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Higher Education (Monetary Penalties and Refusal to Renew an Access and Participation Plan) (England) Regulations 2019

Volume 797: debated on Monday 20 May 2019

Motion to Approve

Moved by

That the draft Regulations laid before the House on 1 April be approved.

Relevant document: 25th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee A)

My Lords, we have come a long way since the passage of the Higher Education and Research Act 2017 and I thank noble Lords for the scrutiny they provided, both to HERA itself and to the HERA regulations laid before this House since HERA gained Royal Assent in April 2017.

Let us step back and take a look at the progress of the Office for Students. Since its formation, the OfS has registered over 350 higher education providers, while ensuring that academic freedom and autonomy are core principles of the governance of all registered providers. In registering these providers, the OfS has satisfied itself that each provider has met a range of registration conditions including, but not limited to, quality and standards, access and participation, management and governance, financial sustainability and student protection. It has also helped to introduce the Teaching Excellence and Student Outcomes Framework, to highlight where to find high-quality teaching and the best graduate outcomes, as well as providing an incentive to improve standards. We know that the TEF has encouraged providers to focus more attention on their teaching and learning strategies. Dame Shirley Pearce is conducting an independent review of how the TEF currently operates and we expect her to submit her report in the summer. The OfS has also ensured that all registered providers with fee caps at the higher level have comprehensive access and participation plans to improve access and support for students from disadvantaged backgrounds and underrepresented groups.

Widening access and participation in higher education is a priority for this Government. This means that everyone with the capability to succeed in higher education should have the opportunity, regardless of their background or where they grew up, and we are making progress. In 2018, 18 year-olds from disadvantaged backgrounds were proportionally 52% more likely to enter full-time higher education than in 2009. But we know that there is more to be done. Through the Government’s guidance to the Office for Students we have asked for greater and faster progress on access and participation. On the provision of information to students, the OfS is working in partnership with the Department for Education on the best way to enhance and improve the information given to students on the quality and standard of teaching that they can justifiably expect. I am sure your Lordships will agree that this is a considerable achievement, on which the OfS should be congratulated. 

I now turn to the regulations and first to Section 15 of HERA, which gives the OfS the power to impose monetary penalties on providers that fail to comply with their ongoing conditions of registration. The OfS register is the route for providers to charge fees that attract student loans, become eligible for grant funding, offer degrees or call themselves a university. In return for these considerable benefits, providers have to comply with registration conditions relating to, for example, their financial sustainability, quality of provision and student protection. The register—noble Lords may know this, but I wish to go over the details again—is divided into two categories: “approved” and “approved fee cap”. A provider’s registration category determines its exact benefits and obligations. Providers on the register with an agreed access and participation plan are in the approved fee cap part of the OfS register.

HERA also gives the OfS the power to apply specific conditions on a particular provider if there is cause for regulatory concern. These are not specified in the Act but, by way of example, the OfS has placed specific ongoing conditions of registration in relation to their access and participation plans on certain universities. They have been required to report on their evaluation of financial support made available to students.

Adherence to the registration conditions is a vital component of our reforms to the regulatory landscape. It is critical to safeguarding the interests of students and the quality and reputation of our higher education sector. The power to impose a monetary penalty on providers is a crucial tool for the OfS to have at its disposal to enforce registration conditions and to encourage compliance. Regulations are required to make provision for the amount of the penalty that can be imposed and may set out the matters to which the OfS must, or must not, have regard when exercising the power to impose a monetary penalty. Failure to put these regulations in place will mean that the OfS will not have this essential regulatory tool at its disposal at the very point at which it most needs it.

I move on to the consultation on monetary penalties. Monetary penalties provide an effective incentive to comply with regulation and an enforcement tool, but they must also be proportionate and fair. There was no statutory obligation to consult on these regulations. However, a commitment was made during the passage of HERA through this House to consult on the matters that the OfS must have regard to when imposing a monetary penalty. As a result, the department conducted its consultation between December 2017 and March 2018. To reassure your Lordships, as these are new regulatory powers, we also took the opportunity to seek views on the maximum monetary penalty amount. It is through this extensive consultation that we have established the fair and balanced approach set out in these regulations.

The consultation process identified some concerns that monetary penalties could take away provider income that might otherwise be used for the benefit of students. The majority of respondents did not support the department’s proposals for the maximum penalty, but respondents were broadly supportive of the proposed factors, especially that relating to impact on students. The Government have listened. In response, the Government adopted the lower of their options for a maximum penalty amount—2%, rather than 5%, of qualifying income—but remain of the view that monetary penalties need to be set at a level that ensures there are visible and meaningful consequences, without being unduly punitive. By this I mean that the penalties should have the potential to be of sufficient magnitude to have a real impact on providers, which will encourage them to comply with their registration conditions. However, the legal restraints these regulations place on the OfS, including the mandatory factors to which it must have regard when setting a penalty, are designed to ensure that the OfS is required to take appropriate, reasonable and proportionate action. In doing that, the regulations ensure that the interests of students—both at the provider in question and those of students more generally—are taken into account. Your Lordships will be reassured to know that the regulatory framework published by the OfS last year sets out its approach to imposing sanctions, including monetary penalties. In addition, the OfS will produce more detailed guidance on how it will take decisions to impose monetary penalties and on the amount of penalty to be imposed.

I now turn to the second part of the regulations. These allow the Office for Students to refuse to renew a provider’s access and participation plan. Given the importance of access and participation, we have asked the Office for Students to secure greater and faster progress in this very important area.

From our debates during the passage of HERA 2017, I know that your Lordships share a desire to see more young people from disadvantaged and under represented groups accessing and then successfully participating in higher education. Currently, the key way of achieving this is through access and participation plans. Each higher education provider which intends to charge higher-level fees must set out in its plans the measures it will take to support students from disadvantaged backgrounds. This can include helping students to access higher education and supporting them to participate successfully in its courses, as well as helping to tackle, for example, drop-out rates, attain qualifications and progress from higher education.

Given the importance that we place on access and participation, the OfS should have strong powers where it has concerns that a provider has failed to deliver on its commitments or has exceeded the specified limits for course fees. Where this happens, the OfS could, as one of a number of actions available to it, refuse to renew a provider’s next access and participation plan. Refusing to agree a provider’s plan would represent substantive regulatory action. It would mean that the provider would not be able to charge higher-level fees, and this would have real financial implications for most providers.

Given the major implications of refusing to agree a plan, the regulations include a review mechanism. Providers can ask, within 28 days, for a decision made by the OfS to be considered by an independent reviewer. This should provide additional reassurance about the fairness of the process.

Other sanctions and interventions that the OfS could use where a provider falls short in relation to its access and participation plan include enhanced monitoring, monetary penalties or suspending a provider from the register. All are aimed at addressing underperformance and encouraging progress. As a last resort, the OfS has the ability to deregister a provider.

These regulations make sure that the OfS is consistent in using its regulatory powers to impose a monetary penalty or refuse to renew an access and participation plan. The OfS must consider broadly the same factors when deciding to impose either of those sanctions.

It is planned that the regulations will come into force on 1 August 2019. This will permit the OfS to start imposing monetary penalties where it appears to it that there is, or has been, a breach of a registration condition. The Government firmly believe that the higher education regulatory system must be one that can effectively protect the interests of students, especially the most disadvantaged, in the short, medium and long term. The regulations support that as they enable the use of two important tools that will enable the OfS to carry out its core task of the effective stewardship of the higher education landscape. Therefore, I hope your Lordships agree that the regulations are ultimately of benefit to students and the sector alike. I beg to move.

My Lords, the regulations before your Lordships’ House relate to the power of the Office for Students to impose penalties for a breach of regulations, and I am grateful to the Minister for setting out the Government’s explanation of them. Of course, ultimately they are a reflection of the marketised system that we now have and the necessary bureaucracy that comes with that form of regulation, which intervenes and seeks to make the market perform better.

On this side of the House we have no qualms about the basic principles in the system. There must be a system that ensures that higher education providers comply with the regulations, and for that reason we have no intention of opposing their passage. I will, however, register a number of our concerns in the hope that the Minister can assure the House that these regulations will be efficient in their aim of promoting greater regulatory compliance in HE access and participation.

Before moving on to the specifics of these regulations, I draw attention to the fact that, despite the enormous potential consequences for any HE institution at risk of non-compliance, the Government have chosen not to publish any form of impact assessment for them. This is not the first time that the Government have laid such significant secondary legislation without the publication of that information.

In the Explanatory Memorandum produced by the Department for Education, the department’s failure to produce an assessment is excused by the idea that there will be no financial impact on those providers that are compliant. Well, there will be implications for those that are not. Surely an assessment should have been produced, at least internally, of the financial impact on providers that, for whatever reasons, fall short. If it has been produced, why is the House not privy to that information? In the absence of such an assessment being provided to the House, can the Minister at least offer Peers a brief estimate of the effect of this instrument on providers who are not compliant? Does the Minister anticipate that they will be put into financial difficulties as a consequence, and does he believe there will be any knock-on impact for students at such providers’ institutions?

Turning to the specifics of these regulations, I will use the bulk of my time to focus on the nature of the monetary penalties. Of course, it has to be right that those who fail to comply with the necessary regulations face some variation of a punishment. But such penalties must find the right balance between being stern enough to ensure compliance and not so harsh as to create extraordinary financial difficulties for providers that receive a penalty.

In previous consultations, the maximum fine suggested was 5%, as the Minister said, rather than 2%. Although I think the House will agree that the latter is the better choice, I would welcome the Minister’s saying how the Government reached that conclusion and chose to pitch at the lower level. Did any stakeholders suggest that a higher limit would be better or preferable? What factors did the Government assess when deciding on the nature of the penalties?

I am particularly concerned that, if the penalties are too overbearing, they will create insurmountable financial trouble for providers that are already struggling, as the Minister will be aware. Indeed, reports emerged in late 2018 that up to three higher education institutions may be on the brink of bankruptcy, and last month, the Guardian reported that 25% of English universities were in deficit. Post Augar, this picture could worsen. Can the Minister hint when the Augar review will be published and explain the relationship between that and this system of penalties?

The regulations make it clear that the OfS has the discretion to impose a monetary penalty but are not entirely clear about what factors will be considered. For example, will the financial position of the provider be taken into consideration? Universities UK has made it clear that penalties must be awarded proportionately and effectively, and that what this looks like will vary according to individual circumstances and the position of the institution involved. I urge the Minister to ensure a degree of flexibility in the application of penalties.

On communicating these changes, it is right that the Government make sure that those who will be impacted upon fully understand how the new regime will work, as with any regulatory change. Although higher education providers should be aware of their access and participation responsibilities, they should be reminded of monetary penalties that could be awarded if they fail to comply. How has the Minister’s department communicated the monetary penalties to the 350 education providers now registered with the Office for Students?

Before concluding, I will touch briefly on Regulation 9, which allows the Secretary of State to appoint either an individual or panel and pay remuneration and allowances. Aside from the fact that this must comply with the code on public appointments, the regulations give no further indication or clue as to what factors will be considered when making appointments of this nature. Could the Minister explain why not? How will the Secretary of State make such appointments? Will there be a need for a further statutory instrument?

In conclusion, the concerns that I have raised are not enough for us to oppose the regulations in their entirety; indeed, we welcome the Government’s limited attempt to promote greater regulatory compliance regarding HE access and participation. However, I ask the Minister to take far more ambitious steps to ensure that we make higher education more welcoming for students from all backgrounds. Given that over 12,000 fewer English undergraduate students from low-participating areas now start courses each year than did so in 2011-12, we cannot underestimate the scale of the challenge. I would welcome any details from the Minister on how his Government intend to rectify this and ensure the access that I think all sides of your Lordships’ House would very much welcome for HE students.

My Lords, we too understand the need for these regulations and thank the Minister for setting them out. Universities certainly need to be held to account for widening participation and supporting students from under- represented backgrounds throughout their studies, and monetary fines need to be part of the mix of sanctions available. However, I note that the Minister himself mentioned the concern that this might take away from provider income, and that in the notes the consultation process identified some concerns that monetary penalties could take away provider income that would otherwise be used for the benefit of students. Are there any safeguards to ensure that that will not actually be the case?

We certainly wish to ensure that all universities work to widen participation across the sector and prioritise their work with schools and colleges that have not traditionally been ones where young people went to universities, and we need every university to be transparent about selection criteria. However, we would also like to see the Government doing their fair share to widen participation by reinstating maintenance grants for the poorest students to ensure that disadvantaged young people do not have the highest loans to repay.

We note that the trend is narrowing but we see also that UCAS warns that for the fourth consecutive year limited progress has been made in reducing the size of the multiple equality measure gap, which remains at a similar value to that seen in 2014. Surely that should be a concern too. It also concluded that among the universities with the highest entry requirements the entry gap is widest, and in 2018 the most advantaged students were 15 times more likely to enter than the most disadvantaged. We have quite a long way to go with this.

The Minister and the noble Lord, Lord Bassam, have touched on most of the issues that I would have mentioned on this, but I have a question for the Minister. Where will the money from these funds go? Will it just go straight back to the Treasury and get lost in the general pot, or is there any suggestion that these fines will be put into a separate fund that will help to benefit disadvantaged students? Money that just disappears into the Treasury is not going to do anything to help the students that we most want to help but, if there were some suggestion that it could be used beneficially for those students, that would be a very reassuring move.

As I say, there are some concerns about the effect of the fines, which I hope will be monitored as we go along to see whether they have an adverse effect on universities being able to provide for disadvantaged students. If not, of course, we have no intention of imposing this measure.

My Lords, any regulatory system requires sanctions to be effective, and clearly there is general support for the OfS having proportional powers to act against any providers that breach their conditions of regulation. However, it is important from the start that the OfS convinces the sector that it will indeed exercise its powers in an appropriate, proportionate and risk-based way.

Others have mentioned Universities UK. I think it has been working with the Office for Students on the interpretation of these regulations. One of the issues it has raised is that while it agrees that the OfS’s approach to access and participation would theoretically reduce the burdens for providers with a low risk of future breach, it currently finds it difficult to understand the levels of burden in practice without more detail on the risk assessment methodology. Could the Minister provide any more clarification on risk classification and associated timeframes?

In its very helpful briefing on these regulations, Universities UK also expressed concerns about recent media reports about possible recommendations of the post-18 review panel which may, in its view, lead to progress on social mobility being threatened. In particular, it had concerns about leaked recommendations introducing a minimum entry tariff for students in England to be eligible for student loans. All the evidence suggests that a minimum entry requirement based on prior attainment would disproportionately affect young people from the most disadvantaged areas and under- represented groups. In any case, it is certainly my view that prior attainment on its own is a crude measure to judge whether a person has the potential to benefit from a university education.

As the Minister said, in recent years, significant progress has been made on widening access to higher education. It would be a real retrograde step if the Government accepted a recommendation from the review that would undermine that progress in any way.

My Lords, we obviously welcome this statutory instrument. I have three very brief questions. First, we have of course talked about disadvantaged and underrepresented groups, but what about dis- advantaged schools? How do we ensure that we break the cycle of the top independent schools sending far more pupils to some of our top universities than your average maintained school? Are we ensuring that the gap between independent schools, maintained schools and academies is included?

Secondly, do the access and participation plans include numerical targets for each university? Thirdly, I am quite taken with my noble friend Lady Garden’s point about the fines not going into some black hole in the Treasury. You could do quite a lot in disadvantaged areas with schools doing outreach work to encourage young people to go to university. If there was money available, it would be a much easier proposal to operate.

I thank all noble Lords for their participation in this fairly short but interesting debate. I will do my best to answer in short order the questions that were raised on these Higher Education (Monetary Penalties and Refusal to Renew an Access and Participation Plan) Regulations.

I thank the noble Lord, Lord Bassam, and all other noble Lords for being broadly supportive of these regulations. I welcome the remarks that the noble Lord made towards the end of his speech, saying that it is welcome that more efforts are being made towards access and participation to ensure that more disadvantaged pupils go to university. He is right that there is more to do; I think I said that in my speech.

The noble Lord, Lord Bassam, and the noble Baroness, Lady Garden, raised a point about impact assessments on the fees and penalties. I will spend a little time on that. There was a full consultation on the penalties. The maximum level of penalty is set at 2% of the income that the provider receives through grant funding from the OfS and from tuition fees in a 12-month period, or £500,000. To clarify, by this I mean that the maximum level of penalty is 2% of income, unless that calculation produces a figure that is less than £500,000. If that is the case, the maximum is £500,000. The maximum penalty is set at a level to allow the OfS to ensure that there are visible and meaningful consequences for a provider that is in breach of an ongoing registration condition, without being unduly punitive. The OfS has discretion as to whether to impose a monetary penalty and to set the level of that penalty up to the maximum mentioned.

It is envisaged that the OfS would impose the maximum level of penalty only in the most exceptional circumstances. These regulations set out the factors that the OfS must consider. These factors are intended to help ensure that the imposition of a monetary penalty and the amount of any penalty is appropriate, reasonable and proportionate, given the circumstance of a particular breach of a registration condition. There was broad agreement on these factors in the consultation response. On the question of whether a higher maximum was suggested in the consultation, I can say that no provider suggested a higher maximum penalty in the consultation.

The noble Lord, Lord Bassam, asked about the appointment of a statutory reviewer. I can reassure him that a statutory reviewer has already been appointed to focus particularly on access and participation. This appointment is in line with the principles of public appointments and will be under review. She is getting up and running; we will see what other resources she might need—at the moment, we are perfectly happy that she has a role, but of course it will depend slightly on what the demands of her role are. I hope that is understood.

The noble Baroness, Lady Garden, asked where the money from the penalties will go. Money from monetary and financial penalties, as well as income derived from interest, is required under the Act—under HERA—to go to HM Treasury’s Consolidated Fund, from which government expenditure is funded. This prevents the OfS from imposing penalties or charging interest to raise income. That is a long-winded way of saying that the money goes to the Treasury, which I suspect is an answer that she—

My Lords, is there any way that could be addressed? Surely it would be to the immense benefit of universities if any fine imposed went into a fund to help the very things for which it was imposed—that is, to increase the participation.

I understand exactly the point that the noble Baroness is making. I can certainly take that back to the department, and possibly to the Treasury, but I am pretty sure it is a matter which is tied down; as I have made clear, it is tied down in legislation, and was set out in the Higher Education and Research Act. However, the point is well made.

The noble Lord, Lord Bassam, asked about an impact assessment. No impact assessment was prepared for this instrument because these regulations do not introduce further burdens that would have an impact on businesses, charities or voluntary bodies. A provider’s compliance with its registration conditions—and so avoiding OfS sanction—is within the provider’s own control.

It is worth noting that the mandatory factors in Regulation 4 require that the OfS must have regard to the impact of imposing a penalty on higher education students at the provider in question and on higher education students more generally. The OfS will also take into account other matters that it considers to be relevant, including financial stability. However, with the greater emphasis that the OfS has given the regulator in terms of looking at the providers and their progress or otherwise, there is a process which the noble Lord will be aware of, to the extent that the financial sustainability of the providers is monitored very closely indeed. If there is any hint of difficulties, much closer monitoring will take place. I hope that is helpful.

The noble Lord, Lord Storey, asked about disadvantaged schools and the targets. The OfS is encouraging all the providers to work with schools through outreach access and participation plans, which should include targets set by providers and agreed by the OfS.

In terms of the help that independent schools can give to maintained and secondary schools, the noble Lord will be aware that—I am pleased to say—much work is going on between and by independent schools to ensure that resources, including teaching resources, are given where appropriate to secondary or maintained schools in a particular area. That is deliberately to help to raise standards within the community and give those who are less advantaged a greater chance to go on to either vocational training or a university.

Yes, they are numerical. I will certainly write to the noble Lord with more information about the targets that we have in mind.

I believe I have covered all the questions that were raised—

I do not believe the Minister has covered my point about the Augar review and when it will be reported, and the relationship between these two things.

The noble Lord is right. He is as sharp as anything; in fact, I wrote that very question down. I reassure him that the Augar review is going to be published shortly—very soon. I have said that for a while, but I promise that it is due out shortly. I am afraid that I am not in a position to say anything further about the timing of the Augar review.

Will the Minister respond to the point about the burden on institutions and the additional clarity, which I know there is some anxiety about?

Yes, indeed. I do not have an answer to that question, but let me write to the noble Baroness about that in the same letter that I will be writing to the noble Lord, Lord Storey.

Motion agreed.