Resetting the dial: getting to know the higher education sector and my regulatory priorities for the next 12 months
Thank you for your warm welcome Anthony and the invitation to come and speak to you today and to your members. It’s great to see so many of you here. I am Philippa Pickford, Director of Regulation at the OfS. I’ve been at the OfS around four months now and that time has flown by. It’s difficult to know when the appropriate moment to stop saying I’m new, but I feel I’m probably just about reaching that point!
But one thing I’m not new to is regulation. I’ve worked in regulation for over 20 years, most recently in senior leadership positions at Ofgem, the independent energy regulator. Before coming to the OfS, I led Ofgem’s work in allocation of £11 billion funding a year to support government environment and customer outcomes. As part of this I led a large compliance and enforcement team to follow up on misuse of funds.
Prior to that I was Director of Retail at Ofgem responsible for ensuring that energy suppliers were delivering positive outcomes to their customers and ensuring that the regulatory framework kept pace with the fast changes needed in the sector to support decarbonisation. This role also involved monitoring the financial resilience of suppliers and ensuring customers were protected when suppliers failed.
However, I knew going into this new role at the OfS would involve a significant learning curve. As you’d expect, when I was going through the recruitment process for the role, and since starting at the OfS, I’ve spent a lot of time familiarising myself with the OfS strategy, the statutory framework in the Higher Education and Research Act, and the OfS regulatory framework. It’s certainly been a transition, but one that has really enabled me to understand where the OfS is at in its regulatory journey and crystallise where I can particularly add value.
It has also been really important for me to build an understanding of the HE sector itself, and I’ve been quite lucky that I’ve had lots of opportunity to engage widely in the last four months. Not only have I spoken at member events like this, but I’ve also met leaders from the various sector mission groups and representative bodies. I’ve also visited a number of providers, speaking with everyone from vice chancellors to key regulatory contacts to students themselves. I’ve really appreciated how welcoming everyone has been and also generous with their time.
And what have I learnt over this period? It has been great to learn more about the different types of provider in the sector – and the benefits of this diversity for students. Even in this room where smaller and specialist higher education institutions are represented there is considerable diversity, and I can completely see the benefit of bringing together a membership like this to share experiences and tackle challenges collectively. And on this note, I’ve been struck by seeing some examples of excellent work that is happening to tackle some of the key issues the sector faces – institutions working with local employers to support student progression; institutions changing and increasing their support provided to students as they emerge from the COVID pandemic and adjust to the cost of living crisis; and institutions innovating to ensure English higher education is keeping up with technological advances and continues to be of world leading standards.
But equally I don’t want to swerve the challenges: the sector is facing a challenging context. We’ve had Brexit, the pandemic, the war in Ukraine, and the cost of living crisis in recent years, unprecedented storms which have led to changes in key areas such as student recruitment, course delivery and the financial context that you are all operating in and that students are studying in. I want to spend the rest of my time today speaking about three of the key challenges that I’m treating as regulatory priorities in the next 12 months.
First, as many of you will know, the OfS has been regulating quality more actively over the past 18 months. Quality and standards is one of our two focus areas in the current OfS strategy, and as I’ll go onto explain, I am clear that this focus is right. It is also fair to say our work in this space crosscuts a number of different areas: from our work on B3 student outcomes, to our assessments of course quality, to our delivery of the Teaching Excellence Framework. So a real step change in activity over this period.
It would be remiss of me not to mention the TEF ratings we published at the end of September. This was a major milestone in the delivery of the TEF 2023, but what I really want to do is recognise your work. Of the providers represented by GuildHE with final ratings, eight are Gold, 26 are Silver and five are Bronze. These ratings provide a clear signal that outstanding or very high student experience and outcomes is being delivered, excellence beyond our regulatory baseline. So congratulations to all of you who received bronze, silver and gold ratings: I hope you’ve taken the opportunity to celebrate this achievement.
But it is also important that our regulation monitors quality that might fall short, and there are indications that in some situations the quality of courses may not be good enough. So in line with our risk based approach, we have set out that we will undertake a number of quality assessments each year that test provider compliance where we think there might be an issue relevant to our quality and standards conditions, but particularly conditions B1, B2 or B4.
As a first round, we launched investigations into the quality of the business and management courses at eight universities and colleges in May last year, and subsequently launched investigations into computing courses at three providers last November. We focused on these subject areas because there is significant variation in performance across the sector, as shown in intelligence drawn from student outcomes and experience data. We also focused on universities and colleges with larger student populations, meaning any intervention we might make to improve those courses will have a positive impact on a significant number of students.
And in terms of the way we’ve undertaken these investigations, we commissioned assessment teams which included independent academic experts: highly credible practitioners in their field. We’ve always been clear that we will draw on expert academic judgement to help inform our regulatory decisions about a provider’s compliance with our quality and standards conditions. And this will continue to be central to our approach in the future.
So fast forward to now, we’ve published the findings of assessment visits at four providers so far. The assessment teams identified concerns at one provider, and in the others no concerns relating to conditions B1, B2 or B4. There are some important messages in the reports so far including concerns raised about the support students need to succeed, the assessment of students, the monitoring of student engagement with their course, and the flexibility of delivery models for specific cohorts. And these are especially significant factors given the desirability of these courses and the number of students recruited as a result.
Overall, I am really pleased with the way these reports have landed. We know many have found the reports helpful to learn about the issues that assessment teams have considered and the areas that might cause concern. And it's also helpful to understand how providers have addressed issues. If you haven’t had a chance yet, I’d encourage you to take time to read and digest the reports, reflecting on any relevant areas for your institutions.
But as you’d expect we’ve also learnt a huge amount about doing investigations of this type. In particular, we know that the sector wants to understand more about how we select providers for quality assessment. As I said before, because we don’t assess all providers on a routine basis, we select providers based on risk and in this first round have placed particular weight on student and experience data. But we recognise that it is important to be transparent about how we work, and we are thinking about how we might share more information about this in future.
In addition, we are also reflecting on feedback from the providers who have been through the investigation process, and particularly their views about our communication during this time. Again, this is something we are actively considering to see if changes can improve this. We want to improve our processes not just because it will improve transparency for providers but because it will build trust in the investigation process and allow us all to focus on talking about the outcomes from the assessments: that’s what really matters in this work.
So please do continue to engage with us on these quality assessment reports: we will want to continue the discussion and learning as more are published. And I think representative bodies like GuildHE can really help in facilitating these conversations over the coming months.
The second regulatory priority I wanted to talk about today is financial viability and sustainability. This is underpinned by condition D, which requires each provider to demonstrate to the OfS that it remains financially viable and sustainable.
Like quality, our work in understanding financial viability and sustainability is multifaceted. Not only do we analyse the annual financial data submitted by each provider, but we also engage with finance directors in providers and a range of third parties to understand the financial risks facing different parts of the sector. So, teams at the OfS are continuously reviewing the latest data and intelligence to understand the financial health of individual providers and of the sector.
And what does this latest data show. Well, overall most institutions remain in good financial health. But the financial environment in the HE sector remains challenging in the medium to long term. We see what you see: the real term decline in income from UK student fees, the impact of inflation and in particular energy bills on costs, competitive pressure for UK students, the reliance on income generated by international student recruitment, and the need to continually invest in facilities and buildings.
And given these risks may materialise at the same time, or in combination with other shocks that we simply can’t predict, this heightens the financial challenges that providers might face in the future. It is a harsh reality, and not one that I enjoy stating, but in a market providers can and do fail for financial reasons. It therefore follows that you would expect financial management to be high up on each provider’s agenda, including a robust focus on financial risk.
So, a key question for us as a regulator is how these financial risks are being managed within providers. Indeed, your institutions will have governance structures which enable them to monitor financial health. In regulatory terms, this is relevant to condition E2, which requires each provider to have in place adequate and effective management and governance arrangements. But what I’m really signalling here is that there is a clear connection between provider financial health and good governance.
What I’ve observed since taking up this post is mixed. For example, although there are indications that some providers are responding proactively to mitigate future risks, others are not looking ahead to properly assess and manage financial risks. This means that some providers are having to respond reactively when risks start to materialise. It is also fair to say we see an optimism bias in many financial returns. For example, whilst growth in student numbers for individual providers does not look unreasonable, across the whole sector they don’t seem realistic.
So, if I were to make some key suggestions in this area. Overall, I would strongly advise all providers to reflect on, and, if necessary, seek to enhance, their current level of financial governance: in terms of risk management, level of scrutiny, and access to relevant skills and experience. I know it’s a difficult message to land but my feeling is we need to make sure that we are not baking in overly optimistic assumptions when assessing financial health in each provider and in the sector overall. I would also encourage providers to make increased use of tools such as forecasting, stress testing and sensitivity analysis. This will enable preparation for different outcomes so institutions are not caught by surprise.
Equally, it may also be necessary for some providers governing bodies to think about radical options, transformation, different business models, or simply different ways of doing things: to aid with preparedness and strategy formation if risks materialise. And it follows that acting early and boldly is important if your institution is facing financial challenge. All my previous experience in the energy sector tells me if you leave it too late, adopting more radical strategies becomes infinitely harder.
And finally, it goes without saying but please report financial issues and concerns quickly and openly to us through normal reporting mechanisms. Maintaining this dialogue will enable us to continue to focus our attention on cases where significant risks are identified, and to work constructively with any institution in financial difficulty at an early stage.
So, I hope that in the last fifteen minutes I’ve given you a good sense of two of my regulatory priorities for the next year. But the third priority I want to talk about is how we work together. I believe that to achieve the OfS mission – and I don’t take for granted that the OfS exists to ensure that every student, whatever their background, has a fulfilling experience of higher education – engagement and two-way dialogue with the sector we regulate is really important. I wanted to finish today by reflecting on this a bit more.
As many of you will know, the House of Lords recently reported on our work as a regulator. Scrutiny and accountability is part and parcel of our work, and we welcome the feedback we’ve received. We recognise there are valid criticisms around how we engage and communicate, and have been acting to improve and reset relationships. It is important that we develop the right ways of working with all of you and the wider HE sector.
As part of this, this year we’ve put in place a programme of visits for senior OfS staff (and board members) to visit providers. We will have undertaken over 40 visits by the end of this year, and are currently planning another 30 visits in the spring. We also now run regular online briefings for accountable officers where we talk about our priorities, and have our first webinar to introduce the OfS to colleagues who are new to the HE sector coming up on 17 January. These are some of the things we are doing to promote better working and understanding with the sector.
And for me personally, I’m looking forwards to meeting more of you next year. My visits so far have been to a wide mix of providers of different types and in different locations. I’m expecting to come to at least one provider under the GuildHE umbrella in the spring, and am very much looking forward to continuing the conversation about priorities and experiences in this part of the sector. My experience of the visits I have undertaken so far is that they have been incredibly helpful and enjoyable. Along with really inciteful conversations with higher education colleagues and importantly students, I really have got a glimpse of the unique identity of the providers I have visited and the connection to the students who study there. It is just not possible to get that understanding from reviewing data returns. So thank you to everyone who has already hosted or will in the future host one of these visits for the Office for Students.