I welcome everybody to this public oral evidence session of the Education Select Committee. The session this morning is the final oral evidence session in our mini-inquiry on higher education and funding: threat of insolvency and international students. We are pleased to welcome as our witnesses this morning the Minister for Skills, Baroness Smith, the Chief Executive of the Office for Students, Susan Lapworth, and the Director for Higher Education Oversight in the Department for Education, Patrick Curry. I will ask our witnesses to introduce themselves and to make any opening statements they would like, starting with Baroness Smith.

My name is Jacqui Smith. I have responsibility as Minister for Skills for higher education, further education and skills, sitting in the Department for Work and Pensions. I do not need to make an opening statement. I am happy to cover the points that I want to make in response to your questions.

My name is Patrick Curry. I am the Director for Higher Education Oversight in the Department for Education. I have responsibility for oversight of funding and regulation of higher education in England.

I am Susan Lapworth. I am the Chief Executive of the Office for Students. That is the independent regulator for higher education in England. One of our important roles is to monitor financial sustainability, and I am happy to talk about that as you would find helpful.

Thank you very much. I will begin our questioning this morning. A week ago, members of this Committee were at Warwick University taking part in a private roundtable discussion to allow universities the opportunity to give evidence to us on a confidential Chatham House rules basis. During that roundtable we heard that a provider could collapse before the end of the year. Given that we are in late November now, that essentially was a warning of a potential imminent collapse of a higher education institution. Is that your understanding of the urgency of the situation facing some of our universities, Minister?

I do not think I would necessarily say before the end of the year that there is an imminent collapse, no. I would certainly expect that if that vice-chancellor or that university had been in the room talking to you as part of the private roundtable they would also have been talking to us, they would have been talking to the Office for Students, and we would have a clear view of the situation that they found themselves in. It is undoubtedly the case that in order to deliver our ambition for a world-leading and financially sustainable higher education sector, which we set out in the “Post-16 Education and Skills” White Paper, we need to bring greater financial stability to the sector, not to respond only to individual sets of circumstances, but to put right some of the decisions that were made by the last Government that have led to a real-terms fall, for example, in tuition fee income to universities. That is why the Government have committed to increasing tuition fee caps in line with inflation. It is why through colleagues in DSIT the Government have committed to reforming research funding. The Secretary of State for DSIT made announcements yesterday about the quantum of research funding, much of which would support universities as well. We also made clear in the White Paper that while funding is important, so is the strategic decision making and shape of the higher education system as well. That is why we set out a direction in that White Paper for a system built on specialisation, efficiency and strong governance. We know that this is something that the sector needs to play a leading role in, particularly in governance and efficiency. We have been working closely with and have been encouraged by the work that has been happening in the sector around, for example, Universities UK’s Transformation and Efficiency Taskforce, the work to improve the governance of universities led by the Committee of University Chairs, and the ability more easily through the development of benchmarking and so on for universities to be able to compare themselves and to make the necessary strategic decisions in order to safeguard their financial position. They now have certainty for the next period and, when we legislate, permanently about the increase in tuition fee caps upon which they will be able to, I think, plan more efficiently and more strategically than has been possible for them to do up until this point.

If a university did reach the point of insolvency, what would the Government do?

First of all, I do not think that you suddenly wake up one day and you are in insolvency. This is not something that would happen without there being a period of time in which the OfS would be analysing the financial situation that the university found itself in. We would be working closely with the OfS to understand the situation that that university found itself in. We have been clear about this. While we would not intervene in the interests solely of protecting a provider, we would want to protect the interests of students, taxpayers and research. If a provider were at risk of unplanned closure, we would work with the OfS, we would work with the provider, and we would work with other Government Departments in order to ensure that students’ and taxpayers’ best interests were protected. Of course, it is the case that some providers have exited the market already. Schumacher College and Spurgeon’s College exited the market in recent years without Government intervention. I think it was in 2022 that ALRA, the Academy of Live and Recorded Arts, also closed and the Government at that point supported students to be able to transfer.

It is fair to say that all those providers were very small, albeit that the impact on those directly associated with those institutions would have been big. They were not major impacts within the local economy, for example. They were not organisations that could be considered to be anchor institutions within a very wide area. Dundee might be more appropriate to consider as an example of a major institution that has hit significant difficulties. The Scottish Government stepped in with financial aid to keep the University of Dundee going, at least in the short to medium term. Would the UK Government consider such an intervention if a major institution in England were to hit a similar set of issues?

As you have identified, the point here is the principle about the support for students, the support for taxpayers and the support for research. The issue is regardless of the size of the provider. Yes, of course, our universities play an enormously important role in growth, in local economies, and as employers. The distinction is in the objective of what your intervention would be about. As I have said, yes, the UK Government would and in smaller cases have intervened in order to support students and would intervene to support important research or to protect the interests of taxpayers. That might take a whole range of different things that the Government might consider doing. It might be, for example, supporting preparations in order to support students to transfer to other courses. It might be considering potential partnerships for a university if it was in trouble. It might be discussing relevant operational issues that might be having an impact on the cash flow of a university like student loan payments. Those are things that the Government would consider doing. However, the fundamental point here is the reason why universities are facing these challenges now is because of a failure to maintain certainty for universities about their funding stream from tuition fees. This Government have now given certainty to the higher education sector for the next two years and then after that in legislation about the index-linked tuition fee increases. That enables universities to think strategically about the decisions that they need to take now. There will need to be transformation. There will need to be thinking about efficiency. There will need to be consideration of collaboration, something that we set out very clearly in the post-16 White Paper that was something we wanted to see more of in the system now. Universities are and will need to think about all those things. They will need to think about what their particular strengths are, how they specialise in those, how they then work across the system in order to achieve efficiencies and to make sure that choice remains for students. All those are things that we, because of the decisions that we have taken on tuition fee increases, have provided the basis for universities to be able to do.

You have spoken about how Government decision making might kick in with regard to a number of important things: the protection of students, the protection of research and the protection of taxpayer interests. How are you thinking about the ways in which the Government reconcile their stated commitment to driving economic growth as the top mission priority for this Government with the risk of a university potentially closing, in terms of its consequences for the local and possibly even the regional economy and for job losses in a local area? Is that important economic role also something that would weigh into Government decision making about how and whether and to what extent you would provide support in the event of risk of insolvency?

Yes. It is certainly the case that particularly large universities have an enormously important role to play in their local, regional and national economies. That is the reason why our higher education sector makes such an important contribution to economic growth in the country. Yes, that is part of the reason why we have thought hard since coming into government about how to provide the certainty of income through the tuition fee increase for universities to be able to make decisions that will enable them to be more financially sustainable. It is why we have asked the Office for Students to pivot its priorities towards focusing more on financial sustainability and it is why we maintain, along with the OfS, a very close eye on the financial position that universities find themselves in, in order to be able to intervene in the ways that I identified short of a point where a university was risking, as you say, exiting the market and thereby removing the contribution that it is making to economic growth.

Thank you. Before we move on to other questions, I will ask Susan Lapworth to give us an overview of her understanding of the precarity in the system, particularly the extent of the risk that a university may reach the point of insolvency in the near term.

The financial picture for the sector remains challenging. I think that is clear. I do not recognise the picture you painted at the beginning of a significant university failing in this calendar year. That is not at all what I expect to happen and that is not what we can see. We published our most recent detailed assessment of the sector back in May and then an update this month, where we were looking at the financial consequences of the recruitment that had happened in September. In May we reported a continuing decline in financial performance for the sector as a whole, so reductions in surplus and liquidity and cash flow. Then we saw the sector itself forecasting an improvement over time, although perhaps a slower improvement than we had seen in earlier forecasts. When we looked again in November we could see some improvement in student recruitment, so UK students and international students up a bit compared to the same point last year, but down on the forecasts that institutions had made. In aggregate, the sector has not achieved what it expected to in student recruitment. Our modelling based on that most recent picture shows an increase in the number we expect to report deficits, so around 45% in the current year, and an increase in the number reporting low liquidity, so around 14%. That is a slow deterioration. Importantly, that does not take into account all the actions that institutions are taking now to resolve those financial challenges, so the modelling cannot account for that. Nor does the modelling account for what we see as significant variation across the system, different patterns of financial performance for different types of institution but also for different institutions within those types. In summary, there are significant challenges for the sector, as the Minister says—some light at the end of the tunnel in terms of more confidence about income streams into the future, particularly on tuition fees, but there is still a reasonably sized group that are grappling with quite significant financial challenges in the medium term.

How confident are you about the accuracy of the information that you have? The example that I quoted at the beginning I believe was an institution that has been approached by another institution about a merger, which was doing its due diligence into that institution. This was not a hypothetical and it was not hyperbole, we believe. It was information that was shared on the basis of an organisation digging into the financial situation and concluding this one cannot go on. I just wonder how confident you are that universities are being frank and up to date with you with the information that they are sharing.

Yes. The financial data that we report on publicly can be quite lagged. Our May report, for instance, relates to data from the previous financial year. What we do routinely is now updates through the year. We are just concluding a data update for November and that is asking institutions to tell us particularly about the current year, so their current view of the current year. That will give us a “now” view of the situation. We then deploy our modelling to make sure that we can identify likely risks and emerging risks, and that will prompt us to go for conversations with individual institutions. That is happening all the time for a reasonably substantial number of institutions and the more concerned we and they are about their particular circumstances the more frequent and more focused those conversations are. If there were an institution in the situation that you have described, we would be having regular conversations with the leadership of that institution. We will have done work on student protection planning with the institution and we will make sure that we, the institution and Government in some circumstances really understand what the options are. You are right: sometimes options might involve mergers, they might involve other parties supporting a provider, but we would expect to be on top of that as those situations develop.

What you have identified there, Chair, is a university or possibly two universities acting precisely to avoid insolvency.

Yes. It did not sound like it was going too well. I will move to Caroline.

If a university does declare insolvency, what actually happens under the current legal framework? Who takes control and what protections currently exist for students and staff?

First of all, to reiterate what I said previously, as a starting point higher education providers are independent of Government so the decisions and the immediate monitoring of their financial position would be the responsibility of governing bodies and the leadership teams of providers. They would also, of course, need to have awareness of the legal basis on which they are incorporated, which might determine the route that would be taken, and to understand what it would mean for students should they face failure. We set out in our evidence to the Committee the various legal forms and methods of incorporation that the higher education sector across England breaks down into. The first thing to say, as Susan has been very clear about, is that that would not happen without there being a period of time in which the OfS and the Government had been working with that institution and potentially putting in place some of the interventions that I talked about in the previous answer. Given that we have said it is important that students are safeguarded, it may well be that the OfS might decide to issue a student protection direction in order to protect students’ interests during the course of that process. It might be as well that we would be looking at how to safeguard the research that was within the institution. In an insolvency scenario, our priority as Government would be, as I have said, to protect both students’ and taxpayers’ interests as well as working with DSIT on the UK’s research capability. That would obviously depend on the specific circumstances in which the institution, the provider, found itself. It is worthwhile emphasising as well—because I know that you have had evidence about the nature of insolvency—that I do not necessarily agree with some of the evidence that has been received around the suddenness or the terminal nature of insolvency or, in fact, of compulsory liquidation. I think we have worked hard in the Department to understand the interrelationship between the legal status of higher education providers and the nature of the insolvency process. For example, were an organisation to enter into compulsory liquidation, we believe that insolvency legislation permits continued trading during that period of compulsory liquidation. It would mean, therefore, that we would be able, as I have described, to support students, to support research and the important capacity of that provider during the period of liquidation, and to make sure particularly that students had the opportunity to be supported through a teach-out of their course, to be supported to move elsewhere, and to have their records and their achievements protected. Those would be the things that we would want to make sure would happen in that case. To reiterate it once again, we do not think there is a university in that position at this moment.

To clarify, there is not any framework or legislation that exists at the moment that says we will protect students in this situation. You mentioned Schumacher, which just happens to be in my constituency. There were international students who had given up accommodation, given up their jobs, moved to the UK, arrived in the UK and were told on arrival that the course was not going to happen and there was no course. They had literally changed their lives to come and do a course. It is a very small institution, but to me it is concerning that people, especially international students who are making a big decision to come to the UK, which involves a lot of expense and giving up jobs and potentially moving families, can arrive and then find that the course does not exist or six months later the course ends. What protections are there for those students, if any? If not, do you think there should be some in a legislative way so that students can be confident that if they come here to do a course, they will be able to see that course out to the end?

It depends on what you mean by “in a legislative way”. I think that I have been pretty clear that our priority as Government and as OfS is supporting students in the event that this would happen. That could include the student protection direction that OfS could place on the institution, which would require it to take particular action. In the case of international students, I quite understand that must have been a difficult and distressing position to find yourself in as an international student. It is possible for international students to be transferred from one institution to another as part of their protection. It is possible for the Home Office to transfer the sponsorship from one institution to another. It is already the case that you could have a 60-day period in which you could sort out your visa so that you could stay in the country in order to do your studies, and the Home Office would consider increasing the acceptance ability, the sponsorship ability, for another institution to be able to take international students from one institution into another.

Finally and quickly on that, is it up to the student to find another course or is there any mechanism for the collapsing institution?

Susan can tell you what the details might be in a student protection direction, but no, that is precisely the thing that we would want to support students in being able to do. First of all, you might want to support an institution, as has been the case in at least one case, to teach out that particular course so that the student was able to complete their course. Or you might want to work with the institution and other institutions to transfer students from one course on to another.

My questions are for Susan Lapworth. The Office for Students’ written evidence stated that “the current legislative and regulatory framework means it would be unlikely that the OfS could secure reasonable outcomes for students if a large multi-faculty university closed.” This echoes what we heard in our roundtable that student protection plans are not sufficient protection and it would also be impossible to transfer large numbers of students to another part of the country. On top of the students having their education disrupted, of course, we heard that research continuity, employees’ pensions and the supply chains of a large university will all be unsupported. What needs to change?

There are two different aspects to this. The first is what the OfS itself can and cannot do just now. The second is what the wider system, as the Minister has just been describing, is able to do in these circumstances. We have just talked about the wider system and the use of the insolvency mechanisms. Let me talk for a bit about the OfS specifically. Currently, we do not have powers and funding to intervene to prevent an institution from failing—that is not our role—nor do we have sufficient tools to be confident that in those large, complex cases we would be able to intervene to secure reasonable outcomes for students. We were talking about a smaller provider a second ago and that for various reasons was challenging, but for smaller providers it is easier for us to use the tools that we have. We talked earlier about student protection directions, so requiring the provider to take certain steps to plan for the impact on students and to mitigate that, mapping its courses to potential other courses at other institutions for students possibly to transfer, thinking about how it might teach out, thinking about how it will secure students’ academic records so they have a transcript that they can demonstrate to another institution their academic achievement, and so on. We have experience of making that work reasonably well for small cases. We think the complexity if we were talking about a large multi-faculty university would make that challenging. Getting ahead of the planning helps. Getting an institution to think hard about the prospect of closure and all that entails is quite hard. They are focused on trying to save their business, save their institution, and they want to focus, rightly, on those financial issues, and we are pushing them to think about the student protection issues. We can get so far down that path before our regulatory tools stop having bite in the real world. The closer you get to a crisis point as an institution the less concerned you might be about future regulatory action for not co-operating with the regulator. That makes our tools and our ability to drive student protection planning limited in some scenarios. Where we come back to then is where we started. Working at a system level to improve institutions’ ability to grip their finances and have effective governance, to think ahead about scenarios and stress test the financial plans and the actions they will take to respond to financial risk is critical. That is true for everybody in the sector. Where we do get those cases that are of particular concern, working collectively in the way that we have described to make sure we understand what the options are, the choices Ministers might have for intervention and whether or not they might choose to intervene in individual cases, and then deploying the solutions that we have talked about through the insolvency process in extremis. Again, I stress that we are not dealing with any cases just now that are right at that very sharp end. The conversations are all much further upstream than that.

Thank you. We have had private higher education providers become insolvent in the last few years. What lessons can be drawn from those experiences? In one instance, the institution went into immediate liquidation with closure and restricted access to premises. In another example there was a structured exit instead so students were able to finish their tuition time there. What lessons have been learned? Then I have one small question for the Minister as well on this.

The lessons are about acting well in advance of issues becoming acute. That is the first thing to stress. I would also stress that financial sustainability is the responsibility of the people running an institution. We ought to be very clear that that is where the primary responsibility lies. What we have learnt is that early engagement on student protection planning is important, not leaving it until things look pretty difficult, starting those conversations early and encouraging institutions to come and talk to us. We have learned that we should be prepared to push quite hard on requiring quite detailed student protection planning in those circumstances. I talked a second ago about mapping of courses and identifying other potential institutions that might take students. More recently, we have started earlier engagement with those potential receiving institutions. We have pushed hard to make sure student records are secured. Everything that we can do we are trying to do earlier than we perhaps were seeking to do about two years ago.

Thank you. Baroness Smith, what incentives are there now for universities to partner, merge, take over those institutions that are on the brink of financial collapse?

First of all, what I think is important about what Susan was saying is that this is precisely why when we came into government we asked the OfS to pivot more towards monitoring the financial sustainability of universities, to have more clarity on the detail that Susan has been able to describe about institutions, so that in light of the examples that you used we are not going to be in a position where we wake up one day and a university has entered into compulsory liquidation and nobody knew that that was going to happen. There is much more opportunity for the upstream work that both of us have been talking about. On the point about collaboration, as I said previously, never mind financial sustainability, it is actually a better thing for the system for institutions to collaborate more than they have been encouraged to do previously. However, as we have seen through the work that UUK has done on its Transformation and Efficiency Taskforce, it is also a way that universities can become more efficient, can make sure that they are removing duplication, can work together on things like shared services and infrastructure, can leverage their procurement and purchasing power, can support digital transformation, can make plans to enable there to be more choice for students, and in some cases—we have seen the announcement, for example, of Greenwich and Kent—it might well make sense for them to think about and to develop a merger in order to safeguard their courses, safeguard their future and safeguard their students. We support that. While that was a decision for those two universities, I have met with their vice-chancellors. They have talked to me about the approach that they are taking and it is something that, as we have said in the White Paper, we support as a direction of travel. We would expect to see more consolidation and more formal collaboration in the system in the future. That does not always mean a merger, but there are all sorts of ways that universities could be working more closely together. It is something that in DSIT Patrick Vallance and I have talked about in terms of research collaboration as well, where there is real benefit to be had.

Before I go to Chris, can I just ask Susan Lapworth whether there are institutions that have notified you formally, as they are required to do, that they have fewer than 30 days of liquidity? If so, how many?

I am going to struggle to find the number quickly. Yes, that is a routine reporting obligation. It does not necessarily signal acute financial difficulties. We would look in a more rounded way at the circumstances for an individual provider. We have a cluster of institutions where we are monitoring them in this context on a two to three-year horizon. I will find the number as we are talking.

Yes, the numbers will be helpful if that is okay.

I think it was important for the Government to set out that vision, that view of the higher education system, which had a much stronger emphasis on the benefits that collaboration could bring than was the case previously. To your starting point, the whole premise of the reform programme for higher education that we set out in the White Paper is on the enormously important contribution that higher education makes to the country and to the communities and economies that it operates in. That is the reason why we have taken the decisions that we have done in order to safeguard the future financial sustainability of the sector. Yes, we think there is real benefit to be had from collaboration. I mentioned the ability for universities to collaborate together on research. I think there are real opportunities where there are potential cold spots in particular subjects for universities to be thinking about how they work together to ensure that there is more choice for students in a particular area. Some of the efficiencies that I have already talked about I think can be gained from working together. In some cases this will be about safeguarding the financial future, but even where universities are financially healthy, we envisage a system in which there is much more collaboration and joint work going on. I think it is the responsibility of Government to set that out as the vision that they have for higher education, but I think it is the responsibility of higher education, which values and frequently tells me how important its autonomy and independence is from Government, to consider—I do not want to direct from Government what universities should specialise in or who they should collaborate with. I think that is the job of the leadership of universities to think like that. When I started this job, vice-chancellors would often say to me, “The emphasis has all been on competition. That is the way that regulation is set up. That is what the Government have wanted us to do”. I think we have sent a pretty clear message that that is not what this Government wants the sector to do and it is not the way that we will think about regulation or the support that we are providing.

Yes, although I think that there are a variety of things that you could look at as evidence that a university was taking its civic and regional growth roles seriously. You could look at the extent to which it was engaged in the local skills improvement partnership, where we have changed guidance to make it more explicit that HE needs to be part of that. You could look at the extent to which local employers and businesses benefited from the research that was happening in local universities. You could look at the support that was being provided by universities to disadvantaged students in their environment to be able to benefit from what was happening in the university. You could look at the extent to which the university was working with the local authority on mitigating pressures on housing, for example. There are organisations that have measurements of the civic role of universities. Not least because there are a whole range of universities that grew out of their civic responsibility and their area in the first place, I do not think it takes too much thinking from leadership of a university to think about how they could be maximising the contribution and the partnership and the relationship that they are having with their local area.

Exactly.

Minister, you mentioned just now reorganising delivery to create efficiency savings and you specifically mentioned mergers, Greenwich and Kent. We have heard from university representatives that mergers like this have at least a year’s lead time and a call for support from Government with the planning and a transformation fund. Have you looked at the need for a transformation fund to support universities to make these savings?

This comes back to the point that I made in response to the previous question. I am not convinced that it should need a Government bung in order to take your strategic responsibilities to your future financial sustainability and your partners seriously. That is not to say that I don’t think Government has a role to play in thinking through the regulation, in encouraging that, in working with universities on specific issues, including funding, that might prevent change from happening. However, we are not in a position where we want to make a significant fund available and say, “This is what you will need to bid into in order to transform” because I think that misunderstands the nature of what we think the sector should be doing more broadly.

On that point about planning support, you do accept that that is a position where the Government may be able to step in and help?

I think that the sector has done important work themselves. The UUK Transformation and Efficiency Taskforce, which we supported, has given some good and important models. It has led to KPMG and Mills & Reeve publishing a report called “Radical Collaboration: A Playbook”—on everybody’s Christmas list, I am sure—that details the structural possibilities open to higher education providers. It has led us, for example, to work alongside the Competition and Markets Authority to make sure that there is clarity about the ability for universities to collaborate and work together in a way that some have sometimes suggested they felt nervous about or they thought the CMA would not allow them to do. Where there are issues that relate to regulation, ongoing support and guidance we will be very much wanting to lean into supporting universities in being able to do that.

Do you see this as a way that universities can protect more of their courses? We have seen just recently another university announcing a wave of courses shutting down, which is obviously devastating for the students on those courses and potentially makes it more difficult to study some valuable subjects. Do you see some of these mergers and reorganisations as a way of protecting some of those smaller subjects as well as developing better financial stability?

Yes, absolutely I do, along with the financial certainty that we have provided through the tuition fee increase. I think that universities that make decisions about closing down courses without looking to ways in which they could work together with others nationally or regionally is wrong. I think they should be thinking first about how to protect choice and subjects for students. That is, of course, particularly in important and high-cost courses, why the Government through our strategic priorities grant also provide additional funding for courses that are more expensive to put on.

Minister, we heard at the roundtable that the sector needs support for strategic advice, oversight and brokering some of the more radical conversations. What role do you see Government playing in that and would you support a higher education commissioner?

This comes back to the point that I made earlier. The higher education sector in this country, they tell me, pride themselves on their autonomy and their independence. It has been quite an important feature of our higher education system. With that comes responsibility for thinking strategically about your own organisation and your relationships with others. That I think is the first responsibility. In the White Paper, we have talked about support in order to, if you like, map the market. I do not think that goes as far as a higher education commissioner, but I could see a more central role that might enable an analysis of where there were gaps and where it might be beneficial for there to be collaboration in order to fill those gaps. That I can see a role for.

Just to add on that point, as the Minister says, in the White Paper we talk about the need to develop a more strategic overview of what the higher education market looks like in a particular region, so a market monitoring function, which is recognising, I think as the Minister said, the need to have a more collaborative and joined-up vision of where the sector is headed. That data and information can then be used in those regional conversations to shape the decisions of individual institutions to make sure we have more collaborative and joined-up offers for students in those areas. As the Minister also says about practical examples, where providers come to us and ask for help and advice, we will, of course, always offer it. With lots of institutions like Kent and Greenwich, we are working with them to make sure that we are removing the practical or regulatory barriers to making those models a success.

The same question to Susan in terms of safeguarding the interests of providers as well as students and having that independent process.

I think there is good progress in the sector itself on these issues. We have heard about some. I noticed this morning that Advance HE, which is a sector-wide support agency, has published a case report on a merger between Anglia Ruskin University and Writtle University College, so lessons learned. There is more scope for those cross-sector agencies to build their expertise on some of these complex challenges and then to deploy with the sector solutions that build capacity within individual institutions to tackle their challenges. We are engaged in those conversations now, so to what extent we can deploy our understanding of the issues and the challenges to help the sector in driving forward the solutions we think are needed. I agree that the sector has to own this conversation. Autonomy is important rather than just something we should pretend is important in this sector. Anything we can do to support autonomous institutions and an independent sector to tackle these issues we are willing to lean in to do that.

Do you have that figure on 30 days of liquidity?

I will give you a better sense. Liquidity is just one issue. When we look at the data in the round and the other things we know about individual institutions, we generate a risk category for each of them. Towards the top we would be looking at a provider that is actively exiting the market. There is one of those just now, one we have talked about that is in the public domain. If I then tell you about the categories that sit below that, the second category down is where we are concerned about the risk of exit within the next 12 months and then the one below that is a two to three-year horizon. Currently, across those two categories we have about 50 providers in total. Importantly, there is quite a split between large ones and small ones, so around 30 of those are the smaller providers and around 20 are more than 3,000 students. We think about them as large in this context. The pattern generally is that the smaller ones are those that we are more worried about than the larger ones. That gives you a bit of a feel for the scale of the activity just now, the scale of conversations and engagement we are having, and the weight of that concern tends to be more towards the smaller ones as we have talked about rather than the larger ones.

In that top category, that 12-month category, how many?

Twenty-four in total; seven that I would consider to be large, so over 3,000 students, and 17 small. Again, I am going to stress that that risk assessment is us being pretty conservative to make sure we are on the front foot and we are engaging and having all the right conversations with each institution and the wider range of stakeholders. We are not saying that we are expecting any of those to exit in a disorderly way imminently.

It would be wholly irresponsible if anybody did say that.

Okay. That is clear. It is also a relatively high level of concern. About a third of all—

It is a high level of engagement, yes, and a high level of understanding of the situation that the sector finds itself in, yes.

And a high level of risk by the Government’s own measures. If those are in the highest risk category, they are by definition institutions that are carrying a high level of risk, albeit that you might be telling us that risk is being appropriately managed.

That is the key point. The engagement that we are having is very tailored to the particular circumstances. We have in some cases commissioned deep-dive expert analysis of a provider’s context, of its turnaround plan and the credibility of the plan, and its ability to deliver that in practice. We have generated good understanding of the steps an institution is taking. Often institutions find that helpful. That is helping them to test their plans and the implementation of plans, sometimes leading them to adjust. I am confident that we understand what is happening in those providers. We have deployed student protection planning and student protection directions where we need to in those cases. Only a subset of those will have live student protection directions in place where we are actively pushing planning. I am much more confident than I would have been sitting here perhaps three years ago that we really do understand what is happening here and that the right things are happening within institutions and then among the broader stakeholder group.

That is helpful. It nevertheless is of concern that more than a third of all our institutions are in those top two higher risk categories according to the Government’s own assessment of risk.

That is why, as the Minister has said, we have pushed our focus on to financial sustainability, intervening at a system level to try to stop these circumstances arising, and then focusing on the ones where we know we need to.

How many institutions do you have registered with you, Susan?

We have 420-ish registered and a large chunk of those are further education colleges, so slightly different.

Yes, so it is different, yes.

This is the real core bread and butter of our work to make sure that this subset, this smaller group, is properly understood.

About 130 universities, am I right about that?

Yes, although the population that we are talking about here is pushing towards 300, I would say, so not just the ones that we would all recognise if we talked about them, but a much broader, bigger population. If you are thinking 100 or so universities, you need to think slightly broader than that in this context.

Minister, you have spoken quite supportively in this session about those universities that are seeking to do things such as share backroom services as a way of reducing their costs. What we have heard is that when they look at doing so the imposition of VAT on those separate organisations then becomes a barrier. Would you agree that that is a barrier to those that would otherwise be pursuing quite a sensible potential solution? It is taking the early action that we have all agreed is necessary. What is your view on VAT?

That is not something that has been raised with me as the primary thing that is preventing it from happening. Of course, as we are speaking a day before the Budget, it is not something that is within my power to change either.

Would you be willing to raise this if, as we heard from a number of institutions, they were to make their case for that? I appreciate that it is very last minute for this round, but we are talking about long-term sustainability and if they are going to be looking at that over the coming years and that becomes a barrier.

I am happy to raise anything that will support our higher education sector for all the reasons that I have already spelt out, but I suspect the Chancellor might in exchange comment on the support that she has provided for the tuition fee increase, which is a student investment but is also a taxpayer investment in the future of higher education.

Minister, we have already talked a little bit about collaboration and I just want to pull on that a bit more specifically. In the White Paper you set out that the Government would clarify how collaboration between providers can happen within the existing legal framework. Do you have a timeline for when that clarification will come?

I cannot say we will publish something at a particular date, but it is a live discussion and it happens both in thinking about and looking at it broadly but also, as Patrick suggested, in individual conversations that we are having with institutions about how we can support them in the changes that they want to make.

By the nature of this, as the Minister said, it is an ongoing conversation. When institutions come to us with regulatory or other barriers, in those collaborations we will, of course, seek to address them. I know that we and the sector itself are having a conversation with the Competition and Markets Authority, which I think is very constructive. Lots of guidance has come out already from the Competition and Markets Authority on those issues. In a similar vein, I do not think it is a one-stop shop as such; I think it is an ongoing conversation.

The CMA has told us that some co-ordination on course provision, including when considering closing particular courses—that is what we were talking about earlier, Minister—could raise competition concerns. I would be interested to hear more about your conversations with the CMA and whether ultimately you might be looking at addressing some of these challenges through potential future legislation.

As Patrick says, the CMA itself has published resources setting out areas where collaboration is beneficial and where it poses no competitive law risks, so being not just permissive but almost encouraging in doing that. It has been working with the sector to understand concerns. It has been clear, I think, on points that providers should consider when they are thinking about collaboration. It has specifically recognised that things like joint purchasing, sharing services and infrastructure, supporting staff and student travel, and discussions about mergers are unlikely to give rise to competition law concerns. I think that it recognises that where providers want to collaborate on course provision that is a more complex area, but I do not think that it is impossible to do. It is thinking about what might be necessary in order to ensure that what is happening is not a limiting of choice for students, because that is obviously what is at the heart of CMA considerations. The CMA would also consider what a counterfactual would be to any collaboration and if that counterfactual were that that course does not exist at all, that is not promoting choice for students. I think it is a bit more nuanced than simply it is not possible to collaborate on courses.

You say complex but nuanced, not impossible.

Yes.

Do we need to make it less complex through legislation or other means?

Legislation does not always make things less complex, but I suspect that continued work led by us and the sector with the CMA is the way to work through this.

In conversation with a wide range of different universities, you get wildly differing understandings of the constraints imposed by the CMA, so that need for clarification from the Government should be treated as more than just a case-by-case discursive matter for conversations with individual institutions. Across the sector there is such a widely differing understanding that they are struggling with that as they are grappling with these very live issues about who should carry on providing nursing in Nottingham, for example.

That is exactly why the CMA has produced resources, blogs and explanations for the sector, relatively recently, I have to say. That postdates some of the more high-profile concerns that the sector have had about collaboration.

Susan, does the OfS have a perspective on this, given your remit over governance?

Yes, we are also in ongoing dialogue with colleagues at the CMA and are very happy to help the CMA and the sector talk to each other in productive ways. I agree that it can be complex and care is needed, but it is entirely possible for institutions to do the things that we are describing here and stay the right side of where the CMA would draw the line. You mentioned governance, and that is an important backdrop to all of this conversation. Some of the things that we have been focused on recently are how we might intervene as the regulator to drive up governance standards across the system as a whole. Some institutions are great at this, others not as good as they need to be in the current challenging environment. In the conversations that I talked about a moment ago where we are engaging closely with institutions facing particular challenges, frequently we would have concerns about governance and leadership. “How did you end up here?” is a good question. “How credible are your assumptions and your plan about how you will get out of this difficult question?” We see some who are on it and completely have a grip on the things they need to. Others still do not have the grip that we would expect, so we are working with others in the sector—I mentioned earlier the CUC’s review of governance and Advance HE. We will then think about the extent to which we need to extend our regulatory requirements for better governance. We will do that during the course of 2026, trying to work with the grain of the sector, but being clear that we have a regulatory role here. We have to set the standards and the norms and then be willing to hold people to those when they fall short. The first piece of work that we have done on this we have already delivered, which is tightening up our requirements for governance and also financial sustainability for new providers coming to register with us and coming into the system. We have tightened that market entry gateway so that we will be more confident that those coming in are not going to end up in these difficult circumstances. Now we will move on to those that are already registered, and how we best drive governance standards up.

I should have put on the record earlier that I worked for nearly 20 years as a university lecturer. How would you respond to the argument of Universities UK that in the short term the increase in tuition fees has been wiped out by the cuts to grant funding, the freezing of foundation year fees and increases in taxes, including employers’ national insurance contributions?

There is a range of different things there. On national insurance contributions, we understand the argument that the Chancellor used last year for the increase in national insurance contributions. Yes, universities, as not public sector bodies, have paid increases in national insurance contributions and there are other costs that universities, as with all employers, have faced. I do not think that that wipes out the significance of a tuition fee increase, the first since 2016. One of the important things to remember about that was, yes, last year we made that on a one-off basis, but what we have now done is to make that inflation-linked each year. Universities are getting a cumulative compound increase in their tuition fee income and a commitment by this Government to legislate for that to continue into the future. That is a certainty about income that very few, if any, other public sector or private sector organisations have.

Looking at the data that we got, Universities UK estimated employer national insurance contributions cost the higher education sector in 2025-26, £430 million, and the Institute of Fiscal Studies has estimated £319 million of fee increase. There is not much left, is there, after national insurance contributions?

We think that even in one year there was something left, but my point is that this is not just for one year. This is a continuous, compound, cumulative increase in tuition fees, after a period of nine years in which there was no increase in tuition fees. Is it wiping out the financial problem overnight? No. Is it a serious commitment by this Government to support the financial sustainability of higher education? Yes.

Turning now to governance of institutions and providers, there has been some criticism of governance. We have had reports into Dundee University, and the Secretary of State in May of this year wrote to the Committee of University Chairs saying that there needs to be an improvement in providers’ governance. I know that the Office for Students is looking at this; I know that it has said that there must be incentives for governing bodies to fulfil their functions properly. Susan, what incentives are you contemplating?

We talked about governance a little bit a second ago. I will start—we have said this several times already—with the basic principle that the institutions are autonomous. Their governing bodies are responsible for running an institution effectively, for having proper financial planning and control and a strategic view of where the institution is going and a credible account of how it will get there. So we start with the governing bodies. Any governing body ought to be thinking about the skills and the capability and the capacity it needs to deliver a sustainable strategic future. We would encourage governing bodies to think about who its members are, what expertise they bring and what their backgrounds might be. If you think about the current environment, you might find a governing body recognising that it needs members with turnaround experience, or experience of dealing with difficult financial contexts and plans. That might not have been the case five or 10 years ago. You might have not needed those skills, so understanding what the skills are is important. Also governance as a way of working. Sometimes we see very credible governing bodies with members with all sorts of important careers behind them, who seem not able to challenge in the way that we would expect in this context. They are not interrogating the leadership’s plans for student recruitment, for instance, and they are then signing off assumptions that are too optimistic and will not be deliverable in the real world. How governance happens and the role of a chair in particular to lead governors to do that, holding to account role properly, is key. We can see good work in the sector to try to drive up governance standards. We talked a second ago about the CUC’s work with governing bodies to refresh their code of governance, which I think will be important. Then, as I said a second ago, we need to remember that there needs to be at least a regulatory backstop here. What should we be requiring governing bodies to show us that they are doing and can do in terms of testing and so on and what might we then be prepared to do in terms of regulatory interventions where we think something is going awry?

Is that the incentive you are thinking of?

Yes. Regulation by sharp stick is perhaps not where I would start on this. I think that you have to have the ability to intervene and use those sharp regulatory tools where something has gone horribly wrong. For institutions in the sector, knowing that that capability exists creates an incentive. The softer work, though, is important here. Our engagement with the sector and endeavours to improve governance is key at least for the next little while, and at least for the vast majority of institutions that are trying very hard to do the right thing and governing bodies grappling with the current environment and its challenges. We are leaning into that more collaborative way of working on this just now.

To pick up on something you said there, you talked about there being a culture—I do not think you used this word—of fear challenging the leadership on financial assumptions. The independent report into what went wrong at Dundee University certainly said that there was a culture of fear and that people would not dare tell the leadership what was wrong with the financial projections, and that that was the principal reason for the problems that then went on to occur at Dundee University. It seems to me that there is a cultural reason why that is happening and not necessarily a governance reason. You can have excellent governance structures, but if your culture is all wrong, nothing will change. Is this really an issue of culture rather than governance?

I think that they come together on this issue. The role of a governing body includes holding the vice-chancellor and the executive team to account, and that has to be real and meaningful and quite sharp where needed. You can have a governing body being a critical friend too, but that challenge absolutely has to be there. Dundee is in Scotland and not within my remit, but if those things were visible to us in England, our conversation would be with the Chair of the governing body, and we would be wanting to interrogate how the Chair was generating the culture that you described that is needed, as well as the structures and the processes that sit around its business, which I agree are not quite the point in that context. The culture is important.

My question is on the financial pressures on the teachers’ pension scheme. The White Paper says that it will seek better understanding of the concerns with the teachers’ pension scheme. What is the Government’s current understanding of the impact on university finances?

I have talked to leaders, particularly of post-1992 providers, who have identified the pressure that the TPS membership is placing on their finances, so I recognise that. I have also spoken to staff representatives who are very keen to emphasise to me the value that staff place on their pension scheme membership. That is why we are looking and discussing with the sector and with staff representatives what we can do to support the sector with this particular challenge. I do not think that there is an easy way through this, given some of the conflicting needs and concerns that there are in this, but we are actively engaged in that discussion and thinking through all of the various options that we might be able to consider to support a particular subsection of higher education providers for whom this is, I completely recognise, a quite serious issue.

I am glad that that is being recognised and I appreciate the complexities around this. But would not the most straightforward approach either be to revalue the scheme on more up-to-date data than 2020 or to provide funding to the higher education providers, as you have done for schools and as the Scottish Government has for Scottish universities?

Those are two options. There are others, as you can imagine. On providing funding, that is not something that we have done for one part of the sector. It is not something that the Treasury has been particularly keen to enable us to do either, which is why there are other things that we will need to think about.

Would you contemplate amending the Further and Higher Education Act 1992 to remove the requirement for providers to have to offer membership to academic staff?

This is one of those areas where staff representatives have expressed concerns about the significance of their pension entitlement and where we would want to be very careful about eroding that.

Turning now to university research, there are a few questions on this, but not just from me. We know that grants from research councils are supposed to cover about 80% of the cost of research. However, that might have been true or close to being true 10 years ago when it was about 75%, but last year, 2023-24, it stood at 68.3% of the costs. Now universities are facing decisions about how much they spend on equipment, how much staff time they allocate to research and whether they do audit and compliance properly. We have heard from universities that it is now almost impossible to balance research integrity with balancing the books. Given that they continue to try to do this because they say it is the right thing to do, but do not think that they will be able to do it for much longer, do you have a response to this, Minister?

I have a response, but more specifically, the Department of Science, Innovation and Technology has a response, where the responsibility for research sits. Having said that, one of the important things about the reform programme that we put forward for higher education in the White Paper was that that was a joint DfE-DSIT piece of work, based on the recognition in your question that a university’s funding comes from probably one of three places, tuition fees, research and international students, and it is important that all of those work to enable you to fund properly. You are right, as the Government have said, that we need to work with the sector to transition to sustainable research funding models, including by increasing research grant cost recovery, as outlined by the UKRI in March. That is the reason why they have updated their terms and conditions to improve the sustainability of their grants by funding all equipment costs at 80% and raising the capital threshold by 150% and clarifying that they will not be asking for match funding. Yesterday the DSIT Secretary of State made an important announcement about the future of research funding, within which was the commitment to ensure inflation-linked increases in research funding for university. Our government-funded research commitment is at historically high levels now.

Yes, that is a welcome announcement on research funding. The White Paper sets out that the Government will incentivise a more strategic distribution of research activity across the sector so that they can ensure that funding is used effectively. What is the strategic goal behind this distribution?

To get into the detail of this, you probably need to talk to my colleagues in DSIT. However, what the Government have been clear about is that we need basic curiosity-driven research, and that the private sector consistently underinvests in that. That is why the Government need to continue to support it through their investment. We have been clear in the objectives that we set out for universities, that research is key to that pillar that we talked about earlier of universities in the higher education sector contributing to our mission to drive national growth to foster innovation and to continue our leadership in science and technology. That is why the Government are taking a new approach to how they manage their R&D funding. I have talked about the increase in funding that is coming from UKRI. Going back to the CMA point, we will also be making sure that there is the ability for universities to think more strategically about how they collaborate on research, for example. The CMA will be able to clarify the types of collaboration that the Government see as more beneficial there. Patrick Vallance, the Minister for Science, has also put a pause on the REF process, to be able to work with the sector to think about how research is evaluated. So there is both an investment and a range of thinking about how research can be delivered in a way that meets those objectives that we set out in the white paper, all of which is currently underway.

I do not want to hammer this point home too much, because I take your point that this is a predominantly a DSIT responsibility. But thinking about some of those trade-offs and what you set out in terms of aligning with the economic growth mission and with our desire to be world leaders in science and technology, where does that lead research in fields that do not as clearly align with those missions? I am thinking particularly in the arts and humanities, for example.

It is not an argument that the only research that you fund should be in industrial strategy-linked areas. I think that it is justifiable for the Government to say that we have an industrial strategy which is about promoting growth and we will ensure that we are supporting that through decisions that we are making nationally. But in a period where there are record levels of research funding, there is scope, and should be scope, for research in humanities, in the world that we live in, for all of the important reasons that we need humanities and arts.

In any given institution, it should be the leadership of the institution that considers the balance of funding, and should do that on the basis of the strong governance that Susan was spelling out and a clear view of the risks in different sections. I think that we in Government should have a view about what the impact of the different funding streams means for higher education, not just for when there are financial issues, which we have been talking about, but in terms of the balance that means for where funding is coming from. We do that. That is the reason why, in terms of the White Paper, we worked very closely with colleagues in DSIT to have that view of what it feels like to be on the receiving end of a range of different funding streams.

We have chosen to use forecast inflation because of the long run-in time, and that gives certainty to universities about what the increase will be. In choosing to use the RPIX measure as well, that has been a larger increase than would have been the case with CPI.

Not in its current form, no, which is why what we have said is that for the next two years we will increase tuition fees—I think I am right, Patrick—for all institutions. Susan and the OfS are doing important work here on developing the TEF and developing a more integrated quality measure. At the point at which we legislate to increase tuition fees on an annual basis, we think that it is right to also think about the relationship to quality. If you are asking individual students and the taxpayer to make an investment in higher education, it is legitimate to link that to the quality of what is being provided.

Minister, what consideration have you given to the effect of financial pressures in the sector on casualisation of staff, particularly for junior research staff? There have been situations in recent years where universities have increasingly offered, for example, 10-month contracts, not paying staff over the summer holidays, in part due to financial pressures. Is this something that you are talking to the sector about?

It is something that I talk to staff representatives about quite frequently. It is something that is often raised with me when I go and visit universities. The approach that higher education leadership has taken to its workforce has quite often been a function of the inability to be able to forecast where funding is coming from and to take strategic decisions. One of the most important things about providing certainty of increases in income is that it enables those strategic decisions to be made. In my view, that should also be more strategic workforce planning that provides more certainty to staff, less casualisation, and security.

You have talked about the carrot there of the clearer incentive. Are you anticipating using any stick to persuade the sector to provide some more of that certainty for their staff?

It is a bit more than a carrot. It facilitates the ability to think strategically and I certainly hope and expect to see higher education leaderships thinking about the stability of their staff as well as the rest of their organisation, their staff being at the heart of the teaching and research, which is their essential business.

One of the potential risks of any institutions going insolvent or even in the case of some mergers is that you will see cold spots in particular subjects emerging across the country. Minister, you have already ruled out a return to student number controls, but you have started mapping out those potential cold spots. Could you clarify what steps the Government would be willing to take to address those cold spots and what you are finding so far?

It is about the market monitoring that we talked about earlier; it is about providing the ability to plan more strategically; it is about the encouragement to collaboration that we have already talked about; it is about the specific funding, particularly for high-cost courses. All of those, it feels to me, give the ability for the sector to be able to plan to avoid cold spots and I think that that is what people want to achieve and we have provided the wherewithal for that to happen.

You mentioned extra funding there for high-cost subjects. One of the suggestions that has come from Universities UK is that you reinstate the strategic priorities grant for vulnerable subjects. Is that something that you are willing to consider?

I am not sure if I am keeping a tally of this, but we have had quite a lot of UUK bids for funding during the course of this evidence.

Other providers have provided evidence too.

With the OfS, we will be looking at how we focus the strategic priorities grant on the things that are—there will not be a shed load more money in the strategic priorities grant, so we will need to make decisions about how we focus that on the key priorities that exist within it at the moment. That is how to maintain high-cost courses, how to support students to gain access and to succeed while they are at university and how to support particular specialist institutions. When it comes to vulnerable courses, that is a bit like when it comes to vulnerable institutions. I hope that the certainty that we have put into the system will enable universities and groups of universities to think more strategically about how to protect those and save them and maintain choice for students.

Will your monitoring lead you, if necessary, to challenge the potential emergence of those cold spots? As a Government with a mission to break down barriers to opportunity, if that barrier becomes that someone who cannot afford to live away for university now cannot even commute to do the course that they want, that becomes barrier rather than removing it. Is that something that you will include in your monitoring and challenge if necessary?

It is one of the things that we will consider as part of the work that we are doing on access and participation as well, yes.

A final question if I may. I am starting to hear about a return of some universities to using quite a lot of unconditional offers, not post-qualification but using it—we know why they are using them. They want bums on seats. They want money in the bank. That is why the DfE took action to ban them before. Would you agree that they are not in the interest of students, they are an aggressive recruitment practice, they destabilise the sector, they distort the market and they are not a sustainable solution to what the sector is facing? Is your Department, monitoring the use of unconditional offers and do you believe that they help or hinder the overall sustainability that we all want to see for the HE sector?

First, I do want to see a sustainable higher education institution and I want to see that sustainable throughout the different types of organisations and providers that there are. However, you are right, I do not believe that the right way of doing that is by artificially preventing students from going to certain courses by putting student caps on. I would want to consider the extent to which that is happening and the impact that that is potentially having on different providers and to engage with the sector about what the downsides of that might be, yes.

Can I follow up briefly on Darren’s questions about cold spots, in two respects? First, we have a situation where the Government have a number of different workforce strategies across different parts of public services and some of those workforce strategies are dependent on the provision of courses so that the workforce can get the appropriate qualifications. We saw the situation in Cardiff, for example, where Cardiff announced that it was stopping nursing. That would have created a significant problem in Wales with the pipeline of nurses coming into the NHS, and Cardiff at least partially reversed that decision. How are you joining up the question of universities making unilateral decisions—we have just seen Nottingham saying that it will stop doing nursing, for example—with the Government’s own workforce strategies, to make sure that we do not end up with a situation where a region is left without its ability to fulfil its pipeline for critical public services?

When we come to health, that is very much part of what the Department of Health is considering in relation to its workforce planning. It is something where we would certainly want there to be join-up between what is being offered through higher education and what is being provided. More broadly, and I touched on this earlier, we have a stronger expectation now that universities will be engaged in local skills improvement plans, for example, that they will understand what the requirements of employers are within their regions and that they will be able to respond to that and to be part of the discussion that enables there to be provision of the skilled labour that is necessary in an area.

And a separate point on the provision of cold spots. When we talked about the institutions that are in the highest level of risk with their finances, Susan, you mentioned that lots of those are smaller institutions. What is the balance within those smaller institutions, institutions that have a generic spread of provision and where therefore their loss within the wider education landscape might be less significant, and the ones that offer specialisms that could not be easily replicated by any other institution. I am thinking of specialist conservatoires and small institutions that play a particular role and there would be a consensus that that is precious and important within our education landscape.

Typically we are not talking about the conservatoire group in this conversation. It is a real mix. Some providers are offering business and management courses that might be found comfortably somewhere else, others potentially are more specialised. In Schumacher College, for instance, one of the issues was the specialism of that institution. For those small providers, though, often we are able to look behind that provider and see a validating university that has responsibilities for those students and their continuation of study. Often with the small ones, there is a backstop that allows the provision to continue, at least in the short run, and buys time for some thinking about whether that particular provision is valuable in the longer course.

I want to talk about international students now. We received considerable evidence emphasising the economic and intellectual benefit of international students coming to the UK and their positive impact on the local area. A study by York University found that every UK resident is on average £355 a year better off as a result of international students. Do the Government agree that international students are a net gain to our country?

Yes. We say it frequently, we say it at home and we say it abroad. We believe that international students bring enormous economic, social and cultural value to the country and to the higher education sector. That is why we are pleased that we are maintaining a very favourable environment for international students and why we welcome the fact that we have over 732,000 international students, in the most recent figures.

We heard evidence to the contrary about the welcoming environment for international students, which my colleagues will probably look into in detail. The White Paper said that Government, “Will ensure there are arrangements, for future international student recruitment, for sponsoring institutions to demonstrate that they are considering local impacts when taking their decisions on international recruitment.” Can the Minister expand on exactly how this will work in detail, including which local impacts the Government are referring to?

When you talk about the White Paper, I think you mean the immigration White Paper there. The objective of the immigration White Paper was to deliver the Government’s manifesto commitment to reduce net migration. It covered provisions in all of the routes of migration, including students. There was a pretty balanced package with respect to students. We maintained, as part of that, an internationally competitive graduate visa route, for example, including three years’ post-study for PhD students. Alongside that, however, we were clear that where students are coming to study in the UK, it must be for all of the benefits that we have just outlined and not to take advantage of the immigration system, which was the reasoning behind strengthening the basic compliance measures that universities have to fulfil. We also recognised that there is an impact from bringing more students into the country and into any particular community. It goes back to what I was saying earlier, not just about international students but about, for example, the responsibility of universities to work with local authorities to make sure that the housing of students does not have a bad impact on local housing provision. Those are the types of expectations that we would put on universities in thinking about the numbers of students that they were bringing in.

The Government have stated that international students are welcome in the UK, and that is something that you have just repeated to us this morning. Could you share with us some examples of recent policy changes that have been designed to support and encourage international students to come and study here?

Maintaining the internationally competitive graduate route that I have just talked about; international work that we do as Ministers and more broadly; the International Education Champion, Steve Smith, who does a brilliant job travelling the world to bring the higher education sector to the attention of very many other countries; the Prime Minister’s recent trip to India, where he took with him university leaders to talk about transnational education and campuses in India and about the welcome that the country provides for students to come to the UK. Those are just some of the ways. Of course, the success is in the figures. As we have heard, the Home Office has reported an increase of 6.3% in the numbers of international students—or the numbers of sponsorship arrangements for international students—this year compared to last year. While that is fewer than has been forecast by the higher education system, it is not the collapse in numbers that some people have talked about.

The numbers are more than last year, but they are lower than 2022-23, so we are seeing a downward trend. When the Committee—

No, we are seeing an upward trend from last year and in fact the year before. Yes, you are right that it is lower than 2023, but the trend for the last two years is up.

The trend for last year is up, but we do not know what will happen next year. Anyway, moving on from that, the Committee heard when it was in Warwick, that they felt that student recruitment was in decline across the whole sector. They spoke of negative messages from the Government about immigration. Participants shared with us comments about Mickey Mouse degrees, poor language skills and international students stealing places from domestic students. These were seen to have affected the perception of the UK among international students. Would you recognise any of that?

I recognise Mickey Mouse degrees and stealing places as words not of this Government but of the last Government, and I am not taking responsibility for that.

There is an ongoing review of the international education strategy, and I know that that has had buy-in mostly from DfE and also from FCDO and the Business Department. What involvement has the Home Office had in that review?

You are right that it is a cross-government review of our international education strategy, led by DfE, DBT and FCDO. However, it will be a government publication and all Government Departments will have had a contribution to it when we are able to publish it.

You will not be in any doubt why I am asking, because some of these changes, for better or for worse, obviously have an impact on the overall strategy. It is just about making sure that the Home Office is brought into that conversation and is part of it.

Absolutely, and we have discussions with the Home Office about the international education strategy. We have had good discussions with the Home Office about the implementation of the basic compliance assessment and the toughening up of that. We have made progress on making sure that is enforced in a way that gives universities the opportunity to respond to concerns that might be being made by them. We had good discussions with the Home Office in designing the student element of the immigration White Paper as well.

And also on the changes to asylum, with that new route for students?

With all of the things that relate to students, we have a good and strong, sometimes lively, relationship with the Home Office.

I would like to ask you about the student levy. The immigration White Paper says the levy will only have a limited impact on student numbers and sector revenue. However, Public First’s assessment says that it will have a very damaging impact. We have heard directly from universities that they will not be able to pass on the cost of this levy to international students by increasing prices, as there is already very little price elasticity in this area, with stiff competition from higher education in other countries and increased UK costs of living already impacting on international student numbers. Could you respond to that, please?

One of the most important things about our extremely high performing, internationally recognised higher education system is that it is able to benefit all those in the UK who could benefit from it and aspire to go into higher education, and that is not the case at the moment. Despite efforts in the sector, we have not seen a closing of the disadvantage gap between those who are most advantaged and those who are least advantaged. What is more, we saw under the previous Government the removal of maintenance grants and the real-terms value of loan support for students reduced by more than 20% over the last five years. It is really important that we improve this. It is something that Bridget, as our Secretary of State, has been particularly committed to. That is why we will introduce targeted, means-tested maintenance grants for students in low-income households studying in priority courses. We will fund that by the levy on income from international student fees. More detail about that will be set out. The design of it, for example, will be set out in the Autumn Budget. As was announced in the immigration White Paper, it was also clear, of course, that this is the ability to demonstrate the benefit that international students bring to the higher education and skills system and that is what will ensure that money raised from the levy goes to. I have looked at a lot of the analysis behind the assumptions made on how the levy will work. The interesting thing about Public First’s analysis is that its analysis, as all the analysis I have seen, suggests that there is an elasticity of demand less than one for international students. In other words, if you put up international student fees, yes, there will be a reduction in demand, but there will be an increase in revenue nevertheless that will come from putting up fees. It is the benefit of that increased revenue that the levy be able to be reinvested into students who are less advantaged in the system. It is exactly a characterisation of the case that the higher education sector makes, and more explicitly that international students will benefit those students who will otherwise not be able to get the benefits of an English higher education.

I am sure that nobody in this room would disagree with you that reintroducing maintenance grants is a good idea to balance out the disadvantage gap in higher education. I am fully behind that. However, there is a question about this elasticity. Going back to the Public First data, it says that your figures are based on the price sensitivity of pre-Brexit EU students, and therefore that was a poor foundation for the evaluation. It estimated that over five years there would be a reduction of 77,000 students and a cost to the sector of £2.2 billion. The IFS is saying that if the levy were applied at the 6% modelled in the immigration White Paper, it would raise slightly less than £600 million, but the maintenance grants would cost £2.6 billion. Are you confident in your figures that if you introduce this levy, international student numbers will go up enough to bring in enough money to fund what you would like to do with maintenance grants?

I said that in all of the analysis that I have looked at—of course there are differing calculations. In every case that I have seen, the elasticity is less than one. When the elasticity is less than one, you will raise revenue from an increase in fees. That is not to say that we do not think that the impact of the international student levy will mean a reduction in international students. It will be a small reduction in international students. However, given all of the other things that attract international students to the UK, given the increases that we have seen, we nevertheless think that it is a legitimate use of the benefits of international students, to take part of that revenue and reinvest it in the higher education and skills system, particularly for the benefit of the most disadvantaged students, to make absolutely real the argument that has been made but has not always been demonstrated that international students benefit the rest of the UK higher education system. We will publish a regulatory impact assessment when we spell out the details of the levy in the Budget tomorrow and people will be able to judge. I also reiterate the point that I made earlier. When people compare the levy with tuition fee increases, what you get with index-linked tuition fees is a certain cumulative increase in your income. What you get with the levy is money from the levy year by year. Taking a one-year comparison does not recognise the enormously important contribution and future-proofing that the decisions that we have made on tuition fees have given to the higher education sector.

Universities are worried about the impact of this levy because they are so dependent on international students, and the House of Lords Science and Technology Committee said it is likely to be self-defeating, robbing universities of both talent and funds. Do you disagree with that?

There is a lot of talent in disadvantaged UK students who have not been able to take advantage of higher education, as well. Frankly, if I had a penny for every time somebody had said to me, “I support maintenance grants but I do not support the international student levy”, I would have the revenue to fund maintenance grants. You cannot will the ends if you are not willing to will the means. One of the things about being in government is that if you want something to happen, you need to find the way to fund it. I think that this is a legitimate way to support disadvantaged UK students.

Have you factored into your analysis evidence that we have heard from multiple different universities about factors affecting the supply of international students into UK universities that are nothing to do with government policy at all? For example, universities report a significant and ongoing decrease in the numbers of Chinese students who want to come to the UK because of the attractiveness of universities in China and because of high rates of graduate unemployment. They report a decrease in the numbers of Nigerian students coming to the UK because of issues with the value of the Nigerian currency and the inability of students to afford to study overseas. These are not to do with government policy. They are nevertheless having an impact on the price elasticity for university fees because they are affecting the demand for courses here and they are affecting the numbers overall. Given Caroline’s point about the Government’s analysis being based on pre-Brexit trajectory, how are you making sure that your analysis of the robustness of the sector to withstand the levy and the ability of the levy to deliver the funding that you need is based on up-to-date analysis of trends that are going on right now?

It is in the OfS report that there is a range of factors that influence the international student market—the sorts of things that you have identified—and other aspects of the action of some of our competitors, which might be beneficial to the UK higher education market. One of the things that I would say to higher education leaders on the recruitment of international students, is that the Government will certainly support them with that through the international education strategy and through the actions of the champion. There is also a lot that universities themselves can do to make themselves attractive in the geopolitical context that you are talking about, Helen, which does impact the numbers. I am not sure that it impacts the elasticity of demand, but it does impact the numbers of students who would be likely to come here, both for the worse, but in some cases providing an opportunity as well.

On the first part of that, as I say, we will make the details about the design of the levy and the use of the levy—or the Government will—as part of the Budget tomorrow and then there will be a regulatory impact assessment that will follow it. You make an important broader point about access and participation, which has been a very important part of the reform programme that we put forward in the White Paper. One of the most concerning elements about that is the very big regional disparities. Where you live is far too big of a determinant of whether or not you are able to benefit from higher education. That is, for example, one of the reasons why I have set up a task and finish group, bringing together real experts in the area of access to look, among other things, at this issue about regional disparities and what more we need to do and the sector needs to do to make sure that we are finding the students where there is talent but there has not previously been opportunity wherever it is that they live.

That is probably a whole inquiry on its own.

The answer is yes, including through a whole range of quite radical changes like the lifelong learning entitlement, for example, which will change the way in which throughout your life you can access higher education, and a whole range of other things that we will want to do in the area of access and participation.

I have made the case about that. This is not a time in which the education system or any other part of government is swilling with money, if there ever is a time when that is the case. Therefore, we have to make decisions about our priorities and we need to make decisions about how we fund them. To reiterate what I said earlier, if we want to close the disadvantage gap, there is an important contribution to be made to that through the reintroduction of maintenance grants alongside the index-linking of maintenance loans. To fund that, you need to find a way of doing that and to do it in a way that demonstrates clearly the contribution that international students make to the most disadvantaged students in the country. That is a reasonable and important way of doing it.

Finally, if the consequence of the changes that the Government are introducing have the effect of making it harder for higher education institutions to recruit international students, there is a risk that they will look to other practices to sustain their income and ensure their financial viability. We have already seen some pretty risky behaviour in terms of franchising arrangements, in terms of transnational education, with some fairly concerning implications for quality and for student experience and for financial risk within those organisations. What does your analysis tell you about the risks that that presents for the sector and what will you do if a consequence of the changes that you are making with international students have a consequence of incentivising undesirable behaviours by institutions of that nature, franchising and transnational education?

I would put those two in two different categories to start with. First, the point about franchising is that franchising is not inherently bad. However, we have seen a doubling of the numbers of students in franchise provision. We have seen concerns expressed by the NAO and others about the quality of what is being provided in some franchise providers. The OfS is in the process of carrying out investigations into quality there. That is why we said in the White Paper that we want to strengthen the regulation around franchise provision, and we will introduce the need for any franchise provision above 300 students to have to be registered with the OfS. That will cover the vast majority of franchising, and we will want to see that. Frankly, I would be happy to see much less subcontracting of courses and much higher quality and that is what we will be aiming to achieve. On transnational education, I do not necessarily accept the premise of your question that this always leads to bad quality provision. High-quality UK universities setting up campuses in India—for example, the Nottingham University campus that I was able to visit in Malaysia when I went there at the beginning of the summer—are opportunities, yes, for UK higher education, but also for students to be able to benefit from the values and the power of UK higher education without having to travel to the UK. There are lots of benefits that can come from TNE. Of course, there are also issues in some countries, potential risks. Here what we need to do is to work with the sector to make sure that people are clear about the situation, clear about their responsibilities, and are doing transnational education on the basis of benefit to the UK and to the country that they are in. If we are able to do that, there is some very good potential in transnational education.

Thank you very much. I thank all of our witnesses for coming to give your evidence to us today. If there is anything that we did not have the time to get to or any clarifications that you would like to provide, please write to us after the session and we would certainly welcome that. That brings our session this morning to a close.