Office for students fees - why colleges pay 26% of the costs of the new regulator

18 Jul 2019

The Office for Students (OfS) will be charging fees in 2019 to the universities and colleges that it regulates. Surprisingly, the fees charged to colleges will cover more than 25% of the total despite the fact that fewer than 10% of HE students are in colleges. A number of colleges have queried their OfS subscription invoices. Here is a summary of the position:

The policy

It is fairly standard practice (a Treasury policy) for regulators to recover their costs from those they regulate. The government  secured legal powers to charge 2019-20 fees in the 2017 legislation and in a 2019 statutory instrument. Paying the fee is a condition of OfS registration.

The decision to introduce fees saves the government £26 million in 2019-20

The data

OfS recently published data (2017-8 student data FTEs) which they use to set subscription fees. Based on this data we have prepared this spreadsheet:

Which have used it to calculate that:

  • Colleges will pay £6.5 million in 2019-20. This is an average £39,900 bill for the 164 colleges and is a £74 charge per FTE student
  • Universities and higher education institutions will pay £16.8 million. This is an average £128,300 bill for the 131 institution but just £10 per FTE
  • Alternative providers will pay £2.6 million. This is an average £36,100 bill for the 71 college and a £66 charge per FTE student
     

Three reasons why colleges are paying so much more per student

The Department for Education consulted twice about its subscription method (in 2016 and 2017) but introduced a fairly late decision in 2019 relating to Level 4 and 5 students. Taking everything together there are three main reasons why colleges are paying more per student:

  • The subscription bandings used by OfS mean that institutions with larger student numbers pay less per FTE than smaller institution. There is an exemption for new providers ("challenger institutions") but not for colleges
  • Level 4 and 5 students (on non-prescribed courses regulated by ESFA and Ofsted) are included in the count
  • The policy to include students that OfS doesn't fund (including international students) makes no difference to universities because subscription bandings are very wide at the highest level

Overall fees are also higher than originally promised. The impact assessment published in 2017 predicted there would be 495 providers paying fees whereas there are currently less than 380 providers on the published register (with a few more waiting for decisions on their applications).

The financial impact (and why this matters)

The university sector in England has its financial challenges but the sector's surplus exceeds £1 billion a year in most years. OfS subscriptions of £100,000 to £150,000 are a major irritant for universities but they have multi-million pound operating cashflows . The position is more serious for colleges who have wafer thin margins and who have found out very late that they have bills of £40,000 or more. OfS was slow to add some colleges to the register so the size of the bill hasn't become apparent until late in their budget-setting process.

There is a risk that some colleges will decide - for financial reasons - that they should withdraw their OfS registration to avoid these fees. Individual colleges can do this by transferring all of their courses to a university partner. If this happens, then the college will both be vulnerable to changes in policy (for example from a new vice-chancellor) and might miss out on opportunities to expand higher technical courses for the benefit of their students, employers and communities.