Higher Education in the Age of Austerity: The role of private providers by Policy Exchange

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Higher Education in the Age of Austerity

In the first part of our forthcoming research programme on the role of private providers in higher educa,on we recommend ways in which an environment can be created to allow private ins,tu,ons to flourish in the UK. There is no sense in con,nuing to discriminate against private higher educa,on providers at a ,me when the public higher educa,on sector faces shortages of funds and student places. As well as addressing access to funding and student support, this report argues that the government should seek to address the exis,ng regulatory bias against private organisa,ons, which bring to the sector efficient working prac,ces, innova,ve and flexible course offerings, a strong voca,onal focus and access to commercial sources of funding.

Policy Exchange

Following the recommenda,ons made in the Browne Review, Britain’s higher educa,on providers are contempla,ng far-reaching changes to the system of higher educa,on funding and student finance. The Review’s numerous recommenda,ons add up to a vision of a far more compe,,ve and market-oriented system than is the case at present, with variable tui,on charges making up the bulk of university funding. A welcome corollary to these proposals is the Review’s recogni,on of the role played by private higher educa,on providers in the UK. Britain benefits from a number of high-quality private ins,tu,ons offering well-regarded professional qualifica,ons and training, as well as degrees in tradi,onal subjects. However, they have been forced to operate in an unfavourable and restric,ve policy environment which makes them inaccessible to many prospec,ve students.

Higher Educa,on in the Age of Austerity The role of private providers Alex Massey and Greg Munro

Higher Educa2on in the Age of Austerity The role of private providers

Alex Massey and Greg Munro

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Virginia Fraser, George Robinson, Robert Rosenkranz, Andrew Sells, Tim Steel, Alice Thomson, Rachel Whetstone and Simon Wolfson.

About the Authors

Alex Massey joined Policy Exchange’s Education Unit as a Research Fellow in October 2009. He is currently working on a series of reports on private sector involvement in UK higher education. Alex has a MA in English Language and Literature from the University of Oxford and an MSc in International Relations from the University of Kingston. Greg Munro was a Research Fellow in Policy Exchange’s Education Unit from January to July 2010. During that time he conducted research into the higher education policy area and authored a major report into the involvement of the private sector in higher education. Before joining Policy Exchange, Greg worked for both Anne Milton MP and Iain Duncan Smith MP in their parliamentary ofﬁces. He has a Bachelors degree in Political Studies and a Masters degree in British Politics and Parliamentary Studies, both from the University of Leeds. Greg is currently working as Research Assistant for Sarah Newton MP.

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Contents

Acknowledgements Preface Executive Summary Introduction

4 5 7 17

Part One: Regulatory Environment 1 Degree Awarding Powers 2 University Title

20 33

Part Two: Funding for Students and Institutions 3 Student Financial Support 4 Access to Public Funding

43 53

Part Three: Introducing Private Funds into the Public Sector 5 Takeovers and Mergers

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Acknowledgements

The reportâ&#x20AC;&#x2122;s authors would like to thank Kaplan UK, Eversheds LLP, Jonathan Kydd, Kai Peters, BPP, Dr Terence Kealey, James Groves, Natalie Evans and the many people whom we interviewed for this project. Your assistance is greatly appreciated.

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Preface

What do we mean by the terms ‘public’ and ‘private’ in the context of UK higher education? The Organisation for Economic Co-operation and Development (OECD) categorises a higher education institution (HEI) as either public or private based on the level of government involvement in its management, either directly or through the appointment of members of its governing body. This is not a particularly useful definition when used to refer to the UK higher education (HE) sector, as all UK institutions enjoy a relatively high degree of operational autonomy.1 Under the system as it currently operates, the more significant division within UK HE is between institutions which currently rely heavily on public funds for their income, and institutions that do not receive direct public funding and rely instead on income from tuition fees.Throughout this report, we use the term ‘private’ to refer to institutions which are not currently in receipt of direct state funding through the Higher Education Funding Councils (HEFC) (although a small number receive indirect state funding in the form of student financial support). When referring to HEFC-funded institutions, we use the blanket term ‘public’ (or alternatively ‘publicly-funded’ or ‘state-maintained’). Importantly, the Browne Review into higher education, published in October 2010, recommended major changes to the system of university funding in England and Wales.The key proposals involve a major shift away from direct funding of university teaching, moving instead to a system almost entirely reliant on graduate contributions payable after entering employment. These are highly significant changes which, if adopted by the Government as expected from 2012 onwards, will have the additional effect of helping to level the playing field between public and private providers. We examine the changes in more detail in Chapters 3 and 4 of this report. For the purposes of the discussion contained in this report, however, we continue to distinguish between ‘public’ and ‘private’ institutions based on their receipt or otherwise of direct state funding under the current system. Both categories of institution include a range of different types of organisation with varying legal status and powers. The UK’s public universities were established in various different forms under different legal provisions. The lack of a uniform legal basis for public institutions is reflected in their differing constitutional arrangements and legal powers, although all are legally independent corporations with charitable status.2 They can be broadly broken down into two groups: pre-1992 and post-1992 institutions. Most pre-1992 institutions were established by Royal Charter granted by the Privy Council, although a small number were established by a specific Act of Parliament. Governance arrangements and structures are laid down in the instrument of incorporation (i.e. the relevant charter or Act)and can only be amended by application to the Privy Council.3 Pre-1992 institutions include: Oxford and Cambridge, the University of London, ‘civic’ universities founded

1 Universities UK, Manifesto for Higher Education, 2009, http://www.universitiesuk.ac.uk/ Publications/Documents/manifest o2010.pdf. Accessed 25/07/10 2 Southampton Solent University, Code of Corporate Governance and Governors Handbook, 2(ii) ‘Introduction to the legal framework and corporate governance of higher education’, available at http://docman. solent.ac.uk/DocMan7/rns?RNSE xact=VCO/GH/1234570537. Accessed 29/07/10 3 Ibid

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Higher Educa2on in the Age of Austerity

4 Ibid 5 Ibid

6 Roger King, ‘Presentation to the All-Parliamentary Group: private higher education: private gain or public interest?’, 16 June 2009

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around the turn of the 20th century (such as Liverpool and Birmingham), universities established in the 1960s (such as Warwick and Sheffield), former Colleges of Advanced Technology which were awarded university status (such as Cardiff), and former colleges of the University of London (such as Imperial College). It should be noted that Oxford and Cambridge are exceptional in that they have neither a charter nor a specific Act, but rather a body of statutes, while the London School of Economics and the Institute of Cancer Research are unusual in that they are companies limited by guarantee.4 Post-1992 institutions were established under the provisions of the Education Reform Act 1988 and the Further and Higher Education Act 1992. The 1988 Act converted polytechnics (HEIs managed and funded by local education authorities) into independent Higher Education Corporations, and the 1992 Act allowed these institutions to obtain degree-awarding powers and the title of university. Other higher education colleges followed suit and gained university status under these provisions. Post-1992 institutions are required to draw up instruments of government governing the structure and membership of the governing body which must be approved by the Privy Council.5 Examples of post-1992 institutions include universities such as Kingston, Liverpool John Moores and Sheffield Hallam. In addition to universities, the public HE sector also contains HE colleges that have not achieved the title of ‘university’, as well as institutions that have received the lesser title of ‘university college’ (see the chapter of this report on university title). Not all HE colleges have their own degree-awarding powers. The private HE sector contains a similar range of different types of institutions, which can be broadly divided into for-profit and non-profit sectors. For-profits include international corporations with a UK presence such as Kaplan (owned by the Washington Post) and the Apollo Group (which in 2009 acquired BPP, a for-profit provider of professional qualifications, some at HE level), as well as small colleges, often offering non-accredited programmes. Non-profits include registered charities such as the College of Law, Ashridge Business School, and the IFS School of Finance. However, it is perhaps more useful to distinguish private HEIs based on their sources of accreditation and title. Only five private providers have obtained their own UK degree awarding powers (DAPs): these are BPP, the College of Law, Ashridge Business School, the IFS School of Finance, and Buckingham University. BPP is the only for-profit provider to have UK DAPs, and is also the only private institution to have use of the title of university college. Buckingham University started life as a university college but is now the only private full university in the UK; for a fuller description, see Chapter 2 of this report. Private institutions without UK DAPs may nevertheless be able to award UK degrees accredited by a public university through a partnership arrangement; examples include Kaplan and the London School of Commerce, while the University of Wales accredits the courses of 32 providers in the UK (see the chapter on degree awarding powers for more details of partnership arrangements). Other private providers offer foreign degrees, usually from the US; examples include Regent’s College which offers degrees from Webster University in the US (as well as degrees validated by the Open University and the University of Wales) and Richmond American International University. These institutions cater predominantly for international students.6

Executive Summary

Part One: Regulatory Environment Chapter 1: Degree Awarding Powers An Honours or Masters degree (or higher) awarded by a British university is recognised internationally as a high-level academic qualification. As such, it is essential that only institutions which offer students a high quality of education should be eligible to award degrees in their own right. However, this caution should not stand in the way of a level playing field between publicly funded and private institutions when it comes to consideration and application for degree awarding powers (DAPs). Unfortunately, private HE providers are currently treated less favourably than public providers with regard to the acquisition and retention of degree awarding powers. 1. Renewal requirements for private providers In 2003 the Labour Government decided that, as part of its reform of the higher education system, it would review the processes around the awarding and retention of degree awarding powers and the use of university title. A suggestion emerged from this review that all HE institutions, whether publicly or privately funded, should have to renew their DAPs every six years. Unsurprisingly, universities and academics were generally against the proposals from the outset; two-thirds of universities and the Standing Committee of Principals voiced strong opposition to the plan. As a compromise, and perhaps slightly cowed by unrest over the introduction of top-up fees, the Government decided that only private providers would have It is difficult to understand why private HEIs to reapply every six years, whereas those institutions in receipt of public must be forced to renew their degree awarding funds would be allowed to retain DAPs powers whilst their publicly funded counterparts in perpetuity. It is difficult to understand why hold them indefinitely private HEIs must be forced to renew their degree awarding powers whilst their publicly funded counterparts hold them indefinitely, regardless of their financial situation. A number of high-profile publicly funded institutions have found themselves in financial difficulties in recent years. However, their continued capability to award degree qualifications has never been called into question, despite the damage that could be done to the UK branding of HE by the collapse of an awarding institution. Many senior personnel at private HEIs expressed the view that the six year period before renewal is required is far too short, and indeed that the renewal

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Higher Educa2on in the Age of Austerity

requirement should be removed altogether. Whilst we agree that six years is an inappropriately short period of time, we feel that to scrap renewal requirements entirely may lead to complacency and could risk undermining public conﬁdence in the private HE sector as a whole. Instead, we suggest that DAPs should be granted for a minimum ten year period before renewal is required. Furthermore, we recommend that this process of assessment and renewal should be extended to public institutions. 2. Criticisms of process Criticism of the DAP application process by those we spoke to during the course of our research centred around the assessment panels which visited the various campuses. Some assessors were very guarded about the state of the application under consideration and gave little or no feedback. One senior representative of a private higher education institution (PHEI) felt that the assessment teams were occasionally “ill-prepared”, “unequipped” and “did not seem to have read the brieﬁng notes prior to observation of our meetings.” Others complained that the assessors were obsessed with ensuring that the HEIs’ processes were being adhered to but showed little interest in the quality of teaching. In addition, there has been considerable criticism of the length of time that it takes to be awarded DAPs following the initial application, as well as a great deal of inconsistency. The College of Law, for instance, received its DAPs within approximately a year of submitting its application whereas Ashridge Business School was not granted its DAPs until eight years after the initial application. There does not appear to be an explanation for this, nor is there a clearly established timeframe. The private providers that we spoke to who had applied for DAPs told us that once they submitted their applications they were kept entirely in the dark and received little advanced warning that assessment teams were on their way. Finally, there is real concern over the fact that the procedure for DAP renewal has not yet been worked out. As private HEIs have only been granted DAPs in the past few years, none have yet required them to be renewed and consequently no process has been tried and tested. Indeed, key management personnel in several private HE organisations expressed a sense of anxiety to us over the lack of thought that had been given to the renewal process. This is understandable given the considerable capital, time and energy that has already been invested by these companies in the initial acquisition of DAPs. We consider the Quality Assurance Agency (QAA)’s attitude of “we’ll cross that bridge when we come to it” to be unacceptable. If the Government is serious about allowing PHEIs to flourish then a clear and transparent DAP renewal procedure must be worked out immediately. Recommendations: 1. There needs to be more equality in the DAP system. Once private providers have been awarded DAPs they should retain them for a minimum period of ten years before renewal is required. Publicly-funded universities should be asked to renew their DAPs on the same timescale. 2. The application process for DAPs must be made as clear as possible so that applicants will know what to expect and how to prepare their applications

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Execu2ve Summary

3. 4.

and budgets accordingly. Regular and comprehensive feedback must be made available to applicants. Assessors should focus on quality of provision rather than on processes and organisational structures. A set timescale needs to be established with clear deadlines for each stage of the application. This will add an element of efficiency and progress that is badly needed in the system. The renewal process for DAPs should be established well in advance of the first wave of renewal applications. The process must be transparent, predictable and should seek to combine speed and simplicity with appropriate rigour. Assessment (and renewal) panels must be diversified to include private sector educators and representatives of business and industry to stop the traditional public model being unnecessarily and restrictively imposed on private organisations.

Chapter 2: University Title University title confers a degree of prestige on an institution which can make it signiﬁcantly more attractive to prospective students. One private institution told us that due to the impact of university title on their brand reputation and marketing opportunities, they would expect to see a 30-35% increase in the number of student applications. However, private providers are currently denied this opportunity purely because of their private status; in order to be awarded university title, the applicant institution in question must be publicly funded. Although private providers of HE were able to apply for DAPs for the first time after the rules were amended in 2004, it remains the case that they are automatically excluded from applying for university title. The QAA justifies this discriminatory approach by referring to Section 77 of the Further and Higher Education Act 1992, which states that only institutions that have been awarded DAPs in perpetuity are eligible to apply. As DAPs for private providers are time limited and last only 6 years, they are thereby excluded from consideration for university title. The QAA therefore justifies this discrimination against the private HE sector in a circular fashion, by reference to yet another discriminatory provision- that public HEIs enjoy permanent DAPs while private HEIs do not. An additional problem derives from a loophole created by the QAA’s lack of jurisdiction over international HEIs, which allows international providers to use the title of university in the names of their UK campuses without undergoing any checks or controls. Girne American University (GAU), for instance, based mainly in Northern Cyprus but with a campus located in Canterbury, is able to call itself a university without having been scrutinised or assessed by the QAA in any way. The QAA has very little power to prevent this. Its only option would be to carry out an investigation to see whether students were being deliberately misled by this title, and whether this would prove to be damaging to the international standing of UK higher education generally. Even if it found this to be the case, the QAA would not be able to stop the HEI using the term university, but would merely submit its ﬁndings to the Department of Business, Innovation and Skills.

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Higher Educa2on in the Age of Austerity

This loophole means that while private domestic providers of higher education are being penalised for their non-maintained status, foreign providers are able to take full advantage of the marketing beneﬁts of university title when operating in the UK, irrespective either of their income sources or the quality of the education provided. Recommendations: 1. The requirement that a university should have a minimum of 4,000 students should be reduced to a minimum threshold of 1,500-2,500 students. 2. Private higher education providers should be allowed to apply for the title of university. The source of an institution’s income (under the current system) should not have a bearing on its ability to provide a high standard of education provided it has proved that it has a sustainable business model. 3. The application process and required standards must be more transparent and easily accessible to reduce confusion and inefﬁciency in the sector. 4. Internationally owned universities operating in the UK should be subject to the same scrutiny as the UK’s domestic HEIs.

Part Two: Funding for Students and Institutions Chapter 3: Student Financial Support The Education (Student Support) Regulations 2009 state that in order for students to receive financial support from the state to pay for tuition, the course must be “wholly provided by a publicly funded educational institution.” In other words, a course must receive funding from the higher education funding councils for its students to be eligible for any form of state support, leaving most students little choice but to attend publicly funded universities. However, the situation regarding student support is in fact more complex than it first appears. When we telephoned Student Finance England to query the availability of student support to students at private HEIs, we were told unequivocally that support was available only to students on publicly funded courses. In reality, this is not the case. Some students at private HEIs may in fact be eligible for student support if they are enrolled on a ‘designated’ course. Regulation 6(8) of The Education (Student Support) Regulations 2009 allows for ‘degree and degree-comparable courses provided by non-maintained institutions’ to be specifically designated for student support eligibility by the Secretary of State on an individual basis. Accordingly, the Department for Business, Innovation and Skills takes a piecemeal approach to support for students at PHEIs, granting designated status on a course-by-course basis. The result is a total lack of clarity around this issue. In theory, students enrolled on designated courses run by PHEIs are eligible for the full non-means-tested tuition fee loan of up to £3,290 in 2009/10. However, this is so poorly publicised that even Student Finance England appeared entirely unaware of it when we called for advice. The fact that prospective PHEI students are in receipt of inaccurate and misleading advice from the body charged with

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Execu2ve Summary

assisting them is indicative of the way that private institutions are currently treated within the sector. The Browne Review includes the welcome and long-overdue proposal that ‘students on all courses, irrespective of the status of their institution, will be able to access the Student Finance Plan. These recommendations constitute a major step towards creating a level playing field for all higher education providers. Our discussions with representatives of private institutions reveal near-unanimous support for Browne’s proposals, and a widespread intention to take advantage of them, should they be implemented as expected. The proposed levy on fees is not widely seen as a problem; one private provider informed us that, due to the efficiency of their operation, they would be able to realise a 10% profit even if they charged fees at the current capped rates for maintained institutions (£3,290). There are several examples of private HEIs which currently charge little more for tuition than the capped public rate: the London School of Commerce offers some BA and BSc awards with fees between £3,450 and £3,950 per year, and Cavendish College charges domestic students £3,900 per course. It remains possible that the Government will choose to impose a hard cap on tuition charges instead of the incremental levy. As long as such a cap is set sufficiently high, there should still be scope for a genuine market to develop. A low cap at £6,000-£8,000 would simply mean that nearly all institutions would seek to charge the top rate almost immediately, as they did after the introduction of top-up fees in 2004. For a functioning market to develop, there must be sufficient scope for institutions to charge genuinely variable fees. Any hard cap should therefore be set at no less than £12,000. Part-time students Crucially, the majority of the more established PHEIs in the UK cater primarily, and in some cases solely, for part-time students. Unfortunately, the support that is available to these students is nothing short of lamentable. Support is only available to part-time students who study the equivalent of at least 50% of a full-time course each year, and complete the course in no longer than twice the amount of time it would take a full-time student. This means that that student support for part-time students is based on the hours of study and not financial need. A staggering 90% of part-time students receive no financial assistance from the Government support whatsoever. For these reasons we welcome the Browne Review’s recommendation that ‘entitlement for support for the costs of learning be extended to part time students as well.’ However, any move to extend financial support to part-time students must be designed in such as a way as to ensure that the investment of employers is not disincentivised and that students who would historically have had their course paid for by their employer are not handed over to the state. VAT Part of the reason for the higher fees at private HEIs is the UK’s inequitable treatment of PHEIs with regard to VAT. Publicly funded HEIs in the UK are classified as ‘eligible bodies’ under Group 6 (Education) of Schedule 9 of the VAT Act 1994. Consequently, supplies of education or vocational training by public

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Higher Educa2on in the Age of Austerity

institutions are exempt from VAT. However, private, for-profit HE providers do not have eligible body status, so educational supplies provided by these companies are subject to VAT at the standard rate. This disparity places private providers at a competitive disadvantage in comparison with the maintained HE sector in the UK. It also raises EU harmonisation issues. The European Directive 2006/112/EC of 28 November 2006 states that ‘the provision of… school or university education… by bodies governed by public law’ shall be exempt from VAT. Hence educational services in Ireland, for example, are VAT-exempt regardless of whether the supplier makes a profit or not. Eversheds LLP believes that the UK’s VAT regulations in respect of HE may be open to challenge, and that the EU VAT Directive may allow the UK to apply a blanket VAT exemption to all private HE providers. This would mean that private providers in the UK would be treated equally alongside their public counterparts, potentially allowing them to reduce tuition fees and re-invest more money into their provision. We believe that it is right that private HE providers be allowed to operate on a level playing field with maintained HE providers, and that they should therefore be treated equally with regard to VAT eligibility. Recommendations: 1. As recommended by Lord Browne, the distinction between publicly funded, non-profit and for-profit institutions in relation to student support eligibility should be removed. The Government should provide loans to students regardless of the motivation of the HEI they choose to attend. The Government should, however, ensure that the HEI is legitimate and is being appropriately monitored to ensure a high quality of teaching. 2. The eligibility requirements and application process for student loans must be made clear and easily accessible. While HEIs already provide information on what support their students may receive, the Government must also make this information and guidance available for school-leavers. 3. Part-time students, at both public and private HEIs, must be allowed greater access to student loans to pay for tuition fees and to assist with the cost of living. The Government should therefore implement Lord Browne’s proposal to extend student support eligibility to students studying 33% of a full-time course per year, rather than 50% as at present. In doing so it should ensure that that students who would historically have had their course paid for by their employer are not handed over to the state. 4. Private HE providers should be granted the same exemption from VAT that is granted to public providers, in line with the relevant European directive. Chapter 4: Access to Public Funding At present grants from the funding councils account for approximately 36% of university income, demonstrating the sector’s heavy reliance upon HEFC support. The Higher Education Funding Council for England (HEFCE) will distribute a total of £7,426 million to universities in England in the academic year 2010/11. Provisions contained in Section 129 of the Education Reform Act 1988 (as amended by the Further and Higher Education Act 1992) create a route by which HE institutions not in receipt of HEFCE funding can seek to become eligible to receive it. The section provides that the Secretary of State of the relevant

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Execu2ve Summary

department (currently the Department for Business, Innovation and Skills) may by order designate as eligible to receive HEFC funds any institution at which over 55% of courses offered are courses of higher education. Designation is awarded at the discretion of the Secretary of State, based on advice from the HEFC in consultation with the Quality and Assurance Agency (QAA). We consider the current piecemeal system by which designation for public funding is granted to have some serious flaws. Far from being transparent and predictable, the little-used method by which institutions can apply for designation is an uncertain process, particularly for private providers. Our conversations with representatives of established private HE providers indicate that, although no applications have been made, there have been some informal enquiries into the possibility of acquiring designation for HEFC funding eligibility. Decidedly mixed signals have been received in response. One profit-making provider told us that it was originally informed by HEFCE that it was not eligible even to apply for the funds, before being told that it could in fact apply but stood no chance of being successful, indicating a prevailing bias against private providers despite no official statements on the subject. Finally it was told that an application could be made which which might in fact be approved after all. Thankfully, the Browne Review took a significant step towards a fair and transparent process by making the recommendation that ‘new providers will be able to apply for targeted HE Council investment if they offer priority programmes – and they will be subject to the same quality requirements as any other provider.’ This sensible recommendation ensures that institutions wishing to receive direct funding for the first time are not burdened with conditions over and above those required of institutions already in receipt of funding. The adoption of this proposal would go a long way towards creating a level playing field for private providers and removing the uncertainty around the funding application process. The Browne Review also recommends the creation of a unified HE council, which would be a powerful body with wide-ranging powers. It is therefore essential that the body carries out its duties in an even-handed manner that does not discriminate against the private sector. Certain conditions imposed on institutions by bodies such as HEFCE are unnecessarily restrictive and, in our view, especially onerous from the point of view of private HE providers. For example, a typical condition of this type is contained within Paragraph 72 of HEFCE’s Model Financial Memorandum, which states that if a university wishes to enter into a short-term financial commitment, it is not the university’s governors who have the final say but the Funding Council itself. The Council must be satisfied that the financial commitment offers “the most appropriate” solution and is “consistent with the institution’s financial strategy.” Furthermore, Paragraph 70 of the Memorandum stipulates that certain long term financial agreements require the Council’s written consent. In effect, final approval of an institution’s financial strategy is placed in the hands of the Funding Council rather than those best placed to judge it- the university leadership. This seriously calls into question the institutional autonomy of our universities. Private organisations are understandably unwilling to sign away their commercial and operating freedoms by complying with such conditions. Indeed, traditional publicly-funded universities have also expressed disquiet at

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Higher Educa2on in the Age of Austerity

the impact of the requirements, with the umbrella organisation Universities UK stating that the “restrictive financial memorandum” serves to discourage risk-taking. While we accept that taxpayers need assurance that their money is not being squandered on unsound institutions, this must be balanced against the need to maintain institutional independence within the UK’s higher education sector. As well as comply with the Financial Memorandum, HE providers that receive HEFCE funding under the current system are required to submit to regulation by the (QAA). The QAA’s methods have been subject to criticism. A 2009 report by the Innovation, Universities, Science and Skills Select Committee concluded that ‘the system in England for safeguarding consistent national standards in higher education institutions is out-of-date, inadequate and in urgent need of replacement.’ It added that the QAA ‘focuses almost exclusively on Assessment teams were reported to have processes, not standards’ and called for the QAA ‘to be transformed into an arrived and simply studied procedures, independent Quality and Standards documents and manuals without having Agency.’ We fully support the principle that observed a single tutorial or interviewed HEIs should be subject to rigorous students to receive feedback quality assurance. However, there is a danger that, as the QAA focuses strongly on process over outcomes, private HEIs which operate in a non-traditional manner will be placed at an unfair disadvantage. Many of our interviewees from both publicly funded and private HEIs were critical of the highly prescriptive and box-ticking culture within the QAA. Assessment teams were reported to have arrived and simply studied procedures, documents and manuals without having observed a single tutorial or interviewed students to receive feedback. As with the process for obtaining DAPs, we believe that the QAA should re-examine its practices to ensure that they deliver an effective means of maintaining and improving the quality of UK higher education. If it is incorporated into a uniﬁed Higher Education Council, care must be taken so that the QAA’s ﬂaws are not simply replicated in another organisation.

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Recommendations: 1. All higher education institutions meeting required quality standards should be able to access public funds for teaching priority courses, as suggested by Lord Browne, and for research where applicable. 2. Public funding rightly comes with certain restrictions to ensure that taxpayers’ money is well spent. However, these restrictions should not unduly restrict institutional autonomy or compromise competitiveness. HEFCE (or the proposed Higher Education Council) should review its funding criteria accordingly, giving particular consideration to the abolition of its right to final approval of financial commitments. 3. The QAA (or the proposed Higher Education Council) should review its quality assurance procedures to ensure that they focus sufficiently on outcome over process, and do not discriminate against private providers organised along non-traditional lines.

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Execu2ve Summary

Part Three: Introducing Private Funds into the Public Sector Chapter 5: Takeovers and Mergers There is general consensus within the UK’s higher education sector that institutional mergers and takeovers are a likely future consequence of forthcoming funding cuts. A survey of UK vice-chancellors by PA Consulting found that 69% thought that significant numbers of mergers or acquisitions were ‘probable’ or ‘highly likely’ over the course of the next few years. In the past, the Government has responded to situations where a publicly-funded HEI has faced financial failure by stepping in to facilitate a merger with another institution. Policy Exchange argued in the 2009 report Sink or Swim: facing up to failing universities that this is not always the best solution and that in some circumstances a struggling university should simply be allowed to collapse. Our view is that the Government should not feel obliged to prop up every failing institution using taxpayer’s money, particularly if pessimistic predictions about the sector’s future are proved accurate: PA Consulting’s survey found that 74% of vice chancellors expect to see the failure and disappearance of more HEIs in the next few years, in light of expected funding cuts and wider economic difficulties. There should certainly be no presumption that all failing HEIs should be rescued with government-backed deals. We argue that the private sector could have a significant part to play in ensuring that taxpayers’ money is put to best use in the interests of safeguarding higher education. This could potentially involve the full or partial takeover of a public institution by a private company. The greatest advantage of involving a private organisation in an institutional takeover is that private companies have ready access to capital which can be used to shore up a university’s finances and supply the investment required for a deal to succeed. We therefore expect that any possible takeover would most probably involve one of the large and well-resourced private education providers such as Kaplan, BPP (owned by the international Apollo Group) or Laureate Education. These for-profit providers have access to commercial sources of capital which would negate the need for the Government to expend vast sums in order to smooth the progress of a deal. This may be why HEFCE has reportedly recently advised senior managers of public HE institutions facing the risk of financial failure to consider partnership arrangements with private providers such as BPP. An issue that requires further clarification in the case of a public-private deal is the question of what will happen to degree awarding powers and use of university title. Under the amended QAA regulations of 2004, private providers are eligible to apply for DAPs on a time-limited basis only, and are not eligible for university title. By contrast, all public institutions created prior to 2004 have the right to continue to award degrees in perpetuity, which is usually laid down in the university charter. Elsewhere in this report we recommend that private and public providers should be equally treated with regard to DAPs and university title. However, while the two sectors are still treated differently, the possibility must be considered that a private-public takeover could jeopardise an institution’s entitlement to DAPs and the title of university. The Government should pre-empt this possibility by making it clear that DAPs and university title would not be adversely affected by an amalgamation with a private provider.

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Higher Educa2on in the Age of Austerity

Recommendations: 1. The Government needs to make a clear statement outlining the implications of any takeover or merger between an existing HEI and a private provider. In particular, the Government must clarify whether access to HEFCE funding and student ďŹ nancial support would be retained. 2. The Government must make it clear that DAPs and university title would not be jeopardised by a merger or takeover of a public university by a PHEI. 3. The Government should consider a blanket Act to allow universities (including those established by Royal Charter) to change their legal status and become a private limited company. This would allow access to private investment without the need for an institutional takeover.

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Introduction

Higher education institutions (HEIs) in England are facing up to the prospect of radical changes to their funding arrangements. Following the publication of the Browne Review into higher education funding in October 2010, it is clear that higher contributions from learners, paid after leaving university, will replace Government grants as the chief source of university funding, probably from 2012/13 onwards. This will have long-term ramifications for the sector. As the Browne Review noted, the current system of grant-based funding has lead to a culture of complacency in the higher education (HE) sector. Weaker institutions are sheltered from genuine competition, while stronger ones are prevented from raising fees to achieve growth. Increases in income since 2006 have not led to noticeable improvements in the student experience.7 All maintained institutions enjoy the security of knowing that their places will be filled and their grants will be paid, regardless of the quality of their provision or their success in leading students towards employment. The proposed reforms, if implemented successfully, will bring an abrupt end to this cosy settlement. Institutions will stand or fall on their ability to attract and retain students. Students paying higher fees will demand a fuller student experience and improved employability in return. Increased specialism and diversity within the sector is likely to result from the reforms, as institutions seek to carve themselves a niche within the HE market. In this context, we fully expect to see private higher education institutions (PHEIs) play a much greater role in a post-reform UK HE sector. Employability and student satisfaction are key selling points of PHEIs – the UK’s only private university, the University of Buckingham, topped the national student satisfaction tables every year between 2006 and 2009. In addition, PHEIs are often highly specialised, concentrating their provision in areas where they possess the greatest expertise and can deliver courses most cost-effectively. Finally, PHEIs have never become habituated to the comfort of regular, predictable funding grants. In short, private institutions are ideally placed to compete in a genuine marketplace for higher education. Lord Browne’s review calls for HEIs to become more competitive, more dynamic, and more responsive to the needs of students and employers. It should be recognised that many PHEIs already possess all these characteristics. However, in order to encourage PHEIs to flourish further, the Government must address the unfavourable and restrictive regulatory environment in which they operate. PHEIs are denied access to degree-awarding powers and to the prestige of university title, their students are ineligible for financial support, and they are unable to access any form of funding. Britain benefits a number of successful PHEIs offering well-regarded professional and academic qualifications. However, more needs to be done to

7 Lord Browne of Madingley et al., Independent review of higher education funding and student finance, 12 October 2010

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Higher Educa2on in the Age of Austerity

allow them to compete equally with the traditional university sector. In this report we call for a level playing-ďŹ eld for private providers, and set out ways by which this could be achieved, looking at the regulatory environment in Part One and the funding environment in Part Two. Additionally, in Part Three, we examine methods by which private capital could be injected into public higher education institutions. This report is the ďŹ rst in a two-part series looking at the role of the private sector in UK higher education.

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Part One

Regulatory Environment

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Degree Awarding Powers

An Honours or Masters degree (or higher) awarded by a British university is recognised internationally as a high-level academic qualification. As such, it is essential that only institutions which offer students a high quality of education should be eligible to award degrees in their own right.8 The British Government can therefore, to some extent, be excused its traditional predilection for caution when it comes to the granting of these powers to what are essentially independent and autonomous bodies. In order for the status of ‘UK HE Plc’ to be maintained, potential students, both at home and abroad, must be confident that their degree qualifications will be worth far more than the paper they are written on. However, this caution should not stand in the way of a level playing field between publicly funded and private institutions when it comes to consideration and application for degree awarding powers (DAPs).

Why are DAPs significant?

8 HEIs other than universities can enter into partnerships with established universities to award degrees. See below.

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DAPs are of great significance to any higher education institution (HEI), whether public or private. Without them, an HEI cannot operate in a fully independent manner and must rely upon a partner institution to validate its programmes. These arrangements can be expensive; senior managers of institutions that had previously partnered universities informed us that the price for a single cohort of students could often reach six figures per year. In addition, DAPs have an effect on public perception of an institution’s status. An institution that has been granted the right to award its own degrees, without validation via a third party, is sending a signal to prospective students and contemporaries in the HE sector that its programmes are recognised as being of the highest quality. DAPs therefore act as the kite mark of the HE sector, assuring the public that the HEI in question provides a high standard of service. For these reasons DAPs are highly sought after by both publicly funded and private institutions. If we are to encourage more private provision of HE to satisfy rising demand, improve student choice and diversity of provision, and enhance wider participation, there needs to be a major shift in attitude to ensure that private organisations are not discriminated against in the sector and are treated on an equal basis to their publicly funded counterparts. They must, therefore, have an equal right to apply for DAPs and be considered on equal merit without compromising the efficiency of their operation. However, as we discuss below, private HE providers are currently treated less favourably than public providers with regard to the acquisition and retention of degree awarding powers.

Degree Awarding Powers

Spain

Spain is an example of a country in which the private HE sector has developed rapidly over recent years. 27 of Spain’s 77 universities are private, yet as recently as

1991 there were only four private universities in Spain, all of them owned by the Catholic Church (which has long been involved in education provision in the

country). 9 22 new private universities were created in the period 1993-2009,

mirroring a similar rise in the number of public universities: the total number of universities in Spain rose from 35 to 75 between 1985 and 2005.10 Much of this

growth is attributed to Spain’s simple regulatory system which gives equal status

to private institutions.

In the early 1980s, Spain’s higher education sector still bore the hallmarks of the

dictatorial Franco regime; universities were tightly controlled by the government, had no control over their own budgets, and were restricted to offering 60 state-

approved degrees, aimed at producing future state employees. 11 However, the

gradual liberalisation of the country following the restoration of democracy in 1978 began to be reflected in the higher education sector, and in 1983 the Law of

University Reform (Ley de Reforma Universitaria or LRU) was passed which, among

other measures, created a statute of autonomy for each university and explicitly permitted the creation of private universities by institutions other than the Catholic Church.

The rapid growth of Spain’s private HE sector over the years following the LRU is put

down to four main factors by observers:12

1. Firstly, the poli2cal will required to push the necessary reforms through in the ﬁrst place;

2. Secondly, a very rapid rise in demand (enrolments quadrupled between 1970 and

1995, although demand is now falling due to a con2nuous fall in birth rates since

1975);13

3. Thirdly, a a simple, transparent pathway to the establishment of a new university, which takes only around two years to complete;14

4. The fourth and ﬁnal factor is key: a regulatory regime that places public and private

universi2es on an en2rely equal foo2ng when it comes to access to both degree

awarding powers and university 2tle. This encourages new private providers to enter the sector and helps them establish themselves in the market.

Addi2onally, state-subsidised student support is accessible by students in both sectors,

although by the UK’s standards the sums on oﬀer are extremely low. Only in their

sources of funding are the two sectors dis2nct: public universi2es are funded solely through taxa2on and charge no fees at all, while private universi2es rely on (uncapped) tui2on fees as their chief source of income.

The example of Spain demonstrates that the private HE sector is well capable of

mee2ng rapidly rising demand if the environment is suﬃciently favourable. The key to

the growth of Spain’s private HE sector is the equal regulatory treatment of public and

private HEIs, and the transparency and simplicity of the process involved in the crea2on of a new HEI. Policy-makers in the UK would do well do take note if they wish to

encourage the growth of Britain’s private HE sector.

9 Spanish Ministry of Education, Datos y Cifras del Sistema Universitario Curso 2009/10 (Facts and figures about the University System 2009/10), available at http://www.educacion.es/dctm/ ministerio/educacion/universidad es/estadisticas-informes/datoscifras/2009-datos-y-cifras-09-10.p df?documentId=0901e72b8009f6 bb. Accessed 02/09/10 10 Ibid

11 Rebecca Warden, ‘Spain's rollercoaster of reform’, Times Higher Education Supplement, 31 March 1995 12 Private information

13 Jose-Gines Mora, ‘Higher Education in Spain’, Technical University of Valencia, available at www.euerek.info/Public.../HE%20 in%20Spain.ver.29%20oct.doc. Accessed 02/09/10 14 Private information

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Higher Educa2on in the Age of Austerity

What criteria must be met before an application can be made for DAPs?

15 QAA, ‘A brief guide to QAA’s

involvement in awarding degrees and university title’,

www.qaa.ac.uk/reviews/dap/brie

fGuideDAP.asp. Accessed 25/07/10

16 The criteria for acquiring DAPs

are set out in Department for Business, Innovation and Skills, ‘Applications for the grant of taught degree-awarding powers, research degree-awarding powers and university title Guidance for applicant organisations in England and Wales,’ 2004, http://www.qaa.ac.uk/reviews/da p/DAPCriteriaGuidance.pdf. Accessed 09/08/10 17 University of Sunderland, ‘What is the difference between a research degree and a taught programme?’ http://www.sunderland.ac.uk/res earch/research_degrees/informat ionforapplicants/research_vs_tau ght_degree/ . Accessed 09/08/10

18 Department for Business, Innovation and Skills, ‘Applications for the grant of taught degree-awarding powers, research degree-awarding powers and university title Guidance for applicant organisations in England and Wales,’ 2004, http://www.qaa.ac.uk/reviews/da p/DAPCriteriaGuidance.pdf. Accessed 09/08/10

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To be granted DAPs in the UK, an organisation must be authorised to do so either by Royal Charter or an Act of Parliament. An initial application must be made to the Privy Council, which forwards the application to the relevant minister (in England’s case the Secretary of State for Business, Innovation and Skills). Applications are then sent to the Quality and Assurance Agency for Higher Education (QAA) for scrutiny. Although the final decision is technically made by the Privy Council, it will always have regard to the advice provided to it by the QAA via the relevant Minister. The QAA assesses applications based on eligibility criteria set by the Government (see below). The current criteria to which DAP applicants in England and Wales must adhere were published in 2004, although earlier criteria dating from 1999 apply to Scotland and Northern Ireland.15, 16 It is important to note that a distinction is drawn between ‘taught’ degrees and ‘research’ degrees. Taught degrees include undergraduate degrees and postgraduate qualifications, such as some Masters degrees, that involve assessed study as well as supervised research. Research degrees are postgraduate degrees that are awarded on the basis of an individually initiated and registered research programme, such as PhD qualifications.17 Any organisation seeking the power to award research degrees must have been granted the power to award taught degrees. Other than this stipulation the criteria for consideration for research DAPs and taught DAPs are the same. However, applications for the two types of DAPs are assessed against differing criteria once received.18 There are two phases to the application process: consideration, and then assessment. Before the merits of an application can be assessed, the applicant institution must show that it meets the criteria for its application to be initially considered. We examine each of these sets of criteria in turn. Criteria for consideration a) The first criterion which must be met in order for a DAP application to be eligible for consideration provides a sensible filter by which the integrity of ‘UK HE Plc’ can be safeguarded. It stipulates that any provider must have accumulated at least four consecutive years of delivering programmes of at least an Honours level before an application can be made. This can be done through a deal struck between a university and a private institution, allowing the private HEI to offer courses degrees through the university. These arrangements enable students to receive a full degree, despite in some cases never coming into contact with the awarding university. The two most common such arrangements are validation and franchise agreements. A franchise agreement allows the degree-awarding university to maintain greater control over the course as it is taught in the private institution; the university develops the programme, including curriculum and mode of delivery, and carries out assessments. Additionally, franchise arrangements are usually subject to regular quality assessment, based both on self-review and on external review of exam results. By contrast, a validation arrangement places responsibility for academic rigour more firmly at the feet of the private institution, which is responsible both for writing the degree

Degree Awarding Powers

programme and carrying out assessment. Validation arrangements therefore require stronger quality assurance on the part of the private institution involved. Private providers will sometimes make use of both kinds of arrangement with different universities; for example, Kaplan offers degrees from Liverpool John Moores University and the University of Wales through a franchise agreement, and from the University of Essex through a validation agreement. In exchange for accrediting the PHEI’s degree programmes, the partner university is paid a sum often reaching six figures; one manager told us that the graduation of one cohort in a single subject area cost £150,000.19 The financial benefits make deals of this type particularly attractive to universities, while the private sector partner benefits from the ability to offer degrees accredited by an established HE brand. Private and publicly funded providers alike agree that this is a sensible criterion in that it allows potential applicants the time and experience to prove that they have developed a sustainable business model and are capable of providing a consistently high level of education. Partnership arrangements of this type can therefore act as a useful stepping-stone towards the acquisition of full DAPs, although the arrangements are also valuable in their own right and mutually beneficial to both parties involved.

Initiative involving Kaplan and the University of London20

Beginning in the academic year 2010/11, Kaplan will be providing the opportunity for students to study for University of London degrees externally at the London-

based Kaplan Business School. Tuition will be offered to students registered with

the University of London International Programme (the University’s external

programme). Degrees will be both awarded and assessed by the University, and tuition will be provided through Kaplan Business School.

Kaplan offers degree programmes in business, accounting and finance and law at

campuses in five cities throughout the UK. The company already works in

partnership with the University of Essex to provide online degree programmes in Business Studies, Financial Services and Criminal Justice.

The University of London is one of the world’s leading universities, constituting

a federation of 19 Colleges with a reputation for high academic standards. Its

external programme, the oldest in the world, was originally established in 1858 for students unable to travel to London for study. It now reaches students all over the

world who are able to study for University of London degrees externally. The

programme now covers 45,000 students on more than 100 different courses in over 180 countries.21

The initiative has been welcomed by the Government, and places in the

programme will be made available for some of the tens of thousands of students who will miss out on a university place this year.

Kaplan Business School will prepare students for the following University of

London degrees: Bachelor of Laws (LLB); BSc Accounting and Finance; BSc

Accounting with Law; BSc Banking and Finance; BSc Business; BSc Economics and

Finance.

19 Private information

20 Information obtained from Kaplan UK

21 University of London External System, 2009/10 General Prospectus, p.2

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Higher Educa2on in the Age of Austerity

b) The second criterion stipulates that the majority of an institution’s HE students are enrolled on programmes that offer a qualification at Honours degree level (Level H) or above. The first stipulation is a fair method of distinguishing HE institutions with degree-awarding powers from colleges of adult or further education, and of ensuring that all offer a high standard of qualification. Honours degrees require a higher standard of study than either ‘ordinary’ degrees (a degree pass without honours) or ‘foundation’ degrees (usually two years in duration with a strong vocational component).22 While these qualifications have value in their own right, we consider it appropriate that the majority of degrees offered by institutions with DAPs should be of the highest academic standard.

22 UCAS, Foundation Degrees, http://www.ucas.ac.uk/students/ choosingcourses/choosingcourse/ foundationdegree. Accessed 24/07/10 23 QAA, DAP Criteria Guidance, www.qaa.ac.uk/reviews/dap/Crit eriaGuidance.asp. Accessed 09/08/10 24 Lord Browne of Madingley et al., Independent review of higher education funding and student finance, 12 October 2010

25 Rebecca Attwood, “London Met may cut 500 jobs, UCU claims,” Times Higher Education Supplement, January 2009, http://www.timeshighereducatio n.co.uk/story.asp?storycode=405 088. Accessed 17/07/10

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c) The third and final criterion is also characterised by vagueness. The applicant must be able to demonstrate “that it holds public confidence, in the present and the future, in delivering high academic standards and quality”.23 The guidelines do not state how this demand should be achieved. One is left presuming that it means that an institution must reach and maintain a satisfactory level of quality and a sustainable financial model. Viewed rationally, private institutions which live or die by their success and reputations might be regarded as more capable of meeting and ensuring public confidence than those publicly funded institutions which continue to be cushioned by the state from the consequences of poor financial management and performance. However, the vagueness of the criterion leaves room for private providers to be discriminated against on the grounds that they do not enjoy the security of knowing that predictable sums of public money will be provided each year through the Funding Councils. If the funding reforms proposed by Lord Browne are implemented as expected in 201224 (see Chapters 3 and 4), no university will be able to rely on direct funding regardless of performance for the majority of subject, levelling the playing field in this regard. However, the fact that private providers are not granted DAPs in perpetuity creates additional uncertainty over their future which is not shared by public HEIs. The renewal of DAPs will be examined later in this section. However, suffice it to say that a private institution which has invested a considerable amount of time and money into achieving DAPs in the first place stands to lose out considerably if the powers are revoked, both financially and in terms of prestige. By contrast, publicly funded institutions hold DAPs permanently can take a far more complacent approach. They therefore are not incentivised in the same way as private providers to prove themselves worthy of public confidence by guaranteeing budgetary stability and high academic standards. An institution such as London Metropolitan University can encounter severe financial difficulty, and even be found to have claimed £38 million of HEFCE funding to which it was not entitled25 (surely raising concerns around public confidence in the institution), yet continues to operate without regard to QAA criteria for DAPs. Private providers do not have this luxury. If the Government is prepared to make a concerted effort to encourage private providers to enter into the higher education sector, then it cannot continue to maintain rules which discriminate against private HEIs simply because they might be smaller in size, cater to a large extent to part-time students, and cannot fall back on the taxpayer’s generosity in times of financial difficulty. The QAA should

Degree Awarding Powers

consult with BIS as well as the wider higher education sector (both publicly funded and private) in order to determine what the initial criteria for applying for DAPs should be. Only with agreement from all parties can a review take place which will level the playing ﬁeld whilst at the same time ensuring that less reputable and unstable providers are unable to enter the market.

How does the DAP application process work? The application process for DAPs is outlined by the BIS document ‘Applications for the Grant of Taught Degree-Awarding Powers, Research Degree-Awarding Powers and University Title: Guidance for applicant organisations in England and Wales (August 2004)’. However, it has been the subject of much confusion for those who have applied and experiences of the process vary considerably. Stage 1 The ﬁrst stage is for the institution to carry out a critical self-analysis and test its systems to ensure that its established procedures are functioning correctly. The idea is for the institution to describe, analyse and comment upon its effectiveness in meeting the criteria outlined above and the suitability for holding its own DAPs. The way in which this is conducted is left to the discretion of the applicant institution. The self-analysis should also include a list of evidence Only with agreement from all parties can a which demonstrates that the organisation has tested its teaching review take place which will level the playing procedures, quality assurance mechanisms and that these are working field whilst at the same time ensuring that less accordingly. In addition, the reputable and unstable providers are unable to self-analysis should be complemented with “off-the-shelf” material such as enter the market prospectuses, operational plans. This is followed by a formal letter of application and the self-analysis (along with any supporting documentary evidence which the applicant considers to be relevant) made to the QAA, which examines the application at the next available meeting of its Advisory Committee on Degree Awarding Powers (ACDAP). The ACDAP panel meets four times a year at quarterly intervals, demonstrating a lack of urgency and unnecessary delay in the application process. The panel itself is comprised of 13 members, three of which will be from the QAA’s board. Typically, the composition of the panel will be three vice chancellors (one from a pre-1992 university, one from a post-1992 university and one other), the head of an HEI which has not been granted the title of university, three senior university members (e.g. pro-vice chancellors) and two others with experience of sectors of employment that are signiﬁcant recruiters of graduates.26 It is important to note that the panel consists overwhelmingly of those from traditional HEI backgrounds, not the private sector and certainly not private HE. A decision is made immediately at this meeting as to whether or not the application should continue. While the outcome at this stage is communicated to 26 QAA website, the applicant in the event of an unsuccessful application, the level of detail in the http://www.qaa.ac.uk/reviews/da p/acdap.asp. Accessed 09/08/10 explanation as to why it was unsuccessful differs each time. Indeed some

“

”

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Higher Educa2on in the Age of Austerity

applicants have complained that no explanation whatsoever was forthcoming,27 a clear indication that there needs to be a concerted effort to provide full and frank feedback and guidance in order to assist applicants wherever possible. Stage 2 If the application passes this initial stage, it moves on to more detailed scrutiny. A small team of assessors comprising the ACDAP Committee Secretary and two others is assembled so that evidence can be gathered on the application. This involves meeting with key people and groups including managers, governors, staff and students. The team of assessors also undertake observations of meetings such as those of the academic board, the academic quality and standards committee, assessment boards, the governing body, and sub-committees of that body.28 Stage 3 Once completed, the assessors’ scrutiny is compiled into a report which is then passed back to ACDAP. The report itself does not contain a recommendation but will rate the application against the set criteria. If particular points require further consideration or clarification, ACDAP may convene a sub-panel to visit the organisation. A further report will be written following that visit with details of the meetings, interviews and findings. When consideration of the application is complete, ACDAP will consider the content of the report carefully before making its recommendation to the QAA board. If the QAA board deems the application to be acceptable, it will make a confidential report to the government department and the Minister decides whether or not to inform the applicant of the Agency’s advice. The Minister makes his recommendation to the Privy Council, in whose hands the final decision lies, though in reality this is little more than a formality that has survived through tradition. Should the application make it to the Privy Council, the decision will finally be communicated to the applicant.

Criticisms of the procedure

27 Information gained from conversations with representatives of previous applicants for DAPs.

28 Irene Ainsworth, Head of Degree Awarding Powers at QAA, http://www.qaa.ac.uk/podcasts/ Degree_awarding_powers%20.m p3. Accessed 24/04/10. 29 Private information

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1. Process over Outcome The experiences of previous applicants for DAPs are varied, with some reporting assessors to be helpful and supportive, but others indicating the the exact opposite. Indeed, when we interviewed staff from private HEIs who had applied to the QAA, we found that the chief criticisms were not of the QAA itself but of the assessment panels that visited the various campuses. Some assessors were very guarded about the state of the application under consideration and gave little or no feedback. One senior PHEI representative felt that the assessment teams were occasionally “ill-prepared”, “unequipped” and “did not seem to have read the brieﬁng notes prior to observation of our meetings.”29 Others complained that the assessors were obsessed with ensuring that the HEIs’ processes were being adhered to but showed little interest in the quality of teaching. The emphasis was placed on structures and procedures rather than outcomes. This is directly at odds with the system favoured by the United States; for instance, in 2006 the US Secretary of Education commissioned a study into the future of HE accreditation, one of the key recommendations of which was that agencies responsible for the accreditation process had to focus their attentions on outcomes such as completion rates and student learning instead of inputs and processes.30

Degree Awarding Powers

DAPs in the US

In order to be accredited in the US and thus be able to confer degrees, an institution

and its programmes must be recognised by an accreditating body. These bodies are

private, non-governmental organisations which have been created specifically to

ensure quality throughout the American HE system. Each accreditation organisation

must, however, be recognised by the US Department of Education or the Council for Higher Education Accreditation. There are six major regional accrediting

organisations and over 50 smaller accrediting organisations in the US.31

The US process itself is normally very demanding and involves a rigorous self-

study, similar to the UK system of critical self-analysis. Goals for improvement are

set which must be achieved over the course of the next 10 years (the period of time

until the next review) and a review is carried out of the previous 10 years to ensure that the institution is making the necessary progress.

Once the application for accreditation (or re-accreditation) is submitted, an

evaluation team is sent to the institution. The team itself will consist of eight

members who are either university presidents or are departmental heads as well as accreditation staff and state licensing staff. The team will visit the university for a

single week, during which time it will interview staff, students and trustees as well as sitting in during classes. Any weaknesses that are detected can result in the HEI being placed on probation and eventually losing its DAPs altogether, but this is rare.

While a standard set of criteria by which assessors can measure institutions equally to ensure fairness across the board is necessary, discussions with private providers revealed criticism that the indicators being used in the UK are in need of updating. Assessors may, for instance, judge library facilities in terms of the number of hard copies of books that are available and fail to take into account that these could be available online. Indeed, a particular feature common to PHEIs is that they offer ﬂexible and distance learning and thus many of their set texts can be accessed via the internet.32 One manager at a private HEI was particularly scathing of the assessment methods, saying “The assessors aren’t interested in how good the teaching is. Some of them don’t even bother to observe classes.They sit staff members down and ask them ‘Do you know about this policy and that policy?’ Then they can tick that off their list.”33 If the system is to be improved for applicants, regardless of whether they are private or publicly funded, assessment teams must be prepared to move away from their need to ‘tick boxes’ and start to concentrate upon the more important, but more complex and subjective, rating and measuring of outcomes and satisfaction levels of both staff and students alike. In addition, if quantitative measures are to be used, they must be relevant and up-to-date and not prejudiced against private HE providers. 2. Composition of Assessor Panels A further criticism of the assessment panels is that they are comprised mainly of academics from traditional, publicly funded universities, and that their members consequently hold certain preconceptions of what a higher education institution should look like. The panels lack representatives of private HE institutions who would have experience of how the private HE

30 Secretary of Education’s Commission on the Future of Higher Education. (2006) A test of leadership: Charting the future of US higher education. A Report of the commission appointed by Secretary of Education Margaret Spellings. http://www.ed.gov/ about/bdscomm/list/hiedfuture/r eports/pre-pub-report.pdf. Accessed 15/07/10 31 Braintrack, ‘College Accreditation,’ http://www.brain track.com/college-accreditationarticles/articles/ college-accreditation-overview. Accessed 17/07/10 32 ‘Regulatory Issues’ by John Fielden and N. V. Varghese, International Institute for Education Planning, 2009, p.82. 33 Private information

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Higher Educa2on in the Age of Austerity

sector functions. Private HE providers operate in a different manner to many of their traditional counterparts, often with governance structures more closely related to those of business than their counterparts in public higher education. The QAA maintains that it is committed to supporting diversity within the HE sector and there is no reason to doubt that this is its intention. However, problems do arise when those who sit on assessment panels wish to impose the structures of publicly funded institutions onto private HEIs. As a result, a private HEI may feel compelled to take steps to adapt itself to a model not necessarily based on efficiency or student experience but rather on convention and tradition.34 If this problem is to be countered effectively, the assessment panels must not be comprised solely of traditional academics, but must be opened up to allow input from representatives of private HEIs.

34 Private information

35 Private information

36 Prof. Cyril Taylor, ‘How English Universities Could Learn from the American Higher Education System’, 2009, p.10

37 QAA, ‘Applications for the grant of taught degree awarding powers’, www.qaa.ac.uk/reviews/ dap/Info_for_inst.pdf. Accessed 23/07/10

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3. Length of the Process There has been considerable criticism of the length of time that it takes to be awarded DAPs following the initial application, as well as a great deal of inconsistency. The College of Law, for instance, received its DAPs within approximately a year of submitting its application whereas Ashridge Business School was not granted its DAPs until eight years after the initial application.35 There does not appear to be an explanation for this, nor is there a clearly established timeframe. The private providers that we spoke to who had applied for DAPs told us that once they submitted their applications they were kept entirely in the dark and received little advanced warning that assessment teams were on their way. Even between these assessments there could be long intervals without any update as to how the application was progressing. By contrast, the US system of accreditation, although an extremely rigorous process, nonetheless has a clear timeframe with applications taking a maximum of five years.36 While experiences will always differ to some extent from institution to institution, a preset time limit allows institutions to plan ahead based on a realistic expectation of when their accreditation will be forthcoming. There is also no set timeframe or indication as to how long the detailed scrutiny will last in the UK. The QAA guidance states that the process will last for at least one academic cycle for taught degree awarding powers.37 We feel that while the assessors do need time to properly investigate the suitability of an applicant, it is unacceptable that this process should be allowed to drag on indefinitely, with no apparent sense of urgency. Private institutions unable to rely on public funds need to be able to budget for the future, and indefinite delays only create uncertainty and confusion. As the applicant must also cover the costs of the assessors for the duration of their visit, a time limit would also help the applicant to forecast and manage the costs created by the application process. 4. Poor Communication The representatives of previous applicants tended to agree that the final stage (in which assessment reports pass between various bodies before finally going to the Privy Council, which makes a decision) was perhaps the most frustrating part of the entire process. Many complained that when they requested feedback in order to address any outstanding issues they were informed that the information was

Degree Awarding Powers

“advice given to the Minister and was therefore confidential.”38 After undergoing such a complex, time-consuming, lengthy and costly process, to simply be told that further advice, guidance and recommendations are not available is highly unacceptable and essentially places the applicant back at square one. Furthermore, given that there is no established deadline with respect to a response from the Privy Council, there is no sense of urgency to this final part of the process. One company we spoke to stated that the decision was made so close to the beginning of the academic year that there was no opportunity to advertise the fact the institution now had DAPs.39 This meant that a full year’s worth of marketing opportunity was missed out of the precious six years that private HEIs can have their degree awarding powers before needing to renew (see below). A more transparent and more predictable process, including detailed feedback, would increase efficiency, reduce uncertainty and contribute to institutional self-improvement.

How much does it all cost? What are the actual costs involved in obtaining and retaining degree awarding powers? The QAA’s guidance notes give the following costs: For applications for the grant of taught degree-awarding powers: £30,000 levied at the outset of the detailed scrutiny. For applications for the grant of research degree-awarding powers: £15,000 levied at the outset of the detailed scrutiny. For combined applications for the grant of taught and research degree-awarding powers: £40,000 levied at the outset of the detailed scrutiny.40 On top of the initial charge, the applicant must pay for all the costs involved in the application being made, including travel expenses and assessments. The QAA are keen to stress that their intention is not to turn a profit but to recoup losses. On the face of it, these charges would appear to be perfectly reasonable; any institution that could not afford them from the outset is unlikely to possess the financial resources required for degree awarding powers in the first place. However, if the process is particularly lengthy and timescales unclear then costs can quickly mount up. Furthermore, the charges compare unfavourably to those in other countries; while accreditation fees in the US vary between states and accrediting bodies, they tend to be considerably lower than those of the QAA. The Middle States Commission on Higher Education, one of the six major regional accrediting bodies in the US, charges institutions a total of $13,478 (£8,800) for the initial application and assessment visits, with possible further costs of $7,245 (£4,640) if additional visits are required. The self-study evaluation process costs another $5,175 (£3313), plus $518 (£332) for each additional location visited. The institution in question will also pay expenses and a small stipend to its assessors.41 Additionally, private HEIs in the UK may face hidden charges if forced to make institutional changes to comply with the requirements of the assessment panels. Any advice or suggestions that are made to the applicant and are then put into

38 Private information

39 Private information

40 Applications for the grant of taught degree-awarding powers, research degree-awarding powers and university title, Guidance for applicant organisations in England and Wales (August 2004), p.7

41 Middle States Commission on Higher Education, ‘Dues and Fees’, available from http://www.msche.org/?Nav1=IN STITUTIONS&Nav2=DUESFEES. Accessed 10/08/10

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Higher Educa2on in the Age of Austerity

practice may involve additional expenditure. In one instance, a private HEI reported that the ﬁnal bill went into millions of pounds as a signiﬁcant proportion of the company’s structures had to be radically altered.42 This problem is exacerbated by the lack of private HE representation on assessment panels, which may consequently seek to impose familiar public-sector governance structures on private organisations.

Renewal of DAPs In 2003 the Labour Government decided that, as part of its reform of the higher education system, it would review the processes around the awarding and retention of degree awarding powers and the use of university title. Accordingly it issued the Consultation on Proposed New Criteria for Degree Awarding Powers and University Title that September. A suggestion emerged from this review that all HE institutions, whether publicly or privately funded, should have to renew their DAPs every six years. Unsurprisingly, universities and academics were generally against the proposals from the outset; two-thirds of universities and the Standing Committee of Principals voiced strong opposition to the plan.43 As a compromise, and perhaps slightly cowed by unrest in the sector over the introduction of top-up fees, the Government decided that only private providers would have to reapply every If the Government is serious about allowing six years, whereas those institutions in receipt of public funds would be PHEIs to flourish then a clear and transparent allowed to have DAPs in perpetuity. It is difficult to understand why DAP renewal procedure must be worked out private HEIs must be forced to renew immediately their degree awarding powers whilst their publicly funded counterparts retain them indefinitely, regardless of their financial situation. A number of high-profile publicly funded institutions have found themselves in financial difficulties in recent years. However, their continued capability to award degree qualifications has never been called into question, despite the damage that could be done to the UK branding of HE by the collapse of an awarding institution. For 42 Private information example, the University of Cumbria revealed in April this year that its budget 43 Alan Johnson, ‘Written deficit for the 2008-9 financial year had grown to £13.2 million, equivalent to Ministerial Statement 16 March 17% of income and up by £4.7 million from the previous year.44 Cumbria 2004, Degree Awarding Powers and University Title Criteria,’ announced that it expected a further significant deficit of around £9 million to be http://www.bis.gov.uk/assets/bisc incurred in this financial year due to “deeply structural” financial problems.45 ore/corporate/migratedd/publica tions/m/ministerial%20statement We are not suggesting that Cumbria should be stripped of its degree awarding %20on%20degree%20awarding% 20powers%20and%20university% powers. However, it makes little sense that a public HE provider running a 20title%20criteria.pdf. Accessed significant budget deficit for three years in a row is unquestioningly assumed to 10/08/10 hold public confidence in its future performance, while a profitable private 44 Melanie Newman, ‘Cumbria admits 'unacceptable' financial provider is forced to prove its future sustainability. The result is that struggling results,’ Times Higher Education public institutions are allowed to keep their DAPs indefinitely simply because they Supplement, 15 April 2010, http://www.timeshighereducatio are in receipt of public funds – regardless of how well the taxpayers’ money is n.co.uk/story.asp?storycode=411 actually managed – while profitable and successful private providers are required 233. Accessed 19/06/10 45 Ibid to renew their DAPs on a six-yearly basis. If and when the Browne Review

“

”

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Degree Awarding Powers

recommendations are implemented, largely equalising the funding system for all providers, the discrepancy over DAP renewal will seem even more incongruous. The rules around DAP renewal are therefore clearly biased against private providers. Of equal concern is the fact that the procedure for DAP renewal has not yet been worked out. As private HEIs have only been granted DAPs in the past few years, none have yet required them to be renewed and consequently no process has been tried and tested. Indeed, key management personnel in several private HE organisations expressed a sense of anxiety to us over the lack of thought that had been given to the renewal process. This is understandable given the considerable capital, time and energy that has already been invested by these companies in the initial acquisition of DAPs. We consider the QAA’s attitude of “we’ll cross that bridge when we come to it” to be unacceptable. If the Government is serious about allowing PHEIs to flourish then a clear and transparent DAP renewal procedure must be worked out immediately. It is urgent that the renewal procedure be clearly established well before any PHEIs begin the process, so as to give them adequate time to prepare. It should be borne in mind that the stakes for any private HE provider re-applying for DAPs will be very high. While the QAA has not yet provided details of the process of application for DAP renewal, it has confirmed that one criterion for a successful application will be that the HEI in question has been subject to an external QAA audit, and has received a judgement of ‘confidence in the organisation’.46 Organisations which fail to achieve such a judgement will be required either to carry out an agreed action plan to the QAA’s satisfaction, or face the loss of DAPs and the probable transfer of its students’ registrations to another institution.47 The first option could involve major restructuring carrying significant costs, while the second would be likely to lead to an institution’s collapse. Private providers therefore find themselves facing real uncertainty over their future every six years, while public institutions, no matter how beset with difficulties, face no such concerns. Many senior personnel at private HEIs expressed the view that the six year period before renewal is required is far too short, and indeed that the renewal requirement should be removed altogether. Whilst we agree that six years is an inappropriately short period of time, we feel that to scrap renewal requirements entirely may lead to complacency and could risk undermining public confidence in the private HE sector as a whole. Instead, we suggest that DAPs should be granted for a minimum ten year period before renewal is required. Furthermore, we recommend that this process of assessment and renewal should be extended to public institutions. This would place them on an equal footing with PHEIs and mirror the system in the USA where the renewal of degree-awarding powers is required of all HE institutions. The requirement does not appear to have prevented US institutions from providing teaching and research to the highest of standards. DAP renewal in the US could potentially provide the model for a comprehensive DAP renewal process in the UK (see below). Extending DAP renewal requirements to the public HE sector would help to level the playing field for private providers. Of course, requiring public HEIs to renew their DAPs would suggest that, in some cases, the DAPs of public providers could be revoked if their re-application failed. This was suggested in the 1997 Dearing Report into Higher

46 Department for Business, Innovation and Skills, ‘Applications for the grant of taught degree-awarding powers, research degree-awarding powers and university title, Guidance for applicant organisations in England and Wales (August 2004),’ www.qaa.ac.uk/reviews/ dap/DAPCriteriaGuidance.pdf. Accessed 09/08/10 47 Ibid

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Higher Educa2on in the Age of Austerity

Education, which proposed that the Government ‘take action, either by amending the powers of the Privy Council or by ensuring that conditions can be placed on the ﬂow of public funds, to enable the removal of degree-awarding powers.’48 The Government rejected the idea in the face of opposition from the public HE sector. However, we believe that, as well as placing public providers on an equal footing with their private counterparts, such a measure would keep public universities on their toes and help to prevent the development of severe ﬁnancial problems such as those experienced by Cumbria.

48 National Committee of

Enquiry into Higher Education, Higher education in the learning society, 1997, chapter 9 section 6. Available at https://bei.leeds. ac.uk/Partners/NCIHE/. Accessed 13/07/10

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Recommendations: 1. There needs to be more equality in the DAP system. Once private providers have been awarded DAPs they should retain them for a minimum period of ten years before renewal is required. Publicly-funded universities should be asked to renew their DAPs on the same timescale. 2. The application process for DAPs must be made as clear as possible so that applicants will know what to expect and how to prepare their applications and budgets accordingly. Regular and comprehensive feedback must be made available to applicants. 3. Assessors should focus on quality of provision rather than on processes and organisational structures. 4. A set timescale needs to be established with clear deadlines for each stage of the application. This will add an element of efficiency and progress that is badly needed in the system. 5. The renewal process for DAPs should be established well in advance of the first wave of renewal applications. The process must be transparent, predictable and should seek to combine speed and simplicity with appropriate rigour. 6. Assessment (and renewal) panels must be diversified to include private sector educators and representatives of business and industry to stop the traditional public model being unnecessarily and restrictively imposed on private organisations.

University Title

Like the right to award degrees, the very title of ‘university’ is seen as a marker of academic quality and is jealously guarded in the UK. This is understandable, as if an institution were to fall seriously short of minimum expectations, the international reputation of the country’s entire HE sector could be damaged.49 However, the need for appropriate safeguarding of standards does not justify the effective monopolisation of the title of university by the public HE sector. Private HE providers which offer students a high standard of education must be allowed to market themselves as universities if they are to compete for students on an equal footing to their publicly funded counterparts. Currently, university title is denied to these providers purely on the basis of their non-maintained status, and consequently they remain in danger of being unjustly regarded as something less than the publicly funded institutions. The Browne Review’s recommendations, if implemented, will address the funding imbalance between private institutions and those that are currently state-maintained. The Government should also seek to address the imbalance regarding access to university title as soon as possible.

What makes a university? There is no clear definition of university that is internationally accepted and recognised. Indeed, even in the UK the legal definition is unclear and can lead to difficulties when drafting legislation governing matters of higher education.50 Much of the debate on the issue has centred on whether the characteristics of a university must include a strong focus on research, or whether providing a high standard of teaching at degree level and above is in itself sufficient qualification for the title. This is reflected in differing international interpretations of the term. The United States, for instance, will typically refer to an HEI as a university if it offers a Masters award or above, reflecting a focus on the importance of teaching. Countries such as Australia take a different view and maintain that in order to be called a university, the institution must engage in research programmes rather than focus on teaching alone. Historically, the perception of a university as a centre of research is a relatively new phenomenon which did not develop until after the First World War.51 The original purpose of universities was to teach. The University of Bologna, the oldest academic institution in the Western world,52 was created for the sole purpose of training its students for a career in the legal profession. The idea that universities are distinct from other HEIs purely because they conduct research flies in the face of the histories of many of the most prestigious universities such as Oxford, Cambridge and Harvard.53

49 Guthrie, G., Johnston, S., & King, R. (2004). Further development of the national

protocols for higher education approval processes: A report for the Department of Education, Science and Training. Retrieved from http://www.dest.gov.au/ sectors/higher_education/policy_ issues_reviews/key_issues/MCEE TYAS/Further_Development_of_t he_National_Protocols_for_Highe r_Edu.htm. Accessed 26/06/10 50 Report on the Involvement of the Private Sector in Higher Education, Glynne Stanfield, November 2009

51 University-State Relations in Britain: Paradigm of Autonomy, Peter Scott in Jean Sibelius: A Guide to Research, Glenda D. Goss, 1995, pg.7

52 Utrecht Network, ‘University of Bologna’, http://www.utrechtnetwork.org/en/site/bologna. Accessed 26/06/10

53 Moodie, Gavin, 'Regulating 'university' and degree-granting authority: Changing of the guard', Journal of Higher Education Policy and Management, 2007, 29: 1, pp.103 — 117, p.113

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54 University of Sunderland,

‘What is the difference between a research degree and a taught programme?’ http://www.sunde

rland.ac.uk/research/research_de

grees/informationforapplicants/re

search_vs_taught_degree/.

Accessed 26/06/10

55 Department for Business,

Innovation and Skills, ‘Applications for the grant of taught degree-awarding powers, research degree-awarding powers and university title Guidance for applicant organisations in England and Wales,’ 2004, http://www.qaa.ac.uk/reviews/da p/DAPCriteriaGuidance.pdf. Accessed 09/08/10

56 Alan Johnson, ‘Written Ministerial Statement 16 March 2004 on Degree Awarding Powers and University Title Criteria,’ http://www.bis.gov.uk/assets/bisc ore/corporate/migratedd/publica tions/m/ministerial%20statement %20on%20degree%20awarding% 20powers%20and%20university% 20title%20criteria.pdf. Accessed 10/08/10 57 Secretary of State for Education and Skills, The future of higher education, 2003, p.54

58 QAA, ‘A brief guide to QAA's involvement in degree-awarding powers and university title’, http://www.qaa.ac.uk/reviews/da p/briefGuideDAP.asp. Accessed 09/08/10

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Prior to 2004, any UK institution seeking to call itself a university had to have the power to award research degrees. These are postgraduate degrees (such as PhDs) which are granted on the basis of an individually initiated and registered research programme, as opposed to taught degrees which are based on a common programme of assessed study.54 The power to award research degrees was (and still is) granted only to institutions that can demonstrate a high level of professional research knowledge among its staff, and have achieved more than 30 Doctor of Philosophy awards55 (see the section of this report on degree awarding powers). The title of university was therefore restricted to institutions with a strong research focus, excluding those organisations that focused very strongly on teaching. However, during a 2003 consultation process on the granting of university title, the question was asked whether teaching-focused institutions should be allowed to refer to themselves as universities. Notably, the proposal received a mixed response in the HE sector, with traditional universities ‘generally opposed’ and private HEIs broadly in support.56 State-maintained universities unsurprisingly sought to defend their monopoly on the title from private HEIs, which tend to focus far more heavily on the more proﬁtable area of teaching than on research (in part because they do not receive a public subsidy for research, and also because they can charge uncapped fees for tuition- see the section of this report on access to public funding). For their part, the private institutions welcomed the possibility of calling themselves universities and enjoying the prestige that accompanies the title. Eventually the conclusion was reached that restricting use of the title to those institutions that carried out both teaching and research was “at odds with [the Government’s] belief that institutions should play to diverse strengths, and that excellent teaching is, in itself, a core mission for a university”.57 Accordingly, the criteria were altered in 2004 to allow non-research focused institutions in England and Wales to acquire the title, although the pre-2004 criteria remain in place in Scotland and Northern Ireland.58 However, this change in criteria did not address the right of private institutions to access university title (see below). We agree with the previous Government’s decision to extend university title to teaching-focused institutions, not merely for historical reasons but because the narrowness of the pre-2004 criteria acted as a barrier to diversity and specialisation within the UK’s higher education sector. An institution which focuses on providing a high standard of higher education to its students should not be penalised as a result. This is not to deny the huge importance of research – to the national economy, the intellectual development of individual students and academics, and the creation of new technologies, among other things. However, the concept of a university is broad enough to encompass those institutions which choose to concentrate on teaching, or which provide specialised instruction in order to prepare students for certain academically demanding professions, such as law.

What is the significance of university title? We found general agreement amongst representatives of private institutions that university title confers a degree of prestige on an institution which can make an HEI signiﬁcantly more attractive to prospective students. One private institution told us that due to the impact of university title on their brand reputation and marketing opportunities they would expect to see an increase in the number of

University Title

student applications of 30-35%.59 Such an increase would have a considerable impact on private HEIs which rely upon income from tuition fees, enabling them to expand their operations and thus increase the supply of degree level education to meet ever-rising demand. Of course, not all HEIs wish to incorporate ‘university’ into their names. A senior representative of another private HEI remarked that because they had already offered education for many years, their brand was sufﬁciently established within the sector that the acquisition of university title would not increase their marketability. Indeed, their opinion was that taking the responsibility of the title could prove to be burdensome and consequently detrimental to the service that they currently provide.60 Nevertheless, the majority of private HEIs considered university title to be a potentially highly valuable acquisition, and we believe that those that meet the standards expected of a university should not be automatically barred from using the title. Unfortunately restrictions of this type remain in place, as we discuss below.

What is the procedure for applying for university title?

Universi2es founded prior to 1992 are granted the 2tle under a Royal Charter, which

cannot be amended without the consent of the Privy Council. Ins2tu2ons awarded the 2tle a#er 1992 are granted it by the Privy Council under the terms of the Further and

Higher Educa2on Act 1992.61 Once awarded, the 2tle cannot easily be revoked,62 so

there is an evident need for a thorough process to vet all applica2ons. However, just as with the awarding of DAPs, the conferment of university 2tle is a convoluted process,

and is extremely discriminatory against private ins2tu2ons.

In order to seek Privy Council approval of its right to university 2tle, an ins2tu2on

must make an applica2on to the Quality Assurance Agency which will then conduct an

assessment and make its recommenda2ons to the Privy Council accordingly. Following

the 2004 revision of the rules around eligibility for university 2tle, applicant HEIs are

required to meet three key criteria. The HEI must:

have been granted powers to award taught degrees;

normally have at least 4,000 full 2me equivalent higher educa2on students, of whom at least 3,000 are registered on degree level courses (including founda2on

degree programmes). This is the same s2pula2on as is required for the gran2ng of

DAPs (see the sec2on of this report on degree awarding powers for our cri2cisms of the criterion); and

be able to demonstrate that it has regard to the principles of good governance as are relevant to its sector.63

Exclusion of private institutions In order to be awarded university title, the applicant institution in question must be publicly funded under the funding system as it currently stands. Although private providers of HE were able to apply for DAPs for the ﬁrst time after the rules were amended in 2004, it remains the case that they are automatically excluded from applying for university title.64 The QAA justiﬁes this discriminatory

59 Ibid

60 Private information

61 Privy Council, ‘Higher Education,’ http://www.privycouncil.org.uk/output/Page27.asp Accessed 02/08/10

62 QAA, ‘A brief guide to QAA's involvement in degree-awarding powers and university title’, http://www.qaa.ac.uk/reviews/da p/briefGuideDAP.asp. Accessed 10/08/10

63 Department for Business, Innovation and Skills, Applications for the grant of taught degreeawarding powers, research degree-awarding powers and university title, Guidance for applicant organisations in England and Wales, August 2004, p.19 64 QAA, ‘DAP and Private Providers,’ May 2010

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65 Ibid

66 University and College Union, ‘Defending the foundations of excellence: University title, academic standards and the reputation of UK higher education’, June 2010, http://www.ucu.org.uk/index.cfm ?articleid=4732 . Accessed 27/08/10

67 BPP Courses at http://www.bpp.com/courses.aspx. Accessed 22/08/10 68 Ibid

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approach by referring to Section 77 of the Further and Higher Education Act 1992, which states that only institutions that have been awarded DAPs in perpetuity are eligible to apply.65 As DAPs for private providers are time limited and last only 6 years (see the section of this report on degree awarding powers), they are thereby excluded from consideration for university title. The QAA therefore justiﬁes this discrimination against the private HE sector by reference to yet another discriminatory provision – that public HEIs enjoy permanent DAPs while private HEIs do not. In line with proposed funding changes that will make all institutions equally reliant on tuition fee income rather than government grants (see Chapters 3 and 4), the Government should ensure that access to university title is made equal as well. The implication of the deliberate exclusion of private HE providers is that the quality of private higher education can never equal that provided by institutions that are publicly funded under the current funding system. The University and College Union (UCU), a trades union for academic staff in further and higher education, claims that to allow private providers to apply for university title would ‘undermine one of the foundations on which the international reputation of UK universities is built’ and ‘permit into the university system institutions with wholly inadequate controls on quality and standards’.66 This completely ignores the fact that an HEI that has been granted degree awarding powers – a prerequisite for university title – will already have undergone a lengthy vetting procedure. Additionally it ignores the fact that many private providers have a history of highly successful education provision, consistently achieving higher than average pass rates67 in a wide range of degree courses and valuable professional qualifications. The UCU also complains that opening up university title to private HEIs would ‘have significant effects on the range of and diversity of provision available through UK higher education,’68 a statement with which one cannot but agree; such a move could indeed lead to a significantly more diverse and wider-ranging UK HE system, to the benefit of students and institutions alike. It is difficult to imagine on what grounds the UCU opposes such a development. Another oft-heard criticism of private HEIs is that many do not provide a ‘rounded’ student experience, and that too much emphasis is placed on teaching, and rushing students out into the world of work. It is true that the majority of private HEIs do not operate the same range of non-academic activities as their public counterparts. However, it is important to remember that they are held to account by their students and rely heavily upon tuition fees for income. If the product offered is not to students’ liking, then enrolment and retention numbers will fall, and with them revenue. The fact that so many private HEIs remain successful and popular is clear evidence that, for many students, the prospect of a rigorous education and strong employment opportunities is sufficiently attractive to render the lack of playing fields or student theatres unimportant. The key point is that if students are offered a choice between a number of different types of institutions, they will choose the one best suited to their needs (a concept key to the market reforms espoused in the Browne Review). That range of choice should not be restricted unnecessarily.

University Title

‘University College’ title

In July 2010, BPP College of Professional Studies became the first private higher

education institution to be granted the title of ‘university college’ since the creation

of the University College Buckingham in 1976.69 The latter has since become the University of Buckingham, the UK’s only private university.

The title of ‘university college’ is applied both to colleges which are fully part of

a university, such as University College London, and to higher education institutions

with the power to award taught degrees,70 such as University College Falmouth. BPP falls into the second category, as it was granted degree-awarding powers in 2007. It

joins a number of state-maintained institutions to have been awarded the title in recent years, including Falmouth (awarded the title in 2005), Harper Adams University College (1998) and St Mary’s University College (2007). There are no set criteria for the acquisition of the title of university college (unlike university title)

but it tends to be applied to institutions with a strong focus on teaching over research.71

BPP has said that since its acquisi2on of the 2tle there has been a no2ceable change

in the way the company is perceived within the UK higher educa2on sector, and it has

received a number of approaches from public ins2tu2ons regarding possible

partnerships, signalling its acceptance ‘as part of mainstream UK higher educa2on.’72

This reﬂects the fact that an ins2tu2on’s classiﬁca2on as a university or university college

can have a signiﬁcant eﬀect on its status and reputa2on amongst other ins2tu2ons and students alike.

The extension of university college title to a reputable private provider such as

BPP is a positive step and one which indicates an increasingly widespread acceptance of the important role played by private institutions within UK higher education. The granting of the title to BPP has been taken as an indication of increased support for private higher education providers from the Coalition

Government. 73 However, we believe that private institutions should be able to

progress to full university status, as Buckingham once did. University college title

could operate as a useful intermediate phase, helping build public confidence in private providers, but should not be the highest status to which private HE

institutions can aspire.

Furthermore, the majority of private institutions charge higher fees than their public counterparts (see the chapter of this report on access to public funding) and higher fees bring with them higher expectations. Courses at private HEIs are often much more tailored towards the needs of the student, and particularly at maximising the student’s chances of finding employment after graduation. Employability remains a strong selling-point of private HEIs, with many courses including work placements with potential employers. A focus on employability is not unique to private HEIs, but is not as widespread as it could be within the public HE sector; a study by the Open University’s Centre for Higher Education Research and Information found that the UK has Europe’s second-lowest rate of participation in work placements, at only 30%.74

69 Simon Baker, ‘BPP wins university college status as David Willetts acts on pledge to boost private providers’ Times Higher Education Supplement, 26 July 2010, http://www.timeshigher education.co.uk/story.asp?storyc ode=412737. Accessed 19/08/10

70 Privy Council, ‘Higher Education’, http://www.privycouncil.org.uk/output/Page27.asp. Accessed 14/07/10 71 Private information

72 Simon Baker, ‘BPP wins university college status as David Willetts acts on pledge to boost private providers’ Times Higher Education Supplement, 26 July 2010, http://www.timeshighereducatio n.co.uk/story.asp?storycode=412 737. Accessed 19/08/10 73 ibid

74 Rebecca Attwood, ‘We can work it out’, Times Higher Education, 2 September 2010 p.31

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75 London Business School, ‘About us’, http://www.london. edu/theschool/theschoolataglanc e.html. Accessed 05/09/10

76 Financial Times, Global MBA Rankings 2010, http://rankings.ft.com/businesssc hoolrankings/global-mbarankings. Accessed 29/08/10

77 Amherst College, ‘Amherst at a Glance’ https://www.amherst.edu/ aboutamherst/glance. Accessed 23/08/10

78 Wellesley College, ‘Quick Facts’, http://web.wellesley.edu/ web/AboutWellesley/wellesleyfac ts.psml. Accessed 19/08/10

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So why does the source of an institution’s income remain the key factor determining eligibility for the title of ‘university’? We are concerned that there exists a prevailing cultural bias against private providers within the UK’s HE sector. This bias makes little sense at present; if the Browne Review is implemented as expected, replacing direct teaching funding for most subjects with funding via variable tuition charges, then it will become entirely anachronistic. It will no longer be possible to draw a clear distinction between public and private institutions in England and Wales based on their sources of funding. The Government should seek to ensure that the regulatory playing field is similarly levelled by ending inequality of access to university title (and degree-awarding powers) as soon as possible. The unequal situation that exists at present is both unfair and out of date. The criterion that requires HEIs to have a minimum of 4,000 full-time equivalent students on their books in order to acquire university title is also difficult to justify. This stipulation appears to indicate that the Government views quality of teaching as a less significant consideration than the sheer size of the institution. The figure of 4,000 FTE students is an arbitrary one, and there are several examples of successful publicly-funded HEIs operating with fewer students. For instance, University College Falmouth has barely 3,000 students, while the Royal Veterinary College, which has been operating for over 200 years, caters for just over 2,000 students. The London Business School, a constituent college of the University of London, has only around 1,800 students on degree courses,75 yet its MBA programme was ranked number one in the world by the Financial Times in 2010.76 Overseas there are clear examples of HEIs that provide education of the highest quality but which, were they subject to the UK’s regulatory stipulations, would fall short of the arbitrary student numbers requirement. Amherst College in the USA, for example, has fewer than 2,000 students.77 Despite having educated four Nobel laureates, several Pulitzer Prize winners, a chief justice of the US Supreme Court, and a US president, such an establishment would not be worthy of awarding its own degrees under the UK’s current criteria. Wellesley College, ranked sixth in Forbes Magazine’s league of ‘America’s Best Colleges’, only produces approximately 2,300 graduates per year.78 Quantity it appears, is judged to be more important than quality by the QAA. The requirement to have a minimum number of FTE students acts as a barrier to smaller private providers which, despite offering an excellent standard of education, may not possess the resources, such as large campuses or collegiate systems, that enable traditional universities to take on so many students, supported of course by public funds. Additionally, many private providers cater largely to part-time students (see the student financing section of this report for examples). If a private HEI catered near-exclusively to part-time students studying the equivalent of 50% of a full-time course per year, it would need to recruit around 8,000 students to meet the requirements for university title. We therefore argue that the 4,000 FTE-student threshold is unnecessarily high and unsupported by clear reasoning. Given the above examples of high-quality institutions operating with only 1,500-2,500 students, we

University Title

suggest that a threshold within this range would provide sufficient assurance of an institution’s capacity whilst placing degree-awarding powers within reach of a wider range of providers. An additional problem derives from a loophole created by the QAA’s lack of jurisdiction over international HEIs, which allows international providers to use the title of university in the names of their UK campuses without undergoing any checks or controls. Girne American University (GAU), for instance, based mainly in Northern The Government should seek to ensure Cyprus but with a campus located in Canterbury, is able to call itself a that the regulatory playing field is similarly university without having been levelled by ending inequality of access to scrutinised or assessed by the QAA in any way. The QAA has very little university title as soon as possible. The power to prevent this. Its only option unequal situation that exists at present is both would be to carry out an investigation to see whether students were being unfair and out of date deliberately misled by this title, and whether this would prove to be damaging to the international standing of UK higher education generally. Even if it found this to be the case, the QAA would not be able to stop the HEI using the term university, but would merely submit its findings to the Department of Business, Innovation and Skills.79 This loophole means that while private domestic providers of higher education are being penalised for their non-maintained status, foreign providers are able to take full advantage of the marketing benefits of university title when operating in the UK, irrespective either of their income sources or the quality of the education provided. We therefore recommend that foreign providers should be subject to the same scrutiny as domestic providers before being allowed to use the title of university. We understand that there are those in the publicly funded side of the HE sector who are worried that allowing PHEIs access to the university title will somehow open the ﬂoodgates to dozens of private universities mushrooming across the UK, offering a sub-standard quality of education. We do not, however, share this view believing that provided there remains a strong regulator monitoring the sector, the quality of UK higher education will not be undermined. At the present time, it is the responsibility of the Quality Assurance Agency (QAA) to ensure that the highest standards of quality are maintained. The role of the QAA and its relationship with publicly funded and private providers is addressed in Chapter 4 of this report.

“

”

Recommendations: 1. The requirement that a university should have a minimum of 4,000 students should be reduced to a minimum threshold of 1,500-2,500 students. 2. Private higher education providers should be allowed to apply for the title of university. The source of an institution’s income (under the current system) should not have a bearing on its ability to provide a high standard of education provided it has proved that it has a sustainable business model and can meet required quality standards.

79 Private information

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Higher Educa2on in the Age of Austerity

3. The application process and required standards must be more transparent and easily accessible to reduce confusion and inefďŹ ciency in the sector. 4. Internationally owned universities operating in the UK should be subject to the same scrutiny as the UKâ&#x20AC;&#x2122;s domestic HEIs.

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Part Two

Funding for Students and Institutions

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Introduction

Private sector HE differs significantly from public sector HE with regard to eligibility for government financing, including both student financial support to cover maintenance or tuition, and public funding direct to the HEIs themselves. For the interests of this report, it is necessary to look at both these issues. We will begin with an in-depth analysis of financial support that is available to students through loans and grants, before moving to the issue of direct public funding for private institutions, which is currently distributed through the Higher Education Funding Councils (HEFC). In addition, we examine the potential impact on private providers of proposed market-based reforms to higher education funding.

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Student Financial Support

One of the most contentious aspects of higher education in England and Wales in recent years has been the introduction of tuition fees and changes to the student loans system. A short history of student ﬁnancing beginning with the introduction of tuition fees in 1998 is available in Policy Exchange’s report More Fees, Please? released earlier this year.80 Following the introduction of top-up fees, established by the Higher Education Act 2004, the system of student support was reformed to reﬂect the higher fee regime and prevent students from incurring high up-front costs. In October 2010, a review of higher education funding led by Lord Browne of Madingley recommended profound changes to the funding system and the system of student support. The report included a large number of recommendations aimed at producing a competitive, demand-led system in which variable tuition charges, not block grants, constitute the chief source of income for higher education institutions. This is balanced with a progressive system of student support to enable payment of the higher fees. The key recommendations include the lifting of the cap on tuition fees to be replaced by a gradually rising levy on fees above £6,000, and a maximum student loan of £6,000 to be repaid after graduation, when earnings reach £21,000.81 The Government’s planned reforms to higher education funding are expected to include the majority of the Browne Review’s recommendations,82 although the possibility remains that a hard cap on tuition fees will be imposed in place of the levy on fees over £6,000. In the following section of the report we examine the situation of private providers with respect to both the current system and the system suggested in the Browne Review. Firstly we compare the support available to students under the two systems.

What support is available to students? 1) Under the current system:

Undergraduate students can now seek state-funded ﬁnancial support from the following sources:83

a) Tui2on fee loans: full-2me undergraduates are all eligible for a tui2on fee loan up to the maximum value of tui2on fees (£3,290 in 2010/11). The loan is repaid a#er

gradua2on, once earnings reach £15,000 per annum, at a rate propor2onate to earnings.

80 Anna Fazackerley and Julian Chant, More Fees, Please? Policy Exchange, 2010, pp. 23-25

81 Lord Browne of Madingley et al., Independent review of higher education funding and student finance, 12 October 2010

82 Oral Statement from Business Secretary Vince Cable, BIS Website, 12 October 2010, available at http://www.bis.gov.uk/ news/topstories/2010/Oct/Brown e-report-response. Accessed 13/10/10

83 DirectGov, ‘Information for new full-time students’, http://www.direct.gov.uk/en/Edu cationAndLearning/UniversityAnd HigherEducation/StudentFinance/ Applyingforthefirsttime/DG_171523. Accessed 19/07/10

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Higher Educa2on in the Age of Austerity

b) Maintenance loans: full-2me undergraduates are also all eligible for a maintenance

loan to help with living costs. 72% of the maximum loan is available to all students,

while the ﬁnal 28% is means-tested. For students living away from home, the maximum available loan is £4,950 for 2010/11, and £6,928 for students living away from home in London. The loan is repaid a#er gradua2on, once earnings reach £15,000 per annum, at a rate propor2onate to earnings.

Interest on both tui2on loans and maintenance loans is charged at the rate of

inﬂa2on only, and any por2on of the loan remaining unpaid 25 years a#er gradua2on is wri3en oﬀ.

c) Maintenance Grant and Special Support Grant: lower-income students are eligible for additional support through non-repayable grants. The maximum

available through either the maintenance grant or the special support grant is

£2,906. Students may not receive both grants. Students who receive the maintenance grant may find that their maintenance loan is reduced; this is not

the case for the special support grant, which is awarded to students who meet the conditions for being a ‘prescribed person’ under the Income Support or

Housing Benefit Regulations. Such students may include single parents, student parents whose partner is also a student, and students with certain disabilities.

Students eligible for the maintenance or student support grant are also en2tled

to a minimum bursary award from their ins2tu2on of at least £329 (10% of tui2on fees) in 2010/11.

2) Under the system proposed in the Browne Review:

Under Lord Browne’s proposals, the cap on tui2on fees will be li#ed and replaced with

a rising levy on all fees charged above £6,000. In order to prevent students incurring up-front costs when paying these fees, the student support system would be altered as follows.

a) Tui2on fee loans: all undergraduates will be en2tled to tui2on fee loans which will

cover the full cost of their fees. The loan will be repaid a#er gradua2on, when earnings reach £21,000, at a rate propor2onate to earnings. Interest on tui2on fees

is charged at the government’s cost of borrowing, but applies only a#er earnings reach the repayment threshold. Unpaid debt would be wri3en oﬀ a#er 30 years.

b) Maintenance loans: all undergraduates would be en2tled to ﬂat-rate, non-means-tested maintenance loans of £3,750 per year.

c) Maintenance grants: the maximum maintenance grant would be increased to £3,250 and would be available to students from households with incomes below

£25,000. The upper threshold to receive par2al maintenance loans would rise to

£60,000 in household income.

d) All ins2tu2ons admi4ng students in receipt of student support will have to

nego2ate an Access Commitment. The higher the fees charged, the more stringent the commitment required. Universi2es will be free to decide their own preferred methods of improving access, so the mandatory minimum bursary will no longer

apply.

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Student Financial Support

Can students at private HE providers access student loans/grants?

1. Under the current system: There appears to be a great deal of confusion in the sector as to whether students at private HEIs are indeed eligible for student financial support under the system as it currently operates. The websites run by DirectGov and the Student Loans Company (SLC) are two of the main sources of information for students, showing all the different types of financial support available. On neither site is there any mention of the support that would be available should a student decide to attend a private institution, despite the SLC claim that it provides information for “colleges and universities across the four education systems of England, Northern Ireland, Scotland and Wales.”84 This telling omission is indicative of the general approach to private HEIs are held within the sector. The Education (Student Support) Regulations 2009 state that in order for students to receive financial support from the state to pay for tuition, the course must be “wholly provided by a publicly funded educational institution”. 85 This includes tuition loans, maintenance loans and maintenance grants. In other words, a course must receive funding from the higher education funding councils for its students to be eligible for any form of state support, leaving most students little choice but to attend publicly funded universities.

The University of Buckingham

The University of Buckingham is an excep2on with regard to eligibility for student ﬁnancial assistance. Although it does not receive any HEFCE funding, a special provision

exists in the Educa2on (Student Support) regula2ons so that students at the University of Buckingham can take advantage of the Government’s ﬁnancial support. Indeed, they

can receive the same £3,290 repayable loan to cover their tui2on fees; a non-repayable, means-tested grant of up to £2,906 for living costs; and a repayable loan of up to £4,950

also to cover living costs.86

Buckingham was created following a campaign to ‘examine the possibility of crea2ng

at least one new university in this country on the pa3ern of those great private

founda2ons in the USA.’87 The ini2a2ve was favourably viewed by the then Educa2on

Secretary, Margaret Thatcher, and in 1973 Buckingham was incorporated as a university college, in the form of a non-proﬁt making company registered as an educa2onal charity.

It accepted its ﬁrst cohort of 65 students in 1976, all of whom were eligible for student

support, and Buckingham’s students have been in receipt of public ﬁnancial support

ever since. Seven years a#er opening Buckingham was granted the 2tle of university by Royal Charter.88

Buckingham is a popular choice for students, and achieves good results even though

it lacks the direct public funding enjoyed by its compe2tors. It was ranked 20th in The

Independent’s Complete University Guide 2010, and was ranked ﬁrst in a comparison of

staﬀ-student ra2os, with one member of staﬀ for every 7.8 students, in comparison to

the UK university average of one member of staﬀ to every 17.6 students.89

84 Student Loans Company website, http://www.slc.co.uk/. Accessed 14/09/10

85 The Education (Student Support) Regulations 2009, SI 2009/1555 (“Student Support Regulations), Office of Public Sector Information, http://www.opsi.gov.uk/si/si2008 /uksi_20080529_en_3#pt2-l1g4. Accessed 10/09/10 86 University of Buckingham, ‘Fees and grants’, available at http://www.buckingham.ac.uk/st udy/fees/grants.html. Accessed 15/08/10

87 Letter to The Times from Dr J.W. Paulley, May 27th 1967, quoted at http://www.buckingham.ac.uk/fa cts/history/. Accessed 15/08/10 88 University of Buckingham, ‘History of the University’, available at http://www.bucking ham.ac.uk/facts/history/more.ht ml. Accessed 15/08/10

89 University of Buckingham, ‘Why Buckingham?’, http://www.buckingham.ac.uk/st andingout/. Accessed 15/08/10

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Higher Educa2on in the Age of Austerity

However, the situation regarding student support is in fact more complex than it ﬁrst appears. When we telephoned Student Finance England to query the availability of student support to students at PHEIs, we were told unequivocally that support was available only to students on publicly funded courses. In reality, this is not the case. Some students at private HEIs may in fact be eligible for student support if they are enrolled on a ‘designated’ course. Regulation 6(8) of The Education (Student Support) Regulations 2009 allows for ‘degree and degree-comparable courses provided by non-maintained institutions’ [ie those not in receipt of HEFC funding] to be speciﬁcally designated for student support eligibility by the Secretary of State on an individual basis.90 Accordingly, the Department for Business, Innovation and Skills takes a piecemeal approach to support for students at PHEIs, granting designated status on a course-by-course basis. The result is a total lack of clarity around this issue. In theory, students enrolled on designated courses run by PHEIs are eligible for the full non-means-tested tuition fee loan of up to £3,290 in 2009/10.91 However, this is so poorly publicised that even Student Finance England appeared entirely unaware of it when we called for advice. They are clearly as confused by the rules as everyone else. We spoke to private providers who said that they had no idea why some of their courses had been designated and others had not, and who reported that their students found the information available thoroughly misleading. The fact that prospective PHEI students are in receipt of inaccurate and misleading advice from the body charged with assisting them is indicative of the way that private institutions are currently treated within the sector.

On what basis is a course at a PHEI designated for student support eligibility?

Only ﬁrst degree courses or comparable courses may be considered for student

support designa2on. General requirements are as follows:92

The course should be intended for students of 18 years or over.

The course should consist of at least one year’s full 2me or sandwich study.

The minimum entry standard should be two passes at A Level or equivalent qualiﬁca2on.

The course must have been accredited by a recognised UK valida2ng body such as 90 Student Finance England, ‘10/11 Academic Year Specific Designation Pack’

91 Student Finance England, ‘Higher Education Student Finance- how you are assessed and paid’, http://www.direct. gov.uk/prod_consum_dg/groups/ dg_digitalassets/@dg/@en/@ed uc/documents/digitalasset/dg_18 7274.pdf. Accessed 14/08/10 92 Student Finance England, ‘10/11 Academic Year Specific Designation Pack’

93 Lord Browne of Madingley et al., Independent review of higher education funding and student finance, 12 October 2010

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a university.

2. Under the system proposed by the Browne Review: The Browne Review includes the welcome and long-overdue proposal that ‘students on all courses, irrespective of the status of their institution, will be able to access the Student Finance Plan.’93 All institutions wishing to take students in receipt of student ﬁnance will have to abide by the incremental levy on fees charged above £6,000, as well as make an Access Commitment with the proposed new Higher Education Council, and satisfy requirements around quality and information provision. These recommendations constitute a major step towards creating a level playing ﬁeld for all higher education providers. Our conversations with representatives of such institutions indicate that the majority see the levy (and additional

Student Financial Support

requirements) as a reasonable price to pay for being able to admit students who can access the Student Finance Plan proposed by Browne. Being able to admit supported students greatly increases the potential customer base of private providers, and allows them to compete more fiercely with traditional universities. Stronger competition within the HE sector is a key rationale behind Lord Browne’s proposals to end the security of guaranteed block funding in favour of a system in which an institution’s income depends on its ability to attract and retain students. We fully expect private institutions to provide stiff competition for the traditional university sector in an environment of variable fees. Stripped of the security of annual grant funding for most taught subjects, institutions will need to focus more strongly on providing what students want, including a fulfilling university experience and improved employment prospects. These are both traditional areas of strength for the private HE sector. It is no coincidence that the UK’s only private university, the University of Buckingham, topped the National Student Survey every year from 2006 to 2009.94 Students will not face any up-front costs under the proposed system; in fact, Browne’s proposals increase up-front support for students by establishing higher maintenance grants and loans, and widening eligibility for them. The proposals reduce subsidy of post-graduation repayments, in particular through the charging of interest equal to the government’s rate of borrowing – bringing a long-overdue end to the costly and entirely untargeted blanket interest rate subsidy on student loans.95 We welcome the shifting of funds towards up-front support and away from repayment subsidies, as repayment takes place only once the graduate can afford it. A generous threshold of £21,000 and the linking of repayments to earnings ensures that nobody would be impoverished by their student loan obligations under the new proposals. By contrast, up-front costs can be a serious drain on poorer households, and constitute a significant deterrent to prospective students of few means. Some private providers may find the proposed levy on fees above £6,000 difficult to adapt to, but our discussions with representatives of private institutions reveal near-unanimous support for the proposals, and a widespread intention to take advantage of them if implemented. The levy on fees is not widely seen as a problem; one private provider informed us that, due to the efficiency of their operation, they would be able to realise a 10% profit even if they charged fees at the current capped rates of £3,290 for maintained institutions.96 There are several examples of private HEIs which currently charge little more for tuition than the capped public rate: the London School of Commerce offers some BA and BSc awards with fees between £3,450 and £3,950 per year, and Cavendish College charges domestic students £3,900 per course.97 Clearly a levy on fees over £6,000 would be no problem for these providers. Additionally, as fees in traditional universities rise dramatically, more space in the market will open up for private providers. It remains possible that the Government will choose to impose a hard cap on tuition charges instead of the incremental levy. As long as such a cap is set sufficiently high, there should still be scope for a genuine market to develop. A low cap at £6,000-£8,000 would simply mean that nearly all institutions would seek to charge the top rate almost immediately, as they did after the introduction of top-up fees in 2004. For a functioning market to develop, there must be sufficient scope for institutions to charge genuinely variable fees. We therefore recommend that any hard cap should be set at no less than £12,000. It should

94 University of Buckingham http://www.buckingham.ac.uk/. Accessed 21/08/10

95 A recent paper published by Policy Exchange called for the abolition of the blanket interest subsidy on student loans. See Nicholas Barr, ‘Designing student loans to protect low earners,’ Policy Exchange 2010. 96 Private information

97 Universities UK, The growth of private and for-profit education providers in the UK, 2010 p.23

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Higher Educa2on in the Age of Austerity

always be borne in mind that none of these charges will be met up-front by the student, and that post-graduation repayments come with a number of protections for low earners including a raised repayment threshold, an earnings-linked repayment schedule, and debt forgiveness after 30 years under Browne’s proposals. We view the Browne Report’s recommendations as constituting a major step towards a diverse, demand-led, competitive higher education market which will drive up standards and improve choice for students. In addition, it will redress the imbalance between the public and private HE sectors that currently prevails. The evidence shows that jurisdictions that are serious about increasing a diverse supply of higher education through expanding the private sector have made a concerted effort to afford PHEIs equitable treatment in terms of benefits that have been made available to the public sector.98 Malaysia, for instance, has developed a system whereby publicly funded and private institutions work side by side under the jurisdiction of the Ministry of Education, and students at both types of institution are eligible for means-tested student loans. Similarly, the Australian and US higher education systems have both opened up financial support for both student loans for tuition and maintenance grants to students regardless of whether they wish to attend a public institution, a private non-profit or even a private for-profit HEI.

How does the UK’s student support system compare to that of other countries? The United States of America

The emphasis of US higher education policies has not been on financing and

subsidising the operating costs of individual universities as has been the case in the UK. Rather it has been on increasing financial support for the students in order to

give them greater freedom of choice when deciding which HEI to attend. Thus no distinction in student support terms is made between a public university, a not-for-

profit HEI, or a for-profit institution, as they are all regarded as providing a service for

the public good.99 98 John Fielden and N. V. Varghese, ‘Regulatory Issues in private higher education’, International Institute for Education Planning, 2009, p.82 99 Ibid

100 Roger King, Private Universities and Public Funding: Models and Business Plans, Universities UK, August 2008 101 Ibid

102 Federal Student Aid website, available at http://student aid.ed.gov/PORTALSWebApp/stud ents/english/grants.jsp. Accessed 25/10/10 103 Pell Grant Advice, http://pellgrantamount.net/. Accessed 14/09/10

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This has allowed PHEIs in the US to signiﬁcantly expand their provision of higher

educa2on. Making the link between tui2on fees and the state’s student ﬁnancial support system has been a fundamental component in the growth of the private HE sector in the

USA.100

Strong and widely available third-party ﬁnancial support for students, both from the

Government and from businesses funding their employees’ tui2on, has been crucial to

the growth of these PHEIs.101 Federal student support itself is split into two main types: grants and student loans. Grants are set payments which do not have to be repaid and

are based en2rely on the ﬁnancial need of the student.102 The standard and most well-

known is the Pell Grant which is worth up to $5,500 per student per annum.103 This can

be awarded to a student regardless of the ins2tu2on at which they have chosen to study. As in the UK, student loans in the US are paid back over the years a#er gradua2on

and in propor2on to earnings, although unlike in the UK interest rates are not subsidised. The loans are allocated according to the ﬁnancial needs of each student.

Student Financial Support

The US student support system focuses on suppor2ng as many students, from as

many backgrounds as possible, through higher educa2on, regardless of the legal status

of the ins2tu2on a3ended. The University of Phoenix (UoP), for instance, speciﬁcally

targets those who come from tradi2onally disadvantaged backgrounds such as ethnic

minori2es. 30% of the UoP’s students are African-Americans compared to the na2onal

average of 13%.104 Indeed, the target market for UoP is the 75% of undergraduates in

the USA who are either more mature learners or have lower socioeconomic backgrounds. This is indica2ve of the US’ higher educa2on system generally. The for-

proﬁt sector of HE has an ethnic minority student popula2on which never drops below

56% of the total student community. The public sector on the other hand, only has an

ethnic minority popula2on of 34%.105

Although the UK can learn from the US’ thriving private education market, it is

certainly not a higher education utopia. There are concerns about abuses in the

system such as ‘diploma mills’ offering courses of little or no value.106 These issues

should serve as a reminder of the importance of an effective quality assurance regime.

Malaysia

The Malaysian Government has been very keen to ensure that public and private HE

are placed on an equal foo2ng. Public educa2on is, however, subsidised by the state and is far cheaper than PHEIs. As such, some students from disadvantaged backgrounds

who have not been able to secure a place at a public university have found themselves unable to aﬀord the high fees and have consequently been excluded from HE altogether.

In an effort to remedy this social problem, the Malaysian Government introduced a Na2onal Higher Educa2on Fund in 1997 to provide financial assistance to students facing such difficul2es.107 The idea was to place PHEIs within the reach of the poorest in

society. The ini2a2ve is widely viewed as a success; in the year 2000 alone, 29,000

students had been helped into private higher educa2on who would otherwise have

been excluded from the HE system altogether.108

Under Malaysia’s current arrangements, students at both public and private universi2es

are eligible for means-tested student loans under the Perbadanan Tabung Pendidikan

Tinggi Nasional Malaysia (PTPTN) scheme. The aim is to ensure a steady supply of

graduates, regardless of the mo2va2ons of the HEIs themselves. Full-2me undergraduate

students at public HEIs are eligible for a loan of MYR 6,500 per annum (around £1,300), while full-2me undergraduates at private ins2tu2ons are eligible for up to MYR 16,000

per annum (around £3,225),109 reﬂec2ng higher tui2on costs at these ins2tu2ons.

The lesson from the experience of Malaysia is that in order to increase accessibility

into higher educa2on, and thus improve social mobility, it is of paramount importance to allow all students the equal right to receive ﬁnancial support. The issue should not

become ﬁxated on whether or not an ins2tu2on is seeking to turn a proﬁt. Rather the

focus should be upon how failure to provide the same measure of student support to

those who wish to a3end monitored and properly assessed PHEIs can in actual fact reduce HE supply and counteract widening par2cipa2on.

104 University of Phoenix 2008 Academic Report, http://www.phoenix.edu/about_ us/publications/academic-annualreport.html. Accessed 03/09/10 105 Kevin Kinser, Access in U.S. Higher Education: What Does the For-Profit Sector Contribute?, 2009, p.10 106 US Government Accountability Office, Diploma Mills, September 23 2004

107 Privatisation of Higher Education in Malaysia, Prof. G. Sivalingham, Monash University Malaysia Forum on Public Policy, 2006 108 Eighth Malaysia Plan, 2001, p.103

109 Student support in Malaysia, http://www.malaysia-scholarship. coo.my/biasiswa/ptptn-education -loan-004. Accessed 15/09/10

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Higher Educa2on in the Age of Austerity

Australia

Students who a3end courses at public universi2es in Australia qualify for Government support to help to pay for all or part of the cost of their tui2on. This loan, referred to as

a Higher Educa2on Contribu2on Scheme – Higher Educa2on Loans Program (HECS-HELP loan), is paid directly from the Government to the HEI and no loan fee is charged.

Students a3ending PHEIs in Australia were not eligible for ﬁnancial assistance from the

Government un2l 2005, when the Australian Government ini2ated the Fee-Higher

Educa2on Loans Program (FEE-HELP) scheme in that year. FEE-HELP extended public

ﬁnancial assistance to students at PHEIs. Both types of loans are repaid through the

Australian taxa2on system once their student’s income is above the minimum

repayment threshold for compulsory repayment ($AU 43,150 for FEE-HELP in 2010).110 Voluntary repayments may be made at any 2me.111

Importantly, the PHEI has to be assessed and oﬃcially recognised by the Government,

and placed on a register of “eligible private higher educa2on providers”, in order to maintain standards of quality.112 A provider has to be approved by the Australian Government Minister for Educa2on before its students can receive publicly-funded

ﬁnancial assistance. As with HECS-HELP, A FEE-HELP loan will cover a student’s en2re

tui2on costs, up to a life2me maximum of $AU 85,062, or $AU 106,328 if the course leads to ini2al registra2on as a medical prac22oner, den2st, veterinarian or veterinary

surgeon. However, a loan fee of 20% applies to FEE-HELP loans for undergraduate courses of study. A student who takes out the maximum $85,062 loan will therefore

eventually have to repay 120% of the total sum borrowed ($102,704). The loan fee is

designed to compensate the Australian government for the cost of lending amounts

that can be signiﬁcantly higher than those loaned to students at publicly-funded

ins2tu2ons (known as Commonwealth-supported students) and therefore may take signiﬁcantly longer to be repaid.113

110 Bond University, FEE-HELP 2010, http://www.bond.edu.au/ degrees-and-courses/feesexpenses/financing-your-study/co untry-support/australia/fee-helploan/index.htm. Accessed 22/05/10

111 Australian Department of Education, ‘FEE-HELP Information’, http://equella. think.edu.au/lor/items/71434b1c -e1a1-1965-cada29ed54788b4d/1/2009FEEHELPin formationbooklet.pdf. Accessed 22/05/10

112 Australian Department of Education, Employment and Workplace Relations, www.goingtouni.gov.au/Main/fee sloansandscholarships/postgradu ate/fullfeesandfee-help/ default.htm Accessed: 12/05/10 113 Parliament of Australia, ‘ Higher Education Support Amendment (FEE-HELP Loan Fee) Bill 2010’ available at http://www.aph.gov.au/Library/p ubs/bd/2009-10/10bd108.pdf. Accessed 22/05/10 114 Private information

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Although there remains a dis2nc2on between the two types of loans, depending on

the type of ins2tu2on to which it is paid, this is nevertheless an indica2on of the

Australian Government’s support for greater numbers of students a3ending private

HEIs.

Part-time students An issue which must be acknowledged when reviewing financial support to students attending PHEIs is the fact that many of these students are part-time. Often they are supported in their studies through employer contributions. Crucially, the majority of the more established PHEIs in the UK cater primarily, and in some cases solely, for part-time students. For instance, the IFS School of Finance, a successful non-profit private provider, has no full-time students at all. The only for-profit HEI with degree awarding powers, BPP, currently has approximately 120,000 students on its books, only about 5,000 of which are full-time students. This means that roughly 96% of BPP’s students are studying on a part–time basis.114 Unfortunately, the support that is available to these students is nothing short of lamentable. Support is only available to part-time students who study the equivalent of at least 50% of a full-time course each year, and complete the course in no longer than twice the amount of time it would take a

Student Financial Support

full-time student. This means that that student support for part-time students is based on the hours of study and not financial need. In addition to this condition of eligibility, is the disparity in the amount of funding that is actually available between full-time and part-time students. For instance, a maximum grant of £2,906 can be paid to a full-time undergraduate but a part-time student can only access less than half that amount.115 A staggering 90% of part-time students receive no financial assistance from the Government whatsoever,116 even though a report by Universities UK revealed that 29% of part-time students came from the lowest occupational bracket, with 13% of the students classifying themselves as “routine and manual [workers] or unemployed” and a further 16% considering themselves as “intermediate” (supervisory, clerical, administrative roles etc).117 It is estimated that only 30% of part-time students across UK higher education are employer-funded.118 The average income of a part-time undergraduate student in England is just £13,511119 with nearly half (46%) having an annual income of less than £20,000.120 We consider it unacceptable that part-time students do not receive the financial assistance that they require in order to attend and to support themselves. PHEIs are often particularly strong at catering for part-time students, with much use of initiatives such as flexible course timing and remote learning. Unfortunately, the lack of student support means that these useful alternatives to a traditional, full-time, residential course are out of the reach of most students. It is telling that a large proportion of PHEI students have their tuition fees paid for by their employers. Ashridge Business School, for instance, caters primarily for students who receive employer support, ranging from full funding to the granting of paid-leave in order to study. These students account for approximately two thirds of the School’s student population.121 Within BPP’s student community the percentage of students that are funded directly by their employers is in the region of 60%.122 While this means that they may not need access to student loans, it does mean that PHEIs in the UK sector are catering for a very specific student demographic. PHE is likely to remain a niche market, relative to public HE in the UK, until PHE students are treated equitably with regard to student support. If the Government wishes to expand private HE, while at the same time widening participation, it is vital that the student loans system is reformed so that it allows both full-time students at PHEIs and part-time students more generally to have equal access to financial support from the state.123 For these reasons we welcome the Browne Review’s recommendation that ‘entitlement for support for the costs of learning be extended to part time students as well.’124 Lord Browne proposes that Government extend support to part-time students to include those who study over 33% of a full-time course each year, rather than 50% or more as is the case at present. Policy Exchange made a similar recommendation in the 2009 research note Educating Rita, and we strongly endorse Lord Browne’s recommendation. However, any move to extend ﬁnancial support to part-time students must be designed in such as a way as to ensure that the investment of employers is not disincentivised and that students who would historically have had their course paid for by their employer are not handed over to the state.

115 From Student Finance England (2009), A guide to financial support for part-time students in higher education 2009/10, http://www.direct.gov.uk/ en/EducationAndLearning/Univer sityAndHigherEducation/StudentF inance/DG_171624. Accessed 09/06/10

116 Hansard, 16 Jun 2008: Column 652W, http://www.publications.parliame nt.uk/pa/cm200708/cmhansrd/c m080616/text/80616w0005.htm. Accessed 09/06/10 117 Universities UK, ‘Policy

Briefing: Part-Time Students’, www.universitiesuk.ac.uk/Publica tions/Documents/policybriefing0. pdf. Accessed 09/06/10 118 Anna Fazackerley et al, Educating Rita, Policy Exchange 2009, p.11 119 DIUS Student Income and Expenditure Survey 2007-08, p.256

120 Universities UK Policy Briefing: Part-Time Students, p.4 www.universitiesuk.ac.uk/Publica tions/Documents/policybriefing0. pdf. Accessed 11/06/10 121 Private information

122 Private information

123 For more information on Policy Exchange’s recommendations for student loans, please refer to the report More Fees, Please? Anna Fazackerley and Julian Chant, February 2010

124 Lord Browne of Madingley et al., Independent review of higher education funding and student finance, 12 October 2010

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Higher Educa2on in the Age of Austerity

VAT

Part of the reason for the higher fees at private HEIs is the UK’s inequitable treatment of PHEIs with regard to VAT. Publicly funded HEIs in the UK are classiﬁed as ‘eligible

bodies’ under Group 6 (Educa2on) of Schedule 9 of the VAT Act 1994.125 Consequently, supplies of educa2on or voca2onal training by public ins2tu2ons are exempt from VAT.

Non-proﬁt making private providers also hold eligible body status. However, private, for-proﬁt HE providers do not have eligible body status, so educa2onal supplies provided

by these companies are subject to VAT at the standard rate126 (currently 17.5%, and due

to rise to 20% on January 4 2011).127 The only excep2on to this is where a private company provides a course in partnership with an eligible body such as a statemaintained university. In these circumstances, the private en2ty may be treated as a college of the university for VAT purposes.128

This disparity places private providers at a compe22ve disadvantage in comparison

with the maintained HE sector in the UK. It also raises EU harmonisa2on issues. The European Direc2ve 2006/112/EC of 28 November 2006 states that ‘the provision of…

school or university educa2on… by bodies governed by public law’ shall be exempt from

VAT.129 Hence educa2onal services in Ireland, for example, are VAT-exempt regardless of 125 Strathclyde University, ‘Detailed VAT information’, http://www.strath.ac.uk/finance/ financialservices/valueaddedtaxv at/detailedvatinformation/. Accessed 15/09/10 126 HMRC Reference: Notice 701/30 (January 2002),

http://customs.hmrc.gov.uk/chan

nelsPortalWebApp/channelsPorta

lWebApp.portal?_nfpb=true&_pa

whether the supplier makes a proﬁt or not.130 Eversheds LLP believes that the UK’s VAT

regula2ons in respect of HE may be open to challenge, and that the EU VAT Direc2ve

may allow the UK to apply a blanket VAT exemp2on to all private HE providers.131 This

would mean that private providers in the UK would be treated equally alongside their

public counterparts, poten2ally allowing them to reduce tui2on fees and re-invest more

money into their provision. We believe that it is right that private HE providers be allowed to operate on a level playing ﬁeld with maintained HE providers, and that they

should therefore be treated equally with regard to VAT eligibility.

geLabel=pageVAT_ShowContent&

id=HMCE_CL_000117&propertyTy pe=document#P7_70. Accessed 15/09/10

127 James Kirkup, ‘Budget 2010: VAT rise and benefits cuts to tackle Britain's deficit,’ 22 Jun 2010, http://www.telegraph.co.uk/ finance/financetopics/budget/78 46749/Budget-2010-VAT-rise-andbenefits-cuts-to-tackle-Britains-de ficit.html. Accessed 15/09/10

128 Glynne Stanfield, ‘Report on the involvement of the private sector in higher education in England,’ Eversheds LLP, November 2009

129 Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, Title 10, Chapter 2, Article 132, available at http://eurlex.europa.eu/LexUriServ/ LexUriServ.do?uri=CONSLEG:2006 L0112:20100409:EN:PDF. Accessed 13/09/10 130 Private information

131 Eversheds LLP, ‘Report on the involvement of the private sector in higher education in England,’ November 2009

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Recommendations: 1. As recommended by Lord Browne, the distinction between publicly funded, non-proﬁt and for-proﬁt institutions in relation to student support eligibility should be removed. The Government should provide loans to students regardless of the motivation of the HEI they choose to attend. The Government should, however, ensure that the HEI is legitimate and is being appropriately monitored to ensure a high quality of teaching. 2. The eligibility requirements and application process for student loans must be made clear and easily accessible. While HEIs already provide information on what support their students may receive, the Government must also make this information and guidance available for school-leavers. 3. Part-time students, at both public and private HEIs, must be allowed greater access to student loans to pay for tuition fees and to assist with the cost of living. The Government should therefore implement Lord Browne’s proposal to extend student support eligibility to students studying 33% of a full-time course per year, rather than 50% as at present. In doing so it should ensure that those students who would historically have had their course paid for by their employer are not handed over to the state. 4. Private HE providers should be granted the same exemption from VAT that is granted to public providers, in line with the relevant European directive.

Access to Public Funding

Universities in England (except the University of Buckingham) are currently heavily reliant on direct funding from the Government, distributed mainly through the Higher Education Funding Council for England (HEFCE). However, this is likely to change from 2012 onwards, when the Government is From 2012 onwards, the Government is expected to adopt measures aimed at replacing direct funding for most expected to adopt measures aimed at replacing taught courses with much higher student contributions, paid upon direct funding for most taught courses with entering employment. These measures much higher student contribu2ons, paid upon are likely to be largely based on the proposals contained in the Browne entering employment Review. In this chapter we initially examine the ways in which public funding is allocated to eligible higher education institutions under the current system, and the position of private providers within it, before assessing the recommendations made by Lord Browne and their impact upon private providers.

“

”

The current system of higher education funding At present grants from the funding councils account for approximately 36% of university income132, demonstrating the sector’s heavy reliance upon HEFC support. HEFCE will distribute a total of £7,426 million to universities in England in the academic year 2010/11.133 Of this total, £4,719 million (around 64%) is allocated for teaching and £1,603 million (22%) for research via recurrent grants. The remainder is allocated to business and community engagement (including the Higher Education Innovation Fund); special funding for national programmes and initiatives, including those aimed at widening participation, efficiency projects and shared services; and capital funding, earmarked either for investment in infrastructure or for capital outlay and learning, teaching or research.134 In addition, £20 million worth of moderation funding is provided to help institutions adapt to reductions in teaching and research funding.135 This year’s HEFCE allocation represents a reduction of 0.4% from the allocation for the 2009/10 financial year, after adjusting for £250 million of capital funding that was brought forward from 2010-11 into 2008-09 and 2009-10.136

132 HEFCE, A Guide to UK Higher Education, 2009, p.12 http://www.hefce.ac.uk/pubs/hef ce/2009/09_32/09_32.pdf. Accessed 27/06/10 133 HEFCE, Grant announcement July 2010, http://www.hefce.ac.uk /finance/recurrent/2010/. Accessed 27/06/10 134 Ibid

135 HEFCE, Recurrent grants for 2010-11, March 2010. Amended 22 July 2010

136 HEFCE, ‘HEFCE publishes revised recurrent grant and student number allocations for 2010-11’, 22 July 2010, available at http://www.hefce.ac.uk/ news/hefce/2010/grant1011/brie fing.htm#changes. Accessed 10/08/2010

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Higher Educa2on in the Age of Austerity

Figure 1: Breakdown of HEFCE grant allocation (2010/11)137

Teaching – £4719 million Research – £1603 million Business and community engagement – £150 million Earmarked capital and special funding – £934 million Modera on funding – £20 million

How is HEFCE funding allocated?

a) Funds for teaching Around 80% of teaching funds are distributed via a system of weighted per-student allocations.138 HEFCE categorises students into one of four ‘bands’ based on the subject they study. Each band is given a weighting which is intended to reﬂect variations in the cost of tuition. There is an additional weighting for students in London to reﬂect higher costs in the city.

Table 1: HEFCE Bands, weighting and standard resource for 2010/11139 (refers to full-time undergraduates) Band description Band A

137 HEFCE, Recurrent grants for 2010-11, March 2010. Amended 22 July 2010

138 HEFCE, Funding higher education in England: How HEFCE allocates its funds, September 2008 http://www.hefce.ac.uk/ pubs/hefce/2008/08_33/08_33.p df. Accessed 27/06/10 139 HEFCE, Recurrent grants for 2010-11, March 2010.

140 HEFCE, Funding higher education in England: How HEFCE allocates its funds, September 2008 http://www.hefce.ac.uk/ pubs/hefce/2008/08_33/08_33.p df. Accessed 27/06/10 141 HEFCE, Recurrent grants for 2010-11, March 2010.

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Band B Band C Band D

Clinical stages of medicine and dentistry courses and veterinary science Laboratory-based subjects Subjects with a studio, laboratory or fieldwork element

All other subjects

Weighting 4

Notional HEFCE grant rate (£) 14,494

1.7 1.3

5,407 3,826

2,641

This formula for allocating teaching funds was introduced in 1998 with the aim of creating a system which is transparent and predictable for the institutions involved. Recipient institutions have considerable freedom over their use of the funds; they are not expected to mirror HEFCE’s allocations internally, and may use the funds to support central facilities such as libraries and administration.140 The remaining 20% of recurrent HEFCE teaching funds that are not allocated through the above method are targeted at supporting particular policy initiatives such as widening participation (which was allocated £141 million in 2010/11) and improving student retention (£225 million).141

Access to Public Funding

b) Funds for research HEFCE distributes the majority of research funding through a quality-related (QR) research grant. The QR grant is so called because its allocation is based on the Research Assessment Exercise (RAE), a peer-review process that produced a quality proﬁle for research groups submitted by institutions for assessment in different subject areas.142 The RAE was completed in 2008 and will continue to form the basis of QR research funding until it is replaced by a new process, the Research Excellence Framework (REF), due to be implemented in 2014.143 HEFCE determines the total funding for research to be made available for different subject areas; it then divides each subject total among institutions based on numbers of active research staff, the relative costs of research in different subjects, quality rankings as determined by the RAE, and any prioritising of particular subjects by the Government. In addition, HEFCE funds other research-related costs through the recurrent research grant. These include funding for the supervision of postgraduate research students; charity-related funding (allocated in proportion to the income institutions receive from charities for research); and business-related funding (allocated in proportion to the income received by institutions from business for research). There is also a small amount of funding aimed at supporting national research libraries.

Table 2: Elements of recurrent research funding for 2010/11 (£ million)144 Mainstream QR allocations London weighting on mainstream QR Research degree programme supervision fund Charity support element Business research element National research libraries Total

1,097 33 205 198 64 6 1,603

In addition to the above funding, HEFCE-maintained institutions are eligible to apply to the seven UK Research Councils for funding for speciﬁc research projects. The seven Councils distribute around £2.8 billion in research funding each year.145 Most private providers are teaching-focused institutions and many do not engage in research at all; it is therefore to be expected that, should they be approved for public funding, their claim on HEFCE’s research allocation would be limited. However, there are some private HEIs with high-quality research departments; the University of Buckingham for example is home to leading centres of research such as The Centre for Education and Employment Research and the Centre for Security and Intelligence Studies, which moved to Buckingham from Brunel University in 2007.146 c) Non-recurrent grants and the Higher Education Innovation Fund Although the majority of HEFCE funding is distributed through recurrent teaching and research grants, around 12% is provided in the form of non-recurrent grants. These are earmarked capital grants and special funding

142 HEFCE, Recurrent grants for 2010-11, March 2010.

143 HEFCE, ‘Research Excellence Framework’, http://www.hefce.ac.uk/ research/ref/. Accessed 23/07/10

144 HEFCE, Recurrent grants for 2010-11, March 2010.

145 Research Councils UK, http://www.rcuk.ac.uk/default.ht m. Accessed 11/08/10

146 Buckingham University Centre for Security and Intelligence Studies, available at http://www.buckingham.ac.uk/in ternational/bucsis/. Accessed 11/08/10

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Higher Educa2on in the Age of Austerity

grants aimed at supporting speciﬁc programmes. Additionally, there is a Higher Education Innovation Fund (HEIF) aimed at supporting business and community engagement by HE institutions.

Which institutions receive HEFCE funds?

147 HEFCE, ‘Institutions funded

by the Council’, March 2010,

http://www.hefce.ac.uk/UniColl/.

Accessed 11/08/10

148 For an explanation of the difference between these classifications please see the section of this report on University Title.

149 HEFCE, ‘Institutions funded

by the Council’, March 2010, http://www.hefce.ac.uk/UniColl/. Accessed 15/09/10 150 Education Reform Act 1988

(as amended), OPSI UK Statute Law Database, available at

http://www.statutelaw.gov.uk/co ntent.aspx?activeTextDocId=2100 398. Accessed 12/08/10

151 HEFCE, ‘Transfers between the further and higher education sectors’, 2001, Annex A, http://www.hefce.ac.uk/pubs/hef ce/2001/01_05a.htm. Accessed 10/08/10

152 Office for Fair Access, ‘Guildhall School of Music & Drama Proposed Access Agreement,’ 15 November 2005, http://www.offa.org.uk/agreeme nts/Guildhall%20School%20of%2 0Music%209.3.07%20approved% 209.3.07.pdf . Accessed 13/08/10

153 Office for Fair Access, ‘The Liverpool Institute for Performing Arts Access agreement 2008/09 – 2010/11’, http://www.offa.org.uk/ agreements/LIPA%20revised%20a ccess%20agreement%20approved %201.4.08.pdf. Accessed 13/08/10 154 HEFCE Circular, Dance and Drama Awards, March 2004, available at http://www.hefce.ac.uk/pubs/circ lets/2003/cl09_03outcome/. Accessed 13/08/10

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HEFCE currently funds 130 higher education institutions, as well as 123 predominantly further education colleges that also provide some higher education courses.147 This includes all universities in the UK, with the notable exception of the University of Buckingham, as well as university colleges.148 Other higher education institutions that have not been granted the title of university or university college also receive funds, many of which specialise either in the performing arts (such as the Conservatoire of Dance and Drama or Rose Buford College) or agricultural/land management courses (such as Writtle College or the Royal Agricultural College). Additionally, the 19 constituent colleges of the University of London are in receipt of HEFCE funds.149

Private institutions and ‘designated institution’ status Provisions contained in Section 129 of the Education Reform Act 1988 (as amended by the Further and Higher Education Act 1992) create a route by which HE institutions not in receipt of HEFCE funding can seek to become eligible to receive it.150 The section provides that the Secretary of State of the relevant department (currently the Department for Business, Innovation and Skills) may by order designate as eligible to receive HEFC funds any institution at which over 55% of courses offered are courses of higher education.151 Meeting this criterion does not, however, automatically qualify a private institution for designated status. Designation remains at the discretion of the Secretary of State, based on advice from the HEFC in consultation with the Quality and Assurance Agency (QAA). There are few examples of private HE institutions that have been granted designated institution status under the provisions of the Education Reform Act. One example of a successful applicant from the independent HE sector is the Guildhall School of Music and Drama, an arts college owned and managed by the Corporation of London which was granted designated status in 2005 and consequently received HEFCE funding for the first time in 2006.152 In the same year the Liverpool Institute for Performing Arts, both a limited company and a registered charity, qualified for receipt of HEFCE funds.153 Both these institutions are performing arts colleges which have been eligible for HEFCE funding since the HE-level element of the Dance and Drama Awards scheme, in which funding is aimed specifically at specialist dance and drama courses in private institutions, was incorporated into mainstream HEFCE funding in 2004.154 However, there is no history of private providers offering academic or vocational qualifications receiving HEFCE funding; moreover, the vast majority of private HE institutions have not sought to be made eligible for HEFCE funds. This includes large, well-established providers with their own degree-awarding powers such as BPP College, the College of Law, Ashridge Business School, the IFS School of Finance and Buckingham University.

Access to Public Funding

The application process for designated institution status:

a) The private ins2tu2on has to submit a formal wri3en request to the Secretary of State for Business, Innova2on and Skills (BIS) seeking designa2on as an HE

ins2tu2on.

b) BIS invites the advice of HEFCE to inform the decision of the Secretary of State – the basis for this advice is largely determined by the HEFCE and conﬁrmed by the HEFCE

Board.

c) On receipt of advice, the Secretary of State decides whether to make an Order of Designa2on.

d) Implementa2on of an Order of Designa2on is a ma3er for the HEFCE and the relevant department in discussion with the ins2tu2on.155

Criteria for designated ins'tu'on status

1. The ins2tu2on should meet one or other, but not both, of the following criteria:

a) The ins2tu2on brings new or highly dis2nc2ve provision into the sector (primarily

in terms of subject, but possibly also in terms of learning environment or approach), and so would add to the sector's diversity, but in an area which has

academic credibility as a ﬁt subject of specialism for an HE ins2tu2on.

b) The ins2tu2on makes provision which, in subject coverage or delivery, is already found in the HE sector, but the ins2tu2on has a standing and repute

that would enhance the sector overall.

2. In addi2on, the ins2tu2on should meet both the following criteria:

c) The ins2tu2on can demonstrate strong demand from students and a strong graduate employment record.

d) The ins2tu2on can demonstrate that its reputa2on is merited and can be sustained, in the sense that its provision meets appropriate quality standards

expected of HE sector ins2tu2ons.

In fact there is no legal impediment to prevent any private HE provider from being classified as a ‘designated institution’, provided that it can satisfy HEFCE and the Secretary of State that it is worthy of this status. The Secretary of State will make the final decision on any application on the basis of advice from HEFCE, which evaluates applications on the basis of predetermined criteria. We consider the current piecemeal system by which designation for public funding is granted to have some serious flaws. Far from being transparent and predictable, the little-used method by which institutions can apply for designation is an uncertain process, particularly for private providers. Our conversations with representatives of established private HE providers indicate that, although no applications have been made, there have been some informal enquiries into the possibility of acquiring designation for HEFC funding eligibility. Decidedly mixed signals have been received in response. One profit-making provider told us that it was originally informed by HEFCE that it was not eligible even to apply for the funds, before being told that it could in fact apply but stood no chance of being successful, indicating a prevailing bias against private providers despite no official statements on the subject. Finally it was told that an application could be made which which might in fact be approved after all.

155 HEFCE, ‘Transfers between the further and higher education sectors’, 2001, Annex A, http://www.hefce.ac.uk/pubs/hef ce/2001/01_05a.htm. Accessed 10/08/10

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Higher Educa2on in the Age of Austerity

It is difficult for any private provider to consider investing time and resources into a funding application when there is so much uncertainty over how it will be viewed by the officials of HEFCE and BIS. A better system would clearly state the position of private providers with regard to funding eligibility, and a fairer system would simply allow funding to flow to any provider capable of meeting the same standards of quality that are expected of all funded institutions. A system that places private providers at the mercy of the prevailing mood among HEFCE bureaucrats is entirely unsatisfactory.

Browne Review proposals

156 Lord Browne of Madingley et al., Independent review of higher education funding and student finance, 12 October 2010 157 ibid

158 ibid 159 ibid

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Thankfully, the Browne Review took a significant step towards a fair and transparent process by making the recommendation that ‘new providers will be able to apply for targeted HE Council investment if they offer priority programmes – and they will be subject to the same quality requirements as any other provider.’156 This sensible recommendation ensures that institutions wishing to receive direct funding for the first time are not burdened with conditions over and above those required of institutions already in receipt of funding. The adoption of this proposal would go a long way towards creating a level playing field for private providers and removing the uncertainty around the funding application process. These changes would also improve the ability of private providers to compete in the HE marketplace, ultimately ‘to the benefit of students’ as the Browne Review notes. The reference to ‘priority programmes’ reflects the fact that Lord Browne’s proposals include major changes to the HE funding system, one of the most dramatic of which is the removal of direct teaching funding for the majority of taught courses. Under the system as it currently stands, around 54% of the £6,100 cost of teaching an undergraduate course is borne by the taxpayer, and the remainder by the student.157 Lord Browne’s proposals shift the cost of tuition much more strongly onto the student, but balance this with considerably more generous up-front student support for low-earners and more generous repayment subsidies for low earners (see Chapter 3 of this report). High earners, by contrast, will pay the entire cost of their tuition themselves. These changes will save public money, but should be regarded as much more far-reaching than that, constituting as they do the effective privatisation of the majority of higher education courses. As Browne notes, ‘students will control a much higher proportion of the investment in higher education’, and as a result universities will have to devote more attention to attracting and retaining students if they are to succeed. The abolition of direct funding for most courses should therefore lead to a more competitive system in which institutions are incentivised to ensure that what they provide is what students want. If these measures are implemented in conjunction with the Review’s recommendations around information provision to prospective students, particularly with regard to graduates’ employment prospects, there is good reason to hope that in future, as Browne forecasts, ‘courses that deliver improved employability will prosper; those that make false promises will disappear.’158 Under Browne’s proposals, direct teaching funding will be limited to programmes which are deemed to be ‘a priority in the public interest.’159 These

Access to Public Funding

will be classified into two groups: the first will encompass clinical training programmes such as medicine, and will include the clinical components of courses currently in Band A under the current funding system (see chart on page 54). The second group will primarily consist of science and technology courses and will include the programmes currently included in Band D and some of those from Band C. Funding levels for these courses will be determined both by the cost of delivery, as now, and also by their importance to the country – as Browne puts it, ‘the degree to which the programme produces graduates and skills which are Lord Browne’s recommendations constitute or are predicted to be in shortage.’160 The total sum available to fund these welcome recognition of the fact that all high-quality subjects is estimated to remain close to the sum allocated to them at the institutions should be treated equally, and that moment – around £700 million.161 private providers should not be discriminated If teaching grants are limited to priority subjects as expected, this against on the grounds of their legal status report’s call for equal access to funding for all providers (subject to quality assurance) may seem somewhat academic. After all, few private providers offer high-cost clinical or laboratory-based subjects, preferring to focus on subjects with lower teaching costs. It may be that very few private providers – or none at all – take the opportunity to receive priority teaching funding. Nevertheless, the Browne Review’s recommendation to extend teaching grants to any provider offering priority courses, regardless of its legal status, remains a significant one for two reasons. Firstly, the proposed reforms will have significant, long-term effects on higher education in England and Wales. As a genuine market in higher education develops, commercial space may open up for enterprising private providers wishing to provide clinical and scientific courses. It is important that their position with regard to funding is clear and established well in advance. Secondly, Lord Browne’s proposals are significant for reasons of principle. For far too long, private providers have been unequally treated by the official bodies that regulate UK higher education. As discussed in previous chapters, they are unfairly treated with regard to access to DAPs, university title, and financial support for their students. In addition they have never received much-needed clarification regarding their ability to receive public funds, and have accordingly operated in an uncertain and unfavourable environment. Lord Browne’s recommendations constitute welcome recognition of the fact that all high-quality institutions should be treated equally, and that private providers should not be discriminated against on the grounds of their legal status.

“

”

Quality assurance and monitoring Under the system as it currently stands, institutional access to direct funding is conditional upon adherence to a number of requirements in areas such as quality assurance, ﬁnancial monitoring and information provision. For example, funded institutions must submit to regulation by the Quality Assurance Agency (QAA) as well as comply with the terms of the HEFCE Financial Memorandum. Under the Browne Review proposals, both HEFCE and the QAA will be uniﬁed into a single

160 ibid

161 ibid

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Higher Educa2on in the Age of Austerity

162 Model Financial Memorandum between HEFCE and institutions, July 2010, at http://www.hefce.ac.uk/pubs/hef ce/2010/10_19/. Accessed 01/08/10 163 Ibid

164 Universities UK Media Release, ‘Develop Global Competitiveness urges Universities UK President’, 15th September 2004.

165 QAA website, http://www.qaa.ac.uk/aboutus/ WhatWeDo.asp. Accessed 05/08/10

166 QAA, ‘Handbook for Institutional Audit: England and Northern Ireland’, 2009, http://www.qaa.ac.uk/reviews/in stitutionalAudit/handbook2009/I nstitutionalAuditHandbook2009.p df. Accessed 15/08/10

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Higher Education Council, which will also incorporate the Office of the Independent Adjudicator (OIA) which deals with complaints, and the Office of Fair Access (OFFA) which monitors institutional access arrangements. A unified HE council would be a powerful body with authority over quality assurance, the monitoring of access agreements, funding for priority courses, and dispute resolution. In addition it would have the power to prevent institutions that fail to meet required standards from admitting students with student loans or grants. It is therefore essential that the body carry out its duties in an even-handed manner that does not discriminate against the private sector. Certain conditions currently imposed on institutions by bodies such as HEFCE are unnecessarily restrictive and, in our view, especially onerous from the point of view of private HE providers. For example, a typical condition of this type is contained within Paragraph 72 of HEFCE’s Model Financial Memorandum, which states that if a university wishes to enter into a short-term financial commitment, it is not the university’s governors who have the final say but the Funding Council itself. The Council must be satisfied that the financial commitment offers “the most appropriate” solution and is “consistent with the institution’s financial strategy.”162 Furthermore, Paragraph 70 of the Memorandum stipulates that certain long term financial agreements require the Council’s written consent.163 In effect, final approval of an institution’s financial strategy is placed in the hands of the Funding Council rather than those best placed to judge it – the university leadership. This seriously calls into question the institutional autonomy of our universities. Private organisations are understandably unwilling to sign away their commercial and operating freedoms by complying with such conditions. Indeed, traditional publicly-funded universities have also expressed disquiet at the impact of the requirements, with the umbrella organisation Universities UK stating that the “restrictive financial memorandum” serves to discourage risk-taking.164 While we accept that taxpayers need assurance that their money is not being squandered on unsound institutions, this must be balanced against the need to maintain institutional independence within the UK’s higher education sector. As well as comply with the Financial Memorandum, HE providers that receive HEFCE funding under the current system are required to submit to regulation by the Quality Assurance Agency (QAA). The QAA was created in 1997 and is an independent charity, funded by HEIs which subscribe to its services. Its role is to check how well the universities are meeting their responsibilities, identify best practice in the system and make recommendations for improvement.165 The QAA also publishes guidelines and provides assistance to universities so that they can improve their own quality assurance measures. All higher education institutions in England are inspected by the QAA within a six-year cycle in a process known as an ‘institutional audit.’ The process involves a series of visits by an audit team over a period of six months, as well as an extensive document review, which includes an examination of an institution’s internal structures and mechanisms for improvement.166 These methods have been subject to criticism. A 2009 report by the Innovation, Universities, Science and Skills Select Committee concluded that ‘the system in England for safeguarding consistent national standards in higher education institutions is out-of-date, inadequate and in urgent need of replacement.’ It added that the QAA

Access to Public Funding

‘focuses almost exclusively on processes, not standards’ and called for the QAA ‘to be transformed into an independent Quality and Standards Agency.’167 We fully support the principle that HEIs should be subject to rigorous quality assurance. However, there is a danger that, as the QAA focuses strongly on process over outcomes, private HEIs which operate in a non-traditional manner will be placed at an unfair disadvantage. Many of our interviewees from both publicly funded and private HEIs were critical of the highly prescriptive and box-ticking culture within the QAA. Assessment teams were reported to have arrived and simply studied procedures, documents and manuals without having observed a single tutorial or interviewed students to receive feedback.168 Even the QAA’s own presentation on what institutions should expect of audits refers to interviews with staff and students only once but makes repeated reference to the evaluation of reports, programme specifications, codes of practice, assessment policies and student handbooks.169 As with the process for obtaining DAPs, we believe that the QAA should re-examine its practices to ensure that they deliver an effective means of maintaining and improving the quality of UK higher education. The QAA’s assessment criteria must be sufficiently flexible to recognise good quality provision without imposing the structures and processes of traditional universities on private providers which successfully operate in a different manner. If it is incorporated into a unified Higher Education Council, care must be taken so that the QAA’s flaws are not simply replicated in another organisation. As part of its unified role, the proposed HE Council would also have the responsibility of monitoring institutional arrangements for widening access and supporting students from disadvantaged backgrounds. An Access Commitment agreed between the Council and each institution would replace the Access Agreement currently negotiated with OFFA. Whilst we support the principle that institutions should contribute to ensuring that all able young people, regardless of family background, can access higher education if they wish, it is important that institutions are free to do this in the manner they deem most effective and efficient. We therefore welcome the Browne Review’s proposals to abolish the minimum spending requirements on access-related activities and the minimum institutional bursary award. These will be replaced by measures which give institutions the autonomy to support wider access as they see fit, and which involve stricter controls only when institutions fail to meet access targets – in which case a minimum spend on access may be enforced.170 It will be of crucial importance to the viability of the proposed Council that it strikes the right balance between ensuring that access to higher education is fair and not dependent on family income, and preserving and defending institutional autonomy as a crucial element of the higher education system in this country. Recommendations: 1. All higher education institutions meeting required quality standards should be able to access public funds for teaching priority courses, as suggested by Lord Browne, and for research where applicable. 2. Public funding rightly comes with certain restrictions to ensure that taxpayers’ money is well spent. However, these restrictions should not unduly restrict institutional autonomy or compromise competitiveness.

167 Innovation, Universities, Science and Skills Committee, Eleventh Report on Students and Universities, 2 August 2009, http://www.publications.parliame nt.uk/pa/cm200809/cmselect/cm dius/170/17002.htm. Accessed 14/08/10 168 Private Information

169 QAA Audit Briefing Presentation, www.qaa.ac.uk/ reviews/institutionalaudit/presen tation20100121.pdf. Accessed 15/08/10 170 Lord Browne of Madingley et al., Independent review of higher education funding and student finance, 12 October 2010

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Higher Educa2on in the Age of Austerity

HEFCE (or the proposed Higher Education Council) should review its funding criteria accordingly, giving particular consideration to the abolition of its right to final approval of financial commitments. 3. The QAA (or the proposed Higher Education Council) should review its quality assurance procedures to ensure that they focus sufficiently on outcome over process, and do not discriminate against private providers organised along non-traditional lines.

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Part Three

Introducing Private Funds into the Public Sector

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Takeovers and Mergers

171 PA Consulting, ‘A passing storm or permanent climate change? Vice-chancellor’s views on the outlook for universities’, 2010

172 David Ward, ‘Merger creates UK's biggest university’, The Guardian, 22 October 2004, available at http://www.guardian.co.uk/uk/20 04/oct/22/highereducation.unive rsitymergers. Accessed 15/08/10

173 The Guardian, ‘Manchester merger creates UK's largest university,’ http://www.guardian.co.uk/educ ation/2003/mar/06/highereducati on.administration, accessed 01/09/10 174 Anna Fazackerley and Julian

Chant, Sink or Swim? Facing up to failing universities, Policy Exchange 2009

175 PA Consulting, ‘A passing storm or permanent climate change? Vice-chancellor’s views on the outlook for universities’, 2010

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There is general consensus within the UK’s higher education sector that institutional mergers and takeovers are a likely future consequence of forthcoming funding cuts. A survey of UK vice-chancellors by PA Consulting found that 69% thought that significant numbers of mergers or acquisitions were ‘probable’ or ‘highly likely’ over the course of the next few years.171 In this chapter we examine the role private companies could potentially play in such situations if they arise. For the purposes of this chapter, we do not distinguish between takeovers and mergers, although they are technically different. A merger involves combining two organisations to form a new entity: for example, the creation of the University of Manchester in 2004 following the merger of the Victoria University of Manchester and the University of Manchester Institute of Science and Technology (UMIST).172 A takeover, on the other hand, is the acquisition of one institution by a second institution which retains its original identity. In practice, however, both processes involve the acquisition of a small or failing organisation by a larger or more successful one; UMIST had only split from Manchester to become an autonomous institution 10 years before it rejoined its much larger neighbour.173 Whether a new brand is created or not is irrelevant – there is no such thing as a merger of equals in higher education. In the past, the Government has responded to situations where a publicly-funded HEI has faced financial failure by stepping in to facilitate a merger with another institution. Policy Exchange argued in the 2009 report Sink or Swim: facing up to failing universities that this is not always the best solution and that in some circumstances a struggling university should simply be allowed to fold.174 Our view is that the Government should not feel obliged to prop up every failing institution using taxpayer’s money, particularly if pessimistic predictions about the sector’s future are proved accurate: PA Consulting’s survey found that 74% of vice chancellors expect to see the failure and disappearance of more HEIs in the next few years, in light of expected funding cuts and wider economic difficulties.175 There should certainly be no presumption that all failing HEIs should be rescued with government-backed deals. On the other hand, the acquisition of one institution by another can sometimes be in the public interest and be justified accordingly. If it is possible to arrange a deal which will restore public confidence in an organisation, repair its finances, and avoid the job losses and educational disruption that institutional failure would cause, then this may be the best option – as long as the taxpayer is not burdened with unacceptable costs. In this context there is growing interest in the

Takeovers and Mergers

role of private companies which can access large amounts of capital from private sources, and therefore could acquire failing institutions without drawing on public funds to ﬁnance the deals. In the past the merging or takeover of HEIs has only involved state-maintained institutions and the jury is still out as to whether these arrangements have provided value for money. We argue that the private sector could have a signiﬁcant part to play in ensuring that taxpayers’ money is put to best use in the interests of safeguarding higher education. This is a view that was recently echoed in the Browne Review of higher education funding. Although the review proposed that targeted funding be made available to prevent institutional failure in some cases, it also makes clear that ‘if institutional failure cannot be prevented in a way that is cost effective for public investment or in the best interest of students and staff, then the HE Council will explore options such as mergers or takeovers led by other providers.’176 Around £100 million per year will be made available to facilitate such arrangements under the proposals. In the following section we examine how such takeover arrangements might work, as well as assessing the obstacles to takeover measures and anticipating some of the legal and regulatory issues that may arise from such arrangements.

Institutional failure Given that HEFCE alone spent £7,929 million177 of taxpayers’ money on higher education in the academic year 2009-10, it is only right that the public should have confidence that their taxes are not being used to prop up failing institutions for political reasons. We acknowledge that a university is a major employer in its surrounding community – universities are thought to employ around 1.2% of the UK’s total workforce178 – and such a loss could have a catastrophic impact on the locality. However, in an area such as London, which hosts at least 42 competing higher education institutions,179 the possibility that one may fail should not be ruled out. If Lord Browne’s proposals succeed in their aim of creating a genuine market in higher education, some institutions are bound to fail as a result. Most will seek to charge considerably higher fees than are currently permitted and as a result will expose themselves to greater scrutiny from students seeking the best possible value for money and voting with their feet. Additionally, some traditional universities may come under threat from private competitors as the difference in tuition costs between the sectors is reduced or negated altogether. A genuinely competitive market would require that the safety net the Government currently provides for all publicly funded HEIs be removed, so that an uncompetitive university could go under. It would force up standards throughout the sector and remove the sense of complacency that is sometimes allowed to take root when institutions are underwritten by the Government.180 An alternative option to allowing failure could be to encourage two institutions to merge, as occurred when London Guildhall University and the University of North London combined to form London Metropolitan University in 2002. However, the merging of two publicly-funded institutions can have significant drawbacks. A merger will not usually take place unless one of those HEIs is in serious financial trouble and sees very little possibility of survival on its own. The problems that necessitated the merger in the first place, which may include financial

176 Lord Browne of Madingley et al., Independent review of higher education funding and student finance, 12 October 2010

177 HEFCE Recurrent Grants for 2010-11, March 2009 http://www.hefce.ac.uk/pubs/hef ce/2010/10_08/10_08.pdf. Accessed 13/08/10 178 Anna Fazackerley and Julian Chant, Sink or Swim? Facing up to failing universities, Policy Exchange 2009, p.2 179 Ibid

180 The Independent, ‘It makes sense to merge’, 21st January 1999 http://www.independent.co.uk/n ews/uk/politics/minister-saysdegree-costs-are-burden-on-taxp ayer-1996447.html. Accessed 12/08/10

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Higher Educa2on in the Age of Austerity

mismanagement, poor student retention rates or soaring costs, are unlikely to be solved by fusing together two HEIs and hoping to realise efficiency savings. London Metropolitan University has been plagued by financial difficulties since its creation, and in 2008 faced a £15 million grant cut following the discovery that it had The formation of the University of Manchester made incorrect student data returns.181 Such arrangements can also be of cost the Government and regional bodies a substantial cost to the taxpayer. The staggering £80 million, part of an enormous £285 formation of the University of Manchester cost the Government and million total merger budget. There seems little regional bodies a staggering £80 prospect of the Government providing million,182 part of an enormous £285 million total merger budget.183 There investment on this scale in any future merger seems little prospect of the Government providing investment on this scale in any future merger or takeover scenario, given its focus on austerity measures and the need to reduce Britain’s budget deficit. The late Alan Gilbert, the first Vice-Chancellor of the University of Manchester after its creation via a merger in 2004, noted the ‘fortuitous timing’ of the deal and wrote in February 2010 that ‘the kind of bold strategies that represented prudent risk six years ago... could not have been pursued responsibly during a period of public funding stringency of the kind that UK higher education now faces.’184 There is, however, an alternative to merging public institutions or allowing them to fail which has not been adequately considered. Private companies have significant skills and resources that they can bring to the table should they wish to take over an existing HEI.

“

”

181 Anna Fazackerley and Julian Chant, Sink or Swim? Facing up to failing universities, Policy Exchange 2009, p.6

182 Grant Harman and Kay Harman, ‘Strategic Mergers of Strong Institutions to Enhance Competitive Advantage’, Higher Education Policy 21, 99-121, March 2008, available at http://www.palgravejournals.com/hep/journal/v21/n1 /full/8300172a.html. Accessed 07/08/10 183 Alison Utley, Times Higher Education, ‘£285m kick-starts Manchester merger’, 7 March 2003, available at http://www.timeshighereducatio n.co.uk/story.asp?storyCode=175 263&sectioncode=26. Accessed 05/08/10 184 Alan Gibson, ‘Letter from the President’, UniLife, University of Manchester, issue 4 volume 7, 1 February 2010 185 Times Higher Education,

‘Share value? Plans to aid creation of HE PLC’, 19 August 2010

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Role of the private sector There are a number of methods by which private financing could be made available to maintained institutions facing financial difficulties. The most obvious of these is a full or partial takeover of a public institution by a private company, on which we focus later in this section. However there are alternative solutions, one of which would be to allow a state-maintained university simply to alter its legal status to that of a public limited company to permit share ownership.185 This would then allow the university to issue stock and attract external funding from investors, an option that is viewed in some quarters as a quicker, ‘cleaner’ alternative to the more convoluted takeover model that we examine below. However, the process is complicated by the differing legal status of state-maintained universities (see the Introduction to this report). Universities established by Royal Charter, for example, would require an Act of Parliament to alter their status. Clarification would also be required on what would happen to a public institution’s right to university title, degree awarding powers, and government funding (these issues apply equally to a private takeover model and are discussed below). It is possible that the Government will seek to make the legislative changes necessary to allow such a switch of legal status to take place. However, there are currently no legislative obstacles to the alternative of a private takeover of a maintained institution, and so in this chapter we concentrate on the takeover model by which private capital can be injected into the UK HE sector. This involves either

Takeovers and Mergers

the full or partial acquisition of a state-maintained HEI by a private sector organisation. Given that the main driver for a private enterprise is to generate a financial surplus in order to survive and flourish, it is likely that they would in some cases seek to take over only part of an HEI, particularly career-focused departments which yield high returns, such as business and law.186 In the USA there have also been movements into other career-focused subject areas such as education and healthcare by institutions such as the University of Phoenix,187 while BPP is also on record as stating that it intends to expand into teaching and health in the UK.188 In addition, a private provider may seek to take on less profitable departments in order to expand its market coverage and enhance its reputation. BPP itself has already expressed an interest in making arrangements with public universities which could see it take over departments of traditional subjects such as history and English.189 A complete institutional takeover is also a possibility; Laureate Education has already completed the full takeover of the College of Santa Fe in New Mexico (see below) in the US. The greatest advantage of involving a private organisation in an institutional takeover is that private companies have ready access to capital which can be used to shore up a university’s finances and supply the investment required for a deal to succeed. This is clearly an attractive option in times of economic and fiscal hardship, and is likely to be a key consideration for the failing institution in question. We therefore expect that any possible takeover would most probably involve one of the large and well-resourced private education providers such as Kaplan, BPP (owned by the international Apollo Group) or Laureate Education. These for-profit providers have access to commercial sources of capital which would negate the need for the Government to expend vast sums in order to smooth the progress of a deal. This may be why HEFCE has reportedly recently advised senior managers of public HE institutions facing the risk of financial failure to consider partnership arrangements with private providers such as BPP.190 As well as access to capital, private companies bring with them a high level of expertise in the application of business principles such as sound financial management, marketing, and operational streamlining to ensure the most profitable and efficient delivery possible. Private sector input would therefore be expected to drive a business-like focus on achieving efficiencies and securing value for money. This is not necessarily considered natural territory for those involved in academia, although in fact many universities have already begun to operate in a far more commercial manner than they ever did in the past. The University of Edinburgh alone generated 40 new businesses during 2009-2010, which have already brought in over £3 million of funding from external sources.191 Furthermore, there has been ever more widespread and deeper interaction between the UK’s maintained universities and private companies in recent years. Such interaction includes long-term partnership arrangements whereby private companies use their business acumen and access to funds to provide certain services, allowing the partner university to concentrate on its core functions of teaching and research. An example is the model used by INTO, which provides specialist programmes aimed at preparing international students for their studies. While it is not a merger model, it is an example of partnership between public universities and a private company through long-term joint ventures for mutual benefit. Universities which have experienced the benefits of public-private arrangements may view the prospect of a takeover by a private organisation more favourably than has been the case in the past.

186 Private information

187 University of Phoenix website, http://www.phoenix.edu/. Accessed 27/07/10

188 Simon Baker, ‘Struggling colleges reach for BPP life raft in a bid to stay afloat’, Times Higher Education, 19 August 2010 189 Ibid

190 Simon Baker, ‘Struggling colleges reach for BPP life raft in a bid to stay afloat’, Times Higher Education, 19 August 2010

191 Times Higher Education, ‘Edinburgh creates record number of spin offs’, 26 August 2010

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Higher Educa2on in the Age of Austerity

The INTO Partnership Model192

INTO was formed in 2005 and has formed a number of long-term partnerships with

public HEIs in the UK and the US. Ten new partnerships were created between 2006

and 2009.

INTO and the partner ins2tu2on combine resources following a collabora2ve

planning process to develop services for interna2onal students and integrate them into

the domes2c student cohort. INTO manages these services and provides capital investment in facili2es, allowing the university to focus on core func2ons.

INTO’s model goes beyond simple outsourcing, allowing the university to maintain

control of the project, and therefore of its brand and of the student experience. Deals

vary in length but are always long-term, deeply embedded collabora2ons; they average

around 35 years, during which 2me the INTO model is almost en2rely integrated into the

university infrastructure.

An example of INTO’s partnership model can be seen in its collaboration with the

University of East Anglia. A £38 million study centre was created at the University,

funded and managed entirely by INTO. At the centre, international students are

provided with pre-degree academic and language programmes. The University has

benefited from increased international enrolment, with the number of international

undergraduates increasing from 109 to 345 following the partnership arrangement. International students are charged higher fees than domestic students, so

universities have a strong incentive to become more attractive to this group. At

Exeter University, where INTO has operated a similar partnership for two years (with

work ongoing on a new centre on campus), international enrolments have grown 177% since 2006.

Other INTO collabora2ons include Queen’s University Belfast and City University

London in the UK, and the University of South Florida and Oregon State University in the

US. INTO es2mates that it has generated £62 million in total interna2onal revenue for

its university partners.

Impediments to private sector involvement

192 Information gathered from conversations with INTO representatives and from INTO’s 2008/9 Review

193 The growth of the private and for-profit higher education providers in the UK, John Fielden, Universities UK, 2010

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Despite the growth of partnership working between private companies and traditional universities, there still remain differences between the two sectors. Public institutions are structured differently in areas such as governance and staff hierarchy, which can result in frustrating problems for private organisations. University committees also tend to be naturally risk-averse as they deal with public money and prioritise long-term stability when taking decisions. Consequently, they are more likely to display caution in situations where the private sector would rather agree deals quickly so as to minimise costs.193 Additionally, there remains a certain degree of mistrust of the private sector amongst academics and other staff within public universities. Those vice-chancellors whom we spoke to reported that this sentiment was becoming less common as maintained universities work ever more closely with the private sector. However, the staff of public universities may react unfavourably to the prospect of a private takeover. The proposed merger between Imperial College and University College London collapsed acrimoniously in 2002 following protests from UCL staff who considered Imperial’s culture to be unsuited to the

Takeovers and Mergers

‘ethos’ of UCL.194 That proposed deal was between two public institutions; one wonders how the staff would have responded to the possibility of amalgamation with a private institution. It is to be hoped that the significance of cultural differences between the sectors will shrink as collaboration between them becomes even more widespread. An issue that requires further clarification in the case of a public-private deal is the question of what will happen to degree awarding powers and use of university title. Under the amended QAA regulations of 2004, private providers are eligible to apply for DAPs on a time-limited basis only, and are not eligible for university title. By contrast, all public institutions created prior to 2004 have the right to continue to award degrees in perpetuity, which is usually laid down in the university charter. Elsewhere in this report we recommend that private and public providers should be equally treated with regard to DAPs and university title. However, while the two sectors are still treated differently, the possibility must be considered that a private-public takeover could jeopardise an institution’s entitlement to DAPs and the title of university. The Government should pre-empt this possibility by making it clear that DAPs and university title would not be adversely affected by an amalgamation with a private provider.

How could a private takeover be achieved? Under current law, it is possible to transfer an existing HEI into private hands. They are, after all, autonomous and legally independent bodies in their own right. In order for this to be an attractive alternative to outright financial ruin, both the public and the private provider must trust one another fully. The public has invested huge sums of money into the university through Government funding, which has paid for the upkeep of buildings and facilities, the development of infrastructure and the wages of staff. If these assets are to be transferred to a private organisation, the public must be assured that the deal is in the best interest of the institution concerned and its students, and will provide better value for money for the taxpayer than alternative arrangements. The process by which this assurance could be provided has not yet been determined as no private-public takeover has occurred in the UK higher education sector to date. It could potentially be modelled on the process by which the Government approves outsourcing contracts in other areas, such as health.195 For its part, the private provider involved must be confident that it can count on the Government’s continued support. It is unlikely that a failing university could be turned around if its access to student financial assistance or public funding through the HEFC was revoked as a result of private sector involvement, at least in the short term. It is also crucial that neither university title nor degree awarding powers be revoked. Without a clear statement of support, a private enterprise may not feel confident that it will have the flexibility to manoeuvre and turn a loss-making institution into one that is financially viable. Once all parties concerned are satisfied that that the takeover would be mutually beneficial, a process could begin in earnest. Legal and financial advisors have already begun to develop ideas around how such a process might look. One such takeover model was devised by Eversheds LLP:196

194 Lucy Hodges, ‘London merger: Why the professors said no’, The Independent, 21 November 2002 195 Private information

196 Glynne Stanfield, ‘Report on the involvement of the private sector in higher education in England,’ Eversheds LLP, November 2009

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Higher Educa2on in the Age of Austerity

In return for a cash payment or a longer term investment the existing HEI transfers its assets, undertakings and liabilities to the new private provider (NewCo). The HEI remains a “designated institution,”197 entitled to continue to receive public funds and retain its DAPs. To retain its designated status, the institution would have to retain a governing body of its own. The existing higher education institution would hold an interest in NewCo, so that both the existing institution and NewCo would be in the same VAT group. As a result no VAT would be charged on student fees or cross-services between the two bodies concerned. HM Treasury is unlikely to object to this as it will receive at least some of the capital value of the institution while at the same time washing its hands of any future risk, which would be transferred to the commercial third party. If required, the HEI could be ﬂoated on the stock exchange in order to attract greater investment. A ﬁnancially stable HEI can be an attractive long-term prospect to investors. There are no legal barriers to this model being rolled out across the UK higher education sector. The model allows the skills and resources of the private sector to come to the aid of struggling HEIs; additionally it allows the Government to realise the capital value of an HEI while transferring the risk attached to the HEI to the private sector. It also allows private capital to be raised in different forms through NewCo. 197 A “designated institution” is one which has been granted entitlement to receive state funds through the Funding Councils for Higher Education. See the section of this report entitled ‘Access to Public Funding’.

198 The Chronicle of Higher Education, ‘College of Santa Fe Declares Financial Emergency’,

February 19, 2009 http://chronicle.com/article/Colle ge-of-Santa-Fe-Declare/42438/. Accessed 03/08/10

199 State of New Mexico Press Release, ‘Governor Bill Richardson Creates College of Santa Fe Task Force’, March 2009, http://www.governor.state.nm.us /press/2009/march/032409_01.p df. Accessed 05/08/10

200 Laureate Education, ‘About Laureate’, http://www.laureate.net/ en/AboutLaureate.aspx. Accessed 05/08/10

201 SantaFeNewMexican.com, ‘Councillors OK Plan to Buy CSF Campus’, July 2009, http://www.santafenewmexican.c om/Local+News/Councilors-OKplan-to-buy-CSF-campus. Accessed 05/08/10 202 KRQE News Albuquerque, ‘College of Santa Fe adopts new identity’, 30 June 2010, http://www.krqe.com/dpp/news/ education/college-of-santa-feadopts-new-identity. Accessed 06/08/10

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International example: the College of Santa Fe and Laureate Education

In 2008, the College of Santa Fe (CSF), New Mexico’s oldest chartered college, was facing

ﬁnancial ruin. With debts totalling $35 million the College was forced to make signiﬁcant

cutbacks, both in teaching staff and the range of programmes that it was able to offer.198 In an effort to save the College, neighbouring state universi2es considered stepping

in to take over the ownership and management of the College but these plans met with

failure. At this point the Governor of New Mexico created the College of Santa Fe Task Force which was charged with exploring all the op2ons to save the ﬁnancially troubled

private college.199

Laureate Educa2on Inc. then ini2ated discussions with both the College and Santa Fe

City Council. Laureate is a large interna2onal higher educa2on provider with a network

of more than 50 campus-based and online universi2es, serving over 600,000 students across 24 countries.200

A deal was struck whereby the ownership of the College would be transferred to the

City Council in exchange for the Council taking on the College’s debt. Laureate would then

lease the College for $2.32 million per year for a period of 26 years. Although CSF would

remain the property of the City Council, the management and its opera2on (including all the costs involved in this) would be the responsibility of Laureate. In addi2on, Laureate had

to commit $20 million towards oﬀse4ng any losses and making various improvements to

the CSF campus. If Laureate pulled out before the end of the lease, and if there was any of the $20 million remaining, the City Council would be paid the remainder.201

An agreement was se3led in July 2009, allowing the College’s doors to stay open, to

the beneﬁt of students, staﬀ and the local community. The College is now undergoing

signiﬁcant renova2ons and will open this year as the Santa Fe University of Art and Design, in order to distance itself from the tribula2ons of the past.202

Takeovers and Mergers

Recommendations: 1. The Government needs to make a clear statement outlining the implications of any takeover or merger between an existing HEI and a private provider. In particular, the Government must clarify whether access to public funding and student ďŹ nancial support would be retained. 2. The Government must make it clear that DAPs and university title would not be jeopardised by a merger or takeover of a public university by a PHEI. 3. The Government should consider a blanket Act to allow universities (including those established by Royal Charter) to change their legal status and become a private limited company. This would allow access to private investment without the need for an institutional takeover.

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Higher Education in the Age of Austerity

Policy Exchange

Higher Educa,on in the Age of Austerity The role of private providers Alex Massey and Greg Munro