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

Higher Educa,onin the Age ofAusterityThe role of private providersAlex Massey and Greg Munro

£10.00ISBN: 978-1-906097-88-2

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Higher

Educationin

theA

geofA

usterity

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.

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.

Higher Educa2onin the Age ofAusterityThe role of private providers

Alex Massey and Greg Munro

Policy Exchange is an independent think tank whose mission is to develop and promote new policy ideas which will foster a free society

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About the Authors

Alex Massey joined Policy Exchange’s Education Unit as a Research Fellow inOctober 2009. He is currently working on a series of reports on private sectorinvolvement in UK higher education. Alex has a MA in English Language andLiterature from the University of Oxford and an MSc in International Relationsfrom the University of Kingston.

Greg Munro was a Research Fellow in Policy Exchange’s Education Unit fromJanuary to July 2010. During that time he conducted research into the highereducation policy area and authored a major report into the involvement of theprivate sector in higher education. Before joining Policy Exchange, Greg workedfor both Anne Milton MP and Iain Duncan Smith MP in their parliamentaryoffices. He has a Bachelors degree in Political Studies and a Masters degree inBritish Politics and Parliamentary Studies, both from the University of Leeds. Gregis currently working as Research Assistant for Sarah Newton MP.

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Contents

Acknowledgements 4Preface 5Executive Summary 7Introduction 17

Part One: Regulatory Environment1 Degree Awarding Powers 202 University Title 33

Part Two: Funding for Students and Institutions3 Student Financial Support 434 Access to Public Funding 53

Part Three: Introducing Private Funds into the Public Sector5 Takeovers and Mergers 64

policyexchange.org.uk | 3


Acknowledgements

The report’s authors would like to thank Kaplan UK, Eversheds LLP, JonathanKydd, Kai Peters, BPP, DrTerence Kealey, James Groves, Natalie Evans and the manypeople whom we interviewed for this project. Your assistance is greatlyappreciated.

Preface

What do we mean by the terms ‘public’ and ‘private’ in thecontext of UK higher education?The Organisation for Economic Co-operation and Development (OECD) categorisesa higher education institution (HEI) as either public or private based on the level ofgovernment involvement in its management, either directly or through theappointment of members of its governing body. This is not a particularly usefuldefinition when used to refer to the UK higher education (HE) sector, as all UKinstitutions enjoy a relatively high degree of operational autonomy.1 Under thesystem as it currently operates, the more significant division within UK HE isbetween institutions which currently rely heavily on public funds for their income,and institutions that do not receive direct public funding and rely instead onincome from tuition fees.Throughout this report, we use the term ‘private’ to referto institutions which are not currently in receipt of direct state funding through theHigher Education Funding Councils (HEFC) (although a small number receiveindirect state funding in the form of student financial support). When referring toHEFC-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 andWales.The key proposals involve a major shift away from direct funding of universityteaching, moving instead to a system almost entirely reliant on graduate contributionspayable after entering employment. These are highly significant changes which, ifadopted by the Government as expected from 2012 onwards, will have the additionaleffect of helping to level the playing field between public and private providers. Weexamine the changes in more detail in Chapters 3 and 4 of this report. For the purposesof the discussion contained in this report, however, we continue to distinguishbetween ‘public’ and ‘private’ institutions based on their receipt or otherwise of directstate funding under the current system. Both categories of institution include a rangeof different types of organisation with varying legal status and powers.

The UK’s public universities were established in various different forms underdifferent legal provisions.The lack of a uniform legal basis for public institutionsis reflected in their differing constitutional arrangements and legal powers,although all are legally independent corporations with charitable status.2 They canbe broadly broken down into two groups: pre-1992 and post-1992 institutions.

Most pre-1992 institutions were established by Royal Charter granted by thePrivy Council, although a small number were established by a specific Act ofParliament. Governance arrangements and structures are laid down in theinstrument of incorporation (i.e. the relevant charter or Act)and can only beamended 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

around the turn of the 20th century (such as Liverpool and Birmingham),universities established in the 1960s (such as Warwick and Sheffield), formerColleges of Advanced Technology which were awarded university status (such asCardiff), and former colleges of the University of London (such as ImperialCollege). It should be noted that Oxford and Cambridge are exceptional in thatthey have neither a charter nor a specific Act, but rather a body of statutes, whilethe London School of Economics and the Institute of Cancer Research are unusualin that they are companies limited by guarantee.4

Post-1992 institutions were established under the provisions of the EducationReform Act 1988 and the Further and Higher Education Act 1992. The 1988 Actconverted polytechnics (HEIs managed and funded by local education authorities)into independent Higher Education Corporations, and the 1992 Act allowed theseinstitutions to obtain degree-awarding powers and the title of university. Otherhigher education colleges followed suit and gained university status under theseprovisions. Post-1992 institutions are required to draw up instruments ofgovernment governing the structure and membership of the governing body whichmust be approved by the Privy Council.5 Examples of post-1992 institutions includeuniversities such as Kingston, Liverpool John Moores and Sheffield Hallam. Inaddition to universities, the public HE sector also contains HE colleges that have notachieved the title of ‘university’, as well as institutions that have received the lessertitle of ‘university college’ (see the chapter of this report on university title). Not allHE 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-profitsinclude international corporations with a UK presence such as Kaplan (owned bythe Washington Post) and the Apollo Group (which in 2009 acquired BPP, a for-profitprovider of professional qualifications, some at HE level), as well as small colleges,often offering non-accredited programmes. Non-profits include registeredcharities such as the College of Law, Ashridge Business School, and the IFS Schoolof Finance.

However, it is perhaps more useful to distinguish private HEIs based on theirsources of accreditation and title. Only five private providers have obtained theirown 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 privateinstitution to have use of the title of university college. Buckingham Universitystarted life as a university college but is now the only private full university in theUK; for a fuller description, see Chapter 2 of this report.

Private institutions without UK DAPs may nevertheless be able to award UKdegrees accredited by a public university through a partnership arrangement;examples include Kaplan and the London School of Commerce, while theUniversity of Wales accredits the courses of 32 providers in the UK (see thechapter on degree awarding powers for more details of partnershiparrangements). Other private providers offer foreign degrees, usually from theUS; examples include Regent’s College which offers degrees from WebsterUniversity in the US (as well as degrees validated by the Open University and theUniversity of Wales) and Richmond American International University. Theseinstitutions cater predominantly for international students.6


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

Executive Summary

Part One: Regulatory Environment

Chapter 1: Degree Awarding PowersAn Honours or Masters degree (or higher) awarded by a British university isrecognised internationally as a high-level academic qualification. As such, it isessential that only institutions which offer students a high quality of educationshould be eligible to award degrees in their own right. However, this cautionshould not stand in the way of a level playing field between publicly funded andprivate institutions when it comes to consideration and application for degreeawarding powers (DAPs). Unfortunately, private HE providers are currentlytreated less favourably than public providers with regard to the acquisition andretention of degree awarding powers.

1. Renewal requirements for private providersIn 2003 the Labour Government decided that, as part of its reform of thehigher education system, it would review the processes around the awardingand retention of degree awarding powers and the use of university title. Asuggestion emerged from this review that all HE institutions, whether publiclyor privately funded, should have to renew their DAPs every six years.Unsurprisingly, universities and academics were generally against theproposals from the outset; two-thirds of universities and the StandingCommittee of Principals voiced strong opposition to the plan. As acompromise, and perhaps slightly cowed by unrest over the introduction oftop-up fees, the Government decidedthat only private providers would haveto reapply every six years, whereasthose institutions in receipt of publicfunds would be allowed to retain DAPsin perpetuity.

It is difficult to understand whyprivate HEIs must be forced to renewtheir degree awarding powers whilst their publicly funded counterparts holdthem indefinitely, regardless of their financial situation. A number ofhigh-profile publicly funded institutions have found themselves in financialdifficulties in recent years. However, their continued capability to award degreequalifications has never been called into question, despite the damage thatcould be done to the UK branding of HE by the collapse of an awardinginstitution.

Many senior personnel at private HEIs expressed the view that the six yearperiod before renewal is required is far too short, and indeed that the renewal


““ It is difficult to understand why private HEIs

must be forced to renew their degree awarding

powers whilst their publicly funded counterparts

hold them indefinitely””

requirement should be removed altogether. Whilst we agree that six years is aninappropriately short period of time, we feel that to scrap renewal requirementsentirely may lead to complacency and could risk undermining public confidencein the private HE sector as a whole. Instead, we suggest that DAPs should begranted for a minimum ten year period before renewal is required. Furthermore,we recommend that this process of assessment and renewal should be extendedto public institutions.

2. Criticisms of processCriticism of the DAP application process by those we spoke to during the courseof our research centred around the assessment panels which visited the variouscampuses. Some assessors were very guarded about the state of the applicationunder consideration and gave little or no feedback. One senior representative of aprivate higher education institution (PHEI) felt that the assessment teams wereoccasionally “ill-prepared”, “unequipped” and “did not seem to have read the briefing notes priorto observation of our meetings.” Others complained that the assessors were obsessedwith ensuring that the HEIs’ processes were being adhered to but showed littleinterest in the quality of teaching.

In addition, there has been considerable criticism of the length of time that ittakes to be awarded DAPs following the initial application, as well as a great dealof inconsistency. The College of Law, for instance, received its DAPs withinapproximately a year of submitting its application whereas Ashridge BusinessSchool 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 clearlyestablished timeframe. The private providers that we spoke to who had applied forDAPs told us that once they submitted their applications they were kept entirelyin the dark and received little advanced warning that assessment teams were ontheir way.

Finally, there is real concern over the fact that the procedure for DAP renewalhas not yet been worked out. As private HEIs have only been granted DAPs inthe past few years, none have yet required them to be renewed andconsequently no process has been tried and tested. Indeed, key managementpersonnel in several private HE organisations expressed a sense of anxiety to usover the lack of thought that had been given to the renewal process. This isunderstandable given the considerable capital, time and energy that has alreadybeen invested by these companies in the initial acquisition of DAPs. We considerthe Quality Assurance Agency (QAA)’s attitude of “we’ll cross that bridge whenwe come to it” to be unacceptable. If the Government is serious about allowingPHEIs to flourish then a clear and transparent DAP renewal procedure must beworked 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 often years before renewal is required. Publicly-funded universities shouldbe asked to renew their DAPs on the same timescale.

2. The application process for DAPs must be made as clear as possible so thatapplicants will know what to expect and how to prepare their applications



and budgets accordingly. Regular and comprehensive feedback must bemade available to applicants.

3. Assessors should focus on quality of provision rather than on processesand organisational structures.

4. A set timescale needs to be established with clear deadlines for each stageof the application. This will add an element of efficiency and progress thatis badly needed in the system.

5. The renewal process for DAPs should be established well in advance of thefirst wave of renewal applications. The process must be transparent,predictable and should seek to combine speed and simplicity withappropriate rigour.

6. Assessment (and renewal) panels must be diversified to include privatesector educators and representatives of business and industry to stop thetraditional public model being unnecessarily and restrictively imposed onprivate organisations.

Chapter 2: University TitleUniversity title confers a degree of prestige on an institution which can make itsignificantly more attractive to prospective students. One private institution toldus that due to the impact of university title on their brand reputation andmarketing opportunities, they would expect to see a 30-35% increase in thenumber of student applications.

However, private providers are currently denied this opportunity purelybecause of their private status; in order to be awarded university title, theapplicant institution in question must be publicly funded. Although privateproviders of HE were able to apply for DAPs for the first time after the ruleswere amended in 2004, it remains the case that they are automaticallyexcluded from applying for university title. The QAA justifies thisdiscriminatory approach by referring to Section 77 of the Further and HigherEducation Act 1992, which states that only institutions that have been awardedDAPs in perpetuity are eligible to apply. As DAPs for private providers are timelimited and last only 6 years, they are thereby excluded from consideration foruniversity title. The QAA therefore justifies this discrimination against theprivate HE sector in a circular fashion, by reference to yet anotherdiscriminatory provision- that public HEIs enjoy permanent DAPs whileprivate HEIs do not.

An additional problem derives from a loophole created by the QAA’s lack ofjurisdiction over international HEIs, which allows international providers to usethe title of university in the names of their UK campuses without undergoing anychecks or controls. Girne American University (GAU), for instance, based mainlyin Northern Cyprus but with a campus located in Canterbury, is able to call itselfa 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 carryout an investigation to see whether students were being deliberately misled bythis title, and whether this would prove to be damaging to the internationalstanding of UK higher education generally. Even if it found this to be the case, theQAA would not be able to stop the HEI using the term university, but wouldmerely submit its findings to the Department of Business, Innovation and Skills.


Execu2ve Summary



This loophole means that while private domestic providers of higher educationare being penalised for their non-maintained status, foreign providers are able totake full advantage of the marketing benefits of university title when operating inthe UK, irrespective either of their income sources or the quality of the educationprovided.

Recommendations:1. The requirement that a university should have a minimum of 4,000

students should be reduced to a minimum threshold of 1,500-2,500students.

2. Private higher education providers should be allowed to apply for the titleof university. The source of an institution’s income (under the currentsystem) should not have a bearing on its ability to provide a high standardof education provided it has proved that it has a sustainable businessmodel.

3. The application process and required standards must be more transparentand easily accessible to reduce confusion and inefficiency in the sector.

4. Internationally owned universities operating in the UK should be subjectto the same scrutiny as the UK’s domestic HEIs.

Part Two: Funding for Students and Institutions

Chapter 3: Student Financial SupportThe Education (Student Support) Regulations 2009 state that in order for studentsto 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 itsstudents to be eligible for any form of state support, leaving most students littlechoice but to attend publicly funded universities.

However, the situation regarding student support is in fact more complex thanit first appears. When we telephoned Student Finance England to query theavailability of student support to students at private HEIs, we were toldunequivocally that support was available only to students on publicly fundedcourses. In reality, this is not the case. Some students at private HEIs may in factbe 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 ofState on an individual basis. Accordingly, the Department for Business, Innovationand Skills takes a piecemeal approach to support for students at PHEIs, grantingdesignated status on a course-by-course basis. The result is a total lack of clarityaround this issue.

In theory, students enrolled on designated courses run by PHEIs are eligible forthe 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 entirelyunaware of it when we called for advice. The fact that prospective PHEI studentsare in receipt of inaccurate and misleading advice from the body charged with

assisting them is indicative of the way that private institutions are currentlytreated 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 beable to access the Student Finance Plan. These recommendations constitute amajor step towards creating a level playing field for all higher educationproviders. Our discussions with representatives of private institutions revealnear-unanimous support for Browne’s proposals, and a widespread intention totake advantage of them, should they be implemented as expected. The proposedlevy on fees is not widely seen as a problem; one private provider informed usthat, due to the efficiency of their operation, they would be able to realise a10% profit even if they charged fees at the current capped rates for maintainedinstitutions (£3,290). There are several examples of private HEIs whichcurrently charge little more for tuition than the capped public rate: the LondonSchool of Commerce offers some BA and BSc awards with fees between £3,450and £3,950 per year, and Cavendish College charges domestic students £3,900per course.

It remains possible that the Government will choose to impose a hard cap ontuition charges instead of the incremental levy. As long as such a cap is setsufficiently high, there should still be scope for a genuine market to develop. Alow cap at £6,000-£8,000 would simply mean that nearly all institutions wouldseek to charge the top rate almost immediately, as they did after the introductionof top-up fees in 2004. For a functioning market to develop, there must besufficient scope for institutions to charge genuinely variable fees. Any hard capshould therefore be set at no less than £12,000.

Part-time studentsCrucially, 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 isavailable to these students is nothing short of lamentable. Support is only availableto part-time students who study the equivalent of at least 50% of a full-timecourse each year, and complete the course in no longer than twice the amount oftime it would take a full-time student. This means that that student support forpart-time students is based on the hours of study and not financial need. Astaggering 90% of part-time students receive no financial assistance from theGovernment support whatsoever. For these reasons we welcome the BrowneReview’s recommendation that ‘entitlement for support for the costs of learningbe extended to part time students as well.’ However, any move to extend financialsupport to part-time students must be designed in such as a way as to ensure thatthe investment of employers is not disincentivised and that students who wouldhistorically have had their course paid for by their employer are not handed overto the state.

VATPart of the reason for the higher fees at private HEIs is the UK’s inequitabletreatment of PHEIs with regard to VAT. Publicly funded HEIs in the UK areclassified as ‘eligible bodies’ under Group 6 (Education) of Schedule 9 of the VATAct 1994. Consequently, supplies of education or vocational training by public


Execu2ve Summary

institutions are exempt from VAT. However, private, for-profit HE providers do nothave eligible body status, so educational supplies provided by these companies aresubject to VAT at the standard rate.

This disparity places private providers at a competitive disadvantage incomparison with the maintained HE sector in the UK. It also raises EUharmonisation issues. The European Directive 2006/112/EC of 28 November2006 states that ‘the provision of… school or university education… by bodiesgoverned by public law’ shall be exempt from VAT. Hence educational services inIreland, for example, are VAT-exempt regardless of whether the supplier makes aprofit or not. Eversheds LLP believes that the UK’s VAT regulations in respect of HEmay be open to challenge, and that the EU VAT Directive may allow the UK toapply a blanket VAT exemption to all private HE providers. This would mean thatprivate providers in the UK would be treated equally alongside their publiccounterparts, potentially allowing them to reduce tuition fees and re-invest moremoney into their provision. We believe that it is right that private HE providers beallowed to operate on a level playing field with maintained HE providers, and thatthey 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 studentsupport eligibility should be removed. The Government should provideloans to students regardless of the motivation of the HEI they choose toattend. The Government should, however, ensure that the HEI is legitimateand is being appropriately monitored to ensure a high quality of teaching.

2. The eligibility requirements and application process for student loansmust be made clear and easily accessible. While HEIs already provideinformation on what support their students may receive, the Governmentmust also make this information and guidance available for school-leavers.

3. Part-time students, at both public and private HEIs, must be allowedgreater access to student loans to pay for tuition fees and to assist with thecost of living. The Government should therefore implement Lord Browne’sproposal to extend student support eligibility to students studying 33% ofa full-time course per year, rather than 50% as at present. In doing so itshould ensure that that students who would historically have had theircourse paid for by their employer are not handed over to the state.

4. Private HE providers should be granted the same exemption from VAT thatis granted to public providers, in line with the relevant European directive.

Chapter 4: Access to Public FundingAt present grants from the funding councils account for approximately 36% ofuniversity income, demonstrating the sector’s heavy reliance upon HEFC support.The Higher Education Funding Council for England (HEFCE) will distribute atotal 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 (asamended by the Further and Higher Education Act 1992) create a route by whichHE institutions not in receipt of HEFCE funding can seek to become eligible toreceive it. The section provides that the Secretary of State of the relevant



department (currently the Department for Business, Innovation and Skills) may byorder designate as eligible to receive HEFC funds any institution at which over55% of courses offered are courses of higher education. Designation is awardedat the discretion of the Secretary of State, based on advice from the HEFC inconsultation with the Quality and Assurance Agency (QAA).

We consider the current piecemeal system by which designation for publicfunding is granted to have some serious flaws. Far from being transparent andpredictable, the little-used method by which institutions can apply for designationis an uncertain process, particularly for private providers. Our conversations withrepresentatives of established private HE providers indicate that, although noapplications have been made, there have been some informal enquiries into thepossibility of acquiring designation for HEFC funding eligibility. Decidedly mixedsignals have been received in response. One profit-making provider told us that itwas originally informed by HEFCE that it was not eligible even to apply for thefunds, before being told that it could in fact apply but stood no chance of beingsuccessful, indicating a prevailing bias against private providers despite no officialstatements on the subject. Finally it was told that an application could be madewhich which might in fact be approved after all.

Thankfully, the Browne Review took a significant step towards a fair andtransparent process by making the recommendation that ‘new providers will beable to apply for targeted HE Council investment if they offer priorityprogrammes – and they will be subject to the same quality requirements as anyother provider.’ This sensible recommendation ensures that institutions wishing toreceive direct funding for the first time are not burdened with conditions overand above those required of institutions already in receipt of funding. Theadoption of this proposal would go a long way towards creating a level playingfield for private providers and removing the uncertainty around the fundingapplication 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 thereforeessential that the body carries out its duties in an even-handed manner that doesnot discriminate against the private sector. Certain conditions imposed oninstitutions by bodies such as HEFCE are unnecessarily restrictive and, in ourview, especially onerous from the point of view of private HE providers.

For example, a typical condition of this type is contained within Paragraph 72of HEFCE’s Model Financial Memorandum, which states that if a university wishesto enter into a short-term financial commitment, it is not the university’sgovernors who have the final say but the Funding Council itself. The Council mustbe satisfied that the financial commitment offers “the most appropriate” solutionand is “consistent with the institution’s financial strategy.” Furthermore,Paragraph 70 of the Memorandum stipulates that certain long term financialagreements require the Council’s written consent. In effect, final approval of aninstitution’s financial strategy is placed in the hands of the Funding Council ratherthan those best placed to judge it- the university leadership. This seriously callsinto question the institutional autonomy of our universities.

Private organisations are understandably unwilling to sign away theircommercial and operating freedoms by complying with such conditions.Indeed, traditional publicly-funded universities have also expressed disquiet at


Execu2ve Summary

the impact of the requirements, with the umbrella organisation Universities UKstating that the “restrictive financial memorandum” serves to discouragerisk-taking. While we accept that taxpayers need assurance that their money isnot being squandered on unsound institutions, this must be balanced againstthe need to maintain institutional independence within the UK’s highereducation sector.

As well as comply with the Financial Memorandum, HE providers that receiveHEFCE funding under the current system are required to submit to regulation bythe (QAA). The QAA’s methods have been subject to criticism. A 2009 report bythe Innovation, Universities, Science and Skills Select Committee concluded that‘the system in England for safeguarding consistent national standards in highereducation institutions is out-of-date, inadequate and in urgent need of

replacement.’ It added that the QAA‘focuses almost exclusively onprocesses, not standards’ and called forthe QAA ‘to be transformed into anindependent Quality and StandardsAgency.’

We fully support the principle thatHEIs should be subject to rigorousquality assurance. However, there is adanger that, as the QAA focuses

strongly on process over outcomes, private HEIs which operate in anon-traditional manner will be placed at an unfair disadvantage. Many of ourinterviewees from both publicly funded and private HEIs were critical of thehighly prescriptive and box-ticking culture within the QAA. Assessment teamswere reported to have arrived and simply studied procedures, documents andmanuals without having observed a single tutorial or interviewed students toreceive feedback. As with the process for obtaining DAPs, we believe that the QAAshould re-examine its practices to ensure that they deliver an effective means ofmaintaining and improving the quality of UK higher education. If it isincorporated into a unified Higher Education Council, care must be taken so thatthe QAA’s flaws are not simply replicated in another organisation.

Recommendations:1. All higher education institutions meeting required quality standards

should be able to access public funds for teaching priority courses, assuggested by Lord Browne, and for research where applicable.

2. Public funding rightly comes with certain restrictions to ensure thattaxpayers’ money is well spent. However, these restrictions should notunduly restrict institutional autonomy or compromise competitiveness.HEFCE (or the proposed Higher Education Council) should review itsfunding criteria accordingly, giving particular consideration to theabolition of its right to final approval of financial commitments.

3. The QAA (or the proposed Higher Education Council) should review itsquality assurance procedures to ensure that they focus sufficiently onoutcome over process, and do not discriminate against private providersorganised along non-traditional lines.



““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 ””

Part Three: Introducing Private Funds into the Public Sector

Chapter 5: Takeovers and MergersThere is general consensus within the UK’s higher education sector thatinstitutional mergers and takeovers are a likely future consequence offorthcoming funding cuts. A survey of UK vice-chancellors by PA Consultingfound 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, theGovernment has responded to situations where a publicly-funded HEI has facedfinancial 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 universitiesthat this is not always the best solution and that in some circumstances astruggling university should simply be allowed to collapse. Our view is that theGovernment should not feel obliged to prop up every failing institution usingtaxpayer’s money, particularly if pessimistic predictions about the sector’s futureare proved accurate: PA Consulting’s survey found that 74% of vice chancellorsexpect to see the failure and disappearance of more HEIs in the next few years, inlight of expected funding cuts and wider economic difficulties. There shouldcertainly be no presumption that all failing HEIs should be rescued withgovernment-backed deals. We argue that the private sector could have a significantpart to play in ensuring that taxpayers’ money is put to best use in the interests ofsafeguarding higher education. This could potentially involve the full or partialtakeover of a public institution by a private company.

The greatest advantage of involving a private organisation in an institutionaltakeover is that private companies have ready access to capital which can beused to shore up a university’s finances and supply the investment required fora deal to succeed. We therefore expect that any possible takeover would mostprobably involve one of the large and well-resourced private educationproviders such as Kaplan, BPP (owned by the international Apollo Group) orLaureate Education. These for-profit providers have access to commercialsources of capital which would negate the need for the Government to expendvast sums in order to smooth the progress of a deal. This may be why HEFCEhas reportedly recently advised senior managers of public HE institutions facingthe risk of financial failure to consider partnership arrangements with privateproviders such as BPP.

An issue that requires further clarification in the case of a public-private deal isthe question of what will happen to degree awarding powers and use ofuniversity title. Under the amended QAA regulations of 2004, private providersare eligible to apply for DAPs on a time-limited basis only, and are not eligible foruniversity title. By contrast, all public institutions created prior to 2004 have theright to continue to award degrees in perpetuity, which is usually laid down inthe university charter. Elsewhere in this report we recommend that private andpublic providers should be equally treated with regard to DAPs and universitytitle. However, while the two sectors are still treated differently, the possibilitymust be considered that a private-public takeover could jeopardise an institution’sentitlement to DAPs and the title of university. The Government should pre-emptthis possibility by making it clear that DAPs and university title would not beadversely affected by an amalgamation with a private provider.


Execu2ve Summary

Recommendations:1. The Government needs to make a clear statement outlining the

implications of any takeover or merger between an existing HEI and aprivate provider. In particular, the Government must clarify whetheraccess to HEFCE funding and student financial support would be retained.

2. The Government must make it clear that DAPs and university title wouldnot be jeopardised by a merger or takeover of a public university by aPHEI.

3. The Government should consider a blanket Act to allow universities(including those established by Royal Charter) to change their legal statusand become a private limited company. This would allow access to privateinvestment without the need for an institutional takeover.



Introduction

Higher education institutions (HEIs) in England are facing up to the prospect ofradical changes to their funding arrangements. Following the publication of theBrowne Review into higher education funding in October 2010, it is clear thathigher contributions from learners, paid after leaving university, will replaceGovernment grants as the chief source of university funding, probably from2012/13 onwards. This will have long-term ramifications for the sector.

As the Browne Review noted, the current system of grant-based funding haslead to a culture of complacency in the higher education (HE) sector. Weakerinstitutions are sheltered from genuine competition, while stronger ones areprevented from raising fees to achieve growth. Increases in income since 2006have not led to noticeable improvements in the student experience.7 Allmaintained institutions enjoy the security of knowing that their places will befilled and their grants will be paid, regardless of the quality of their provision ortheir success in leading students towards employment.

The proposed reforms, if implemented successfully, will bring an abrupt endto this cosy settlement. Institutions will stand or fall on their ability to attract andretain students. Students paying higher fees will demand a fuller studentexperience and improved employability in return. Increased specialism anddiversity within the sector is likely to result from the reforms, as institutions seekto 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. Employabilityand student satisfaction are key selling points of PHEIs – the UK’s only privateuniversity, the University of Buckingham, topped the national student satisfactiontables every year between 2006 and 2009. In addition, PHEIs are often highlyspecialised, concentrating their provision in areas where they possess the greatestexpertise and can deliver courses most cost-effectively. Finally, PHEIs have neverbecome habituated to the comfort of regular, predictable funding grants. In short,private institutions are ideally placed to compete in a genuine marketplace forhigher education.

Lord Browne’s review calls for HEIs to become more competitive, moredynamic, and more responsive to the needs of students and employers. It shouldbe recognised that many PHEIs already possess all these characteristics. However,in order to encourage PHEIs to flourish further, the Government must address theunfavourable and restrictive regulatory environment in which they operate. PHEIsare denied access to degree-awarding powers and to the prestige of universitytitle, their students are ineligible for financial support, and they are unable toaccess any form of funding.

Britain benefits a number of successful PHEIs offering well-regardedprofessional 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

allow them to compete equally with the traditional university sector. In this reportwe call for a level playing-field for private providers, and set out ways by whichthis could be achieved, looking at the regulatory environment in Part One and thefunding environment in Part Two. Additionally, in Part Three, we examinemethods by which private capital could be injected into public higher educationinstitutions.

This report is the first in a two-part series looking at the role of the privatesector in UK higher education.



Part OneRegulatory Environment


1Degree Awarding Powers

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

Why are DAPs significant?DAPs are of great significance to any higher education institution (HEI), whetherpublic or private. Without them, an HEI cannot operate in a fully independentmanner and must rely upon a partner institution to validate its programmes. Thesearrangements can be expensive; senior managers of institutions that hadpreviously partnered universities informed us that the price for a single cohort ofstudents could often reach six figures per year.

In addition, DAPs have an effect on public perception of an institution’s status. Aninstitution that has been granted the right to award its own degrees, withoutvalidation via a third party, is sending a signal to prospective students andcontemporaries in the HE sector that its programmes are recognised as being of thehighest quality. DAPs therefore act as the kite mark of the HE sector, assuring thepublic that the HEI in question provides a high standard of service. For these reasonsDAPs 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 widerparticipation, there needs to be a major shift in attitude to ensure that privateorganisations are not discriminated against in the sector and are treated on anequal basis to their publicly funded counterparts. They must, therefore, have anequal right to apply for DAPs and be considered on equal merit withoutcompromising the efficiency of their operation. However, as we discuss below,private HE providers are currently treated less favourably than public providerswith regard to the acquisition and retention of degree awarding powers.


8 HEIs other than universities can

enter into partnerships with

established universities to award

degrees. See below.


Degree Awarding Powers

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/datos-

cifras/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


SpainSpain 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.

What criteria must be met before an application can bemade for DAPs?To be granted DAPs in the UK, an organisation must be authorised to do soeither by Royal Charter or an Act of Parliament. An initial application must bemade to the Privy Council, which forwards the application to the relevantminister (in England’s case the Secretary of State for Business, Innovation andSkills). Applications are then sent to the Quality and Assurance Agency forHigher Education (QAA) for scrutiny. Although the final decision is technicallymade by the Privy Council, it will always have regard to the advice provided toit by the QAA via the relevant Minister. The QAA assesses applications based oneligibility criteria set by the Government (see below). The current criteria towhich DAP applicants in England and Wales must adhere were published in2004, although earlier criteria dating from 1999 apply to Scotland andNorthern Ireland.15, 16

It is important to note that a distinction is drawn between ‘taught’ degrees and‘research’ degrees. Taught degrees include undergraduate degrees andpostgraduate qualifications, such as some Masters degrees, that involve assessedstudy as well as supervised research. Research degrees are postgraduate degreesthat are awarded on the basis of an individually initiated and registered researchprogramme, such as PhD qualifications.17 Any organisation seeking the power toaward research degrees must have been granted the power to award taughtdegrees. Other than this stipulation the criteria for consideration for researchDAPs and taught DAPs are the same. However, applications for the two types ofDAPs are assessed against differing criteria once received.18

There are two phases to the application process: consideration, and thenassessment. Before the merits of an application can be assessed, the applicantinstitution must show that it meets the criteria for its application to be initiallyconsidered. We examine each of these sets of criteria in turn.

Criteria for considerationa) The first criterion which must be met in order for a DAP application to beeligible for consideration provides a sensible filter by which the integrity of ‘UKHE Plc’ can be safeguarded. It stipulates that any provider must have accumulatedat least four consecutive years of delivering programmes of at least an Honourslevel before an application can be made.

This can be done through a deal struck between a university and a privateinstitution, allowing the private HEI to offer courses degrees through theuniversity. These arrangements enable students to receive a full degree, despitein some cases never coming into contact with the awarding university. Thetwo most common such arrangements are validation and franchiseagreements. A franchise agreement allows the degree-awarding university tomaintain greater control over the course as it is taught in the privateinstitution; the university develops the programme, including curriculum andmode of delivery, and carries out assessments. Additionally, franchisearrangements are usually subject to regular quality assessment, based both onself-review and on external review of exam results. By contrast, a validationarrangement places responsibility for academic rigour more firmly at the feetof the private institution, which is responsible both for writing the degree



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,





applicant organisations in

England and Wales,’ 2004,



Accessed 09/08/10

programme and carrying out assessment. Validation arrangements thereforerequire stronger quality assurance on the part of the private institutioninvolved. Private providers will sometimes make use of both kinds ofarrangement with different universities; for example, Kaplan offers degreesfrom Liverpool John Moores University and the University of Wales througha franchise agreement, and from the University of Essex through a validationagreement.

In exchange for accrediting the PHEI’s degree programmes, the partneruniversity is paid a sum often reaching six figures; one manager told us that thegraduation of one cohort in a single subject area cost £150,000.19 The financialbenefits make deals of this type particularly attractive to universities, while theprivate sector partner benefits from the ability to offer degrees accredited by anestablished HE brand.

Private and publicly funded providers alike agree that this is a sensible criterionin that it allows potential applicants the time and experience to prove that theyhave developed a sustainable business model and are capable of providing aconsistently high level of education. Partnership arrangements of this type cantherefore act as a useful stepping-stone towards the acquisition of full DAPs,although the arrangements are also valuable in their own right and mutuallybeneficial to both parties involved.




20 Information obtained from

Kaplan UK

21 University of London External

System, 2009/10 General

Prospectus, p.2

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.

b) The second criterion stipulates that the majority of an institution’s HEstudents are enrolled on programmes that offer a qualification at Honoursdegree level (Level H) or above. The first stipulation is a fair method ofdistinguishing HE institutions with degree-awarding powers from colleges ofadult or further education, and of ensuring that all offer a high standard ofqualification. 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 Whilethese qualifications have value in their own right, we consider it appropriatethat the majority of degrees offered by institutions with DAPs should be of thehighest academic standard.

c) The third and final criterion is also characterised by vagueness. The applicantmust be able to demonstrate “that it holds public confidence, in the present and the future, indelivering high academic standards and quality”.23 The guidelines do not state how thisdemand should be achieved. One is left presuming that it means that aninstitution must reach and maintain a satisfactory level of quality and a sustainablefinancial model.

Viewed rationally, private institutions which live or die by their success andreputations might be regarded as more capable of meeting and ensuring publicconfidence than those publicly funded institutions which continue to becushioned by the state from the consequences of poor financial management andperformance. However, the vagueness of the criterion leaves room for privateproviders to be discriminated against on the grounds that they do not enjoy thesecurity of knowing that predictable sums of public money will be provided eachyear through the Funding Councils. If the funding reforms proposed by LordBrowne are implemented as expected in 201224 (see Chapters 3 and 4), nouniversity will be able to rely on direct funding regardless of performance for themajority of subject, levelling the playing field in this regard. However, the fact thatprivate providers are not granted DAPs in perpetuity creates additionaluncertainty over their future which is not shared by public HEIs. The renewal ofDAPs will be examined later in this section. However, suffice it to say that a privateinstitution which has invested a considerable amount of time and money intoachieving DAPs in the first place stands to lose out considerably if the powers arerevoked, both financially and in terms of prestige. By contrast, publicly fundedinstitutions hold DAPs permanently can take a far more complacent approach.They therefore are not incentivised in the same way as private providers to provethemselves worthy of public confidence by guaranteeing budgetary stability andhigh academic standards. An institution such as London Metropolitan Universitycan encounter severe financial difficulty, and even be found to have claimed £38million of HEFCE funding to which it was not entitled25 (surely raising concernsaround public confidence in the institution), yet continues to operate withoutregard to QAA criteria for DAPs. Private providers do not have this luxury.

If the Government is prepared to make a concerted effort to encourage privateproviders to enter into the higher education sector, then it cannot continue tomaintain rules which discriminate against private HEIs simply because they mightbe smaller in size, cater to a large extent to part-time students, and cannot fallback on the taxpayer’s generosity in times of financial difficulty. The QAA should



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





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

consult with BIS as well as the wider higher education sector (both publiclyfunded and private) in order to determine what the initial criteria for applyingfor DAPs should be. Only with agreement from all parties can a review take placewhich will level the playing field whilst at the same time ensuring that lessreputable 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 ‘Applicationsfor the Grant of Taught Degree-Awarding Powers, Research Degree-AwardingPowers and University Title: Guidance for applicant organisations in England andWales (August 2004)’. However, it has been the subject of much confusion forthose who have applied and experiences of the process vary considerably.

Stage 1The first stage is for the institution to carry out a critical self-analysis and test itssystems to ensure that its established procedures are functioning correctly.

The idea is for the institution to describe, analyse and comment upon itseffectiveness in meeting the criteria outlined above and the suitability for holdingits own DAPs. The way in which this is conducted is left to the discretion of theapplicant institution. The self-analysisshould also include a list of evidencewhich demonstrates that theorganisation has tested its teachingprocedures, quality assurancemechanisms and that these are workingaccordingly. In addition, theself-analysis should be complementedwith “off-the-shelf” material such asprospectuses, operational plans. This isfollowed by a formal letter of application and the self-analysis (along with anysupporting documentary evidence which the applicant considers to be relevant)made to the QAA, which examines the application at the next available meetingof its Advisory Committee on Degree Awarding Powers (ACDAP).

The ACDAP panel meets four times a year at quarterly intervals, demonstratinga lack of urgency and unnecessary delay in the application process. The panel itselfis 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 apre-1992 university, one from a post-1992 university and one other), the head ofan HEI which has not been granted the title of university, three senior universitymembers (e.g. pro-vice chancellors) and two others with experience of sectors ofemployment that are significant recruiters of graduates.26 It is important to notethat the panel consists overwhelmingly of those from traditional HEIbackgrounds, not the private sector and certainly not private HE.

A decision is made immediately at this meeting as to whether or not theapplication should continue. While the outcome at this stage is communicated tothe applicant in the event of an unsuccessful application, the level of detail in theexplanation as to why it was unsuccessful differs each time. Indeed some



26 QAA website,


p/acdap.asp. Accessed 09/08/10

““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””

applicants have complained that no explanation whatsoever was forthcoming,27 aclear indication that there needs to be a concerted effort to provide full and frankfeedback and guidance in order to assist applicants wherever possible.

Stage 2If the application passes this initial stage, it moves on to more detailed scrutiny. Asmall team of assessors comprising the ACDAP Committee Secretary and two othersis assembled so that evidence can be gathered on the application. This involvesmeeting with key people and groups including managers, governors, staff andstudents. The team of assessors also undertake observations of meetings such asthose of the academic board, the academic quality and standards committee,assessment boards, the governing body, and sub-committees of that body.28

Stage 3Once completed, the assessors’ scrutiny is compiled into a report which is then passedback to ACDAP. The report itself does not contain a recommendation but will rate theapplication against the set criteria. If particular points require further consideration orclarification, ACDAP may convene a sub-panel to visit the organisation. A furtherreport will be written following that visit with details of the meetings, interviews andfindings. When consideration of the application is complete, ACDAP will consider thecontent 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 confidentialreport to the government department and the Minister decides whether or not toinform the applicant of the Agency’s advice. The Minister makes his recommendationto the Privy Council, in whose hands the final decision lies, though in reality this islittle more than a formality that has survived through tradition.

Should the application make it to the Privy Council, the decision will finally becommunicated to the applicant.

Criticisms of the procedure1. Process over OutcomeThe experiences of previous applicants for DAPs are varied, with some reportingassessors 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 assessmentpanels that visited the various campuses. Some assessors were very guarded about thestate of the application under consideration and gave little or no feedback. One seniorPHEI 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 isdirectly at odds with the system favoured by the United States; for instance, in 2006the US Secretary of Education commissioned a study into the future of HEaccreditation, one of the key recommendations of which was that agenciesresponsible for the accreditation process had to focus their attentions on outcomessuch as completion rates and student learning instead of inputs and processes.30



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.


While a standard set of criteria by which assessors can measure institutions equallyto ensure fairness across the board is necessary, discussions with private providersrevealed 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 hardcopies of books that are available and fail to take into account that these could beavailable online. Indeed, a particular feature common to PHEIs is that they offer flexibleand 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 assessmentmethods, saying “The assessors aren’t interested in how good the teaching is. Some of them don’teven bother to observe classes. They sit staff members down and ask them ‘Do you know about this policyand that policy?’ Then they can tick that off their list.”33

If the system is to be improved for applicants, regardless of whether they areprivate or publicly funded, assessment teams must be prepared to move awayfrom their need to ‘tick boxes’ and start to concentrate upon the more important,but more complex and subjective, rating and measuring of outcomes andsatisfaction levels of both staff and students alike. In addition, if quantitativemeasures are to be used, they must be relevant and up-to-date and not prejudicedagainst private HE providers.

2. Composition of Assessor PanelsA further criticism of the assessment panels is that they are comprised mainlyof academics from traditional, publicly funded universities, and that theirmembers consequently hold certain preconceptions of what a highereducation institution should look like. The panels lack representatives ofprivate 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-accreditation-

articles/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.


DAPs in the USIn 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.

sector functions. Private HE providers operate in a different manner to manyof their traditional counterparts, often with governance structures moreclosely related to those of business than their counterparts in public highereducation. The QAA maintains that it is committed to supporting diversitywithin 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 toimpose the structures of publicly funded institutions onto private HEIs. As aresult, a private HEI may feel compelled to take steps to adapt itself to a modelnot necessarily based on efficiency or student experience but rather onconvention and tradition.34

If this problem is to be countered effectively, the assessment panels must notbe comprised solely of traditional academics, but must be opened up to allowinput from representatives of private HEIs.

3. Length of the ProcessThere has been considerable criticism of the length of time that it takes to beawarded DAPs following the initial application, as well as a great deal ofinconsistency. The College of Law, for instance, received its DAPs withinapproximately a year of submitting its application whereas Ashridge BusinessSchool 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 clearlyestablished timeframe. The private providers that we spoke to who had applied forDAPs told us that once they submitted their applications they were kept entirelyin the dark and received little advanced warning that assessment teams were ontheir way. Even between these assessments there could be long intervals withoutany update as to how the application was progressing. By contrast, the US systemof accreditation, although an extremely rigorous process, nonetheless has a cleartimeframe with applications taking a maximum of five years.36 While experienceswill always differ to some extent from institution to institution, a preset timelimit allows institutions to plan ahead based on a realistic expectation of whentheir accreditation will be forthcoming.

There is also no set timeframe or indication as to how long the detailedscrutiny will last in the UK. The QAA guidance states that the process will last forat least one academic cycle for taught degree awarding powers.37 We feel thatwhile the assessors do need time to properly investigate the suitability of anapplicant, it is unacceptable that this process should be allowed to drag onindefinitely, with no apparent sense of urgency. Private institutions unable to relyon public funds need to be able to budget for the future, and indefinite delaysonly create uncertainty and confusion. As the applicant must also cover the costsof the assessors for the duration of their visit, a time limit would also help theapplicant to forecast and manage the costs created by the application process.

4. Poor CommunicationThe representatives of previous applicants tended to agree that the final stage (inwhich assessment reports pass between various bodies before finally going to thePrivy Council, which makes a decision) was perhaps the most frustrating part ofthe entire process. Many complained that when they requested feedback in orderto address any outstanding issues they were informed that the information was





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

“advice given to the Minister and was therefore confidential.”38 After undergoing such acomplex, time-consuming, lengthy and costly process, to simply be told thatfurther advice, guidance and recommendations are not available is highlyunacceptable and essentially places the applicant back at square one. Furthermore,given that there is no established deadline with respect to a response from thePrivy Council, there is no sense of urgency to this final part of the process. Onecompany we spoke to stated that the decision was made so close to the beginningof the academic year that there was no opportunity to advertise the fact theinstitution now had DAPs.39 This meant that a full year’s worth of marketingopportunity was missed out of the precious six years that private HEIs can havetheir 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 institutionalself-improvement.

How much does it all cost?What are the actual costs involved in obtaining and retaining degree awardingpowers? The QAA’s guidance notes give the following costs:

� For applications for the grant of taught degree-awarding powers: £30,000levied at the outset of the detailed scrutiny.

� For applications for the grant of research degree-awarding powers: £15,000levied at the outset of the detailed scrutiny.

� For combined applications for the grant of taught and researchdegree-awarding powers: £40,000 levied at the outset of the detailedscrutiny.40

On top of the initial charge, the applicant must pay for all the costs involved inthe application being made, including travel expenses and assessments. The QAAare 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; anyinstitution that could not afford them from the outset is unlikely to possess thefinancial resources required for degree awarding powers in the first place.However, if the process is particularly lengthy and timescales unclear then costscan quickly mount up. Furthermore, the charges compare unfavourably to thosein other countries; while accreditation fees in the US vary between states andaccrediting bodies, they tend to be considerably lower than those of the QAA. TheMiddle States Commission on Higher Education, one of the six major regionalaccrediting bodies in the US, charges institutions a total of $13,478 (£8,800) forthe initial application and assessment visits, with possible further costs of $7,245(£4,640) if additional visits are required. The self-study evaluation process costsanother $5,175 (£3313), plus $518 (£332) for each additional location visited.The institution in question will also pay expenses and a small stipend to itsassessors.41

Additionally, private HEIs in the UK may face hidden charges if forced to makeinstitutional 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





40 Applications for the grant of



and university title, Guidance for


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

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

Renewal of DAPsIn 2003 the Labour Government decided that, as part of its reform of the highereducation system, it would review the processes around the awarding andretention of degree awarding powers and the use of university title. Accordinglyit issued the Consultation on Proposed New Criteria for Degree Awarding Powers and University Titlethat September.

A suggestion emerged from this review that all HE institutions, whetherpublicly or privately funded, should have to renew their DAPs every six years.Unsurprisingly, universities and academics were generally against the proposalsfrom the outset; two-thirds of universities and the Standing Committee ofPrincipals voiced strong opposition to the plan.43 As a compromise, and perhapsslightly cowed by unrest in the sector over the introduction of top-up fees, the

Government decided that only privateproviders would have to reapply everysix years, whereas those institutions inreceipt of public funds would beallowed to have DAPs in perpetuity.

It is difficult to understand whyprivate HEIs must be forced to renewtheir degree awarding powers whilsttheir publicly funded counterparts

retain them indefinitely, regardless of their financial situation. A number ofhigh-profile publicly funded institutions have found themselves in financialdifficulties in recent years. However, their continued capability to award degreequalifications has never been called into question, despite the damage that couldbe done to the UK branding of HE by the collapse of an awarding institution. Forexample, the University of Cumbria revealed in April this year that its budgetdeficit for the 2008-9 financial year had grown to £13.2 million, equivalent to17% of income and up by £4.7 million from the previous year.44 Cumbriaannounced that it expected a further significant deficit of around £9 million to beincurred in this financial year due to “deeply structural” financial problems.45

We are not suggesting that Cumbria should be stripped of its degree awardingpowers. However, it makes little sense that a public HE provider running asignificant budget deficit for three years in a row is unquestioningly assumed tohold public confidence in its future performance, while a profitable privateprovider is forced to prove its future sustainability. The result is that strugglingpublic institutions are allowed to keep their DAPs indefinitely simply because theyare in receipt of public funds – regardless of how well the taxpayers’ money isactually managed – while profitable and successful private providers are requiredto renew their DAPs on a six-yearly basis. If and when the Browne Review




43 Alan Johnson, ‘Written

Ministerial Statement 16 March

2004, 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

44 Melanie Newman, ‘Cumbria

admits 'unacceptable' financial

results,’ Times Higher Education

Supplement, 15 April 2010,



233. Accessed 19/06/10

45 Ibid

““ If the Government is serious about allowing

PHEIs to flourish then a clear and transparent

DAP renewal procedure must be worked out

immediately””

recommendations are implemented, largely equalising the funding system for allproviders, the discrepancy over DAP renewal will seem even more incongruous.

The rules around DAP renewal are therefore clearly biased against privateproviders. Of equal concern is the fact that the procedure for DAP renewal has notyet been worked out. As private HEIs have only been granted DAPs in the past fewyears, none have yet required them to be renewed and consequently no processhas been tried and tested. Indeed, key management personnel in several privateHE organisations expressed a sense of anxiety to us over the lack of thought thathad been given to the renewal process. This is understandable given theconsiderable capital, time and energy that has already been invested by thesecompanies 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 theGovernment is serious about allowing PHEIs to flourish then a clear andtransparent DAP renewal procedure must be worked out immediately. It is urgentthat the renewal procedure be clearly established well before any PHEIs begin theprocess, so as to give them adequate time to prepare.

It should be borne in mind that the stakes for any private HE providerre-applying for DAPs will be very high. While the QAA has not yet provideddetails of the process of application for DAP renewal, it has confirmed that onecriterion for a successful application will be that the HEI in question has beensubject to an external QAA audit, and has received a judgement of ‘confidence inthe organisation’.46 Organisations which fail to achieve such a judgement will berequired either to carry out an agreed action plan to the QAA’s satisfaction, or facethe loss of DAPs and the probable transfer of its students’ registrations to anotherinstitution.47 The first option could involve major restructuring carryingsignificant costs, while the second would be likely to lead to an institution’scollapse. Private providers therefore find themselves facing real uncertainty overtheir future every six years, while public institutions, no matter how beset withdifficulties, face no such concerns.

Many senior personnel at private HEIs expressed the view that the six yearperiod before renewal is required is far too short, and indeed that the renewalrequirement should be removed altogether. Whilst we agree that six years is aninappropriately short period of time, we feel that to scrap renewal requirementsentirely may lead to complacency and could risk undermining publicconfidence in the private HE sector as a whole. Instead, we suggest that DAPsshould be granted for a minimum ten year period before renewal is required.Furthermore, we recommend that this process of assessment and renewalshould be extended to public institutions. This would place them on an equalfooting with PHEIs and mirror the system in the USA where the renewal ofdegree-awarding powers is required of all HE institutions. The requirement doesnot appear to have prevented US institutions from providing teaching andresearch to the highest of standards.

DAP renewal in the US could potentially provide the model for acomprehensive DAP renewal process in the UK (see below). Extending DAPrenewal requirements to the public HE sector would help to level the playing fieldfor private providers. Of course, requiring public HEIs to renew their DAPs wouldsuggest that, in some cases, the DAPs of public providers could be revoked if theirre-application failed. This was suggested in the 1997 Dearing Report into Higher








and university title, Guidance for


and Wales (August 2004),’

www.qaa.ac.uk/reviews/

dap/DAPCriteriaGuidance.pdf.

Accessed 09/08/10

47 Ibid

Education, which proposed that the Government ‘take action, either by amendingthe powers of the Privy Council or by ensuring that conditions can be placed onthe flow of public funds, to enable the removal of degree-awarding powers.’48 TheGovernment 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 footingwith their private counterparts, such a measure would keep public universities ontheir toes and help to prevent the development of severe financial problems suchas those experienced by Cumbria.

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 often years before renewal is required. Publicly-funded universities shouldbe asked to renew their DAPs on the same timescale.

2. The application process for DAPs must be made as clear as possible so thatapplicants will know what to expect and how to prepare their applicationsand budgets accordingly. Regular and comprehensive feedback must bemade available to applicants.

3. Assessors should focus on quality of provision rather than on processesand organisational structures.

4. A set timescale needs to be established with clear deadlines for each stageof the application. This will add an element of efficiency and progress thatis badly needed in the system.

5. The renewal process for DAPs should be established well in advance of thefirst wave of renewal applications. The process must be transparent,predictable and should seek to combine speed and simplicity withappropriate rigour.

6. Assessment (and renewal) panels must be diversified to include privatesector educators and representatives of business and industry to stop thetraditional public model being unnecessarily and restrictively imposed onprivate organisations.


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


2University Title

Like the right to award degrees, the very title of ‘university’ is seen as a marker ofacademic quality and is jealously guarded in the UK. This is understandable, as ifan institution were to fall seriously short of minimum expectations, theinternational reputation of the country’s entire HE sector could be damaged.49

However, the need for appropriate safeguarding of standards does not justify theeffective monopolisation of the title of university by the public HE sector. PrivateHE providers which offer students a high standard of education must be allowedto market themselves as universities if they are to compete for students on anequal footing to their publicly funded counterparts. Currently, university title isdenied to these providers purely on the basis of their non-maintained status, andconsequently they remain in danger of being unjustly regarded as something lessthan the publicly funded institutions. The Browne Review’s recommendations, ifimplemented, will address the funding imbalance between private institutionsand those that are currently state-maintained. The Government should also seek toaddress 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 andrecognised. Indeed, even in the UK the legal definition is unclear and can lead todifficulties when drafting legislation governing matters of higher education.50 Muchof the debate on the issue has centred on whether the characteristics of a universitymust include a strong focus on research, or whether providing a high standard ofteaching at degree level and above is in itself sufficient qualification for the title. Thisis 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 awardor above, reflecting a focus on the importance of teaching. Countries such as Australiatake a different view and maintain that in order to be called a university, theinstitution must engage in research programmes rather than focus on teaching alone.

Historically, the perception of a university as a centre of research is a relativelynew phenomenon which did not develop until after the First World War.51 Theoriginal purpose of universities was to teach. The University of Bologna, theoldest academic institution in the Western world,52 was created for the solepurpose of training its students for a career in the legal profession. The idea thatuniversities are distinct from other HEIs purely because they conduct researchflies in the face of the histories of many of the most prestigious universities suchas 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.utrecht-

network.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

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








and Wales,’ 2004,



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’,


p/briefGuideDAP.asp. Accessed

09/08/10

Prior to 2004, any UK institution seeking to call itself a university had to have thepower to award research degrees. These are postgraduate degrees (such as PhDs)which are granted on the basis of an individually initiated and registered researchprogramme, as opposed to taught degrees which are based on a commonprogramme of assessed study.54 The power to award research degrees was (and stillis) granted only to institutions that can demonstrate a high level of professionalresearch knowledge among its staff, and have achieved more than 30 Doctor ofPhilosophy awards55 (see the section of this report on degree awarding powers). Thetitle of university was therefore restricted to institutions with a strong researchfocus, 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 torefer to themselves as universities. Notably, the proposal received a mixed responsein the HE sector, with traditional universities ‘generally opposed’ and private HEIsbroadly in support.56 State-maintained universities unsurprisingly sought to defendtheir monopoly on the title from private HEIs, which tend to focus far more heavilyon the more profitable area of teaching than on research (in part because they donot receive a public subsidy for research, and also because they can chargeuncapped 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 themselvesuniversities and enjoying the prestige that accompanies the title. Eventually theconclusion was reached that restricting use of the title to those institutions thatcarried out both teaching and research was “at odds with [the Government’s] beliefthat institutions should play to diverse strengths, and that excellent teaching is, initself, a core mission for a university”.57 Accordingly, the criteria were altered in2004 to allow non-research focused institutions in England and Wales to acquire thetitle, although the pre-2004 criteria remain in place in Scotland and NorthernIreland.58 However, this change in criteria did not address the right of privateinstitutions to access university title (see below).

We agree with the previous Government’s decision to extend university title toteaching-focused institutions, not merely for historical reasons but because thenarrowness of the pre-2004 criteria acted as a barrier to diversity and specialisationwithin the UK’s higher education sector. An institution which focuses on providinga 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, theintellectual development of individual students and academics, and the creation ofnew technologies, among other things. However, the concept of a university is broadenough to encompass those institutions which choose to concentrate on teaching,or which provide specialised instruction in order to prepare students for certainacademically demanding professions, such as law.

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



student applications of 30-35%.59 Such an increase would have a considerableimpact on private HEIs which rely upon income from tuition fees, enabling themto expand their operations and thus increase the supply of degree level educationto meet ever-rising demand.

Of course, not all HEIs wish to incorporate ‘university’ into their names. Asenior representative of another private HEI remarked that because they hadalready offered education for many years, their brand was sufficiently establishedwithin the sector that the acquisition of university title would not increase theirmarketability. Indeed, their opinion was that taking the responsibility of the titlecould prove to be burdensome and consequently detrimental to the service thatthey currently provide.60

Nevertheless, the majority of private HEIs considered university title to be apotentially highly valuable acquisition, and we believe that those that meet thestandards expected of a university should not be automatically barred from usingthe title. Unfortunately restrictions of this type remain in place, as we discussbelow.

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


University Title

59 Ibid


61 Privy Council, ‘Higher

Education,’ http://www.privy-

council.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’,


p/briefGuideDAP.asp. Accessed

10/08/10


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,

p.19

64 QAA, ‘DAP and Private

Providers,’ May 2010

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

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

approach by referring to Section 77 of the Further and Higher Education Act1992, which states that only institutions that have been awarded DAPs inperpetuity are eligible to apply.65 As DAPs for private providers are time limitedand last only 6 years (see the section of this report on degree awarding powers),they are thereby excluded from consideration for university title. The QAAtherefore justifies this discrimination against the private HE sector by reference toyet another discriminatory provision – that public HEIs enjoy permanent DAPswhile private HEIs do not. In line with proposed funding changes that will makeall institutions equally reliant on tuition fee income rather than governmentgrants (see Chapters 3 and 4), the Government should ensure that access touniversity title is made equal as well.

The implication of the deliberate exclusion of private HE providers is thatthe quality of private higher education can never equal that provided byinstitutions that are publicly funded under the current funding system. TheUniversity and College Union (UCU), a trades union for academic staff infurther and higher education, claims that to allow private providers to applyfor university title would ‘undermine one of the foundations on which theinternational reputation of UK universities is built’ and ‘permit into theuniversity system institutions with wholly inadequate controls on quality andstandards’.66 This completely ignores the fact that an HEI that has beengranted degree awarding powers – a prerequisite for university title – willalready have undergone a lengthy vetting procedure. Additionally it ignoresthe fact that many private providers have a history of highly successfuleducation provision, consistently achieving higher than average pass rates67 ina wide range of degree courses and valuable professional qualifications. TheUCU also complains that opening up university title to private HEIs would‘have significant effects on the range of and diversity of provision availablethrough UK higher education,’68 a statement with which one cannot butagree; such a move could indeed lead to a significantly more diverse andwider-ranging UK HE system, to the benefit of students and institutions alike.It is difficult to imagine on what grounds the UCU opposes such adevelopment.

Another oft-heard criticism of private HEIs is that many do not provide a‘rounded’ student experience, and that too much emphasis is placed onteaching, and rushing students out into the world of work. It is true that themajority of private HEIs do not operate the same range of non-academicactivities as their public counterparts. However, it is important to rememberthat they are held to account by their students and rely heavily upon tuitionfees for income. If the product offered is not to students’ liking, thenenrolment and retention numbers will fall, and with them revenue. The factthat so many private HEIs remain successful and popular is clear evidencethat, for many students, the prospect of a rigorous education and strongemployment opportunities is sufficiently attractive to render the lack ofplaying fields or student theatres unimportant. The key point is that if studentsare offered a choice between a number of different types of institutions, theywill choose the one best suited to their needs (a concept key to the marketreforms espoused in the Browne Review). That range of choice should not berestricted unnecessarily.



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


University Title

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.privy-

council.org.uk/output/Page27.asp.

Accessed 14/07/10


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,



737. Accessed 19/08/10

73 ibid

74 Rebecca Attwood, ‘We can work

it out’, Times Higher Education, 2

September 2010 p.31

‘University College’ titleIn 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.

So why does the source of an institution’s income remain the key factordetermining eligibility for the title of ‘university’? We are concerned that thereexists a prevailing cultural bias against private providers within the UK’s HEsector. This bias makes little sense at present; if the Browne Review isimplemented as expected, replacing direct teaching funding for most subjectswith funding via variable tuition charges, then it will become entirelyanachronistic. It will no longer be possible to draw a clear distinction betweenpublic and private institutions in England and Wales based on their sources offunding. The Government should seek to ensure that the regulatory playingfield is similarly levelled by ending inequality of access to university title (anddegree-awarding powers) as soon as possible. The unequal situation that existsat present is both unfair and out of date.

The criterion that requires HEIs to have a minimum of 4,000 full-timeequivalent students on their books in order to acquire university title is alsodifficult to justify. This stipulation appears to indicate that the Government viewsquality of teaching as a less significant consideration than the sheer size of theinstitution. The figure of 4,000 FTE students is an arbitrary one, and there areseveral examples of successful publicly-funded HEIs operating with fewer students.For instance, University College Falmouth has barely 3,000 students, while theRoyal Veterinary College, which has been operating for over 200 years, caters forjust over 2,000 students. The London Business School, a constituent college of theUniversity of London, has only around 1,800 students on degree courses,75 yet itsMBA programme was ranked number one in the world by the Financial Times in2010.76

Overseas there are clear examples of HEIs that provide education of thehighest quality but which, were they subject to the UK’s regulatorystipulations, 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, achief justice of the US Supreme Court, and a US president, such anestablishment would not be worthy of awarding its own degrees under theUK’s current criteria. Wellesley College, ranked sixth in Forbes Magazine’sleague of ‘America’s Best Colleges’, only produces approximately 2,300graduates per year.78 Quantity it appears, is judged to be more important thanquality by the QAA.

The requirement to have a minimum number of FTE students acts as abarrier to smaller private providers which, despite offering an excellentstandard of education, may not possess the resources, such as large campusesor collegiate systems, that enable traditional universities to take on so manystudents, supported of course by public funds. Additionally, many privateproviders cater largely to part-time students (see the student financing sectionof this report for examples). If a private HEI catered near-exclusively topart-time students studying the equivalent of 50% of a full-time course peryear, it would need to recruit around 8,000 students to meet the requirementsfor university title.

We therefore argue that the 4,000 FTE-student threshold is unnecessarilyhigh and unsupported by clear reasoning. Given the above examples ofhigh-quality institutions operating with only 1,500-2,500 students, we



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-mba-

rankings. 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

suggest that a threshold within this range would provide sufficient assuranceof an institution’s capacity whilst placing degree-awarding powers withinreach of a wider range of providers.

An additional problem derives from a loophole created by the QAA’s lackof jurisdiction over international HEIs, which allows international providersto use the title of university in the names of their UK campuses withoutundergoing any checks or controls.Girne American University (GAU), forinstance, based mainly in NorthernCyprus but with a campus located inCanterbury, is able to call itself auniversity without having beenscrutinised or assessed by the QAA inany way. The QAA has very littlepower to prevent this. Its only optionwould be to carry out an investigationto see whether students were beingdeliberately misled by this title, andwhether this would prove to be damaging to the international standing of UKhigher education generally. Even if it found this to be the case, the QAA wouldnot be able to stop the HEI using the term university, but would merelysubmit its findings to the Department of Business, Innovation and Skills.79

This loophole means that while private domestic providers of highereducation are being penalised for their non-maintained status, foreignproviders are able to take full advantage of the marketing benefits ofuniversity title when operating in the UK, irrespective either of their incomesources or the quality of the education provided. We therefore recommendthat foreign providers should be subject to the same scrutiny as domesticproviders before being allowed to use the title of university.

We understand that there are those in the publicly funded side of the HE sectorwho are worried that allowing PHEIs access to the university title will somehowopen the floodgates to dozens of private universities mushrooming across the UK,offering a sub-standard quality of education. We do not, however, share this viewbelieving 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 thehighest standards of quality are maintained. The role of the QAA and itsrelationship with publicly funded and private providers is addressed in Chapter 4of 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 currentsystem) should not have a bearing on its ability to provide a high standardof education provided it has proved that it has a sustainable business modeland can meet required quality standards.


University Title


““ The Government should seek to ensure

that the regulatory playing field is similarly

levelled by ending inequality of access to

university title as soon as possible. The

unequal situation that exists at present is both

unfair and out of date””

3. The application process and required standards must be more transparentand easily accessible to reduce confusion and inefficiency in the sector.

4. Internationally owned universities operating in the UK should be subjectto the same scrutiny as the UK’s domestic HEIs.



Part TwoFunding for Students and Institutions


Introduction

Private sector HE differs significantly from public sector HE with regard toeligibility for government financing, including both student financial support tocover 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 willbegin with an in-depth analysis of financial support that is available to studentsthrough loans and grants, before moving to the issue of direct public funding forprivate institutions, which is currently distributed through the Higher EducationFunding Councils (HEFC). In addition, we examine the potential impact onprivate providers of proposed market-based reforms to higher education funding.


3Student Financial Support

One of the most contentious aspects of higher education in England and Wales inrecent years has been the introduction of tuition fees and changes to the studentloans system. A short history of student financing beginning with theintroduction of tuition fees in 1998 is available in Policy Exchange’s report MoreFees, 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 wasreformed to reflect the higher fee regime and prevent students from incurringhigh up-front costs.

In October 2010, a review of higher education funding led by Lord Browne ofMadingley recommended profound changes to the funding system and thesystem of student support. The report included a large number ofrecommendations aimed at producing a competitive, demand-led system inwhich variable tuition charges, not block grants, constitute the chief source ofincome for higher education institutions. This is balanced with a progressivesystem of student support to enable payment of the higher fees. The keyrecommendations include the lifting of the cap on tuition fees to be replaced bya 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 TheGovernment’s planned reforms to higher education funding are expected toinclude the majority of the Browne Review’s recommendations,82 although thepossibility remains that a hard cap on tuition fees will be imposed in place of thelevy on fees over £6,000. In the following section of the report we examine thesituation of private providers with respect to both the current system and thesystem suggested in the Browne Review. Firstly we compare the support availableto students under the two systems.


80 Anna Fazackerley and Julian

Chant, More Fees, Please? Policy

Exchange, 2010, pp. 23-25





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

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.



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.

Can students at private HE providers access studentloans/grants?1. Under the current system:There appears to be a great deal of confusion in the sector as to whetherstudents at private HEIs are indeed eligible for student financial support underthe system as it currently operates. The websites run by DirectGov and theStudent Loans Company (SLC) are two of the main sources of information forstudents, showing all the different types of financial support available. Onneither site is there any mention of the support that would be available shoulda student decide to attend a private institution, despite the SLC claim that itprovides information for “colleges and universities across the four educationsystems of England, Northern Ireland, Scotland and Wales.”84 This tellingomission is indicative of the general approach to private HEIs are held withinthe sector.

The Education (Student Support) Regulations 2009 state that in order forstudents to receive financial support from the state to pay for tuition, thecourse must be “wholly provided by a publicly funded educationalinstitution”.85 This includes tuition loans, maintenance loans andmaintenance grants. In other words, a course must receive funding from thehigher education funding councils for its students to be eligible for any formof state support, leaving most students little choice but to attend publiclyfunded universities.


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


‘History of the University’,

available at http://www.bucking

ham.ac.uk/facts/history/more.ht

ml. Accessed 15/08/10


‘Why Buckingham?’,

http://www.buckingham.ac.uk/st

andingout/. Accessed 15/08/10

Student Financial Support

The University of BuckinghamThe 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

However, the situation regarding student support is in fact more complex thanit first appears. When we telephoned Student Finance England to query theavailability of student support to students at PHEIs, we were told unequivocallythat 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 forstudent support if they are enrolled on a ‘designated’ course. Regulation 6(8) ofThe Education (Student Support) Regulations 2009 allows for ‘degree anddegree-comparable courses provided by non-maintained institutions’ [ie thosenot in receipt of HEFC funding] to be specifically designated for student supporteligibility by the Secretary of State on an individual basis.90 Accordingly, theDepartment for Business, Innovation and Skills takes a piecemeal approach tosupport for students at PHEIs, granting designated status on a course-by-coursebasis. The result is a total lack of clarity around this issue.

In theory, students enrolled on designated courses run by PHEIs are eligible forthe 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 appearedentirely unaware of it when we called for advice. They are clearly as confused bythe rules as everyone else. We spoke to private providers who said that they hadno idea why some of their courses had been designated and others had not, andwho reported that their students found the information available thoroughlymisleading. The fact that prospective PHEI students are in receipt of inaccurate andmisleading advice from the body charged with assisting them is indicative of theway that private institutions are currently treated within the sector.

2. Under the system proposed by the Browne Review:The Browne Review includes the welcome and long-overdue proposal that ‘studentson all courses, irrespective of the status of their institution, will be able to access theStudent Finance Plan.’93 All institutions wishing to take students in receipt of studentfinance will have to abide by the incremental levy on fees charged above £6,000, aswell as make an Access Commitment with the proposed new Higher EducationCouncil, and satisfy requirements around quality and information provision.

These recommendations constitute a major step towards creating a level playingfield for all higher education providers. Our conversations with representatives ofsuch institutions indicate that the majority see the levy (and additional



90 Student Finance England,

‘10/11 Academic Year Specific

Designation Pack’


‘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


‘10/11 Academic Year Specific

Designation Pack’





On what basis is a course at a PHEI designated for studentsupport 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

a university.

requirements) as a reasonable price to pay for being able to admit students who canaccess the Student Finance Plan proposed by Browne. Being able to admit supportedstudents greatly increases the potential customer base of private providers, and allowsthem to compete more fiercely with traditional universities. Stronger competitionwithin the HE sector is a key rationale behind Lord Browne’s proposals to end thesecurity of guaranteed block funding in favour of a system in which an institution’sincome depends on its ability to attract and retain students.

We fully expect private institutions to provide stiff competition for thetraditional university sector in an environment of variable fees. Stripped of thesecurity of annual grant funding for most taught subjects, institutions will needto focus more strongly on providing what students want, including a fulfillinguniversity experience and improved employment prospects. These are bothtraditional areas of strength for the private HE sector. It is no coincidence that theUK’s only private university, the University of Buckingham, topped the NationalStudent 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 highermaintenance grants and loans, and widening eligibility for them. The proposalsreduce subsidy of post-graduation repayments, in particular through the charging ofinterest equal to the government’s rate of borrowing – bringing a long-overdue endto 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 fromrepayment 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 ensuresthat nobody would be impoverished by their student loan obligations under the newproposals. 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 difficultto adapt to, but our discussions with representatives of private institutions revealnear-unanimous support for the proposals, and a widespread intention to takeadvantage 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, theywould be able to realise a 10% profit even if they charged fees at the current cappedrates of £3,290 for maintained institutions.96 There are several examples of privateHEIs which currently charge little more for tuition than the capped public rate: theLondon 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 forthese 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 ontuition charges instead of the incremental levy. As long as such a cap is setsufficiently high, there should still be scope for a genuine market to develop. Alow cap at £6,000-£8,000 would simply mean that nearly all institutions wouldseek to charge the top rate almost immediately, as they did after the introductionof top-up fees in 2004. For a functioning market to develop, there must besufficient scope for institutions to charge genuinely variable fees. We thereforerecommend 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.


97 Universities UK, The growth of

private and for-profit education

providers in the UK, 2010 p.23


always be borne in mind that none of these charges will be met up-front by thestudent, and that post-graduation repayments come with a number of protectionsfor low earners including a raised repayment threshold, an earnings-linkedrepayment schedule, and debt forgiveness after 30 years under Browne’sproposals.

We view the Browne Report’s recommendations as constituting a major steptowards a diverse, demand-led, competitive higher education market which willdrive up standards and improve choice for students. In addition, it will redress theimbalance between the public and private HE sectors that currently prevails. Theevidence shows that jurisdictions that are serious about increasing a diverse supplyof higher education through expanding the private sector have made a concertedeffort to afford PHEIs equitable treatment in terms of benefits that have been madeavailable to the public sector.98 Malaysia, for instance, has developed a systemwhereby publicly funded and private institutions work side by side under thejurisdiction of the Ministry of Education, and students at both types of institution areeligible for means-tested student loans. Similarly, the Australian and US highereducation systems have both opened up financial support for both student loans fortuition and maintenance grants to students regardless of whether they wish to attenda public institution, a private non-profit or even a private for-profit HEI.

How does the UK’s student support system compare tothat of other countries?


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


The United States of AmericaThe 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

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.



104 University of Phoenix 2008

Academic Report,

http://www.phoenix.edu/about_

us/publications/academic-annual-

report.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

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.

MalaysiaThe 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.

Part-time studentsAn issue which must be acknowledged when reviewing financial support tostudents 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 ofFinance, a successful non-profit private provider, has no full-time students at all.The only for-profit HEI with degree awarding powers, BPP, currently hasapproximately 120,000 students on its books, only about 5,000 of which arefull-time students. This means that roughly 96% of BPP’s students are studying ona part–time basis.114

Unfortunately, the support that is available to these students is nothingshort of lamentable. Support is only available to part-time students who studythe equivalent of at least 50% of a full-time course each year, and completethe course in no longer than twice the amount of time it would take a



110 Bond University, FEE-HELP

2010, http://www.bond.edu.au/

degrees-and-courses/fees-

expenses/financing-your-study/co

untry-support/australia/fee-help-

loan/index.htm. Accessed

22/05/10

111 Australian Department of

Education, ‘FEE-HELP

Information’, http://equella.

think.edu.au/lor/items/71434b1c

-e1a1-1965-cada-

29ed54788b4d/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


AustraliaStudents 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

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.

full-time student. This means that that student support for part-time studentsis based on the hours of study and not financial need. In addition to thiscondition of eligibility, is the disparity in the amount of funding that isactually available between full-time and part-time students. For instance, amaximum grant of £2,906 can be paid to a full-time undergraduate but apart-time student can only access less than half that amount.115 A staggering90% of part-time students receive no financial assistance from theGovernment whatsoever,116 even though a report by Universities UK revealedthat 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 isestimated that only 30% of part-time students across UK higher education areemployer-funded.118 The average income of a part-time undergraduate studentin England is just £13,511119 with nearly half (46%) having an annual incomeof less than £20,000.120

We consider it unacceptable that part-time students do not receive thefinancial assistance that they require in order to attend and to supportthemselves. PHEIs are often particularly strong at catering for part-timestudents, with much use of initiatives such as flexible course timing and remotelearning. Unfortunately, the lack of student support means that these usefulalternatives to a traditional, full-time, residential course are out of the reach ofmost students. It is telling that a large proportion of PHEI students have theirtuition fees paid for by their employers. Ashridge Business School, for instance,caters primarily for students who receive employer support, ranging from fullfunding to the granting of paid-leave in order to study. These students accountfor approximately two thirds of the School’s student population.121 Within BPP’sstudent community the percentage of students that are funded directly by theiremployers is in the region of 60%.122 While this means that they may not needaccess to student loans, it does mean that PHEIs in the UK sector are cateringfor 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 withregard to student support. If the Government wishes to expand private HE,while at the same time widening participation, it is vital that the student loanssystem is reformed so that it allows both full-time students at PHEIs andpart-time students more generally to have equal access to financial support fromthe 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 timestudents as well.’124 Lord Browne proposes that Government extend support topart-time students to include those who study over 33% of a full-time courseeach year, rather than 50% or more as is the case at present. Policy Exchange madea similar recommendation in the 2009 research note Educating Rita, and we stronglyendorse Lord Browne’s recommendation. However, any move to extend financialsupport to part-time students must be designed in such as a way as to ensure thatthe investment of employers is not disincentivised and that students who wouldhistorically have had their course paid for by their employer are not handed overto 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



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





Recommendations:1. As recommended by Lord Browne, the distinction between publicly

funded, non-profit and for-profit institutions in relation to studentsupport eligibility should be removed. The Government should provideloans to students regardless of the motivation of the HEI they choose toattend. The Government should, however, ensure that the HEI is legitimateand is being appropriately monitored to ensure a high quality of teaching.

2. The eligibility requirements and application process for student loansmust be made clear and easily accessible. While HEIs already provideinformation on what support their students may receive, the Governmentmust also make this information and guidance available for school-leavers.

3. Part-time students, at both public and private HEIs, must be allowedgreater access to student loans to pay for tuition fees and to assist with thecost of living. The Government should therefore implement Lord Browne’sproposal to extend student support eligibility to students studying 33% ofa full-time course per year, rather than 50% as at present. In doing so itshould ensure that those students who would historically have had theircourse paid for by their employer are not handed over to the state.

4. Private HE providers should be granted the same exemption from VAT thatis granted to public providers, in line with the relevant European directive.


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

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-and-

benefits-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://eur-

lex.europa.eu/LexUriServ/

LexUriServ.do?uri=CONSLEG:2006

L0112:20100409:EN:PDF.

Accessed 13/09/10


131 Eversheds LLP, ‘Report on the

involvement of the private sector

in higher education in England,’

November 2009


VATPart 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 state-

maintained 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

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.

4Access to Public Funding

Universities in England (except the University of Buckingham) are currentlyheavily reliant on direct funding from the Government, distributed mainlythrough the Higher Education Funding Council for England (HEFCE). However,this is likely to change from 2012onwards, when the Government isexpected to adopt measures aimed atreplacing direct funding for mosttaught courses with much higherstudent contributions, paid uponentering employment. These measuresare likely to be largely based on theproposals contained in the BrowneReview. In this chapter we initiallyexamine the ways in which public funding is allocated to eligible highereducation institutions under the current system, and the position of privateproviders within it, before assessing the recommendations made by Lord Browneand their impact upon private providers.

The current system of higher education fundingAt present grants from the funding councils account for approximately 36% ofuniversity income132, demonstrating the sector’s heavy reliance upon HEFCsupport. HEFCE will distribute a total of £7,426 million to universities inEngland in the academic year 2010/11.133 Of this total, £4,719 million (around64%) is allocated for teaching and £1,603 million (22%) for research viarecurrent grants. The remainder is allocated to business and communityengagement (including the Higher Education Innovation Fund); specialfunding for national programmes and initiatives, including those aimed atwidening participation, efficiency projects and shared services; and capitalfunding, earmarked either for investment in infrastructure or for capital outlayand learning, teaching or research.134 In addition, £20 million worth ofmoderation funding is provided to help institutions adapt to reductions inteaching and research funding.135

This year’s HEFCE allocation represents a reduction of 0.4% from theallocation for the 2009/10 financial year, after adjusting for £250 million ofcapital funding that was brought forward from 2010-11 into 2008-09 and2009-10.136


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

““From 2012 onwards, the Government is

expected to adopt measures aimed at replacing

direct funding for most taught courses with

much higher student contribu2ons, paid upon

entering employment””

How is HEFCE funding allocated?a) Funds for teachingAround 80% of teaching funds are distributed via a system of weightedper-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 intendedto reflect variations in the cost of tuition. There is an additional weighting forstudents in London to reflect higher costs in the city.

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




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


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



2010-11, March 2010.

Teaching – £4719 million

Research – £1603 million

Business and community engagement – £150 million

Earmarked capital and special funding – £934 million

Modera�on funding – £20 million

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

Table 1: HEFCE Bands, weighting and standard resource for2010/11139 (refers to full-time undergraduates)

Band description Weighting Notional HEFCE grant rate (£)

Band A Clinical stages of medicine and dentistry 4 14,494

courses and veterinary science

Band B Laboratory-based subjects 1.7 5,407

Band C Subjects with a studio, laboratory 1.3 3,826

or fieldwork element

Band D All other subjects 1 2,641

b) Funds for researchHEFCE distributes the majority of research funding through a quality-related(QR) research grant. The QR grant is so called because its allocation is based onthe Research Assessment Exercise (RAE), a peer-review process that produced aquality profile for research groups submitted by institutions for assessment indifferent subject areas.142 The RAE was completed in 2008 and will continue toform the basis of QR research funding until it is replaced by a new process, theResearch Excellence Framework (REF), due to be implemented in 2014.143 HEFCEdetermines the total funding for research to be made available for differentsubject areas; it then divides each subject total among institutions based onnumbers of active research staff, the relative costs of research in different subjects,quality rankings as determined by the RAE, and any prioritising of particularsubjects by the Government.

In addition, HEFCE funds other research-related costs through the recurrentresearch grant. These include funding for the supervision of postgraduate researchstudents; charity-related funding (allocated in proportion to the incomeinstitutions receive from charities for research); and business-related funding(allocated in proportion to the income received by institutions from business forresearch). There is also a small amount of funding aimed at supporting nationalresearch libraries.

In addition to the above funding, HEFCE-maintained institutions are eligible toapply 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 notengage in research at all; it is therefore to be expected that, should they beapproved for public funding, their claim on HEFCE’s research allocation would belimited. However, there are some private HEIs with high-quality researchdepartments; the University of Buckingham for example is home to leadingcentres of research such as The Centre for Education and Employment Researchand the Centre for Security and Intelligence Studies, which moved to Buckinghamfrom Brunel University in 2007.146

c) Non-recurrent grants and the Higher Education Innovation FundAlthough the majority of HEFCE funding is distributed through recurrentteaching and research grants, around 12% is provided in the form ofnon-recurrent grants. These are earmarked capital grants and special funding


Access to Public Funding


2010-11,March 2010.

143 HEFCE, ‘Research Excellence

Framework’,

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

research/ref/. Accessed 23/07/10


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

Table 2: Elements of recurrent research funding for 2010/11(£ million)144

Mainstream QR allocations 1,097 London weighting on mainstream QR 33Research degree programme supervision fund 205Charity support element 198Business research element 64National research libraries 6Total 1,603

grants aimed at supporting specific programmes. Additionally, there is a HigherEducation Innovation Fund (HEIF) aimed at supporting business and communityengagement by HE institutions.

Which institutions receive HEFCE funds?HEFCE currently funds 130 higher education institutions, as well as 123predominantly further education colleges that also provide some highereducation courses.147 This includes all universities in the UK, with the notableexception of the University of Buckingham, as well as university colleges.148

Other higher education institutions that have not been granted the title ofuniversity or university college also receive funds, many of which specialise eitherin the performing arts (such as the Conservatoire of Dance and Drama or RoseBuford College) or agricultural/land management courses (such as WrittleCollege or the Royal Agricultural College). Additionally, the 19 constituentcolleges of the University of London are in receipt of HEFCE funds.149

Private institutions and ‘designated institution’ statusProvisions contained in Section 129 of the Education Reform Act 1988 (asamended by the Further and Higher Education Act 1992) create a route bywhich HE institutions not in receipt of HEFCE funding can seek to becomeeligible to receive it.150 The section provides that the Secretary of State of therelevant department (currently the Department for Business, Innovation andSkills) may by order designate as eligible to receive HEFC funds any institutionat which over 55% of courses offered are courses of higher education.151

Meeting this criterion does not, however, automatically qualify a privateinstitution for designated status. Designation remains at the discretion of theSecretary of State, based on advice from the HEFC in consultation with theQuality and Assurance Agency (QAA).

There are few examples of private HE institutions that have been granteddesignated institution status under the provisions of the Education Reform Act.One example of a successful applicant from the independent HE sector is theGuildhall School of Music and Drama, an arts college owned and managed by theCorporation of London which was granted designated status in 2005 andconsequently received HEFCE funding for the first time in 2006.152 In the sameyear the Liverpool Institute for Performing Arts, both a limited company and aregistered charity, qualified for receipt of HEFCE funds.153 Both these institutionsare performing arts colleges which have been eligible for HEFCE funding sincethe HE-level element of the Dance and Drama Awards scheme, in which fundingis aimed specifically at specialist dance and drama courses in private institutions,was incorporated into mainstream HEFCE funding in 2004.154 However, there isno history of private providers offering academic or vocational qualificationsreceiving HEFCE funding; moreover, the vast majority of private HE institutionshave not sought to be made eligible for HEFCE funds. This includes large,well-established providers with their own degree-awarding powers such as BPPCollege, the College of Law, Ashridge Business School, the IFS School of Financeand Buckingham University.



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,


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

In fact there is no legal impediment to prevent any private HE provider frombeing classified as a ‘designated institution’, provided that it can satisfy HEFCE andthe Secretary of State that it is worthy of this status. The Secretary of State willmake 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 publicfunding is granted to have some serious flaws. Far from being transparent andpredictable, the little-used method by which institutions can apply for designationis an uncertain process, particularly for private providers. Our conversations withrepresentatives of established private HE providers indicate that, although noapplications have been made, there have been some informal enquiries into thepossibility of acquiring designation for HEFC funding eligibility. Decidedly mixedsignals have been received in response. One profit-making provider told us that itwas originally informed by HEFCE that it was not eligible even to apply for thefunds, before being told that it could in fact apply but stood no chance of beingsuccessful, indicating a prevailing bias against private providers despite no officialstatements on the subject. Finally it was told that an application could be madewhich which might in fact be approved after all.



155 HEFCE, ‘Transfers between

the further and higher education

sectors’, 2001, Annex A,


ce/2001/01_05a.htm. Accessed

10/08/10

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.

It is difficult for any private provider to consider investing time and resourcesinto a funding application when there is so much uncertainty over how it will beviewed by the officials of HEFCE and BIS. A better system would clearly state theposition of private providers with regard to funding eligibility, and a fairer systemwould simply allow funding to flow to any provider capable of meeting the samestandards of quality that are expected of all funded institutions. A system thatplaces private providers at the mercy of the prevailing mood among HEFCEbureaucrats is entirely unsatisfactory.

Browne Review proposalsThankfully, the Browne Review took a significant step towards a fair andtransparent process by making the recommendation that ‘new providers will beable to apply for targeted HE Council investment if they offer priorityprogrammes – and they will be subject to the same quality requirements as anyother provider.’156 This sensible recommendation ensures that institutionswishing to receive direct funding for the first time are not burdened withconditions over and above those required of institutions already in receipt offunding. The adoption of this proposal would go a long way towards creating alevel playing field for private providers and removing the uncertainty around thefunding application process. These changes would also improve the ability ofprivate providers to compete in the HE marketplace, ultimately ‘to the benefit ofstudents’ as the Browne Review notes.

The reference to ‘priority programmes’ reflects the fact that Lord Browne’sproposals include major changes to the HE funding system, one of the mostdramatic of which is the removal of direct teaching funding for the majority oftaught 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, andthe remainder by the student.157 Lord Browne’s proposals shift the cost of tuitionmuch more strongly onto the student, but balance this with considerably moregenerous up-front student support for low-earners and more generous repaymentsubsidies 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 publicmoney, but should be regarded as much more far-reaching than that, constitutingas they do the effective privatisation of the majority of higher education courses.As Browne notes, ‘students will control a much higher proportion of theinvestment in higher education’, and as a result universities will have to devotemore attention to attracting and retaining students if they are to succeed. Theabolition of direct funding for most courses should therefore lead to a morecompetitive system in which institutions are incentivised to ensure that what theyprovide is what students want. If these measures are implemented in conjunctionwith the Review’s recommendations around information provision to prospectivestudents, particularly with regard to graduates’ employment prospects, there isgood reason to hope that in future, as Browne forecasts, ‘courses that deliverimproved employability will prosper; those that make false promises willdisappear.’158

Under Browne’s proposals, direct teaching funding will be limited toprogrammes which are deemed to be ‘a priority in the public interest.’159 These






157 ibid

158 ibid

159 ibid


will be classified into two groups: the first will encompass clinical trainingprogrammes such as medicine, and will include the clinical components ofcourses 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 andwill include the programmes currently included in Band D and some of thosefrom Band C. Funding levels for these courses will be determined both by the costof delivery, as now, and also by their importance to the country – as Browne putsit, ‘the degree to which the programmeproduces graduates and skills which areor are predicted to be in shortage.’160

The total sum available to fund thesesubjects is estimated to remain close tothe sum allocated to them at themoment – around £700 million.161

If teaching grants are limited topriority subjects as expected, thisreport’s call for equal access to fundingfor all providers (subject to quality assurance) may seem somewhat academic.After all, few private providers offer high-cost clinical or laboratory-basedsubjects, preferring to focus on subjects with lower teaching costs. It may be thatvery few private providers – or none at all – take the opportunity to receivepriority teaching funding. Nevertheless, the Browne Review’s recommendation toextend teaching grants to any provider offering priority courses, regardless of itslegal status, remains a significant one for two reasons. Firstly, the proposedreforms will have significant, long-term effects on higher education in Englandand Wales. As a genuine market in higher education develops, commercial spacemay open up for enterprising private providers wishing to provide clinical andscientific courses. It is important that their position with regard to funding is clearand established well in advance.

Secondly, Lord Browne’s proposals are significant for reasons of principle. Forfar too long, private providers have been unequally treated by the official bodiesthat regulate UK higher education. As discussed in previous chapters, they areunfairly treated with regard to access to DAPs, university title, and financialsupport for their students. In addition they have never received much-neededclarification regarding their ability to receive public funds, and have accordinglyoperated in an uncertain and unfavourable environment. Lord Browne’srecommendations constitute welcome recognition of the fact that all high-qualityinstitutions should be treated equally, and that private providers should not bediscriminated against on the grounds of their legal status.

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



160 ibid

161 ibid

““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””

Higher Education Council, which will also incorporate the Office of theIndependent Adjudicator (OIA) which deals with complaints, and the Office ofFair Access (OFFA) which monitors institutional access arrangements.

A unified HE council would be a powerful body with authority over qualityassurance, the monitoring of access agreements, funding for priority courses, anddispute resolution. In addition it would have the power to prevent institutions thatfail to meet required standards from admitting students with student loans orgrants. It is therefore essential that the body carry out its duties in an even-handedmanner that does not discriminate against the private sector. Certain conditionscurrently imposed on institutions by bodies such as HEFCE are unnecessarilyrestrictive and, in our view, especially onerous from the point of view of privateHE providers.

For example, a typical condition of this type is contained within Paragraph 72of HEFCE’s Model Financial Memorandum, which states that if a university wishesto enter into a short-term financial commitment, it is not the university’sgovernors who have the final say but the Funding Council itself. The Council mustbe satisfied that the financial commitment offers “the most appropriate” solutionand is “consistent with the institution’s financial strategy.”162 Furthermore,Paragraph 70 of the Memorandum stipulates that certain long term financialagreements require the Council’s written consent.163 In effect, final approval of aninstitution’s financial strategy is placed in the hands of the Funding Council ratherthan those best placed to judge it – the university leadership. This seriously callsinto question the institutional autonomy of our universities.

Private organisations are understandably unwilling to sign away theircommercial and operating freedoms by complying with such conditions. Indeed,traditional publicly-funded universities have also expressed disquiet at the impactof the requirements, with the umbrella organisation Universities UK stating thatthe “restrictive financial memorandum” serves to discourage risk-taking.164 Whilewe accept that taxpayers need assurance that their money is not being squanderedon unsound institutions, this must be balanced against the need to maintaininstitutional independence within the UK’s higher education sector.

As well as comply with the Financial Memorandum, HE providers that receiveHEFCE funding under the current system are required to submit to regulation bythe Quality Assurance Agency (QAA). The QAA was created in 1997 and is anindependent charity, funded by HEIs which subscribe to its services. Its role is tocheck how well the universities are meeting their responsibilities, identify bestpractice in the system and make recommendations for improvement.165 The QAAalso publishes guidelines and provides assistance to universities so that they canimprove their own quality assurance measures.

All higher education institutions in England are inspected by the QAA withina six-year cycle in a process known as an ‘institutional audit.’ The process involvesa series of visits by an audit team over a period of six months, as well as anextensive document review, which includes an examination of an institution’sinternal structures and mechanisms for improvement.166 These methods havebeen subject to criticism. A 2009 report by the Innovation, Universities, Scienceand Skills Select Committee concluded that ‘the system in England forsafeguarding consistent national standards in higher education institutions isout-of-date, inadequate and in urgent need of replacement.’ It added that the QAA



162 Model Financial

Memorandum between HEFCE

and institutions, July 2010, at


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


‘focuses almost exclusively on processes, not standards’ and called for the QAA ‘tobe transformed into an independent Quality and Standards Agency.’167

We fully support the principle that HEIs should be subject to rigorous qualityassurance. However, there is a danger that, as the QAA focuses strongly on processover outcomes, private HEIs which operate in a non-traditional manner will beplaced at an unfair disadvantage. Many of our interviewees from both publiclyfunded and private HEIs were critical of the highly prescriptive and box-tickingculture within the QAA. Assessment teams were reported to have arrived andsimply studied procedures, documents and manuals without having observed asingle tutorial or interviewed students to receive feedback.168 Even the QAA’s ownpresentation on what institutions should expect of audits refers to interviews withstaff and students only once but makes repeated reference to the evaluation ofreports, programme specifications, codes of practice, assessment policies andstudent handbooks.169 As with the process for obtaining DAPs, we believe that theQAA should re-examine its practices to ensure that they deliver an effective meansof maintaining and improving the quality of UK higher education. The QAA’sassessment criteria must be sufficiently flexible to recognise good qualityprovision without imposing the structures and processes of traditionaluniversities on private providers which successfully operate in a different manner.If it is incorporated into a unified Higher Education Council, care must be takenso 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 theresponsibility of monitoring institutional arrangements for widening accessand supporting students from disadvantaged backgrounds. An AccessCommitment agreed between the Council and each institution would replacethe Access Agreement currently negotiated with OFFA. Whilst we support theprinciple that institutions should contribute to ensuring that all able youngpeople, regardless of family background, can access higher education if theywish, it is important that institutions are free to do this in the manner theydeem most effective and efficient. We therefore welcome the Browne Review’sproposals to abolish the minimum spending requirements on access-relatedactivities and the minimum institutional bursary award. These will be replacedby measures which give institutions the autonomy to support wider access asthey see fit, and which involve stricter controls only when institutions fail tomeet access targets – in which case a minimum spend on access may beenforced.170 It will be of crucial importance to the viability of the proposedCouncil that it strikes the right balance between ensuring that access to highereducation is fair and not dependent on family income, and preserving anddefending institutional autonomy as a crucial element of the higher educationsystem in this country.

Recommendations:1. All higher education institutions meeting required quality standards

should be able to access public funds for teaching priority courses, assuggested by Lord Browne, and for research where applicable.

2. Public funding rightly comes with certain restrictions to ensure thattaxpayers’ money is well spent. However, these restrictions should notunduly 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





HEFCE (or the proposed Higher Education Council) should review itsfunding criteria accordingly, giving particular consideration to theabolition of its right to final approval of financial commitments.

3. The QAA (or the proposed Higher Education Council) should review itsquality assurance procedures to ensure that they focus sufficiently onoutcome over process, and do not discriminate against private providersorganised along non-traditional lines.



Part ThreeIntroducing Private Funds into the Public Sector


5Takeovers and Mergers

There is general consensus within the UK’s higher education sector thatinstitutional mergers and takeovers are a likely future consequence offorthcoming funding cuts. A survey of UK vice-chancellors by PA Consultingfound 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 chapterwe examine the role private companies could potentially play in such situationsif they arise.

For the purposes of this chapter, we do not distinguish between takeovers andmergers, although they are technically different. A merger involves combiningtwo organisations to form a new entity: for example, the creation of theUniversity of Manchester in 2004 following the merger of the Victoria Universityof Manchester and the University of Manchester Institute of Science andTechnology (UMIST).172 A takeover, on the other hand, is the acquisition of oneinstitution by a second institution which retains its original identity. In practice,however, both processes involve the acquisition of a small or failing organisationby a larger or more successful one; UMIST had only split from Manchester tobecome an autonomous institution 10 years before it rejoined its much largerneighbour.173 Whether a new brand is created or not is irrelevant – there is nosuch thing as a merger of equals in higher education.

In the past, the Government has responded to situations where apublicly-funded HEI has faced financial failure by stepping in to facilitate amerger with another institution. Policy Exchange argued in the 2009 report Sinkor Swim: facing up to failing universities that this is not always the best solution and thatin some circumstances a struggling university should simply be allowed tofold.174 Our view is that the Government should not feel obliged to prop up everyfailing institution using taxpayer’s money, particularly if pessimistic predictionsabout the sector’s future are proved accurate: PA Consulting’s survey found that74% of vice chancellors expect to see the failure and disappearance of more HEIsin the next few years, in light of expected funding cuts and wider economicdifficulties.175 There should certainly be no presumption that all failing HEIsshould be rescued with government-backed deals.

On the other hand, the acquisition of one institution by another can sometimesbe in the public interest and be justified accordingly. If it is possible to arrange adeal which will restore public confidence in an organisation, repair its finances,and avoid the job losses and educational disruption that institutional failurewould cause, then this may be the best option – as long as the taxpayer is notburdened with unacceptable costs. In this context there is growing interest in the


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


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

role of private companies which can access large amounts of capital from privatesources, and therefore could acquire failing institutions without drawing onpublic funds to finance the deals. In the past the merging or takeover of HEIs hasonly involved state-maintained institutions and the jury is still out as to whetherthese arrangements have provided value for money. We argue that the privatesector could have a significant part to play in ensuring that taxpayers’ money isput to best use in the interests of safeguarding higher education.

This is a view that was recently echoed in the Browne Review of highereducation funding. Although the review proposed that targeted funding be madeavailable to prevent institutional failure in some cases, it also makes clear that ‘ifinstitutional failure cannot be prevented in a way that is cost effective for publicinvestment or in the best interest of students and staff, then the HE Council willexplore options such as mergers or takeovers led by other providers.’176 Around£100 million per year will be made available to facilitate such arrangementsunder the proposals. In the following section we examine how such takeoverarrangements might work, as well as assessing the obstacles to takeover measuresand anticipating some of the legal and regulatory issues that may arise from sucharrangements.

Institutional failureGiven that HEFCE alone spent £7,929 million177 of taxpayers’ money on highereducation in the academic year 2009-10, it is only right that the public should haveconfidence that their taxes are not being used to prop up failing institutions forpolitical reasons. We acknowledge that a university is a major employer in itssurrounding community – universities are thought to employ around 1.2% of theUK’s total workforce178 – and such a loss could have a catastrophic impact on thelocality. However, in an area such as London, which hosts at least 42 competing highereducation 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 marketin higher education, some institutions are bound to fail as a result. Most will seekto charge considerably higher fees than are currently permitted and as a result willexpose themselves to greater scrutiny from students seeking the best possiblevalue for money and voting with their feet. Additionally, some traditionaluniversities may come under threat from private competitors as the difference intuition costs between the sectors is reduced or negated altogether. A genuinelycompetitive market would require that the safety net the Government currentlyprovides for all publicly funded HEIs be removed, so that an uncompetitiveuniversity could go under. It would force up standards throughout the sector andremove the sense of complacency that is sometimes allowed to take root wheninstitutions are underwritten by the Government.180

An alternative option to allowing failure could be to encourage two institutions tomerge, as occurred when London Guildhall University and the University of NorthLondon combined to form London Metropolitan University in 2002. However, themerging of two publicly-funded institutions can have significant drawbacks. Amerger will not usually take place unless one of those HEIs is in serious financialtrouble and sees very little possibility of survival on its own. The problems thatnecessitated the merger in the first place, which may include financial


Takeovers and Mergers





177 HEFCE Recurrent Grants for

2010-11, March 2009


ce/2010/10_08/10_08.pdf.

Accessed 13/08/10




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-says-

degree-costs-are-burden-on-taxp

ayer-1996447.html. Accessed

12/08/10

mismanagement, poor student retention rates or soaring costs, are unlikely to besolved by fusing together two HEIs and hoping to realise efficiency savings. LondonMetropolitan University has been plagued by financial difficulties since its creation,

and in 2008 faced a £15 million grantcut following the discovery that it hadmade incorrect student data returns.181

Such arrangements can also be ofsubstantial cost to the taxpayer. Theformation of the University ofManchester cost the Government andregional bodies a staggering £80million,182 part of an enormous £285million total merger budget.183 Thereseems little prospect of the Government

providing investment on this scale in any future merger or takeover scenario, givenits focus on austerity measures and the need to reduce Britain’s budget deficit. Thelate Alan Gilbert, the first Vice-Chancellor of the University of Manchester after itscreation via a merger in 2004, noted the ‘fortuitous timing’ of the deal and wrotein February 2010 that ‘the kind of bold strategies that represented prudent risk sixyears ago... could not have been pursued responsibly during a period of publicfunding stringency of the kind that UK higher education now faces.’184

There is, however, an alternative to merging public institutions or allowingthem to fail which has not been adequately considered. Private companies havesignificant skills and resources that they can bring to the table should they wishto take over an existing HEI.

Role of the private sectorThere are a number of methods by which private financing could be made availableto maintained institutions facing financial difficulties. The most obvious of these isa full or partial takeover of a public institution by a private company, on which wefocus later in this section. However there are alternative solutions, one of whichwould be to allow a state-maintained university simply to alter its legal status to thatof a public limited company to permit share ownership.185 This would then allowthe university to issue stock and attract external funding from investors, an optionthat is viewed in some quarters as a quicker, ‘cleaner’ alternative to the moreconvoluted takeover model that we examine below. However, the process iscomplicated by the differing legal status of state-maintained universities (see theIntroduction to this report). Universities established by Royal Charter, for example,would require an Act of Parliament to alter their status. Clarification would also berequired on what would happen to a public institution’s right to university title,degree awarding powers, and government funding (these issues apply equally to aprivate takeover model and are discussed below).

It is possible that the Government will seek to make the legislative changesnecessary to allow such a switch of legal status to take place. However, there arecurrently no legislative obstacles to the alternative of a private takeover of amaintained institution, and so in this chapter we concentrate on the takeover modelby which private capital can be injected into the UK HE sector. This involves either






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.palgrave-

journals.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


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

““The formation of the University of Manchester

cost the Government and regional bodies a

staggering £80 million, part of an enormous £285

million total merger budget. There seems little

prospect of the Government providing

investment on this scale in any future merger””

the full or partial acquisition of a state-maintained HEI by a private sectororganisation. Given that the main driver for a private enterprise is to generate afinancial surplus in order to survive and flourish, it is likely that they would in somecases seek to take over only part of an HEI, particularly career-focused departmentswhich yield high returns, such as business and law.186 In the USA there have also beenmovements into other career-focused subject areas such as education and healthcareby institutions such as the University of Phoenix,187 while BPP is also on record asstating that it intends to expand into teaching and health in the UK.188 In addition, aprivate provider may seek to take on less profitable departments in order to expandits market coverage and enhance its reputation. BPP itself has already expressed aninterest in making arrangements with public universities which could see it take overdepartments of traditional subjects such as history and English.189 A completeinstitutional takeover is also a possibility; Laureate Education has already completedthe 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 institutionaltakeover is that private companies have ready access to capital which can be usedto shore up a university’s finances and supply the investment required for a dealto succeed. This is clearly an attractive option in times of economic and fiscalhardship, and is likely to be a key consideration for the failing institution inquestion. We therefore expect that any possible takeover would most probablyinvolve one of the large and well-resourced private education providers such asKaplan, BPP (owned by the international Apollo Group) or Laureate Education.These for-profit providers have access to commercial sources of capital whichwould negate the need for the Government to expend vast sums in order tosmooth the progress of a deal. This may be why HEFCE has reportedly recentlyadvised senior managers of public HE institutions facing the risk of financialfailure 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 ofexpertise in the application of business principles such as sound financialmanagement, marketing, and operational streamlining to ensure the most profitableand efficient delivery possible. Private sector input would therefore be expected todrive 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 morecommercial manner than they ever did in the past. The University of Edinburgh alonegenerated 40 new businesses during 2009-2010, which have already brought inover £3 million of funding from external sources.191 Furthermore, there has beenever more widespread and deeper interaction between the UK’s maintaineduniversities and private companies in recent years. Such interaction includeslong-term partnership arrangements whereby private companies use their businessacumen and access to funds to provide certain services, allowing the partneruniversity to concentrate on its core functions of teaching and research. An exampleis the model used by INTO, which provides specialist programmes aimed atpreparing international students for their studies. While it is not a merger model, itis an example of partnership between public universities and a private companythrough long-term joint ventures for mutual benefit. Universities which haveexperienced the benefits of public-private arrangements may view the prospect of atakeover by a private organisation more favourably than has been the case in the past.




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

Impediments to private sector involvementDespite the growth of partnership working between private companies andtraditional universities, there still remain differences between the two sectors.Public institutions are structured differently in areas such as governance and staffhierarchy, which can result in frustrating problems for private organisations.University committees also tend to be naturally risk-averse as they deal withpublic money and prioritise long-term stability when taking decisions.Consequently, they are more likely to display caution in situations where theprivate sector would rather agree deals quickly so as to minimise costs.193

Additionally, there remains a certain degree of mistrust of the private sectoramongst academics and other staff within public universities. Thosevice-chancellors whom we spoke to reported that this sentiment was becomingless common as maintained universities work ever more closely with the privatesector. However, the staff of public universities may react unfavourably to theprospect of a private takeover. The proposed merger between Imperial Collegeand University College London collapsed acrimoniously in 2002 followingprotests from UCL staff who considered Imperial’s culture to be unsuited to the



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

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.

‘ethos’ of UCL.194 That proposed deal was between two public institutions; onewonders how the staff would have responded to the possibility ofamalgamation with a private institution. It is to be hoped that the significanceof cultural differences between the sectors will shrink as collaboration betweenthem becomes even more widespread.

An issue that requires further clarification in the case of a public-private dealis the question of what will happen to degree awarding powers and use ofuniversity title. Under the amended QAA regulations of 2004, privateproviders are eligible to apply for DAPs on a time-limited basis only, and arenot eligible for university title. By contrast, all public institutions created priorto 2004 have the right to continue to award degrees in perpetuity, which isusually laid down in the university charter. Elsewhere in this report werecommend that private and public providers should be equally treated withregard to DAPs and university title. However, while the two sectors are stilltreated differently, the possibility must be considered that a private-publictakeover could jeopardise an institution’s entitlement to DAPs and the title ofuniversity. The Government should pre-empt this possibility by making it clearthat DAPs and university title would not be adversely affected by anamalgamation 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, boththe public and the private provider must trust one another fully. The public hasinvested huge sums of money into the university through Government funding,which has paid for the upkeep of buildings and facilities, the development ofinfrastructure and the wages of staff. If these assets are to be transferred to aprivate organisation, the public must be assured that the deal is in the best interestof the institution concerned and its students, and will provide better value formoney for the taxpayer than alternative arrangements. The process by which thisassurance could be provided has not yet been determined as no private-publictakeover has occurred in the UK higher education sector to date. It couldpotentially be modelled on the process by which the Government approvesoutsourcing contracts in other areas, such as health.195

For its part, the private provider involved must be confident that it can counton the Government’s continued support. It is unlikely that a failing universitycould be turned around if its access to student financial assistance or publicfunding 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 degreeawarding powers be revoked. Without a clear statement of support, a privateenterprise may not feel confident that it will have the flexibility to manoeuvre andturn a loss-making institution into one that is financially viable.

Once all parties concerned are satisfied that that the takeover would bemutually beneficial, a process could begin in earnest. Legal and financial advisorshave already begun to develop ideas around how such a process might look. Onesuch takeover model was devised by Eversheds LLP:196



194 Lucy Hodges, ‘London

merger: Why the professors said

no’, The Independent, 21

November 2002


196 Glynne Stanfield, ‘Report on

the involvement of the private

sector in higher education in

England,’ Eversheds LLP,

November 2009

� In return for a cash payment or a longer term investment the existing HEItransfers its assets, undertakings and liabilities to the new private provider(NewCo). The HEI remains a “designated institution,”197 entitled to continueto receive public funds and retain its DAPs. To retain its designated status, theinstitution would have to retain a governing body of its own.

� The existing higher education institution would hold an interest in NewCo, so thatboth the existing institution and NewCo would be in the same VAT group. As aresult no VAT would be charged on student fees or cross-services between the twobodies concerned. HM Treasury is unlikely to object to this as it will receive at leastsome of the capital value of the institution while at the same time washing itshands 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 attractgreater investment. A financially stable HEI can be an attractive long-termprospect to investors.

� There are no legal barriers to this model being rolled out across the UK highereducation sector. The model allows the skills and resources of the privatesector to come to the aid of struggling HEIs; additionally it allows theGovernment to realise the capital value of an HEI while transferring the riskattached to the HEI to the private sector. It also allows private capital to beraised 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


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-OK-

plan-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-fe-

adopts-new-identity. Accessed

06/08/10

International example: the College of Santa Fe and Laureate EducationIn 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

Recommendations:1. The Government needs to make a clear statement outlining the

implications of any takeover or merger between an existing HEI and aprivate provider. In particular, the Government must clarify whetheraccess to public funding and student financial support would be retained.

2. The Government must make it clear that DAPs and university title wouldnot be jeopardised by a merger or takeover of a public university by aPHEI.

3. The Government should consider a blanket Act to allow universities(including those established by Royal Charter) to change their legal statusand become a private limited company. This would allow access to privateinvestment without the need for an institutional takeover.



Higher Educa,onin the Age ofAusterityThe role of private providersAlex Massey and Greg Munro

£10.00ISBN: 978-1-906097-88-2

Policy ExchangeClutha House10 Storey’s GateLondon SW1P 3AY


PolicyExchange

Higher

Educationin

theA

geofA

usterity

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.

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.