Government resists calls for university insolvency regime

Ministers have rejected calls for an insolvency regime to support universities at risk of financial collapse.

The response follows a House of Commons Education Committee report on higher education funding, published on 12 May.

It also comes as Baroness Jacqui Smith, the Higher Education Minister under Keir Starmer, has been confirmed to remain in her role under the new Prime Minister Andy Burnham’s government.

The committee had called for a regime allowing an “orderly exit” for institutions that become insolvent, through legislation enabling universities to continue operating despite insolvency.

Such a regime, the committee recommended, should “include ensuring teach-out processes for current students, protecting the sufficiency of sector-critical courses and allowing for mitigations to avoid geographical cold-spots”.

It argued the need for this regime comes as there is “no clearly understood protocol for how the government might respond to a situation of a provider at risk of imminent insolvency.”

The government should be ready to step in when the lights are turning amber, not when they are already flashing red

Helen Hayes, Labour MP for Dulwich and West Norwood

The committee also recommended an “early warning protocol” that would take effect if a university is nearing insolvency. Labour MP Helen Hayes has called for government intervention “when the lights are turning amber, not when they are already flashing red”.

The Office for Students has said that 24 universities are at risk of leaving the market within the next 12 months. Hayes has said a major university becoming insolvent is a “real possibility, not a theoretical warning”.

In its response, published on 22 July, the government has declined to introduce an insolvency regime, saying it will only intervene “where this is necessary to protect students and taxpayers”.

The government has said it wants to build “a resilient and sustainable sector”, while acknowledging that some universities may still exit the sector even under such circumstances.

Legislating…would be highly complex, could have unintended consequences…and could not be delivered quickly

UK Government

“Legislating to introduce a new insolvency framework…would be highly complex, could have unintended consequences (including impacts on investment and potential implications for other sectors) and could not be delivered quickly,” the government has said.

It added that it remains unconvinced the case for a bespoke special administration regime for higher education has been sufficiently demonstrated.

Ministers have echoed Baroness Smith’s view that at-risk institutions could “teach out” current students in exceptional circumstances, though the government noted the Office for Students is examining other ways to intervene earlier within its existing regulatory powers.