graduates and universities the support they need.

My final point is that an independent regulator must have the trust and respect of the sector in order to succeed. It was clear from most of those who gave evidence to the committee that the Office for Students does not have the respect of the sector and is not giving students the voice they need. There is considerable suspicion of the OfS's relationship with government; this appears to be in large part down to the belief among the sector and other stakeholders that the OfS is too close to government and is, in effect, acting at its direction. The noble Viscount, Lord Chandos, described this as a lack of distinction between government and the regulator; he also referred to a lack of transparency. I appreciate the fact that the Government's response to the committee indicated their view that there are already established and sufficient protections to ensure that the OfS operates independently of government; none the less, I ask the Minister to take this view seriously and ask the department not simply to dismiss this view as erroneous or unfair.

The regulator cannot succeed unless vital relationships are reset as a matter of urgency, trust is restored, and it is seen and believed to be delivering for both students and the sector as a whole. I welcome my noble friend Lady Taylor's commitment that the committee will return to this subject in future. This was an enlightening and hard-hitting report demonstrating the value of the work of the committees in your Lordships' House. I look forward to the Minister's response.

6.44pm
The Parliamentary Under-Secretary of State, Department for Education (Baroness Barran) (Con)

My Lords, I thank the noble Baroness, Lady Taylor of Bolton, for securing this important debate, and all members of the Industry and Regulators Committee for their work and scrutiny of the vital issues linked to the higher education sector and the Office for Students as its regulator. If I may, I also thank my noble friends Lord Johnson of Marylebone and Lord Willetts for their ministerial insights into the sector.

My noble friend Lord Johnson gave an incredibly helpful analysis and synopsis of the issues which led to the creation of an independent regulator with a focus on quality, competition, choice and value for money. I recognise some of his criticisms in relation to the way that government is structured, with part of the responsibility for the university sector sitting in the Department for Science, Innovation and Technology and part sitting in the Department for Education. I absolutely share his enthusiasm, and that of my noble friend Lord Willetts, for a real focus on innovation in the HE sector and on the lifelong learning entitlement.
I also thank my noble friend Lord Lucas for highlighting some really practical suggestions, which he brings from his experience of listening to students and parents, and the noble Lord, Lord Storey, for the examples of his interactions with the OfS in practice. It was extremely helpful for all of us to hear that.

Before I go into the report itself, I want to touch briefly on the independence of the OfS. I can honestly say that, in my experience within the department, I do not recognise the picture that noble Lords painted of political priorities driving the work of the OfS. If I may say so, I felt a tension between the calls for real independence on the part of the OfS and calls for the Government to influence its direction even more, which is, perhaps, something for all of us to take away and reflect on. I asked colleagues to check how many guidance letters we sent to the OfS in the past 12 months. We have issued four guidance letters to it: two related to the expansion of medical places and two related to funding. I am not sure quite what the threshold is for the number of ministerial letters, but that does not feel too oppressive to me.

I turn not so much to the Government's response to the committee's report, which your Lordships have obviously seen, but rather to providing updates to show the progress made against its recommendations. The noble Baroness, Lady Taylor of Bolton, the noble Lord, Lord Storey, and others, dwelled on the importance of the relationship between the Office for Students, the students themselves and providers. I am pleased to see that the OfS has reflected on the committee's recommendations regarding student interest in engagement. It has made sound progress in reaching out to students and inviting them to engage in its work, including work to reframe the OfS student panel, which I understand is now playing a key role in the development of the OfS's new strategy for 2025 and beyond.

I know that the OfS has hosted numerous round tables and webinars, inviting students to contribute on its new freedom of speech and academic freedom functions to help inform proposals and consultations. Last month, the first meeting of the OfS's new disability in higher education advisory panel—fondly known as DHEAP—took place, which will review how universities and colleges currently support disabled students and will make recommendations to improve their experience.

The noble Baroness, Lady Taylor, asked me about annual reports on student engagement. We are not aware that a commitment was made in that regard, and I am not aware that those reports are planned, but if there is a misunderstanding I am happy to pick that up with her afterwards.

Regarding the relationship with the sector, I hope that your Lordships will be pleased to hear how the OfS reflected on the committee's recommendations to enhance—

The Deputy Chairman of Committees (Baroness McIntosh of Hudnall) (Lab)

My Lords, I am sorry to interrupt the Minister so near the end of the debate, but I am afraid that a Division has been called, so the Committee will have to adjourn. I advise members of the Committee that there are likely to be two or three votes back to back, so it will be not a 10-minute adjournment. It will be substantially more, probably more like half an hour. I advise members of the Committee to keep their eyes on the annunciators, particularly after the second vote has been completed.
6.50pm

Sitting suspended for Divisions in the House.

7.32pm
Baroness Barran (Con)

My Lords, I was just starting to talk about the relationship of the OfS with the sector, which was a matter of concern to a number of your Lordships. The OfS has both reflected and acted on the committee's recommendation to enhance its relationship and engagement with the sector. Senior OfS staff have visited over 80 universities and colleges across England as part of its new sector engagement programme, as well as hosting numerous online and in-person events for vice-chancellors, finance directors, institution staff and students alike to raise awareness and understanding of its regulatory work. The OfS recently commissioned a new piece of voluntary research to gather provider views to help improve how it works with the sector.

One of the key recommendations in the committee's report was around clarity about the OfS's duties and decision-making. The Government believe that the OfS's statutory duties are clearly set out in legislation, through the Higher Education and Research Act 2017. In particular, we believe that it is right that institutional autonomy as an important principle should not always be prioritised above other important matters: for example, driving quality improvement.

The noble Baroness, Lady Taylor, talked about the new powers and duties that Parliament has given to the OfS and suggested that those were perhaps not always the priorities of students, if I followed her remarks correctly. We believe that the Higher Education (Freedom of Speech) Act is critical to protecting academic freedom. Issues around the tragic events in the Middle East give us a very recent example of that, as the noble Lords, Lord Wharton of Yarm and Lord Mann, pointed out.

Additionally, we have asked the OfS to focus on tackling harassment and sexual misconduct, in response to evidence of a serious problem in our universities. The noble Lord, Lord Mann, asked for specific reassurances. We are still in the process of the consultation. We need to let that conclude, but I would be more than happy to meet with the noble Lord if that would be helpful. To enhance the OfS as an effective regulator that safeguards students' interests, the Government announced an independent review of the regulator in December 2023, which is being conducted by Sir David Behan. It is due to conclude shortly and the Government will carefully consider its findings and recommendations.

A number of your Lordships, albeit from slightly different perspectives, talked about issues of financial sustainability in the sector, including the noble Baronesses, Lady Taylor and Lady Twycross, my noble friends Lord Norton of Louth and Lord Agnew, the noble Lord, Lord Storey, the noble Viscount, Lord Chandos, and others. It is crucial that we have a sustainable higher education funding system that meets the needs of the economy and is fair to students and to taxpayers. We keep the funding system under continuous review to make sure that this remains the case and that it offers diverse opportunities for learners to acquire vital skills.

The noble Lord, Lord Parekh, who is not in his place, was the first to focus on the cost side of universities, which is more within their power to control. I will comment on that also in response to my noble friend Lord Agnew's remarks, even though he asked me not to respond—it is an irresistible opportunity. A number of your Lordships used the term “financial crisis”, and I understand why, but we should remember that in 2022-23, the total income for the higher education sector in England was £43.9 billion, up from £29.1 billion in 2015-16. Of that, approximately £16.3 billion, or about 37%, was provided by the Government. Over the current spending review period, the Government have also invested £1.3 billion in capital funding to support teaching and research through the Department for Education teaching grants and the DSIT research grants.

A number of your Lordships cited the figure of 40% of the sector being in deficit. That was cited in the recent OfS report as an expectation for this current financial year, 2023-24. The noble Viscount, Lord Chandos, asked if it was government policy to see the Rod Liddle projection of two-thirds of the sector disappearing: clearly that is not the case. That is important, I say in response to my noble friends Lord Agnew's and Lord Lucas's remarks. I think my noble friend used the term “impending financial collapse”. This is a sector that has grown 50% over the past few years. The OfS report projected a surplus of £2.1 billion for 2026-27, and a margin of 3.9%. Average borrowing in the sector is 30%. While the Government absolutely recognise some of the pressures and in particular some of the risks that the sector faces, that is not the typical picture of a sector facing impending collapse.

We also need to be careful in talking about 40% of providers, or roughly a third of providers this year. I talk here about the UK rather than England only: the aggregate deficit of those providers that were in deficit was just over £330 million; the aggregate surplus of those in surplus was £3.3 billion; and 50% of the aggregate deficit was accounted for by 10 providers. There really are outliers, in both surpluses and deficits. Making sweeping statements about the whole sector is not helpful but I will, of course, write to my noble friend as he requested.

A number of your Lordships, including the noble Lord, Lord Clement-Jones, and the noble Baronesses, Lady Twycross and Lady Taylor, asked about the sector's dependency on international students and the Government's position on that. Our international education strategy is absolutely clear that diversification and the sustainable recruitment of international students remain a key strategic priority. This is a core focus of the work of Sir Steve Smith, the UK's international education champion. We are pleased that the latest figures show that providers are diversifying their recruitment of international students, with many increasing their intake from priority countries that were outlined in the International Education Strategy.
My noble friend Lord Norton of Louth asked me not to talk about how good the sector was, but if he will permit me just one sentence: as your Lordships noted, we have a world-class higher education sector, with four universities in the top 10 and 17 in the top 100. We have also educated 58 current and recent world leaders, and we continue to have an education system that is the envy of the world. We expect the UK to remain attractive to international students from across the globe.

In response to the question from the noble Baroness, Lady Twycross, about our work with the Home Office, we have regular conversations with the Home Office about this issue. I think it is fair to say that my noble friend Lord Norton of Louth was critical of the Government's position in many areas, including this one. We are very clear that it is important that we have a competitive offer for international students that aligns with our strategic priorities for our economy, but we also need to keep the prestige and the brand of UK higher education.

I turn to the issue of value for money, which the committee's report acknowledged could be measured in a number of different ways. I note the concerns expressed by my noble friends Lord Lucas and Lord Agnew in this regard. My noble friend Lord Lucas stressed the importance of making sure that students understand the value of and the outcomes from their courses. The noble Lord, Lord Freyberg, was concerned about a graduate's future earnings being too crude a metric and that creative degrees might get marginalised as a result. I hope he would accept that the Government have had a huge focus on our creative industries. We recognise how important they are for the economy and our well-being as a society, and the great demands for skills that there are in those industries. I hope it will reassure him that we have commissioned the Institute for Fiscal Studies to research a new way of measuring the impact that courses have on a graduate's future earnings, which we hope will be more sophisticated and incentivise the kinds of behaviours that we heard discussed today.

The noble Lord, Lord Clement-Jones, questioned the OfS approach to quality. We believe that the OfS has introduced a more rigorous and effective quality regime. It regulates quality by monitoring adherence to its conditions of registration, and of course condition B3 sets out minimum thresholds for student outcomes.

The noble Baroness, Lady Taylor of Bolton, talked about the quality assessments that the Office for Students is carrying out. I think she quoted a figure of eight, which might have been the figure published; actually, 32 have been completed in the first cycle and the office is in the process of publishing all those reports. We hope very much that they will have a real impact and provide valuable information for students and providers alike.

How can I have only two minutes? Turning to the regulatory burden, again raised by the noble Baroness, Lady Taylor, and the noble Lord, Lord Clement-Jones, the Government acknowledge the need to reduce regulatory duplication in the HE sector. We have established a new provider data forum, with the OfS and the Education and Skills Funding Agency, to identify and tackle data burden and duplication issues. We are also commissioning independent research to gain an understanding of the nature, scale and cumulative impact of data collection requirements across the sector.

The noble Lords, Lord Freyberg and Lord Parekh, talked about social mobility. I think the Grand Committee will have heard me say before that 18 year-olds in England from the most disadvantaged areas were 74% more likely to go to university in 2023 than they were in 2010.

In closing, I am grateful for the thoughtful contributions that all of your Lordships have made during this debate. There is an extraordinary amount of expertise in your Lordships' House on both regulation and higher education. The Government are absolutely committed to making sure that we continue to have a higher education sector to be proud of, and to supporting the OfS to deliver regulation that enables that sector to remain world class.

7.48pm
Baroness Taylor of Bolton (Lab)

My Lords, I think Members here will be pleased that I intend to be brief and not detain them too much longer. It has been a very wide-ranging debate and, as the Minister has acknowledged, we have a high level of expertise in the Room, which has been very useful and constructive. I hope the noble Lord, Lord Johnson, will acknowledge that the comments of the noble Lord, Lord Agnew, prove that the committee was not captured by providers. I reassure him that we took evidence from Michael Barber and Nicola Dandridge, and have followed through on all the written evidence. The weight of evidence that we had backs up what our report actually said. It was not a subject that we entered into lightly, nor did we with the criticisms.

I wish that we had more time, because I would very much like to have discussed further with the noble Lord, Lord Johnson, some of the phrases that he used, such as “mass HE sector” and “poor-quality student experience”. Terms like that are bandied around far too freely, when in fact the vast majority of students get a very good experience and a worthwhile qualification at the end of it.

In fact, if we are talking about how we judge those qualifications, I chaired the council of the University of Bradford for several years and I was always frustrated because very often the quality is measured by how much graduates earn once they leave the courses. In Bradford, we wanted our graduates to stay in Bradford and the region and help to raise that region, yet, if you look at the earning potential in Yorkshire compared with London, we were always going to be at a disadvantage, which did not actually reflect the value added. I am sure that the noble Lord, Lord Norton, would say the same for Hull.

No one who gave us evidence, no one we spoke to and no one on the committee is against regulation. Everybody knows that if public money is involved, there have to be elements of accountability. The question is: what is the balance between accountability and interference? That is the main area where we did not see a situation that we would want. We produced another report recently about who regulates the regulators. That is also something we are going to come back to because it is a very significant point: there is a need for more parliamentary accountability of regulators. Actually, I think that if we had had an ongoing drumbeat of accountability of the OfS to Parliament, we might have avoided some of the problems that have emerged more recently.

As for the “looming crisis”, the Minister wants us to be cautious. I think we are seeing a trend here, and it is worrying. There are many universities that are concerned about their financial position this year and many that are looking to the future and seeing a very precarious situation in years to come, so I do not think that we can be complacent about this at all. The funding of higher education is a very difficult political issue for everyone: this is not just difficult for one party but for everyone, because it is very hard to resolve.
I still have some concerns about the marginalisation of the QAA and it being pushed out of this situation. The international reputation of our universities is desperately important and one of the reasons they are such big earners for this country. We have had some reassurance today about better relationships in the future and about a better role for students in terms of consultation, and those are to be welcomed, but there is a very long way to go before we have a satisfactory situation here. As I said in my earlier remarks, I am very keen that the committee should return to this subject and monitor what is happening in the future. That would help in having better regulation and a better balance and partnership between universities and those who are regulating. In the meantime, I beg to move.

Motion agreed.