New Public First report calls for £2.5bn transformation fund and a new Higher Education Commissioner in order to manage “unsustainable levels of uncertainty” around large-scale provider exit

• Report says that current regulatory regime doesn’t protect students, and that Student Protection Plans have no force in insolvency law
• Current approach to failure doesn’t take account of contagion risk, especially to future international student flows
• Report calls for a three-stage process, underpinned by a different approach by the Office for Students

A more proactive approach is needed to deal with the increasing possibility of a “disorderly exit” from the sector by one or more universities, finds a new report from Public First and the University of Warwick published today (26/07).

It argues that the current higher education policy landscape is not prepared to deal with large-scale individual institutional failure. Current approaches to protecting student provision have no force in insolvency law. The report also identifies second order knock-on effects – both geographically around the university, and to the wider ecosystem of teaching and research to the UK. There is also a huge risk of contagion – to student behaviour, staff behaviour, and lender behaviour – and most importantly in the current financial model, it could deter international students from the UK as a market to study in.

The paper does not argue for the current size and shape of the sector to be preserved regardless of student demand, but calls instead for a more proactive approach towards risk management. In particular, it calls for the introduction of a DfE-led process to preempt disorderly exit, or to manage it in a more orderly way if it does occur.

The report calls for:

• A rebalancing of the role of the OfS – with a new direction from the Secretary of State to prioritise collaboration within its existing duties under HERA, so that the regulator can take a more proactive approach managing and forecasting financial risk, and so that student protection plans can be strengthened.
• The creation of a new £2.5bn Higher Education Enhancement and Transformation Scheme – to offer repayable loans to institutions that can make a compelling case for restructuring, pre-empting either exit or forced closure of provision.
• The creation of a new Higher Education Commissioner – to act as a primary liaison within the DfE between the sector and government, and to manage the deployment of the fund above.
• The creation of a new Special Administration Regime for higher education – modelled on that which already exists in further education, which would allow for a more orderly form of exit should restructuring be neither possible or effective.

Professor Stuart Croft, Vice-Chancellor and President of the University of Warwick said: “In principle, the potential ‘market exit’ of a higher education institution is a feature, not a bug of the current regulatory framework. In practice, exit – orderly or otherwise – of an institution from the sector has not been adequately prepared or planned for. Action is required to both protect students and to ensure that the reputation of the higher education sector is safeguarded.”

Jonathan Simons, Partner and Head of Education at Public First said: “There is no playbook for how to manage institutional failure at scale – multiple institutions or even one large institution. Given the current political and economic environment, the absence of a plan in current legislation or policy is leading to an unsustainable level of uncertainty for university leaders, for students, and for government.  We hope this report will spark a broader discussion about the need for a range of measures to help stabilise the sector so that any restructuring or exit can be managed in a strategic way.”

Download a copy of the report here