One quango to rule them all?

Government plans for the Higher Education Funding Council for England are ringing alarm bells across the sector. Can it really become a consumer protection body and fund universities without conflicts of interest? And would Hefce's expanding remit further erode institutional autonomy? Simon Baker surveys an uncertain future

December 22, 2011

Not such a long time ago, the amount of red tape in English higher education amounted to barely a sticking plaster. Public funds from the government were distributed by a single body that decided where the money should go. Quality, standards, complaints and access were predominantly the preserve of individual institutions.

But, driven by seemingly endless political changes to the funding and organisation of the sector, the past 20 years have seen an explosion in regulatory bodies. These organisations have increasingly elaborate rules and legal powers, and the relationships between them are becoming more and more complex.

Now, against the backdrop of a shift in funding from taxpayers to graduates, such bodies are about to become even more integral to the system, with the "daddy" of them all - the Higher Education Funding Council for England - in the starring role.

But will overhauling the regulatory framework yet again - barely eight years after the last set of legal upheavals - provide more clarity or brew more confusion? And will the UK's universities remain, as a recent study by the European University Association claimed, the most autonomous in Europe?

Answering these questions requires an understanding of how the sector arrived at the present tangled web of regulation. Most roads lead back to 1988, when the original Universities Funding Council, the precursor to Hefce, was created.

While the UFC's predecessor (the University Grants Committee) was "hands off", the "UFC became a body that was responsible for accountability", explains Mike Shattock, visiting professor of higher education management at the Institute of Education, University of London. The UFC was ultimately answerable to an education minister, whereas the UGC was essentially a Treasury committee.

The theory was that university autonomy would still be protected because the UFC, and its successor Hefce, operated at arm's length from ministers. Whether this is true, and the question of how much influence ministers actually exert on Hefce, have been the subject of fierce debate ever since.

The relationship between Hefce and ministers is governed by the Further and Higher Education Act 1992. According to Dennis Farrington, visiting Fellow at the Oxford Centre for Higher Education Policy Studies, ministers originally wanted the Act to give them greater control over the funding body, but they were beaten back as the legislation passed through the House of Lords, which has its fair share of peers with links to the academy.

But even under the law as it now stands, Farrington's view is that there has been growing "intrusion" into university business by Hefce - and therefore by the government - whereas under the UGC, institutions could "pretty much do what they liked" provided they "weren't crooks".

"Almost every aspect of a university's life is now influenced by the higher education funding council," he argues.

Certainly, Hefce's reach is wider than its title would suggest. On the surface, its role is to fund teaching and research, but central to its remit is monitoring the financial health of universities and ensuring that teaching quality is assessed, a duty it performs through a contract with the Quality Assurance Agency.

Hefce's remit over institutions is set out in the Financial Memorandum - an agreement that any university must enter into if it wants to access Hefce's teaching and research grants.

This document makes it clear that Hefce's relationship with universities goes far beyond simply handing over large cheques every year.

As well as insisting that institutions agree to financial monitoring and subscribe to the QAA, there are a host of other requirements covering areas such as the management of estates, institutional strategy, the internal auditing of accounts and governance.

For outsiders looking in, the memorandum appears draconian. "It is a level of intrusion into an autonomous institution that I would have a bit of a problem with," says Paul Kirkham, managing director of the Institute of Contemporary Music Performance, a private higher education provider that is not Hefce-funded but might have to sign an agreement with the body under the new regulatory system that is planned.

Nonetheless, it would appear that the rules are acceptable to institutions: universities currently agree to them even when Hefce's grant amounts to much less than half of their total income. For the London School of Economics, for example, the Hefce grant represented just 14 per cent of its income in 2009-10.

But with the teaching grant to English universities being cut by 80 per cent over the next four years - with the expectation that the lost funding will be made up by higher tuition fees - will universities still be happy or willing to be subject to such controls?

The possibility that some institutions might leave the system of public teaching funding entirely might well have arisen if the government had not made a crucial proposal for the future of Hefce: any university, or indeed any provider, that wants to access the student loans system must enter into an agreement with the body.

With Hefce handing out so much less cash, at first glance the role of the funding council looked set to diminish under the new fees system being introduced next year. But instead, under plans set out in the government's consultation on the future of regulation in the sector, Hefce's powers will be beefed up. The funding council will become the "lead regulator" with a specific remit to protect the interests of students and promote competition.

For many, the government's proposals represent a tectonic shift in Hefce's responsibilities, from simply overseeing the distribution of block grant funding to becoming a consumer regulator in the mould of watchdogs such as Ofwat and Ofgem, which regulate the water and energy markets respectively.

"That seems to be a very striking change from what we've been used to. I don't think (Hefce) has ever seen itself as a consumer protection body," says Shattock.

"It is going to be a very schizophrenic body because on the one hand it has to manage research funding and assessment, but on the other hand it must see itself as a body that is there to protect the rights of students."

In the past, Hefce has distributed block grants, with institutions free to spend the money as they choose; however, in future the funding council will distribute far smaller sums for teaching that are "earmarked" for particular activities.

Sir Peter Scott, professor of higher education at the Institute of Education, University of London, and the new chair of the University of Gloucestershire's governing council, thinks this could imply more monitoring by Hefce to ensure money is spent in the correct "earmarked" area and is achieving results.

One example could be funding for "vulnerable" subjects such as science, technology, engineering and mathematics. Scott says there might be "pressure on Hefce from (the government or Parliament) to be able to demonstrate that the money it hands out to support teaching in STEM subjects is actually used for that purpose".

Others warn that fundamental conflicts of interest could emerge. "I am not aware of any other regulatory body in the UK that has both funding and regulatory powers," Kirkham says. He believes Hefce could face tricky questions if public money that it both spends and regulates is found to have been misused.

"They are putting themselves in a very difficult position because they have both approved the funding and then they're responsible for the regulation of that funding. There has to be an acceptance that there is obviously a conflict of interest," he says.

Kirkham recently put this point to Hefce's chief executive, Sir Alan Langlands, directly, at the body's annual meeting held in November. He claims he received a "defensive" reply. At the event, Langlands talked about the importance of separating Hefce's regulation and funding functions within the same organisation.

"While it would be interesting to see how they're going to deal with that through having some kind of Chinese wall in the middle, it just seems they're setting themselves up for a problem, real or perceived," says Kirkham.

Roger King, visiting professor at the University of Bath's school of management and former vice-chancellor of the University of Lincoln, believes Langlands will tread carefully because he understands "better than anyone" the potential pitfalls of the situation because of his former role as head of the NHS in England.

In the health service, says King, there is a clear separation between the financial regulator Monitor, which oversees hospital trusts, and the body responsible for standards of treatment, the Care Quality Commission.

"In the NHS they have always been organisationally distinct, because it was thought you might otherwise take quality decisions informed too much by consideration of finance and economics," he says.

In higher education, quality and standards are overseen by a separate body - the QAA - that is legally independent of government and owned by the sector, although a majority of its funding comes from Hefce.

This relationship with the funding body - already criticised by some as being too close - is set to change as Hefce takes on more responsibility for guarding students' interests under the new system.

For King, the danger of this shift is that the QAA will, by proxy through Hefce, be another way for government to intrude on universities' autonomy. One extreme hypothetical example might be a QAA review being triggered because Hefce feels fees are not being set at a level commensurate with an institution's standards.

"There is real work to be done on the relationship between Hefce and the QAA so that economic and market considerations don't cloud quality matters," says King. "If we're not careful, you're going to get stronger governmental intrusion into both external quality assurance and eventually into institutional responsibilities for their own standards."

Geoffrey Alderman, professor of politics and contemporary history at the University of Buckingham, is aghast that the government's White Paper appears to prescribe how the QAA should be run in the future by adopting a "risk-based" approach to reviews.

"If the QAA is independent, then what the hell is the government doing telling it to use this approach or that approach for?" he says, adding that it "would be a disaster" if the QAA was effectively "sucked" into Hefce's control by the changes.

The fear is that Hefce's role as "lead regulator" for students will also bring the student complaints body, the Office of the Independent Adjudicator, into its - and thereby ministers' - sphere of influence.

Pam Tatlow, chief executive of the Million+ group of new universities, is clear in her message. "In terms of quality assurance, the QAA can't play second fiddle to Hefce. Nor should we have three bodies - Hefce, the QAA and the OIA - dealing with student complaints," she says, adding that at the most Hefce should be a "postbox" for issues that are then handed on to other bodies.

Essentially, the fear in the sector is that through its increasing remit, Hefce will become all-consuming.

And there is another potential conflict of interest. Hefce will continue to be the "principal" charity regulator for most universities, which means it has responsibility for ensuring that institutions comply with the law by contributing to the public benefit.

In its submission to the government's consultation on regulation, Million+ said this could easily conflict with Hefce's role in promoting competition in the sector.

There is also the question of how Hefce, a body covering England, will operate in a regulatory landscape that often covers the whole of the UK.

"Potentially, you've got an English regulatory and funding body being able to direct a UK body (the QAA). In time, you see the possibility of conflicts between the nations on these matters that will need resolving," King warns.

The biggest worry is that the system will collapse under the weight of its contradictions and complexities. King describes the arrangement as "essentially not stable".

He predicts that, in time, Hefce will be "rearranged - so that you've got on the one hand an economic and competition regulator, and on the other a sort of standards and quality regulator". But at the moment, there is "a recipe for confusion".

In the short term, he thinks the key is to ensure that the new higher education legislation makes Hefce sufficiently independent from ministers. The reforms could even be an opportunity to recalibrate Hefce's role as more of an "intermediary", rather than the creature of government some currently see it as.

According to Shattock, the system may work well while Langlands is in charge, thanks to his careful negotiation of the regulatory minefield and the high esteem in which he is held. However, this could change very suddenly with a shift in leadership.

The way Hefce is governed, he says, will also be crucial. The new funding system creates a strong argument for more student involvement on the board, Shattock thinks. Others argue that every type of higher education provider should be represented on the board and should determine how the body is run. If Hefce is to "hand out money and regulate private providers to come up to a certain standard as the White Paper suggests ... then the boards should presumably include someone from that sector", says Farrington.

Ultimately, if its governance fails to reflect this, or if Hefce is not sufficiently independent of ministers, new providers will not want to join the system or - more dramatically - universities could leave the system of public teaching funding altogether.

Shattock says the possibility has been, at the very least, mulled over by some academics at elite research-intensive institutions, including the University of Oxford.

The biggest disincentive to universities opting out - aside from the political outcry there would be from some quarters - is probably the fear that the large amount of research funding many universities receive from the government could be threatened by such a move.

But what if Hefce decides to have separate agreements with universities over research and teaching funding? "One could imagine that happening," says Farrington.

A university that left the system would have to find its own way to help students borrow money to pay fees - for example, by coming to an arrangement with a bank.

So there would be barriers to overcome but at the same time the prize would be enticing: it would mean freedom from much of the political tinkering that has dogged the sector for years.

Justice for all: equity advocates and problem solvers

Office for Fair Access

Budget: £630,000 (2011-12)

Funded by: Department for Business, Innovation and Skills

Status: Quango

Director: Sir Martin Harris

Number of permanent staff: 6

Established: 2004

Offa was set up under the previous Labour government to accompany its introduction of "top-up" tuition fees and aimed to deal with fears that the increases might stop students from poorer backgrounds from applying to universities.

Like Hefce, it is ultimately accountable to the Department for Business, Innovation and Skills but operates at arm's length from ministers and within the framework of the Higher Education Act 2004, which determines its powers.

Ministers have found - especially in the context of the 2010 decision to triple the fee cap to £9,000 - that these powers are limited and do not include being able to force a university to lower its charges.

The issue was highlighted earlier this year when Offa's director, Sir Martin Harris, revealed that the Treasury had assumed that Offa would have the legal power to impose certain fees on universities under the new funding regime.

It is a debate that could re-emerge: the government has the opportunity to redefine Offa's powers in the forthcoming higher education Bill.

Harris steps down as director at the end of April, and the government has said it will ask the new head of Offa to advise it on the organisation's powers.

But Bahram Bekhradnia, director of the Higher Education Policy Institute, says ministers' use of "core and margin" plans to drive down fees means any changes to Offa's powers are now more likely to focus on access issues.

The higher education White Paper, published in June, promised to "strengthen" Offa, quadrupling its capacity in order to allow it to take on a role of "more active and energetic challenge".

In Bekhradnia's view, more burdensome powers for Offa are unlikely as the government is already "embarrassed" about the amount of additional regulation it is bringing into the sector.

Office of the Independent Adjudicator

Budget: £2.3 million (2011)

Funded by: Subscriptions from HE providers

Status: Independent charity

Chief executive: Rob Behrens

Number of permanent staff: 43

Established: 2005

Like the Office for Fair Access, the OIA is another body that derives its powers from the 2004 Act as Labour attempted to make sure the interests of students were protected.

However, unlike Offa - which is a government quango - the OIA is an independent organisation with its members including the National Union of Students and a majority of its board appointed through open competition. It is almost entirely funded by subscriptions from universities, which must take part in the scheme.

The OIA has had to deal with an increasing number of complaints from students, with the annual total shooting up by a third in 2010 to reach 1,341, which is putting pressure on its resources and raising questions about its remit.

Its relationship with the courts has also come under scrutiny, although it recently won a landmark case in the Court of Appeal to ensure that it should not be seen as a judicial body.

How the OIA operates in the future will depend on its funding, given that student complaints are forecast to rise and the fact that private providers will have to join the scheme. It is hoping to move towards a system where subscriptions are at least partly based on the volume of complaints received.

Questions have been raised, too, about how it will retain a clearly defined regulatory role given that Hefce will also have a specific remit to act on students' behalf.

Chief executive Rob Behrens says he looks forward to the OIA playing a full part in the new framework as an "entirely independent body", but he did raise worries about the speed of change.

"We remain concerned that there will be insufficient time to ensure a smooth transfer to the new arrangements, not least because of the additional capacity demands that will be placed on the OIA as a result of private suppliers (rightly) being required to join the scheme," he told Times Higher Education.

Wallets and watchdogs: standard-bearers, expertise-sharers and keepers of the cash

Quality Assurance Agency for Higher Education

Budget: £12.3 million (2010-11)

Funded by: Contracts with funding bodies and subscriptions from institutions

Status: Independent charity

Chief executive: Anthony McClaran

Number of permanent staff: 128

Established: 1997

A decision to set up the QAA, which superseded the Higher Education Quality Council, was taken in 1996 in an attempt to streamline the functions of assessment of teaching quality and institutional audits under one agency.

The move was designed to end a perceived duplication of effort between the HEQC - which took care of audits - and funding bodies such as Hefce - which were responsible for assessment.

In an effort to ensure that the sector was self-regulated, the QAA was set up as an independent organisation "owned" by the sector's representative bodies, such as Universities UK, and partly funded by subscriptions from institutions.

However, the majority of its income comes from contracts with government agencies such as Hefce rather than subscriptions. In 2009-10, £7.7 million of the QAA's funding was from such contracts, compared with £4.1 million from subscriptions.

Contentious issues faced by the QAA have included whether it is free from government influence, whether or not it has enough power to deal with poor quality, and the level of "red tape" it creates for universities.

Its former head, Peter Williams, has spoken of the "widespread" unpopularity of quality assurance. In 2009, he said that, for some in higher education, the body fulfilled "a useful, therapeutic role as a hate symbol".

One of the biggest rows erupted three years ago when a committee of MPs said the agency was toothless and should either be abolished or transformed, given its failure to judge standards between institutions.

The QAA has responded by trying to make its work more accessible to the general public, by revising its audit process, and by putting more emphasis on whether or not universities meet "threshold standards".

Higher Education Academy

Budget: £22.4 million (2011-12)

Funded by: Mainly grants from funding bodies such as Hefce

Status: Independent charity

Chief executive: Craig Mahoney

Number of permanent staff: 121

Established: 2003

Unlike other bodies in the sector, such as the Quality Assurance Agency, the HEA exists to "enhance" the quality of teaching and learning rather than regulate universities' activity. However, like the QAA, it is an independent organisation "owned" by sector bodies (in the HEA's case Universities UK and GuildHE) but receiving funding from quasi-government sources such as Hefce.

It was formed following a review in 2002-03 that recommended a single agency to combine the work of entities such as the Institute for Learning and Teaching and Hefce's Learning and Teaching Support Network. Ever since, it has faced questions about its relevance, effectiveness and whether it provides value for money.

A report by Oakleigh Consulting in 2008 found the HEA lacked "credibility" with many vice-chancellors and had yet to prove its worth. There were also questions about the basis and purpose of its York headquarters.

Later that year, a huge row broke out when a senior manager was suspended for calling the National Student Survey a "hopelessly inadequate improvement tool".

The views of the chief executive, Paul Ramsden, were laid bare in a leaked document published in March 2010, after he had left the body, in which he said that the HEA was seen by critics as "conservative, self-serving and inward-looking".

It is now struggling to maintain its relevance against a backdrop of cuts in funding, the closure of its network of subject centres and the apparent rejection by the sector of plans to make training qualifications mandatory for lecturers.

Chris Rust, associate dean (academic policy) at Oxford Brookes University, says that like all the other bodies, the HEA will be jockeying for position and trying to prove its worth.

Higher Education Funding Council for England

Budget: £23.7 million (operating budget 2011-12)

Funded by: Department for Business, Innovation and Skills

Status: Quango

Chief executive: Sir Alan Langlands

Number of permanent staff: 250

Established: 1992

Hefce was set up in the wake of the legislation that abolished the binary line between universities and polytechnics in 1992 and created separate funding bodies for England, Wales and Scotland.

It has been at the sharp end of many of the developments in the sector ever since and faced constant scrutiny over its role as an intermediary between the government and individual universities.

Every year it announces the grants that universities will receive for teaching and research based on the money ministers have earmarked for higher education.

This core function now faces major change as the government cuts the money it directly allocates towards teaching by 80 per cent, with universities instead reaping income through raised tuition fees of up to £9,000.

One of its biggest tests in recent years came when it clawed back £36.5 million in overpaid grant money from London Metropolitan University after inaccuracies in student completion data emerged. The controversy, which prompted a stand-off between Hefce and London Met over the running of the institution, put into sharp focus issues of how much power the funding body actually had when faced with such a crisis.

In the wake of the stand-off - which eventually led to London Met's vice-chancellor Brian Roper and governors stepping down - Hefce proposed changes to its main funding agreement with universities in an attempt to make governing bodies more accountable. Hefce now faces the formidable task of maintaining the sector's trust as the government seeks to beef up its powers.

Sir Alan Langlands, Hefce's chief executive, is well aware of the Herculean nature of the challenge. "Getting the balance right is not an optional extra, it is a prerequisite," he told a Universities UK conference in November.

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