The Office for Students is failing to “get a grip on the long-term systemic challenges” facing English universities, while the financial sustainability of some institutions is being “put at risk” by dependence on overseas students, according to MPs.
The House of Commons Public Accounts Committee has published a report on the financial sustainability of the higher education sector after a short inquiry that heard from the Department for Education and its representatives.
“We are not convinced that the OfS has made sufficient progress in getting a grip on the long-term systemic challenges facing the sector and individual providers, meaning that financial pressures risk harming students’ experience of university,” the PAC says.
These pressures include “pension fund deficits (and predicted rises in employer contributions), inflation and rising costs, a continuing freeze in the cap on student fees rising more quickly than income, the impact of changes to loan repayment terms and further uncertainties arising from the impact of changes to loan repayment terms and potential policy reforms following consultation on, for example, minimum entry requirements”.
“The OfS relies heavily, although not exclusively, on financial metrics to identify risks to providers’ financial sustainability and has designed a regulatory approach that does not involve routine discussion with individual providers,” the report says.
Without “an integrated model that it can use to understand in a systematic way the combined effects of different pressures”, the OfS “risks lacking the information needed to spot, and act on, early signs of distress in vulnerable providers”, it adds.
Meanwhile, “despite a background of deteriorating financial health of an increasing number of providers,” the DfE “is not effectively holding the OfS to account”, says the report.
“The financial sustainability of the sector has been declining since before the pandemic, evidenced most obviously by the fact that the number of providers with an in-year deficit increased from seven (5 per cent) in 2015-16 to 80 (32 per cent) in 2019-20,” it adds.
The PAC also says it is “concerned that the financial sustainability of some providers is being put at risk by their heavy dependence on their ability to continue growing overseas student numbers”.
“Many providers’ medium- and long-term financial forecasts assume continued growth in student numbers, particularly overseas students” and there are “risks associated with an over reliance on international recruitment which may not align well with the UK’s wider geopolitical interest”, it continues.
In addition, the DfE “failed to adequately assess the current and future financial impacts on providers of disruption to A-level assessments”, the PAC says.
The use of locally assessed grades in place of A-level exams during the pandemic “led to substantial grade inflation”, expansion by high-tariff institutions, but lower student numbers at some medium- and low-tariff providers. The DfE “had not considered the impact on those providers that would become undersubscribed”, says the PAC.
Dame Meg Hillier, the Labour MP who chairs the PAC, said: “The A-level fiasco of 2020 and grade inflation have a long-term impact on higher education, adding to deep systemic problems in the financial sustainability of higher education. The number of providers in deficit rose dramatically in the four years up to the onset of the pandemic.
“Too many providers are too heavily dependent on overseas student fees to maintain their finances, research base and provision – that is not a satisfactory situation in a sector that government is leaning on to boost the nation’s notoriously, persistently low productivity.”
Recommendations from the committee include that the OfS “should write to us by the end of July 2022…setting out the actions it will take to increase its understanding of the sector and pressures on providers – and how it will demonstrate to universities and students that it has done so”.
Working with the OfS, the DfE should “establish a complete set of robust, published performance measures and targets, including structured feedback from providers, and use these to hold the OfS to account for its effectiveness”.
The DfE should also “set out what it considers to be the risks to achieving the continued forecast growth in overseas student numbers universities are relying on for their future financial security, and explain how it is mitigating those risks”.
Susan Lapworth, interim chief executive of the OfS, said: “There will, of course, be variation in financial performance between individual universities, and it is important to remember that each institution is responsible for its own sustainability. If any higher education provider registered with the OfS runs into financial difficulties, the OfS will take steps to protect students.”
She added: “The committee is right to flag issues which pose continuing financial challenges for the sector. We continue to engage with a small number of providers where the information we hold suggests concerns about their financial position. This engagement is underpinned by our expert understanding of the wider financial and policy context in which universities operate.”
A DfE spokesman said that “despite the challenges faced by universities and colleges in recent years”, recent reports from the OfS and National Audit Office “make clear that overall, the sector remains financially resilient”.
He added: “Higher education is a key part of our skills revolution, which is why we have set out reforms to boost the sustainability of our world-class higher education system, including ensuring the student loan system is fairer for both students and taxpayers. This is backed by nearly £900 million to support teaching and students including the largest increase in government funding for the sector in over a decade.
“We are determined to drive up quality in higher education and the OfS have recently launched the first wave of a package of boots-on-the-ground investigations that we asked them to deliver, focusing on ensuring students receive sufficient face-to-face contact hours and are on high quality stretching courses that are assessed rigorously and fairly.”
