UK universities regulator plans to brace for imminent insolvency

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The university regulator has announced it has signed a contract worth up to $4 million with a professional services firm to help manage a potential wave of defaults as the sector faces an impending funding crisis.

The Office for Students (OfS) announced the bid after Education Secretary Bridget Phillipson last week made it clear the government would not bail out universities despite warnings from university chancellors that many were already on the brink of insolvency.

The tender document, seen by the Financial Times, estimated the total contract value at $2 million to $4 million, based on 10 audits over four years, to be used to restructure the failing university and manage its potential market withdrawal.

A consultant will be appointed by October to assess whether universities at significant risk of market exit can be saved through a transformation plan. To do this, the consultant will be required to open up their accounting books for forensic analysis and disclose details of their decision-making records, processes and past performance.

Nick Hillman, director of the Higher Education Policy Institute think tank, said external advice was probably necessary, even if it ran counter to the government's plans to cut spending on consultants.

He added that there was an existential risk for some suppliers and that regulators should keep a close eye on them.

Already 67 higher education institutions have implemented layoff and restructuring programs, a number that is expected to rise as the sector faces further pressure from falling international student demand and high debt service costs.

Mr Philipson said the government would not intervene to stem the tide of insolvency and refused to commit to raising tuition fees for domestic students, which have been frozen for more than a decade – despite pressure from industry lobby group Universities UK.

An independent report published last month recommended that the government revisit its policy of non-intervention on market withdrawal to determine whether it is still the most appropriate given the current difficulties.

The report, led by OfS's new interim chair Sir David Behan, also recommended the regulator develop an infrastructure to advise and support suppliers in financial difficulty and prevent disorderly market exits.

The Ministry of Finance and Environment has accepted Behan's key recommendations and announced that the regulator's role will be refocused to prioritize financial stability in the financial sector.

OfS said the purpose of the contract was to seek additional resources and expertise to support financial monitoring, adding that financial sustainability in the sector remained a priority for the organisation.

The Department of Education has stated that it is committed to creating a secure future for world-class universities. The Department has refocused the role of the Office of Student Affairs to focus on key areas including monitoring financial sustainability.

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