Children, Young People, and Education Committee

Diolch yn fawr. Bore da. Simon Pirotte, chief executive of Medr.

Bore da. James Owen, the chief operating officer of Medr.

Thank you. So, thank you for providing the written briefing in advance. I'll now hand over to you both to start. Thank you.

Diolch yn fawr, Chair. Thank you so much for inviting us today. We're really pleased to be here. I'm going to kick off and then hand over to James. I know that we’re here today primarily to talk about the higher education sector, but I think from the get-go it’s important to recognise that Medr funds and regulates the entire tertiary education sector, including further education, work-based learning, apprenticeships, school sixth forms, adult and community learning, as well as higher education. We're now nine months into our operation—time flies. Since we were last here on 6 February in our annual scrutiny session, quite a lot has happened since then.

So, if I just touch on our strategic plan to start with, we published that on 12 March, which you will have seen. It outlines our vision for a united tertiary education and research sector in Wales that is more joined up, collaborative and inclusive, with clearer and more flexible pathways, where providers are encouraged to focus on their strengths and deliver the highest quality provision for learners.

We are proud of our plan. We think it’s ambitious, but we think it is also realistic as well. We had an ambitious set of strategic duties set for us by Welsh Government, and we’re confident in that plan that we have addressed those pretty well. In it, you’ll notice that we’ve got some founding commitments, which are more short term, and growth commitments for maybe the longer term. But I think it is fair to say that in that environment there are massive challenges that are facing the whole tertiary sector at the moment. But I do believe that Medr presents opportunities for collaboration, improved learner engagement and more coherent pathways.

In preparation for the strategic plan, we feel that we engaged widely with stakeholders. What we were trying to do there was, I think, to set the tone of the organisation and how we want to work with the sector. We certainly want to work with the tertiary sector in a way that's open and transparent and collaborative. That’s really important to us as an organisation. We are committed to becoming a trusted regulator. The response we had around the strategic plan was really constructive, and I think that it has been well received across the sector.

We’re now getting ready to publish our operational plan. That will be out in June, and it outlines the specific activities that we are going to focus on this year to make progress towards those strategic aims. Again, we’ve worked very closely with stakeholders in creating that plan. We’ve also just recently launched our consultation on the new regulatory system. James will talk a little bit more about that in a moment.

In all our work, I think it’s important to recognise that we want to place the learner at the heart of what we do. You’ll know from the work that you do in your constituencies the importance of education and training for people in our communities. You’ll have seen at first hand, I’m sure, the positive impacts that all parts of the tertiary sector can have on our people in Wales. But we know that it’s an incredibly challenging time for institutions across the tertiary sector. Every part of the tertiary sector, and I know we are going to focus on HE today, but HE, local authorities, schools, FE colleges, apprenticeship providers, adult community providers, they're all facing financial pressures. But there’s been a lot of interest, obviously, in the higher education sector and its financial sustainability, and I think it is fair to say not just here in Wales, but across the UK as well.

So, we’re pleased to be here today to provide an overview on the financial position of the HE sector and to talk about the challenges it’s facing, and Medr’s role in supporting the whole tertiary sector to meet the needs of learners in Wales. It’s a commercially sensitive market, as you know, so rather than talking about the positions of individual institutions, we’ll outline our assessment of the situation across the sector to make sure that we’re supporting our HE institutions in the best possible way. Despite all those challenges, we have a role to play in monitoring and ensuring that there are coherent pathways and, despite the challenges, high-quality provision for learners across the whole of the tertiary sector.

So, if I turn to that overall financial position of the sector, you will know—it's been well documented—that the higher education sector is operating in a very challenging financial context. Again, as I've said, this position is not unique to Wales—almost 100 institutions across the UK have announced restructuring measures. So, these are challenging times. But it's also essential that institutions secure their financial sustainability and continue to provide those best experiences for learners. And I think it's fair to say that this requires some difficult decisions, including looking at prioritisation and efficiency measures as well.

Nobody wants to see job losses, and I can say that as a former head of an FE college. I know how hard those decisions are and understand the tension between ensuring an institution's financial sustainability but also considering the human impact of some of those difficult decisions. I've experienced first-hand, in my former roles, the pressures of increasing costs that are not met by an increase in income. You have to identify additional sources of income, and, if that isn't possible, you have to consider scaling back or stopping certain activities. And this is the situation facing most HE institutions in Wales and indeed across the UK.

So, our role in all of that is to look at protecting the needs of the learner, to ensure that the tertiary education system serves the needs of Wales now, but also into the future. And we do that through closely monitoring the situations at individual institutions, understanding how those risks are materialising across the sector, and working closely with Welsh Government to ensure that they fully understand the situation as well. We have good working relationships with vice-chancellors, with chief operating officers and finance directors, and we engage with them regularly and with their governing bodies as well.

Institutions are reporting that they're engaging regularly with trade unions to ensure that the rationale for difficult decisions is openly shared, and we meet with national trade union reps as well, and they report that there's constructive dialogue going on in many institutions. But I think it's fair to say that some individual branches could be in dispute, particularly if an organisation is considering compulsory redundancies. We have a duty to promote collaboration between trade unions and providers, and we will continue to do so in our conversations.

So, talking about the financial position of the sector, how do we do that? We use externally audited financial statements to inform our assessments, and we do not believe that any institution in Wales is at risk of failure in the immediate short term. We're working closely with institutions to understand their medium- and long-term forecasts and plans. I think it's also important to say that planning for the future is extremely difficult at the moment—it is a volatile and changing environment. However, we're able to work closely with each institution on their individual circumstances, their strategies and their forecast plans, and this helps us build our understanding of the financial risks across the sector, which we use to inform our discussions with Government.

Last week, we published a statistical report on the finances of HE institutions, which highlighted the underlying operating deficit of our institutions to the tune, in 2023-24, of a deficit of £61 million, in comparison to a £21 million surplus in 2022-23. And this deficit of £61 million does not account for the one-off restructuring costs. If you add that in, you're probably talking about £77 million as a deficit. And, again, that position is not unique to Wales. The recent Office for Students report indicated that the financial performance of English providers had worsened in 2023-24, driven by, broadly, flat student recruitment and increasing costs.

Between 2018 and 2024, most institutions increased their levels of staffing, so there's a need to look at that bigger picture and think about what's sustainable going forward. So, on staffing costs, what we're seeing there is that over half of the HE sector's expenditure is associated with staff costs. If we take a 2.5 per cent annual pay settlement for HE, that's estimated to cost about £22 million a year. The increase in the employer national insurance contributions, that's another estimated cost of £20 million. Employer contributions for teachers' pension schemes, which particularly affect four of our institutions in Wales, are estimated to cost £6 million a year.

In non-pay costs, we've all seen the rising energy costs, haven't we, that have affected us all, including providers. Some are thinking about their future plans around capital projects, are nervous about some of the capital projects, and what that means is that there may be an increase in unplanned maintenance costs in institutions. Those projects that are in train are subject to inflationary costs. We've seen those costs increase in terms of new projects. We've seen increased cyber-security risks and a need for digital transformation in some of our institutions as well, and also our institutions are committed to net-zero plans, but again there is a tension there in terms of the costs of some of those plans as well.

Both staffing costs and estates costs are really important for the learner experience as well, and also might affect future recruitment. This is a highly commercially sensitive market, isn't it? And neither of those, neither staffing costs nor estates costs, can be reduced quickly, which makes the sector maybe a little less agile to respond to some of those income shortfalls.

The story around tuition fees has been highlighted recently. The fee was fixed at £9,000 from 2012 to 2024. In the last couple of years, we've seen that increase to £9,535 per year, and we estimate that will generate an additional income of around £36 million when it's fully implemented. But this will not cover the costs of the increases in pay, employers' national insurance contributions and teachers' pension scheme contributions.

Another area that's been pretty well documented, but I'll go over it, is the situation regarding international students. There's been, I suppose, a real-terms erosion of the value of the tuition fees, and this has led to a greater reliance on the international market as international fees are uncapped. So, that growth in international tuition fees was positive for the short-term finances of the sector, as well as playing an important role in Wales's global reputation, and I think it's important to recognise as well the rich cultural diversity that our campuses and classrooms, our laboratories and workshops, would have as a result of international recruitment. But over the last couple of years, the sector has seen a downturn in international students, and this has caused significant problems to financial stability.

For international, the trend has been moving as well towards one-year postgraduate study, which again makes it more volatile, I suppose, in a way, that you're relying on one year that changes on-year, as opposed to three-year provision where you can plan. So, that makes it a real challenge for strategic planning. And the recent UK Government White Paper on immigration has led to some concern amongst providers about maybe a further disruption to international recruitment.

As a result of some of that downturn in international, what we've seen is that institutions across the UK that have maybe been previously higher tariff universities, those with higher entry requirements, they've increased their admissions of home students, which has meant there's been more competition and uncertainty, particularly for those institutions that are lower tariff, so that's been a big change.

It's important to recognise the important work that the higher education sector is doing in research and innovation. That's been a fantastic part of the fabric of Wales in terms of the economic, social and cultural value that it brings to Wales, creating new products and services, supporting cohesive communities as well as other Welsh Government priorities. It also ensures that HE students studying in our universities are informed by the knowledge at the cutting edge of what's happening out there in the world at the moment.

The research excellence framework, the mechanism for assessing the research quality in the UK, has recognised 89 per cent of Welsh research as internationally excellent or world-leading in its impact, and we want, as part of our plan, to see that research base in Wales grow. Our strategic plan talks about growing and how to support universities to grow the share of funding from public and private sources nationally and internationally.

I think it's fair to say that research is not fully funded. Universities across the UK typically recover around 69 per cent of the costs of research, so the remaining 31 per cent needs to be found internally, and those costs have largely, in the past, been covered by international student fees, so reducing income from that source puts pressure on research. Medr's core institutional funding for research can also be used to meet the gap, but there are many other calls on that funding as well, to support early stage research that is not ready yet for external funding, to support the training and development of researchers, and to support systems that underpin the research ethics and integrity. So, some difficult choices there for our institutions.

Institutions are also reporting that the loss of access to European Union structural funds has had a particular impact on research and innovation in Wales. It has supported £370 million-worth of activity since 2014. What they're reporting is that the replacement sources have not been at the same scale or within the same scope for an R&I-focused activity or long-term investment. So, universities have had to pivot to a stronger focus on other sources of funding, such as that provided by UK Research and Innovation, and we've seen some successes here in Wales, which we've seen in the Strength in Places initiative, for example. We've seen compound semiconductors, for example, in south Wales, and the Media Cymru project as well—good, collaborative projects—so there has been some success there, but these projects take time and effort. Using Medr's funding methodology to maintain continuity, our core budget for HE research and innovation is £97 million.

The other thing that is obviously of concern is when a university or any institution is looking at cuts to subject provision. Part of the cost-saving measures that universities are looking at and implementing is looking at changes to provision. Universities are autonomous organisations, their subject provision is driven by markets, by demand, what students want to study, although universities also shape their offer in response to employer and economic need.

We're very mindful of the role that universities play in the economic and cultural fabric of Wales, developing graduates not just for business and industry, but for the public sector: our doctors, our nurses, our teachers, our social workers as well. We've been working constructively with any university to understand the wider impact of any proposals to reduce or remove provision within subject areas, and we advise Welsh Government on the potential impact of any proposals. But Medr has limited scope to intervene on subject provision. This is set out in section 86 of the Tertiary Education and Research (Wales) Act 2022, which explicitly states that Medr must not use its funding powers to prohibit or require a particular course of study in higher education.

In terms of looking at the curriculum across Wales, earlier in the year, the Minister for Further and Higher Education commissioned us to map the demand, the provision and the distribution of subjects in higher education in Wales. We're working to identify where there may be some areas that are vulnerable, where volumes of provision or trends in demand suggest that provision could be lost, as well as taking into account the implications for research capacity.

These also include implications for Welsh language provision as well, which we're committed to supporting through our conditions of registration and our commitment to develop a national plan for Welsh language across the tertiary sector, and we'll be consulting on that later this year. We also work very closely and have a very strong and constructive relationship working with the Coleg Cymraeg Cenedlaethol, as the designated body to advise Medr on the Tertiary Education and Research (Wales) Act, and encouraging greater use of Welsh language in the tertiary sector.

So, in conclusion, in terms of Medr's role, as you can see from that, it's a complex picture across Wales, and we don't believe it will be improved by any one single intervention. There's no magic silver bullet here. But we've been working to strengthen our engagement with individual providers to ensure that they are informed about any risks and the plans in place to mitigate and ensure that learners' interests are protected. So, we provide that support and challenge based on the providers' individual situations, and we keep Welsh Government informed through our regular engagement with officials and with Ministers.

Medr, with its oversight of the entire tertiary sector now, I think, has a unique opportunity moving forward to bring people together and think about how we might do things differently in the future. For example, one of the things is we've had a constructive engagement with the Competition and Markets Authority, and we're meeting them again in early June. They're talking to stakeholders across the four nations, thinking about where the competition law concerns are, because we want to see universities and other parts of the tertiary sector collaborating, working together to think about their plans for the future. So, the CMA have said that they are looking at that, and we’re optimistic about some movement there.

We’ve also seen some fantastic examples of collaboration across Wales; I’ll just mention one because of time. I visited recently Wrexham University and Coleg Cambria, and, again, some really interesting conversations happening there, in the north-east of Wales, with two institutions with slightly different remits, but in the post-16 sector, coming together and thinking about how they can have greater impact collectively for the people in the communities that they serve. I’ll pause there and come up for air. Before I hand over to James, I think that might be a good point, Chair, to pause for any questions.

Natasha, please.

Thanks, Chair. Good morning, gentlemen. Thank you so much for your verbal briefing, I really do appreciate it. I appreciate Medr’s position in the context of what your role actually is, obviously with regard to regulation, with regard to financial sustainability—I appreciate all that. I read your briefing and in it, it states,

'we will assist where we can, using our funding powers, highlighting risks and concerns to Welsh Ministers.'

So, I’d actually like to know what your funding powers are exactly, specifically. I know that you mentioned that you cannot intervene, particularly, when it comes to the HE sector and when it comes to the difficulties that they’re going through at the moment. So, for my benefit—and I’m sure the committee would appreciate it—what, specifically, are your funding powers?

You also said that you can highlight risks and concerns to Welsh Ministers, and I don’t mean to sound coy early in the morning to anyone, but how much power does your say so have to Welsh Ministers, when it comes to actually getting things done? Because we all know that the HE sector is in trouble. So, when it comes to it—. If Cefin says to me, 'Natasha, I don’t like this', there’ll be a certain level of, 'Yes, I’ll take that on board', but how much actually results from you saying, 'This is what we need to do, this is what you need to do to bail a university out', or, 'This is what you need to do to be able to deal with the situation in front of us'?

I think James wants to come in there. We’ll touch a little bit more about that on the new regulatory powers in a moment, but do you want to come in now, James?

Yes. Shall I just talk about funding powers? I mean, they’re broad, our funding powers, as set out in the legislation. I think two examples particularly relevant to higher education are to fund high-cost provision. So, we already, in Wales, fund a variety of subject areas where the cost of that provision—for example, in science, technology, engineering and maths subjects, medicine and a number of others—exceeds the cost of running the course, so we provide specific funding for institutions to support that provision. More broadly, when thinking about provision across Wales, whilst we can’t direct an individual institution to undertake certain learning or teaching or training, what we can do is that we have a responsibility to seek to secure that provision. So, our funding powers would enable us, for example, if we had a vulnerable subject area, to identify what that vulnerable subject area is, perhaps in a geographical area of Wales, and then seek to incentivise a provider to deliver that for us, again using those funding powers. So, the funding powers are quite broad in that respect, in that we can use them to incentivise provision, and of course, we’re already doing that to support institutions with some of the high-cost subjects.

Okay. Great. And in relation to my second question, which was: how much will the Minister actually take on what you say in relation to suggestions, as in the future of the HE sector? When it comes to the feedback that you give, when it comes to the experience that you hold as an organisation—. I mean, we hear your name being mentioned a lot in the Chamber; Medr seems to be the answer to everyone's prayers. But I actually want to know, when it comes down to the nitty-gritties—and quite frankly, we know that education is a very nitty-gritty area—as you said in your contribution earlier, there is no size that's going to solve everyone's problem, or there's no solution that's going to fix the problem in one go. So, I just wanted to ask you, in relation to the feedback you're going to give Ministers, how much of it is going to be taken on board and actually acted upon?

I think it’s certainly listened to. We have good, constructive dialogue. We have an annual budget that’s just under £1 billion. One of the commitments that we made in the move from previous arrangements to Medr’s arrangements was to try and ensure as smooth a transition as we possibly could, given the volatility of the external environment at the moment. We've committed to reviewing the funding methodology going forward. Are we making the best use of that nearly £1 billion budget per year? That's a question that we need to answer and to look at, and, again, we will be consulting and working with stakeholders about that.

So, there's that bit. And the other bit that I'd say that probably I underestimated when I took this role on is our role as a convener and a facilitator and bringing people together. There are legislative powers that we have, but also, I think we have a role to play in how we convene and bring people together. Because one thing that I've learned in the nearly two years that I've been doing this role, and coming towards the end of my tenure, is that, when I talk to stakeholders and people working for those stakeholders, everybody's trying their best, everybody wants to make the best happen for our learners in this country. But I think the question is about what kind of system we want moving forward. We have, maybe, some powers there, but not exclusive powers, but also there are other things that maybe we need to look at, moving forward, in terms of how we might do things differently to join up the sector to make the best use of the money that we're using at the moment. We do have nugatory competition. We do have providers that maybe are doing lots of things and maybe there's a question there about focusing on strengths. There are questions about how, if we work together, we could optimise the system a little bit more. So, they are things that we can do within the current budget. We'd all love to see more money, but everybody would say they'd love to see more money coming into different aspects of public services as well.

Two specific examples, maybe, in our nine months of operation that we've been working closely with Welsh Ministers and their officials on—one would be around increased participation. So, we saw last September an increase in participation in further education and worked very closely with officials to articulate the pressures that were being put on our colleges in Wales. I'm really pleased with the in-year extra funding that was made available by Welsh Ministers to support that increased participation in FE. And similarly, Simon talked about some of the capital pressures—the estates pressures that institutions, higher education institutions in Wales, are facing now—and, again, I think partly informed by our briefing, obviously, the Minister decided to allocate £18.5 million in capital to higher education institutions in Wales at the end of last year, which helps them, certainly with those kinds of capital pressures that we've articulated.

Thank you. Cefin first, please.

Yes, again, thank you very much for your presentation this morning and the paper as well, which is really useful in understanding the current state of play in HE in particular. I just wanted to ask a very broad question about how you see the HE sector at the moment. We know that they're facing financial difficulties, but in terms of what their purpose is, because this is a good time for them to reset and rethink their contribution, for example, to the Welsh economy—. Now, you touched upon, in passing, that they're autonomous, they're run like businesses, their students, you could argue, are commodities, they're market driven and so on, but to what extent do you think they have applied themselves to respond to future jobs Wales, for example, and their contribution to driving the Welsh economy forward? Are they in the best position now to do that, or can they be?

I think they already do some of that—well, I want to say, quite a lot of that—in terms of responding to the needs of the Welsh economy. Obviously, at the moment, there's a lot of focus on the external challenges around financial stability, which is taking up a lot of their time and energy. But I think, probably, providers as well would say there's always more that can be done. And I think one of the areas, for me, is actually thinking about the joined-up nature of different parts of the post-16 sector as well—that there are places where other parts of the post-16 sector can contribute to that as well in terms of meeting the needs of the economy.

One of the challenges, I think, is that, if we look at what the future needs might be in a marketised environment, there's always a lag, isn't there, between people wanting to do it now, but we might say, 'Well, that's where we need to get to in the future.' So, there's something there for me around how we maybe pump prime and incentivise and look at that, because we all know, don't we, that the skills needs at the moment are just rapidly changing at a pace that we've never seen before. So, being ahead of that—. And I think our universities are the places to really think innovatively and think about the future needs, along with other parts of the sector. So, I think you're right in your question. I think, that, actually, there's stuff that's going on at the moment, but what can we do to really get the economy being even more successful in the future?

It's a £2 billion sector in Wales, so it's a significant contribution nationally, but also in the local areas where our institutions are based. I think Universities Wales report that for every pound spent on universities, the multiplier effect in the local economy is something like £13, so they have a significant impact, our institutions, on local and national economies.

I think, beyond the economic benefit, the role of universities in society and culture is really important to consider here. And I know, particularly in the discussions that we’ve been having with institutions about some of the difficult decisions they’re having to make, understanding the impact that those decisions may have on some of that provision is really important as well, whether that’s part-time opportunities for adult learners to study in institutions, whether it’s access to gardens, or whatever it may be that they provide as part of their civic mission. It's really important.

So, I think, there are some really hard metrics around the economic benefit that Welsh universities bring to our national and local economies. But also, I think, we are very keen to understand some of those societal and cultural benefits that they bring, particularly to those local communities that they serve.

If I could just briefly add to that, I think that’s a good point in terms of that piece around civic mission. Our universities are so much more than just delivering courses and training—their contribution to the economy, their contribution to the civic mission and the cultural fabric of our society as well.

Okay. And Carolyn, please.

We did an inquiry into post-16 education, and talking about the competition, I should say, between sixth forms and colleges—and it sounds like there’s competition as well between colleges and universities at the moment, with students—is accommodation an issue as well here in Wales, enough accommodation? Because I know it has been across the border. Are you talking also—? Because it seems to me that the numbers of Welsh students going into higher education and to university is declining rapidly, but it does also seem—. It’s a four-nation issue as well, I guess, with not having international students. So, do you have discussions with the other countries as well, other parts of our nations, regarding that? So, I think those are the main points, really, I wanted to pick up on at the moment.

Yes, sure. If I could pick up the piece about competition first. Again, I think that is an important aspect of Medr’s role here, because we do have competition within the sector. And I think that’s where the conversation needs to go next, isn’t it, it’s to think about building on the strengths that providers can bring to the table. And, again, I speak as a former head of an institution, and I know that, often, I would think about, 'How do we grow, how do we develop?', rather, sometimes, than thinking about, 'Who else is best positioned to deliver this?' And sometimes the leadership is about not just, 'What do we do next and what do we do more of?', but, actually, 'What do we stop doing because somebody else is best positioned to do it?'

It's that child-centred approach, I think—

Yes.

—rather than just using that person as a business, or as money on their head, to get them into what's right for that child or that young person.

Yes. The phrase we keep using is 'learner need ahead of institutional need', isn't it?

Yes.

And I think that that's where we need—. And we’re seeing examples of it, where that is happening in a place-based discussion about what is actually best, and what each institution can bring to the table that actually enhances, creating real synergies where one plus one equals three. But also what we sometimes see is that it’s at the expense of other providers. And I think that’s another phase that we need to get into, and to build on, because I think that could really help the situation moving forward.

So, just to say, institutions aren’t reporting to us that accommodation is a particular issue that they’re facing at the moment, but it may be something that—. We have an associate member on our board, who’s a student learner representative, and, of course, they have a keen interest in the accommodation provision in institutions. So, it’s certainly something that we discuss in that kind of context as well, from a learner perspective, as well as from an institution perspective.

Four nations—of course we talk to the other bodies across the UK. We have a slightly different remit, actually. Our remit is broader in terms of tertiary education than, for example, the Office for Students in England. But we keep a close eye, obviously, on developments there, because of the nature of the border, from a HE-particular perspective, and the interest of making sure that the regulatory system in Wales serves the needs of Wales, whilst keeping an eye on the kind of market that’s happening in England as well. So, we work with OFS and the Scottish Funding Council, particularly, in understanding those kinds of responsibilities.

May I ask one more question, Chair? Do you feed into—? This might sound minor, but transport is such a huge thing for students. So, do you feed into Transport for Wales’s consultations? We’ve got a public bus consultation at the moment, but sometimes the trains are really overcrowded just at the time when students need to commute as well. And I just think that these small things can make a difference to the cost. So, just your view on that, please.

So, coming back to your point about Medr being sometimes cited as the answer to everything, I attended recently the transport summit that was arranged. We had two Cabinet Secretaries in the room with us all day, a lot of the key players, talking about transport. And although we don't have a direct responsibility for transport, obviously, if we're talking about high-quality provision, that's one thing, but if there are barriers to learners getting to that provision, then that's obviously a real challenge. So, I was encouraged by that summit, I have to say, in that there was a real can-do attitude from various stakeholders across the piece.

The message from learners is loud and clear: this is their No. 1 issue, actually, in terms of potential barriers to employment, education and training. So, we certainly will have a role to contribute, to influence and to help shape. We have a relatively small pot of money for the financial contingency fund that goes to providers that's sometimes used for transport, but if it's used for transport by providers, there's an opportunity cost there, it's not being used for childcare or support with food and all of those other things that people need. So, I think that there is a desire to look at it, and it is a collective issue, not just resting on the shoulders of one organisation. But we're keen to play our part in that. We've got quite a lot of intel there that could actually be helpful to try to find the solution, I think.

Thank you. Natasha.

Yes, sorry, I'm going to ask another question. You mentioned in your introduction, in fact, about the deficit of £61 million being present between 2023-24. From my calculations, from my understanding, it would be £77 million if restructuring costs were included as well.

Yes.

You also mentioned the fact that the reduction in funding grants and EU funding had an impact on the numbers, but I just wanted to ask you: we're now heading for 2025-26, and obviously, with the funding grants, we’re all aware of what the situation is with the EU, so can you see this deficit getting bigger, as opposed to getting smaller now, going forward?

'Yes' is the simple answer, but what we don't know yet is the final impact of the kind of measures that organisations are taking at the moment to prevent that deficit from becoming bigger. But I think the future is really challenging. We're not seeing a significant change in the international market for Welsh institutions, so it is going to be challenging. But I think that that's why institutions are addressing the issues now, because they have to, because otherwise that situation will get worse.

So, as the overseer, which I understand Medr to be, how will you be overseeing—? I appreciate that institutions are independent, I get all of that, and everyone on the committee does, but how are you going to make sure that it doesn't go from bad to worse, basically?

Yes, so I think, first of all, the financial statements that we've got this information on would relate to last year. So, the close of the last academic year. The financial statements that will be published by institutions by January next year will relate to this year. So, I think that we will expect, because of the work that we do with institutions on their forecasts and their plans and their strategies, to see those deficits increase from that £61 million reported figure, £77 million including restructuring costs, at the end of that year,. That's why the institutions are taking the measures they're taking now to take some of the costs out of their business, to deliver those efficiencies against that increased deficit. You won't see the benefit of that, I think it's fair to say, those actions that most institutions are taking in the financial statements that they're posting this year, because obviously they're taking that action as we're speaking now, but the reason for taking it is to return the institutions to a position of financial sustainability in the medium term.

I don't think that we should gloss over the fact that it is a medium and long-term financially challenging position. As Simon has outlined, there are many factors that are affecting income and expenditure across our higher education institutions. Our role, really, is to try to understand what those broad risks are and how they're materialising across the sector—it's away from one institution—and then obviously working closely with Government to inform and advise them on the steps that institutions are taking to manage within their budgets, but also what some of those pressures are.

And, of course, some of the levers that are held here don't always rest in Wales as well, particularly around the student finance model on a UK basis. So, making sure that we're representing, I think, the position that institutions in Wales are reporting, not just in the short term but also with that medium-term outlook, is really important to us. And I think that that's our assessment of where we are at the moment.

Okay. Thank you, Chair.

Cefin.

Yes, could I just come in on the back of Natasha's question? I think that it would be useful for us to have some idea of how close some institutions are to that brink of going into administration. I know you can't comment on individual institutions, but looking at the collective whole, looking at the reserves they have, looking at the plans they have for redundancies—voluntary, or compulsory in some cases as well—and you know the financial plans that they have; how close are we to having some kind of meltdown in this sector?

I'll come back to what I said earlier. We're not saying that there is an institution that is in danger of falling over in the short term, but there are medium to longer term challenges that I think we've outlined there and that you are aware of. This is not easy, and the reason that they're taking the actions that they're doing now is to prevent that falling over of a university further down the line.

Are you having support from the Welsh Government as well regarding that?

There's regular dialogue with the Welsh Government. I think as James mentioned, there has been some in-year investment, but it's fair to say that the challenges are still huge.

I think Carolyn's question is that dialogue is important, but is there any financial support from the Welsh Government.

The £28.5 million of additional funding that was found last year was absolutely welcomed by the institutions in Wales. That was £10 million revenue, £18.5 million capital that was found by the Welsh Government in-year to support some of those challenges.

And also, of course, the biggest element of income for our institutions is tuition fees, and increasing that in line with decisions made in England as well was welcomed. As Simon mentioned, our estimate is that that is worth around £36 million, once fully implemented, of income to our institutions in Wales, so that's a significant contribution. Those are all difficult decisions, because that affects a learner experience and learner decision about whether to go to university, given the cost of it. But actually, in terms of supporting our institutions, it's the biggest lever.

And of course, we're working closely with Welsh Government officials—and Ministers, actually—in the discussions that we know that they're having with the UK Government at the moment. We're not directly involved in those ourselves, but we provide a lot of information about the position in Wales to inform those.

Could I ask what you mean by 'medium term'?

I would say three to five years. Typically, the work that we do with institutions on the forecast would go out to about five years.

Thank you. Just to clarify in my mind, I think we were all interested when you spoke about the international students. I wasn't really, I don't think, aware that the research funding came from their tuition. That was something that I wasn't really aware of. Did I get that right?

Yes. Essentially, universities are cross-funding, if you like, the cost of research with the income that they're generating from international students. So, it's not that the international students are funding it, it's that the money they receive for research doesn't pay for the full cost of it.

So how detrimental is the drop in international students, the uptake, going to be to our education system?

What we're seeing across the UK is that the grants and things that come in for research contribute about 69 per cent. In the past, about a third of the funding has been subsidised from elsewhere. A lion's share of that has been from the income from international students. If that source starts to diminish, it does have a negative impact on the potential for research in the future.

Institutions' income from student fees in total is around £1.11 billion, as we reported in our statistical release. And approximately—this is not absolute, but approximately—about a third of that comes from Wales, a third of it from the rest of the UK, and a third from international students. Of that, you can see the kind of scale of exposure, if you like, to that international market that some institutions are drawing income from. Of course, each institution is different; they have their own levels of engagement with different areas of the globe and draw international students in from different places.

And they have no cap on their tuition fees, the international students, so universities can basically ask what they want.

Yes. It's a competitive global market, of course, but yes.

Thank you. Are there any other questions before we continue? No. Okay, thank you.

Diolch. I was going to talk a little bit about our role as a regulator, if that's all right, Cadeirydd. Simon talked about some of the financial challenges facing institutions in Wales, and I think it was quite important, maybe, to, as we did in the briefing, set out a bit about our role, particularly in relation to regulation. We often talk about Medr being a body that is responsible for funding and regulation, and I thought it would be useful to give you an update on the work that we've been doing in that regulatory space.

I think it's really helpful in Wales that we have, for us, a very close working relationship with the eight institutions that we regulate. That enables us to work with them on an individual basis. If we had hundreds of providers, as in England, we wouldn't be able to have that kind of close relationship in, perhaps, the way that we can afford to have with eight institutions. That, for us, is really important, because it helps us understand the challenges that they're facing, the strategies that they're adopting, and also their individual circumstances. The circumstances and the challenges affecting Bangor, whilst, in the greatest context, will be similar, are very different for the institution to some of the challenges perhaps facing Cardiff, as examples.

We have to do this, though, recognising, as Simon said, that they're autonomous organisations. I'll say a little bit more about that in a moment, but they do need to make their own decisions about how they're going to operate within the financial context we've outlined. So, they have to go through their governing bodies and make those decisions themselves. But, as a regulator, what we try to do is foster open, transparent dialogue, operate on a no-surprises basis. We work really closely, as Simon said, with not just the senior leadership teams of institutions, but also student bodies, and, of course, their governing bodies as well in understanding some of the challenges and opportunities that they face.

Particularly around financial health, we deal with highly commercially sensitive information. Part of our role as a trusted regulator and why I think, sometimes, people may be a bit frustrated with us about how open we can be about individual institutions is because we are dealing with really commercially sensitive information. You've heard from Simon about the market forces that drive student choice. The last thing that we would want to do as a regulator is undermine confidence in a particular institution. So, one of the reasons why we work so closely with them to understand it and then synthesise that to the sector is to understand the risks, if you like, across Wales, as well as within individual institutions.

We also work really closely with Universities Wales, which I think, as a sector representative body, again, gives a different perspective across the national picture. So, as a regulator, we have many different interactions. We've definitely enhanced our monitoring and led to increased activity in working with institutions since our operational date nine months ago, not least because of the financial context, but also, actually, our role as a regulator now goes beyond what we inherited, if you like, from the Higher Education Funding Council for Wales. So, we work with institutions right across the tertiary education sector as the regulator in different ways.

In all of that, dialogue and that kind of information exchange with the Welsh Government is really important. So, we occupy, if you like, the space between those individual providers who operate in the sector. We try to understand the challenges and the strategies that they're taking and then report on a sector basis—both sector and institution basis, actually—through to the Welsh Government on what those challenges are and, indeed, what some of the pressures are and what some of the mitigations might be. I mentioned some of the participation numbers earlier as an example, if you like, of us reporting through the sector to the Government about what some of those pressures might be.

As a regulator, in terms of our current role—I'll probably say a little bit more about our future role in a moment based on the new legislation—our current role is to monitor compliance with higher education institutions' fee and access plans. These are really important for institutions because, essentially, they enable students to access the student finance system. So, as a regulator, us understanding what their plans are to enhance the student experience, to promote equality of opportunity in higher education, as well as then to access student finance, is really important. At the moment, that is our primary responsibility, to monitor their compliance with those plans that they publish.

We also have a role in assessing the quality of the education provision, and working closely with the student body, for example, in understanding student satisfaction, learner outcomes, and also monitoring, crucially here, compliance with the financial management code—so, making sure that they're financially sustainable in the context of the challenges that they're facing.

Alongside that, we consider strategic direction, so the medium to long-term plans of the institutions and the strategies that they're taking not just to be financially sustainable, but, I think, to address some of the points that Cefin made in terms of the contribution they make more broadly to economy, society, and culture in Wales. There's governance and management, so how organisations are run. I mentioned students and quality, but it's also looking at estates, research and innovation. So, we look at quite a broad range of factors when we assess and work with institutions in our role as a regulator, all within the context, as I say, of those existing regulatory powers to look at fee and access plans.

We've talked quite a bit about universities and the need for them to make their own decisions to make sure that they're financially sustainable, but I think one thing that's missed—. Whilst they have to operate as businesses, it's also important to note that they're charities. The governing bodies of institutions are charity trustees, in essence, and they have a responsibility under the legislation to ensure the long-term sustainability of those institutions in line with their long-term mission. And again, I think that plays to the mission of the institution. It's really important that they do both of those. So when they're having to make some of the difficult challenges now, they have to do that in line with their legal responsibilities as charity trustees as well.

We've talked a bit about our powers of respecting academic freedom and institutional autonomy, and they're really clear that we don't interfere in the detailed running of universities, and that's so important both from that charity and business perspective, but also from our role as a regulator. Therefore, what we do in this space, particularly around financial monitoring, is to understand the position of universities, their current contextual challenges, but also, crucially, their forward plans—so, their forecast for student numbers, where they're coming from, their forecast for any changes they're making to their business models. What we're seeking to do is gain assurance to provide to our board, essentially, and then ultimately to Government, that the processes they're following will make them financially sustainable.

A really important part of our role as a regulator, I think, is that feedback loop. So, when we've had that information, we've considered it, we've engaged with the senior management teams of institutions, we then do feed that back to the governing bodies to give our own assessment, if you like, of some of the challenges they're facing and some of the actions that we'd expect them to make. So, that kind of feedback loop from us as a regulator to those institutions is really important.

So, that's a bit of a summary of our current regulatory role. I thought it might be useful just to pause there before I might talk a bit about our future one, because things are changing quite significantly here. The powers that we're currently operating in relate to legislation passed over a decade ago, but we've just opened our consultation on a new system, so the committee may be interested to hear a little bit about that in a moment.

Are there any questions?

No, I'll wait for the—

I thought I'd draw breath and maybe have a glass of water as well. Diolch.

In our strategic plan, one of the most significant founding commitments that we made was to develop a new proportionate risk-based regulatory system from August next year. We spent a lot of time in our first nine months developing that in line with the statutory requirements that are set out for us as a body under the Tertiary Education and Research (Wales) Act 2022. This is a really significant change to the way that institutions across the tertiary education sector are regulated in the future by Medr. As I say, we've inherited responsibilities and powers, if you like, from our predecessor bodies at the moment, and we're operating under this system. What we're now doing is developing and proposing a new regulatory system to apply across tertiary education.

In saying that it's new, what we're really keen to do is to make sure that we take the strengths of our existing approach to the regulation of those institutions. We want to build on those close working arrangements and that position of mutual trust as a trusted regulator, one of our founding commitments, to make sure that we're building on, if you like, the opportunity of regulating in an environment where we have a smaller number of institutions, we can work with them closely and individually on their plans, rather than taking simply a rules-based approach to regulation.

You may have seen that we opened our first consultation on the new system last week. In that consultation, we're setting out—and it's quite lengthy, I'm afraid, Members—three really key pillars of how that regulatory system will operate. First of all, our regulatory approach, which, if you like, is our statement of intent about the type of regulator we want to be: proportionate, risk-based, minimising burden on providers wherever we can, but understanding that, alongside that approach, there are certain powers of intervention that we have under the legislation that we may or may not use on a proportionate basis where risks are identified. I think, for me, the risk-based approach is really important there. So, it's not treating everybody in the same way, but it's understanding, again, their individual challenges and risks and working with them to improve compliance. We're consulting on that document at the moment.

We're also consulting on our regulatory framework, and this includes some of the conditions of regulation and registration that providers will need to meet in future. That will include things like financial management, sustainability, governance and management—many of the things you've heard about already. But it will also go beyond that, in line with the provisions of the Act, to include new conditions of registration, for example, around learner engagement, around Welsh-medium education and a number of other factors that we'll consult on later this year. So, the conditions of registration are really important for institutions to abide by, building again, really, on what we're doing already, working with institutions on some of that kind of underpinning groundwork.

Last but not least, at the moment we're consulting on our quality framework, and this is something, again, enabled by the legislation, that Medr could create a quality framework, and we're consulting on that. This is really important, around the learner experience and learner outcomes. So, what we want to do is make sure that we have continuous improvement and consistently high-quality experiences for learners in the system, so consulting on our quality approach as well. That's quite a package of documents that we're consulting on, but we think it's a comprehensive approach to take, to share that with the sector at this time, to understand the direction of travel that we want to take now as Medr, using the powers under the new legislation.

You may have heard that there's a slight difference between our regulatory approach and our register, so I thought it might just be useful to talk about the higher education register that we'll be introducing alongside our regulatory approach. The system is underpinned for higher education by a register, which, if you like, will form the gateway for institutions to access student finance support in the future—students to access it, I'm sorry, and institutions to receive it. In order to do that, they will have to meet a number of those conditions of registration that I outlined earlier, so, conditions, for example, around financial sustainability, around quality and around learner engagement.

There will be initial conditions of registration that providers will need to meet in order to access the register. We're consulting at the moment on what some of those initial conditions will be, but there will also be ongoing conditions that they will have to demonstrate on an ongoing basis to continue to access that support. It will apply to all institutions that provide higher education in Wales, so that will go beyond our university sector, as, actually, now is the case, and they will enable us, if you like, through those conditions, to monitor compliance of institutions with how they are demonstrating, for example, financial sustainability in practices.

It's quite a different model that we'll be introducing here in Wales as a result of the—you know, to the tertiary education sector as a whole. Different parts of our regulatory system will apply to different parts of the sector. So, it'll apply to FE colleges in a different way to HE, but particularly for HE, the register is a key part of our new regulatory approach.

Last but not least, just to say—a bit of public relations, if you like—that we're out for consultation at the moment. We've got a number of events planned and we're really hoping to have constructive engagement, building on what we've already done over the last year with the sector, on the detail of how this regulatory approach will work. We plan, later this year, to go back out for consultation with the full conditions of registration that I've just outlined, to give an opportunity, if you like, for the sector particularly to see everything as a holistic aim, with a view, then, to opening the register in April next year for providers to start to meet those initial conditions of registration, and then for the new regulatory system to be live from August next year. So, you know, there is some significant change to the way that we regulate, building on our existing models.

Okay, thank you. Any further questions from Members? Cefin.

Yes, please. Sorry, if I can go back to the way that you have an overview of provision, we got rid of the polytechnics, as they were, back in the 1990s, I guess, but they served a purpose for the 20-odd years they were in existence. They provided a higher level of technical skills provision and vocational as well. We understand that there are obviously tensions between FE and HE—they've been in existence for quite a while. Are we confident that that gap that the polytechnics used to fill is being catered for still in that kind of chasm between FE and HE? Have we managed, in the last 20 years or whatever, to do what businesses are telling us they need? It’s that higher skill level; it doesn't have to be a degree, but it's higher than FE. You know, there's that kind of missing middle somewhere. Are we catering for that?

That's a really good question. If I start, then I don’t know whether James wants to come in, but I think that's the question moving forward, isn't it, in terms of how you get the best out of the system and who is best placed for different types of provision that meet the needs of business. One of the things that we need to be careful of, I think, moving forward, is that, if there's a perception that that's not quite where we want it to be, having more people moving in to a particular market would create even more competition than we've currently got.

I think what we need, moving forward, are sensible conversations about who is best placed to deliver the kind of—. And you're right, there may be certain things that an FE college may be perfectly positioned to develop in its local community, other things that a university may be better positioned. It's about having those conversations about the coherent pathways for a learner or for somebody working in employment to do that. Are we there yet? No, I don't think we are. It's not optimal. You know from the work that you've done with the sector and the conversations that you're having as well. So, there's work for us to do there to make it more coherent and to meet those needs.

Reiterating the point, what we don't want to do is, 'That's not quite working', so everybody tries to do everything. That's what we're trying to avoid. It needs to be much more coherent than what we currently have, I think.

I think one of the opportunities with Medr being created is to take a more tertiary approach to that. Whilst we were asked to undertake the subject-mapping provision relating to HE, what we will do once we've completed that piece of work is expand that out to look at provision more generally, so we can see where there are perhaps gaps in that transitionary phase, if you like, from vocational to perhaps degree level.

Where there are geographical challenges beyond the sector, or indeed where there is, perhaps, competition in certain places, I think, in that, what we would seek to do is encourage institutions to play to their strengths, to potentially work together to think about those coherent pathways, but understanding that learners may come to that institution at a particular point in their pathway. One of the opportunities, as I say, of creating Medr is to take a bigger, broader approach. So, when we look at that provision, that'll be really interesting.

Because we've disbanded polytechs since about 20 years ago. We've had 20 years to look at that missing middle. I'm not confident that we've actually solved the issue around higher level vocational technical subjects. It's as though some are falling in the cracks between FE and HE. Are you confident that you will be looking at this and this will be a priority for you moving forward?

Definitely. I think there's work going on. There's some good stuff happening. You can talk to some employers that are getting what they need, but that's not consistent across the piece. I think the next phase is to think about learning from some of the best practice that we can actually see. There are some examples where organisations are joining up and having collaborative discussions around different types of delivery. We want to shine a spotlight on that. There may be something in the future, when we look at future funding models, about incentivising those kinds of behaviours, because I think we can be even better than we are now.

Okay.

Thank you. Do Members have any further questions? No more to add. Okay, thank you. Thank you so much for joining us this morning. We really appreciate your time. You'll be sent a transcript for checking in due course. Thank you very much. And thank you for being understanding with our method of questioning this morning.

No problem. We really welcome the opportunity. Diolch yn fawr.

Diolch yn fawr.

Thank you.