The Context of Higher Education

Higher-education (HE) systems are complex and multi-dimensional. During the last 20 years or so, systems have expanded for the following reasons:

• • a student-led demand for access to higher education;

• • government initiatives to promote increased access to, and widening participation in, HE;

• • government perceptions of HE as an instrument for national economic growth and regional regeneration.

This has resulted in a move from elite to mass systems of higher education (according to the definitions of Trow Reference Trow2007).

These mass systems are now mixed economies of public/private institutions, comprising a range of diverse institutional types and corporate forms – both non-profit and for-profit. These institutions (or providers) do not necessarily conform to traditional notions of a ‘university’ with its associations of scholarship, research and a collegium of academics as central to its purpose and governance model.

This move to mass systems of HE has been accompanied by some key changes fundamental to the approaches to funding and regulation, namely:

• • The shift in funding from the state to individuals (wholly or in part) creating a student debt burden through repayable loans (or a state debt burden if loans are not repaid);

• • Students are recast as consumers;

• • Consumer choice is promoted by the availability of accurate and transparent information regarding the learning experience and qualifications offered;

• • Student protection is perceived (by the regulator) as a critical duty of the provider;

• • Enrolment at an institution is regarded as a contract between the student and the provider, with the recourse to dispute resolution and damages if the terms of the contract are breached;

• • In an attempt to move from an approach which treats all providers in the same way, diverse and mass systems of HE have tended to adopt proportionate and risk-based systems of regulation.

New Public Management

New Public Management (NPM) is a term associated with the marketization of public goods and services. Its development was led by the UK in the 1980s, attempting to make the public sector more efficient by adopting private-sector management models and tools. It was also widely adopted by Australia and the USA, so is now in evidence in the Anglophone systems of higher education in these three countries, which also have significant volumes of trans-national education.

NPM reforms demonstrate the following characteristics in operation:

• • A greater emphasis on ‘performance’;

• • The measurement of outputs;

• • Preference for lean, flat, small, specialized (disaggregated) organizational forms;

• • The substitution of contracts for hierarchical relations as the principal coordinating device;

• • Market-type mechanisms, including competitive tendering and public-sector league tables;

• • A repositioning of service users as ‘customers’ and on the application of generic quality improvement techniques such as Total Quality Management.

Better Regulation and Risk Management

Coinciding with the adoption of NPM and the expansion of HE in the UK, as described above, there has been a change in the regulatory approaches to various sectors of public services and businesses, reflecting the principles of NPM. These new approaches, categorized as ‘better regulation’ and ‘risk management’ have been strongly promoted by the OECD and rest upon a set of assumptions that:

• • Most organizations want to behave appropriately and comply with requirements;

• • They will benefit more from advice and guidance than from the imposition of sanctions;

• • Consequently, a more selective approach to monitoring and enforcement (by regulators) concentrates upon organizations presenting the greatest risk to the system, or their user/client groups.

This risk-based and proportionate approach enables the concentration of resources to where they will have the most impact, and should, therefore, result in more efficient outcomes, whether public or private. Generally speaking, this change in approach is accompanied by regulatory scrutiny, supported by consumer choice and market forces. It also promotes a shift in the cost of regulation from the public to the private purse, with a view that a sector should pay for its own regulation. It can be argued that the convergence of NPM and ‘better regulation’ have promoted a system of scrutiny and control that relies heavily upon performance management and the measurement of outcomes in relation to established benchmarks, all dependent upon the availability of accurate and current data. This emphasis on data and management information systems within higher education has had an impact upon the allocation of resources and management styles within institutions. Within the UK, the establishment of the Office for Students (OfS) in 2018 (as the regulator for higher education in England) reflects the adoption of these approaches, which will be discussed in more detail later.

The notion of proportional and risk-based regulation assumes that risks can be identified, managed and mitigated effectively by organizations. In higher-education institutions, this role is the responsibility of senior management and the Board of Governors, and the regulatory system of the OfS in England requires that specified conditions are met initially (controlling market entry) and on an ongoing basis (retaining registration). If these conditions are not met by institutions, market entry can be refused or granted with stipulations to be met, or sanctions can be imposed post registration, on transgressing HE providers, the ultimate sanction being de-registration.

The Nature of Risks in Higher Education: Prediction, Effective Management and Mitigation

Higher education operates within a volatile external environment, globally (especially for systems of trans-national education), nationally and at an institutional level. This volatility creates a range of different risks that will have different implications for systems of higher education and individual institutions.

In a risk-based system of regulation, regulatory bodies will need to ensure that risks are identified and managed appropriately at a system and individual level. This raises challenges and tensions regarding transparency and confidentiality, student/institutional protection, the safeguarding of public investment, and the profits of private businesses.

Risk prediction is not an exact science. It depends largely on individual and institutional behaviours, which are notoriously difficult to predict. However, many data sets are available to inform horizon scanning and the identification of potential risks, by regulators and institutions. It is expected that institutions will have risk registers in place, using a risk rating system, and subject to regular scrutiny and reporting. There is a tendency to regard risks as mainly financial issues, and risk management is often the responsibility of finance and audit committees within a governance structure. However, significant risks may arise in terms of academic and reputational issues, and consideration is needed as to where holistic risk management is best located within governance structures and processes. For a system of risk management to be effective, there are some essential pre-conditions:

• • Data must be accurate, comprehensive, relevant and timely;

• • Active consideration must be given to what might constitute potential risks and their likely impact;

• • Appropriate mitigating action must be determined and implemented;

• • A communication strategy regarding identified risks and actions should be devised and actioned (for all stakeholders);

• • Reporting and follow-through should ensure that mitigating actions are monitored and evaluated (i.e., evaluation should be active and not just passively note problems!);

• • Accountability – by whom, and for what, should be clearly established in the Terms of Reference for management and governance bodies.

The Regulation of English Higher Education and the OfS: Context of the Regulation Policy

During the past thirty plus years, since the Further and Higher Education Act (1992), there has been a considerable expansion of the higher-education sector in England, with a categorization of institutions as ‘recruiters’ and ‘selectors’ emerging. This expansion was a response by institutions to student demand, not always funded by increased teaching grants and with student number caps in place. The resultant pressures on funding were addressed to some extent by the introduction of tuition fees for undergraduate students in 1998, accompanied by a system of student loans, administered by the Student Loans Company (SLC).

Undergraduate tuition fees were subsequently increased substantially in 2006 and again in 2012, when the teaching grant was removed for all but strategically important subjects. The move to a marketization of the sector, with the ability to access student tuition fee payments from the SLC, encouraged a growth in the number of alternative providers (i.e., an alternative corporate form to universities, university colleges or further education colleges), and universities themselves can be chartered, statutory or corporate (i.e., designated in accordance with the Companies Act 2006). In 2015/16 the cap on the number of undergraduate students that could be recruited by institutions was removed.

The Higher Education and Research Act (HERA) 2017 was an attempt to encourage more diversity and innovation in the range of provision, by creating ‘a level playing field’ in terms of funding and regulation for higher-education providers, through a system of registration. It was intended to create a new regulatory framework for higher education, increase competition and student choice, ensure students receive value for money and strengthen the research sector. Part 1 established the OfS as the regulatory body for higher education, Part 2 amended prior legislation regarding student finance and the complaints procedure for students, and Part 3 established United Kingdom Research and Innovation (UKRI) with responsibilities for funding and regulating research.

In the publication Securing Student Success: Regulatory Framework for Higher Education in England (last updated 2022) the OfS sets out the following aspects of regulation:

• • The OfS’s risk-based approach;

• • Sector level regulation;

• • Regulation of individual providers;

• • Validation, degree awarding powers and university title;

• • Guidance on general ongoing conditions of registration.

Comprehensive guidance is provided on the conditions of registration, and the principles-based approach emphasizes that the way in which a provider meets the conditions should be in relation to its size, context and mission. It is interesting to note that registration applies to ‘higher-education providers’ with ‘higher education’ defined by the Education Reform Act 1988, and no distinction is made between the designation of provider types, although university title is a protected term. Registration with the OfS operates as a gateway to HE market entry and confers access to funding for tuition fees (from the SLC) and to licensed sponsor status (from UKVI) for the recruitment of international students.

Where are We Now? The Current Size of the Higher-education Sector in England

Although HERA was intended to increase the number and nature of providers offering higher education, significantly smaller numbers of providers are now registered than initially expected (currently 427, of which fewer than half are universities). It should also be noted that many unregistered providers are also in operation, something that is currently a cause for concern, with a proposal that all providers with more than 300 students should apply for registration.

When the OfS was established in 2018, all existing and new higher-education providers in England had to apply for registration. According to data from the Higher Education Statistics Agency (HESA) the total number of HE students enrolled in England in the academic year 2023/24 was 2.9 million (2.05 million undergraduate and 850,000 postgraduate). The home element of this student population is funded by loans subject to income-contingent repayments (based upon earnings after graduation) and there is government concern that insufficient numbers of graduates are likely to repay their loans in full. The recruitment of international students (at uncapped fee levels) is significant to the financial viability of the higher-education sector in the UK, and recent reductions in this recruitment stream have contributed to the current financial pressures facing some large universities, resulting in proposed cuts to academic and administrative staff numbers.

Current Risks to English Higher Education: The System and Institutions

There are several current risks facing higher education generally, at the system level and for individual institutions. They occur as a consequence of a volatile and rapidly changing external environment internationally, together with some internal challenges to institutions. In England, there is concern that a number of large, established universities are facing significant financial problems. In May 2025, the OfS published its annual report on the Financial Sustainability of Higher Education Providers in England, showing the third consecutive year of decline in the financial stability of the sector, with 43% of providers having a financial deficit. One of the conclusions of the report was that overly optimistic predictions of student recruitment of home and international students is a significant risk to the finances of institutions.

Individual financial details are not made public by the OfS, but the fact that in December 2024 it was announced that applications for registration, degree awarding powers and university title would not be accepted until August 2025, is an indication of a significant risk level and the potential consequences. Additionally, consideration of all existing applications would be paused, so that resources could be concentrated upon dealing with financial concerns at providers.

At the time of writing (November 2025) there is no public admission that the OfS has yet intervened with financial support for a provider, although Sections 39–41 of HERA enable it to provide loans and grants to registered providers. These may be used for various purposes, in line with DfE priorities, and were used to provide financial support during the COVID pandemic.

The current government has stated that it will not bail out a university facing financial pressures, but this has yet to be formally tested. However, there are rumours that financial support is being provided to some universities. A recent article by Philip Augar (Chair of the Independent Panel Report to the Review of Post-18 Education and Funding, May 2019) published in the Financial Times, 13 August 2024, stated that:

The current lack of transparency regarding financial support for universities in crisis (and the form this takes) is not helpful for the institutions concerned and the sector in general, leading to rumours and mistaken perceptions. It is particularly unhelpful to the future recruitment of students. It is likely that there would be encouragement for mergers and co-operative ventures, prior to any bailout, closure of campuses or market exit. In such events, Student Protections Plans should be in place, but these are not likely to be adequate, to protect students’ interests fully. This is an area of significant potential risk to the HE system, which may possibly unfold in the coming months; however, there are also some other issues arising from data analysis which illustrate potential risks which merit discussion. These are the following.