Peers criticise OfS ‘nonchalance’ on ‘looming crisis’ in finances

England’s higher education regulator has “paid insufficient attention to the financial risks facing the sector”, imposed “burdensome” data requirements, taken a “distant and combative” approach to relations with universities, and too often “translated ministerial and media attitudes directly into regulatory demands”, according to a House of Lords committee.

The Office for Students (OfS) is handed extensive, biting criticism for what peers see as a failure to address a “looming crisis” facing higher education in a report published by the House of Lords Industry and Regulators Committee on 13 September, following its inquiry into how the regulator is operating.

The report also criticises the government, saying that it and the OfS – controversially chaired by serving Conservative peer Lord Wharton – “should set out the steps they each intend to take to support the OfS’ ability to operate independently from the government”.

The report says that “serving politicians should resign any party political whip they hold before becoming chairs of independent regulators”, and that the government “should consider making this a requirement”.

Other recommendations include that the OfS “should improve its adherence to best regulatory practice through closer alignment with the Regulators’ Code”; “should prioritise holding discussions with providers more regularly about their financial situation”; and should “work urgently to align its framework for quality with international standards”, after the OfS gave itself responsibility for quality and standards, taking that away from the Quality Assurance Agency.

The report from the Lords committee, mounted at the instigation of sector bodies, gives some official backing to longstanding concerns from sector leaders.

Lord Hollick, the Labour peer who chairs the cross-party committee, said the report reflected a “consistent number of criticisms” the committee had heard from witnesses and written submissions. “What we’ve published is what we heard,” he added.

Baroness Taylor, a Labour peer and member of the committee, said there was “a consistent theme coming through” from the evidence gathered that “there are very significant problems facing higher education – and the lack of any strategy on that is causing a lot of concern in [the] sector.

“The OfS seemed to be feeling that everything is fine, they will just micromanage a few issues and that was their responsibility. It’s not just OfS we’ve got concerns about; it’s the whole future of the sector.”

Lord Hollick said: “We were surprised the OfS had such a nonchalant view of the sustainability of universities when we were hearing from all of the witnesses that it’s really very tough out there.”

The committee’s report – which says the government should review not just the OfS but the wider higher education funding system in England – highlights the scale of financial challenges facing the sector, such as the decline in funding via the tuition fee freeze, in light of which “we were surprised by the OfS chair’s assertion that the sector’s finances are ‘in good shape’”. This was “indicative of the insufficient attention the OfS has paid to the financial risks facing the sector,” it continues.

On the OfS’ taking quality and standards away from the QAA, the committee says it is “disappointing that the OfS apparently views its own convenience and control as more important than preserving independent oversight of quality and standards”.

Calling for more discussion between institutions and the OfS on finances, the report says it is “worrying that some institutions would be unwilling to engage with the OfS in the early stages of falling into financial difficulty for fear of a punitive regulatory response”, because this “hampers the ability of institutions and the regulator to plan together and take early action against emerging financial risks”.

In light of perceptions that the student interest is “defined by the OfS in line with the political priorities of ministers rather than the priorities of students”, the report recommends there be “at least two student representatives on the OfS’ board”.

On bureaucracy, the OfS “makes frequent and often ad hoc requests for data that are both burdensome and, at times, duplicative of similar requests from other regulators”, it says.

On the relationship with government, the report says that “in too many cases the OfS has translated ministerial and media attitudes directly into regulatory demands on providers”.

Perception of independence from government is vital for regulators, but “this is evidently not the case for the OfS, where there is a widespread perception among providers, students and other stakeholders that it is not sufficiently independent”, the committee report continues.

On relations with the sector, the report says these “have been poor, to the point of adversarial. This is in part because the OfS’ approach to providers to date has been overly distant and combative, giving the impression that they are looking to punish them rather than support them towards compliance. It is therefore welcome that the OfS has recently recognised the need for better communication and greater engagement with the sector.”

Lord Wharton, responding on behalf of the OfS, said: “Robust regulation is important, for taxpayers and students alike, to protect their significant investment in higher education. These concerns sit at the heart of the OfS’ regulatory strategy, and we welcome the committee’s focus on how we can improve our impact on these issues.”

On finances, he added: “We monitor individual institutions, gather intelligence to identify system-wide risk, and publish our analysis of financial sustainability across the sector. Our detailed analysis of the data universities provide to us suggests that many are in good financial shape.”

“We thank the committee for its work,” he went on. “The OfS has already taken proactive steps to address many of the issues the committee has raised, and we will consider its report carefully over the weeks ahead and respond more fully in due course.”

Vivienne Stern, the Universities UK chief executive, said: “We particularly welcome the points around the deteriorating financial health of the sector, and the need for a concerted government approach to address this. Equally, UUK recognises and appreciates the effort which has already been made by the regulator to improve relationships with the sector, and we look forward to working with the OfS to cement this.”

Jo Grady, the University and College Union general secretary, said the report offered “more evidence that the Office for Students is failing students and is not fit for purpose”.

“It’s clear that the sector does not have confidence in how the regulator is operating, and the chair, Lord Wharton, should do the decent thing and step down,” she added.

Vanessa Wilson, the University Alliance chief executive, said it “welcomes the committee’s recommendations around political impartiality of the regulator; a focus on the long-term financial sustainability of the sector; meaningful involvement and engagement of students and the reinstatement of an independent quality body”.

john.morgan@timeshighereducation.com