A glimpse into the future of HE regulation?

Jo Johnson’s speech to UUK’s Annual Conference elicited much comment yesterday, but what got my phone buzzing yesterday afternoon were his proposals to “tackle” VC’s pay.

For those who missed it, here’s what he proposed to ask the Office for Students to do (taken from the speech as reproduced on the DfE website):

• Introduce a new ongoing condition of registration requiring the governing bodies of [Approved and Approved (fee cap)] providers to publish the number of staff paid more than £100,000 per year and to provide a clear justification of the salaries of those paid more than £150,000 per annum.

• Use its powers, which include monetary penalties, to take action if providers fail to meet these requirements.

• …..

• …..

• Use its power to investigate further the governance of an institution through assessments of management effectiveness, economy and efficiency where there are substantiated concerns.

The questions I was asked were: (i) can he do this? (ii) can the OfS do this?

What does the Act say?

The Higher Education and Research Act gives the OfS the power to impose registration conditions and the duty to publish a regulatory framework effectively setting out how it intends to police compliance with those conditions. In discharging these functions it must have regard to a range of matters including: institutional autonomy, competition, value for money and equality of opportunity. It must also have regard to any guidance from the Secretary of State, which must itself have regard to the need to protect institutional autonomy.

The OfS’s regulatory activities must be conducted in accordance with the principles of best regulatory practice, such as transparency, accountability, proportionality and consistency, and must be targeted where action is needed. Any conditions must reflect “regulatory risk”, defined as the risk of the institution failing to comply with OfS regulation.

Institutional autonomy

Institutional autonomy is now defined and, so far as is relevant for present purposes, means the freedom to conduct the day-to-day management of universities in an effective way and to determine the criteria for the selection, appointment and dismissal of academic staff and apply those in particular cases.

Institutional autonomy is, however, just one of a range of factors to which the OfS can and should have regard.

The proposed registration condition

It appears that the proposed registration condition is intended to apply to all registered providers who are designated for student support, irrespective of whether they charge the basic amount of fees or the higher amount. So straightaway there is a question of whether a blanket condition satisfies the requirements of proportionality and targeted action.

Secondly, to which of the things to which the OfS is supposed to have regard in framing conditions does this particular condition relate? Value for money is the obvious one, but is there really any correlation between a VC’s pay and the VFM of the education his or her institution provides? The pat answer appears to be that money spent on pay reduces the amount that can be spent on student resources and therefore must be indicative of poor VFM, but frankly virtually every university has other sources of income sufficiently large to cover these salaries.

When it comes to research staff who might be paid more than £150k per year, many will bring in grants and contract income vastly in excess of this, so in what way can they be said to be providing poor VFM in that role? What about private providers funded in their earlier years by venture capital – are they to be chastised for paying more than £150k per annum to a chief executive who delivers them high returns? Does that represent poor VFM?

On the other hand, the imposition of the condition clearly does encroach on institutional autonomy, either as a matter of day-to-day management or as part of the criteria for the appointment of academic staff (salary being a part of such criteria).

Formulating the condition

Of course, the condition is not that pay cannot exceed £150k but that there must be “clear justification” for pay above that level. However, the OfS as part of the regulatory framework is required to publish guidance about what behaviour will or won’t be regarded as compliant with registration conditions. Are we therefore to see guidance setting out what will or won’t be considered “clear justification” for high pay? If so, then that could evolve into a de facto salary cap, as institutions struggle to demonstrate justification in the way set out in the guidance.

Some may take comfort in the fact that the OfS is required to consult the sector on the regulatory framework and the registration conditions. It will be obliged to take into account responses to the consultation, but, as we have seen in countless other cases, that does not mean it has to change course based on those responses. Legal challenges based on failure to attach due weight to the responses to consultation are notoriously difficult to mount.

There is no right of appeal in the Act against the imposition of a condition, so any challenge would have to be by way of judicial review.

Penalties for breach

The Minister’s speech referred to the OfS’s power to fine for non-compliance. The OfS of course has other sanctions it can impose too, including deregistration. Penalties and sanctions can be appealed to the First Tier Tribunal on a range of grounds including that the decision was unreasonable. We may therefore find that an administrative tribunal finds itself sooner rather than later grappling with such esoteric and abstruse concepts such as institutional autonomy and the meaning of value for money in higher education.

Investigating the governance of institutions through assessments of management effectiveness, economy and efficiency

This is a slightly strangely worded proposal. The OfS clearly has the power to investigate breaches of conditions, but the formulation “effectiveness, economy and efficiency” appear in a different section of the Act and build on a provision in the Further and Higher Education Act 1992 which permitted HEFCE to commission efficiency studies at institutions. The latest iteration of the provision states that the OfS may arrange for studies designed to improve economy, efficiency and effectiveness in the management or operations of a provider. Quite how this would be relevant in the context of setting senior pay is not at all clear to me. Might the outcome of these studies be translated into specific registration conditions for the provider in question?


It remains to be seen if the OfS adopts the Minister’s proposals. There is clearly a legal route for it to do so, but one which is fraught with some difficulties. More important than the specifics of the proposal, though, are two wider points: first that the sector needs to brace itself for the possibility of fairly intrusive regulation if these early signs are anything to go by; and second, that it needs wherever possible to pre-empt the possibility of regulation by ensuring sector good practice around remuneration committees is rigorously, transparently and consistently followed.

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