The Office for Students and the Difference between Theory and Reality

We have looked at issues within the Higher Education sector here in Financial Regulation Matters before, mostly in relation to student finances, student accommodation, and also sector-related pensions. However, after some recent developments it is important to take a look at Universities as institutions and, crucially, the position that regulators are finding themselves in, despite any ideological claims as to their operating mandate. As the story develops that, recently, a British University was essentially ‘bailed out’ by the Government, it will be of interest to examine the regulatory reality that the recently-formed Office for Students (OfS) has found itself being exposed to.

It was reported towards the end of this week that ‘a UK university had to be given an emergency loan of almost £1m by the higher education watchdog to stay afloat this autumn’. The BBC continued by stating that the OfS provided the money when the university faced the prospect of running out of capital and being unable to pay its bills, whilst it goes on to confirm that the money has been repaid and the university of now financially stable. The Financial Times reports that the OfS confirmed that the university had not been at risk of bankruptcy and that the university in question had not been allowed to register new students until the money had been (quickly) repaid. Only earlier this month had Sir Michael Barber, Head of the OfS, confirmed that ‘the OfS will not bail out providers in financial difficulty’, whilst also declaring that bailing out institutions would lead to ‘poor decision making and a lack of financial discipline’. As we now know there comments were contradictory and Sir Barber would have known that, with the result being a barrage of criticism for such views. The University and College Union said that it would be writing to all MPs with a University in their constituency to outline the dangers of a university collapse, correctly adding that ‘allowing universities to go to the wall has consequences far beyond just education – Universities are often one of the key employers in the area and the impact on the local economy and on local opportunities is difficult to overstate’. The UCU continued by declaring that Sir Barber’s comments ‘demonstrate just how out of touch those in charge of our universities really are’, whilst other commentators have been quick to note that such an outcome is an almost natural conclusion to what is, essentially, a ‘bubble’ within the HE marketplace.

It has been suggested in the media that the University in question is the University of East London, which the University has denied, but the issue here is not which University sought the bailout, but that it was inevitable that one (and more) would. Universities are under increasing pressure from a number of areas, including politicians and the media, and that may manifest itself in different ways (like recent calls to improve social mobility). Yet, it is all underpinned by one key facet, and that is related to the word that concluded the paragraph above: marketplace. As the HE sector has been financialised, there came with it increasing pressures. One of the key pressures was the need to keep the system moving, as is the way with any other financialised ‘bubble’ (think housing in the pre-Crisis era). Over the years we have seen tuition fees break records, more and more students attend University, and a massive growth in developments such as student accommodation, sports facilities, and libraries. However, whilst that sounds all well and good, the reality is that the observable growth of UK campuses is mostly funded by ‘cheap debt’, with University borrowing in the UK now topping £12 billion. The Financial Times suggests that there is an impending issue in that there are falling student numbers, and that this trend is expected to continue as a result of low birth rates around the millennium and tighter immigration rules; the result being that a forthcoming report is expected to advise that tuition fees be capped at £6,500 (to induce uptake of places) and Moody’s having placed all UK universities (bar Oxbridge Universalities) on ‘negative rating watch’. All of this tells us that Universities have changed, from institutions of learning to vehicles of financialised concern – the concern now is keeping the wheel spinning. If that is true, then how universities will keep that wheel spinning is worrying, because the likely method would be reduced fees, reduced entry-grades, and probably cuts amongst the associated workforce. If that is all to be accepted, then what does it mean for the OfS?

The OfS is not a governmental body, but reports to the Department for Education. It is seen as the spear of the education regulatory framework, but it is worth noting when it was formed. It was formed at the beginning of 2018, which as one will be aware is in the midst of austerity Britain, as governed by the Conservative Party. The OfS stresses its independence, but within the UK there is an ideological trend that is prevalent amongst the institutional framework, and it is unsurprisingly Conservative in nature. Without casting judgement, it is therefore, again, unsurprising that the OfS would theoretically reject a bailout, based upon free-market principles. But, as Sir Barber would have quickly realised, theory and reality are not always aligned. The HE sector within the UK is in a very precarious position, and as the spearhead of the regulatory framework, the OfS is tasked with a thankless job – do not let the bubble burst. That is fine, but again the reality is much different. Any student of the previous two decades knows that bubbles will burst, it is inherent within their nature, and this educational bubble is no different. With so many providers, a stagnant economy exposed to an uncertain environment post-Brexit, and a reducing pool of income (via students), the bubble will burst. However, the OfS has decided that ideology cannot be the reason it bursts, and took the decision to contradict itself in a crucial fashion, less than a year into its existence. What providers will now know is that the OfS exists to protect the mechanisms of the bubble, and the situation may be that which the OfS was trying to avoid from the outset. Many commentators have been quick to note that the sector is ‘different’ to others and cannot be treated as a financial marketplace, but unfortunately every angle of the sector screams financial marketplace – education has become a product, universities are massive companies, and the public is on the line for all of it if the system breaks; there is very little difference to that and any other financial marketplace. Regrettably, those other financial marketplaces have usually suffered severe shocks, and it is likely the HE sector will be the same, despite the efforts of the OfS.