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Today MPs on the Education Committee warn that the government has no clear plan for universities facing insolvency and that protections for students are inadequate, as the Committee publishes a new report on the funding of higher education.

• Read the report

The Committee warns that the UK’s higher education sector is under “unprecedented” financial pressure. These financial challenges are already having serious consequences, including staff redundancies, closures of courses and departments, recruitment freezes, and the selling off of assets.

In the report, the Committee emphasizes the widespread economic, social and research benefits of universities. It calls on the government to take full account of the essential economic anchor role of universities in their local communities when formulating policies and responding to financial difficulties.

Insolvency

“Currently, there is no clearly understood protocol for how the Government might respond to a situation of a provider at risk of imminent insolvency, which is a very serious problem,” the Committee warns. It calls for the government to urgently establish an early warning protocol, which would be triggered by the Office for Students categorising an institution as being at risk of insolvency.

This protocol should include costed plans for protecting students, staff and the wider community if the institution becomes insolvent and should provide a range of options to take action, including restructuring, merging with another institution, direct financial support or orderly exit.

MPs heard conflicting evidence about an institution’s ability to continue operating when insolvent; the Minister for Skills, Baroness Smith, argues they can, while others suggest an insolvent provider might have to be liquidated immediately, which the Committee says would have “an immediate and devasting impact” on students unable to finish their courses.

The Committee therefore say the government should legislate to clarify the situation, so that insolvent institutions can continue to operate, and clarify the threshold for government intervention for different kinds of institutions.

The Committee also voices support for a special regime to support insolvent universities. While MPs heard differing views on a special regime throughout the inquiry, it finds that the negative impact of a disorderly exit is “too great to be left unchecked”.

A special regime could ensure an orderly exit, MPs say. It should build on the special regime for the Further Education sector and ensure ‘teach-out’ processes for current students, protect the sufficiency of sector-critical courses and include mitigations to avoid geographical cold-spots.

Protecting students

The Committee also finds that current Student Protection Plans are “inadequate” and do not provide sufficient protection if a large provider were to become insolvent. It welcomes the Office for Students’ (OfS) openness to reform to protection plans, but calls for the changes to be further reaching.

The OfS must apply strengthened student protection regulations to all higher education providers, the Committee says, not just new ones. These should include the interests of staff, the impact on research, and the harm that insolvency would do to the local economy and community.

International students

The Committee finds that financial pressures on the higher education sector have driven reliance on international students, while the Home Office plays a “significant, even preeminent” role in the sector’s financial health.

“The Government must consider the consequences of its decisions in a joined-up way,” MPs say. “If the aim is to have fewer international students, the Government must set out how it will support the financial sustainability of higher education institutions.”

The Committee also regrets the fact that the Home Office was not a co-owner of the government’s International Education Strategy, reflecting a wider issue of coordination between departments that affect higher education.

The Committee heard strong opposition from the sector to the government’s International Student Levy, which will charge providers £925 per international student from 1 August 2028, with an exemption for 220 international students.

The Committee urges the government to take onboard the sector’s concerns about the risks of the levy given the financial precariousness of providers. It should monitor and evaluate the levy’s impact on the financial sustainability of HE institutions and its impact on students and the wider local economy and community.

The Committee also heard concerns about the government’s introduction of tighter basic compliance assessment (BCA) rules for institutions sponsoring visas. These changes risk deterring institutions from diversifying where they recruit from, the Committee finds, despite this being an aim of the International Education Strategy.

The Committee recommends the government address the concerns raised by HE institutions, including considering phasing in the changes. It should also outline how its approach to tighter rules will “help rather than harm” attempts to diversify international student recruitment.

Chair comment

Chair of the Education Committee, Helen Hayes MP, said:

“It is impossible to overstate just how important the higher education sector is to prosperity across the UK. Universities and other HE institutions sustain businesses, power growth and drive progress on the greatest challenges facing our society. 

“But these institutions are under extraordinary financial pressure. The possibility of a major UK university becoming insolvent is a real possibility, not a theoretical warning. 

“Such a development would be devastating to students, staff and the wider local community. It would deliver a severe and lasting blow to the UK’s research footprint and international reputation. 

“These financial risks must not be taken lightly. The risk of insolvency is real, and that happening would be devastating not just for students and staff but for the institution’s local community, the UK’s research footprint and our international reputation.  

“Developing an early warning system is essential. The government and the Office for Students should be ready to step in when the lights are turning amber, not when they are already flashing red.

“Action must also be taken to protect students, who have invested time, money and energy into their studies. The government should clarify whether universities will be able to continue teaching if they reach insolvency, and Student Protection Plans must offer students peace of mind that they will not suffer through no fault of their own.

“While the Committee respects the sector’s diverse views on the possibility of a special regime, in our view the risk of a disorderly exit is simply too great. We must do everything we can to ensure that a university closing does not mean that students in deprived areas have no access to certain courses, for example.

“Finally, the government must demonstrate more joined up action to protect a sector so vital to our national future. If it wishes to reduce the number of international students coming to the UK, it must set out how it will stabilize university finances. Unclear planning priorities will only increase the risk of parts of the sector collapsing.”

The report also makes several other recommendations, some of which are detailed below:

Borrowing

High levels of commercial borrowing by universities are also adding to the financial pressures facing universities, the Committee finds. Recent increases in interest rates have increased the cost of loans taken out in the 2010s.

MPs call for the government to set out what measures it and the Office for Students are taking to ensure the sustainability of higher education institutions' borrowing and to support institutions in particular difficulty. This should include considering whether the Office for Students should have a role in agreeing to high levels of borrowing.

Governance

During the inquiry, the Committee heard concerns that the quality of governance had contributed to institutions facing financial difficulties. It said governing bodies needed to have the capabilities and culture to challenge the assumptions of senior leadership on finances, students numbers and restructuring plans.

The Committee recommends that the Office for Students develop a programme to improve governance, including making direct support available when needed. The government should also implement Sir Philip Augar’s proposal to defer some of senior leadership’s pay until their term is over.

Franchising

The Committee also heard concerns about franchising courses, where another organization delivers courses on a provider’s behalf. The National Audit Office and Public Accounts Committee have both raised concerns about poor-quality provision and the misuse of public funds as a result.

The Committee welcomes the government’s plan to introduce mandatory regulation of franchise providers but warns that where institutions are dependent on franchisees withdraw, this could have a shock effect on their finances.

The Committee recommends the OfS provide guidance to universities seeking to scale back or exit franchising relationships, and that the government outlines how it will manage the potential impact of a franchisee becoming insolvent.

Further information

• About Parliament: Select committees
• Visiting Parliament: Watch committees
• Read the report [PDF]
• Education Committee