Government bailouts a ‘moral hazard’ for universities, says Peck

Universities should be able to sort out their financial issues on their own and avoid the “moral hazard” of having to be bailed out by the government, according to the prospective new chair of the English regulator.

Addressing MPs as part of his selection process to become the new permanent chair of the Office for Students (OfS), Edward Peck said the financial autonomy of institutions should be taken seriously both in good as well as more challenging times, warning that government intervention would take providers too far into the public sector.

The outgoing vice-chancellor of Nottingham Trent University said he would use the role to encourage more collaboration between universities, while attempting to relieve some of the regulatory burden on institutions and deprioritise areas of the OfS’ work.

But, if confirmed in post, Peck’s four-year term will inevitably be dominated by the issue of university finances after the regulator predicted last year that three-quarters of institutions were heading for deficits without evasive action.

With some institutions currently being supported by OfS-appointed consultants owing to the precarity of their finances, Peck told the House of Commons Education Committee hearing that he would seek an urgent briefing to understand if these pressures were “particularly acute because they haven’t yet got through all the cost reduction measures that would enable them to balance income with expenditure”.

A lot of institutions are “still on that journey”, Peck said, and will get to a point where they are able to find a balance. If there are institutions where the market has changed so much that further intervention is required, it would be a government decision over whether to support “reconfiguration”, he said.

“If an institution genuinely has a non-viable position and is not prepared to take that kind of action, I’m not sure the government should step in with what’s been called a bailout,” he said.

“There’s an issue about that in terms of moral hazard, it seems to me. There may be questions about…universities and colleges and other providers becoming public sector organisations, which I think we want to avoid. And practically, where is the cash coming from?”

Peck, who revealed he had briefly been a member of the Labour Party, is seen as a more sector-friendly appointment than the previous permanent chair, James Wharton, who was a Conservative peer with no higher education background. 

But he said he would always “put the interests of students above institutions when it is the right thing to do”, citing his opposition to foundation degrees that have been criticised by some for being used as “cash cows” by institutions without much benefit for students.

Peck said he was one of the first vice-chancellors to advocate for a regulator and had supported the OfS since its inception but that it had at times “misunderstood independence as meaning distance”.

Addressing concerns about overburden, Peck said there was a need to look again at whether all interventions were risk-based, citing a recent OfS focus on transnational education activities as one area that could be seen as less of a priority “with everything else going on”.

Free speech however was “absolutely crucial”, he stressed, adding that institutions found not to be following codes of practice should expect “robust regulatory action”.

On collaboration, Peck said that he felt the OfS could offer “sensible guidance” to help institutions in close geographical proximity work out how to prevent cold spots in provision developing, adding that he felt the Competitions and Markets Authority – seen as a key potential barrier to such activity – would be open to a conversation that “protects choice”.

Other priorities for the regulator included working out how to regulate more modular provision as the new Lifelong Learning Entitlement comes on stream.

On widening access, Peck said he wanted to seek a better understanding of what happens to the hundreds of thousands of people who register with admissions service Ucas every year but do not go on to accept a place.

Peck, who has acted as the government’s Student Support Champion since 2022, said he was open to the idea of incorporating an emphasis on student mental health in initiatives such as the Teaching Excellence Framework, recognising that “student support is as important to many students as the academic input they receive”.

tom.williams@timeshighereducation.com