Gareth Rogers: Good morning, and welcome to today's meeting of the Children, Young People and Education Committee. Unfortunately, the Chair is unable to attend today, so in accordance with Standing Order 17.22 I call for nominations for a temporary Chair for the duration of today's meeting.
Julie Morgan AM: I nominate John Griffiths.
Gareth Rogers: Thank you.
Darren Millar AM: I'll second that nomination.
Gareth Rogers: As there's only one nomination, I declare that John Griffiths has been appointed as temporary Chair. Thank you, John.
John Griffiths AM: Okay. Thank you all very much, and item 1 on our agenda today is introductions, apologies, substitutions and declarations of interest. We've received apologies from Hefin David and Lynne Neagle. There are no substitutions. Are there any declarations of interest? No. We will move on then to item 2, and our inquiry into the impact of Brexit on higher and further education, and our first evidence session. I'm very pleased to welcome the Higher Education Funding Council for Wales here today, and Dr David Blaney as chief executive, and Bethan Owen, director of institutional engagement. Welcome to you both. Thanks for coming along to give evidence today. If it's okay with you, we'll move straight to questions, and Julie Morgan.
Julie Morgan AM: Good morning. Bore da. I wondered if we could start off with you telling us what evidence you can see that the Brexit process has had any impact on Welsh higher education so far.
Dr David Blaney: Can I preface the response by just reminding you that we are, by contract and by role, apolitical, and a lot of the judgments about the impact of Brexit essentially reflect where people sit politically in terms of whether they think it's a good thing or a bad thing? We're not going to go there, obviously, today, so we'll stick to the facts as we can see them, and hopefully we'll be able to help you, but there are areas where we are unable to help. That's part of the reason.
John Griffiths AM: We certainly do not expect you to enter the political fray in any way.
Dr David Blaney: Thank you. But even in terms of your assessment of whether this is going to be a good thing or a bad thing, a good impact or a bad impact, some of that inevitably in the end becomes a matter of your politics on it, so we will be as careful as we can be on that. In terms of the impact of Brexit on higher education, clearly, the significance here is about the contribution that higher education can make to Wales. So, we fund provision; we don't fund providers, technically, although obviously there's not much provision without providers. So, we are interested in the sustainability of higher education providers, but fundamentally the issue is: what does the HE system in Wales do for Wales, and what impact might Brexit have on the capacity of the system to continue to deliver for Wales? So, we know that universities make annually about £5 billion of impact; 50,000 jobs. Of course, in Wales, all of that economic impact is really very significant, and uncertainty about the relationships and the arrangements with Europe is one of the most significant issues confronting university management at the moment. That has an impact in a number of ways. We can identify at the moment the extent to which the HE sector in Wales is exposed to sources of income that are located from the EU, so EU students, structural funds, and EU research funding, and so on, from the EU. We can identify some of that, but, actually, what happens in the future is much harder to be clear about. We are beginning to see some impact in terms of applications from EU students and I'll ask Bethan to share some details on that in a moment. We're also beginning to pick up, only anecdotally, some signs that there are increasing difficulties in the UK sector, and the Welsh sector as part of that, in playing in some of the EU collaborative research activities. And that, I think, just reflects the extent to which EU partners consider that British partners might be a stable partner as we go through this transition period. We don't have data on that—that's anecdotal—but there are signs that some of those relationships are beginning to become a little bit more difficult. In terms of the financial impact of that, clearly, if it is accepted that the UK is a net contributor to the EU then, presumably, some of the money—we're almost immediately straight into politics if you're not careful—but some of the money will be available back to the UK, and the extent to which Wales benefits or not from that returned money is a function of the political relationship between the Welsh Government and Her Majesty's Government. It's not necessarily the case that Wales will always lose out in that relationship, but that will become a matter of politics. There's a broader dimension, which is about the economic impact of Brexit on the UK economy and how much tax revenue there is and all of that. I think it's very hard for us to be definitive about how that's going to play out. I think that depends on the deal and how it all unfolds over the next several years. But we can certainly anticipate some turbulence and exactly how that plays for institutions remains to be seen. We can touch later on on the extent to which they are sighted on this and preparing for it. So, in terms of recruitment, Bethan.
Bethan Owen: This is based on the UCAS applications and the report that was published at the end of June, 30 June. The European Union-domiciled applicants to Wales have decreased by 8 per cent, which contrasts with a 2 per cent increase for English institutions, and non-EU—so international students, not from Europe—have also decreased by 9 per cent to Welsh institutions, again contrasting with a 7 per cent increase in England. So, those are the signs of changes.
John Griffiths AM: Okay. Could I then just ask you what you see as the main pressures on the Welsh higher education sector at the moment?
Bethan Owen: The funding position would be the main pressure. The recommendations made by Sir Ian Diamond in his review of higher education funding and student finance are in the process of being implemented, and the changes to the student finance arrangements will take effect from this September. However, the recommendations for re-establishing funding at Welsh institutions are expected to take quite a bit longer. That funding, when it returns to institutions, is intended to re-establish funding for higher cost provision, both full time and part time; reinstate funding for innovation; and maintain, at the very least, the research funding in real terms. Universities, in the meantime, are trying to minimise the cost reductions that they're making in order to maintain the infrastructure, so that when the funding comes they can get the best value out of it. We have announced our funding allocations for 2018-19. For the research and teaching grant, though, we are still funding at a lower level—£12.5 million less—then the starting point for the Diamond report, the 2015-16 starting report. But we expect to be able to start introducing funding from 2019-20 to make a start on implementing Diamond. And it's probably important to note that the Diamond recommendations predated Brexit, therefore the challenges introduced by Brexit are in addition to those that the Diamond report was addressing. The other pressures relate to student recruitment. I mentioned the EU and international students. There is also the start of a reduction, both in Welsh-domiciled and English-domiciled applications to Wales. Enrolments are obviously the key important number, which we'll see later. And the other pressures include pay and pension costs, not least the issues around the universities superannuation scheme pension fund, where there's potentially a significant increase in cost. Increased student expectations for modern facilities and infrastructure bring a requirement for capital expenditure and borrowing, which bring their own pressures. And finally, the uncertainty about potential consequences that could arise from the review in England of fees and funding—the Augar review.
John Griffiths AM: In terms of European Union students and enrolment, is Wales forecast to do less well than England and, if so, why might that be?
Bethan Owen: They are not forecasting it. It's very difficult until the enrolments are made, and it's also very hard to see—the data that we see is the UCAS data. Institutions also recruit directly, so until we see the actual recruitment—. I think the arrangements that have changed from 2018-19 also impact on EU students. So, now, they have to find the full fee, whereas previously they were getting the grant in the same way as Welsh students. So, I'm speculating that that might be having an impact as well on EU students' appetite to come.
John Griffiths AM: Okay. First of all Llyr, then Mark.
Llyr Gruffydd AM: Well, that's straight into what I was going to ask, really, about what you think the factors are that led to this 8 per cent or 9 per cent drop in EU students applying to study in Wales, where we see a 2 per cent increase in England. Is that it, or are there other things that you've taken into account? What's your assessment of the reasons behind this?
Dr David Blaney: It's very difficult to be definitive about the reasons, but I think there are probably two. The one that Bethan has already indicated, which is the change in student support arrangements for EU students, will have an effect of perturbation. That's probably relatively temporary—let's hope it is—as that settles down because, actually, the deal for EU students coming into Wales is no worse than that coming into England. Ours would be better because the fee level is slightly lower, but we do struggle in Wales in terms of the Anglocentric nature of the media and so on. So, getting the messages out is a challenge. The other dimension is that when you're in a highly competitive recruitment market, you have to do what you can to look attractive. Part of that is about being able to invest in facilities, and particularly buildings and kit, and the relative levels of investment between Wales and England over quite a long period of time now probably have an impact on that. Certainly, anecdotally I know, from my own family, that a lot of the choices have been made in terms of the state of repair of campuses and so on. There's something rational about that, isn't there? If you've got a system that is relatively better invested, then you're likely to have a better student experience because the resources are likely to be better. So, that's not irrational. We saw a sort of similar but opposite effect when the £9,000 fee maximum limit came in, and some institutions, mostly in England—there was one in Wales—chose to pitch their fee levels really quite low, relative to that £9,000, and caught a cold in the student recruitment market because fee levels denote quality in the student mind. So, the price sensitivities work quite differently. So, again, if you've got a relatively better invested part of the system, then that might well be one of the reasons why it looks more attractive.
Llyr Gruffydd AM: That latter factor would affect the whole of the cohort, not just the international recruitment, of course.
Dr David Blaney: Indeed. Yes, indeed. The implementation of the Diamond recommendations is crucial to that because that's re-balancing where the policy of investment goes.
John Griffiths AM: Okay. And Mark.
Mark Reckless AM: If I heard you correctly earlier, you said that the applications from non-EU students were also down by 8 per cent or 9 per cent. So, forgive me a certain scepticism about the explanation of the fall in the EU students being that they did get the fee grant and now they do not. If that's the explanation, why are we seeing the same fall in non-EU applications?
Dr David Blaney: Well, I think the Welsh domiciled are also now having to face the prospect of finding a loan for the whole of the fee. So, that would potentially account for that. There's also a demographic dimension here with the downturn in the 18-year-old school-leaver profile, and that actually is happening in Wales at a slightly later point than in England.
Mark Reckless AM: But this is non-EU students, and I think you said, Bethan, an 8 per cent or 9 per cent fall in them as well.
Dr David Blaney: International non-EU. I beg your pardon. I misunderstood.
Bethan Owen: There's also a mix effect. I gave a number that was for all English institutions that there will be differential impacts on.
Mark Reckless AM: All English or all Welsh?
Bethan Owen: Well, I contrasted the Welsh position with the English position where they were seeing growth. If you look, then—and we don't have the detailed information, but, again, what UCAS publish is some analysis by tariff. They analyse by type of institution—in other words, the grades that you need to get into institutions—and there is a trend for growth being in the higher tariff institutions. So, there's a mix effect in there as well, and I think there's undoubtedly an element of perception of how welcome overseas and international students are, and that's something that we know the sector are working on with Government.
Mark Reckless AM: Why would that affect Wales more than England? Do you think there's been perhaps too great a negativity about Brexit in the sector?
Bethan Owen: I think it's the mix of institutions that we have. So, we only have sector information published at the moment. When we look at the mix of institutions that we have, we will probably see a differential impact between Cardiff University and others.
John Griffiths AM: Okay, Mark? Sorry, David, did you want to add anything?
Dr David Blaney: I was just going to say that we would expect to see quite differential performance in the English sector, so the overall numbers are being brought up by substantial increased performance with some of that sector, and it's a question of how many of that type of institution you have in Wales.
Mark Reckless AM: So, performance is increasing amongst the English universities, but not amongst the Welsh, you think.
Dr David Blaney: I think performance is increasing, but increasing substantially with some of the English sector, not all of it. So, you get an average for the sector that is increased performance, but actually the stronger players within that sector, with the stronger international profiles, are bringing that up, and we have fewer in Wales that have that sort of presence.
John Griffiths AM: Okay. Darren.
Darren Millar AM: Would it be fair to say, then, that the universities over the border in England are better at selling themselves internationally than our Welsh institutions? Or is it just this fact that we've got fewer very high tariff universities versus the English market?
Dr David Blaney: I suspect, and this is speculation—I suspect that it's a bit of both. I think some of it is to do with the mix of different types of institution. I would then come back to the point I was making about the Anglocentric nature of the UK media. If you're looking overseas, I think Wales has to work harder to penetrate the consciousness.
Darren Millar AM: But, forgive me, don't international students just look at the UK as a whole? How are we comparing to Scotland, for example, or Northern Ireland, in terms of their universities? Do you have a comparative figure for Scottish universities?
Bethan Owen: I haven't got that one with me for now, but there will be one in the data.
Dr David Blaney: Yes, we could get that.
Bethan Owen: Again, it's a combination of being part of the UK but differentiating, and the ability to differentiate the strengths of Wales, so attracting those students to Wales specifically, on top of the UK draw.
Dr David Blaney: So, in terms of the efforts that have been made, there's a programme now that is being run by the sector in Wales—it's 'Study in Wales'. It's relatively recent; you could argue that we could have got there earlier. But that is a determined collective effort to present Wales as a good place to study, with particular messages about what distinguishes studying in Wales from studying more broadly in the UK. In a sense, that is responding to the need to increase the presence of Wales in an international market. So, that sort of initiative I think is very good, very welcome. It will take a while to actually have an impact, but I think that's exactly the sort of work the sector need to be doing more of.
Mark Reckless AM: What are those messages on why prospective students should study in Wales?
Dr David Blaney: One of them in particular is relative safety. We know that one of the considerations, particularly for parents of overseas students, is are they going to go to a safe environment, and we know that the perception of international students who study in Wales is that this is a comfortable and safe place to be. That's partly a function of the size of our larger cities—quite a lot smaller than many of the cities in England. So, that's a key message. Being part of a UK system is also an important message there as well. So, we've got a UK-quality system, a UK degree, and the strength of that brand is available in Wales, but it's available in a way that is safer and more supportive, I think is the messaging that's coming through.
John Griffiths AM: Okay. We'd better move on, I think, hadn't we? Darren, then.
Darren Millar AM: I just wonder to what extent you have been able to plan in your financial forecasts for the next few years ahead for the potential impacts of Brexit. What have you built in, if anything?
Bethan Owen: In terms of our funding, we receive our funding annually, but the sector provides us with financial forecasts, and we use those for monitoring sustainability. So, the last full forecasts that we had were in July 2017. We are due to receive a full forecast at the end of this month, and we obviously have updated information from institutions.
Darren Millar AM: And they're three-year forecasts that come through to you, aren't they?
Bethan Owen: They are four plus the current year. So, we've got numbers to 2019-20 at the moment, and expect to go to 2020-21.
Darren Millar AM: And what are the universities expecting? What do they anticipate?
Bethan Owen: Well, for 2017-18, which is the year we're about to end now, they were expecting £38 million income from European students, and approximately £91 million from the various European programme funding sources, and that's about 8 per cent of the total income—£1.5 billion—of the sector. The forecasts are assuming that that continues, albeit that institutions have various scenarios that they have for all sorts of scenarios that we can all speculate on, and, as I mentioned earlier, the balancing act of maintaining infrastructure and resources and staff in the short term is where we are at the moment, or where the sector is at the moment. And there are also signs that the banks and lending institutions are becoming a bit more risk-averse in providing borrowing to institutions, and of more differentiation between individual institutions being made than has possibly been the case in the past. The sector made an operating deficit, again looking at all Welsh institutions collectively last year, 2016-17, of £17 million. That's before other gains and losses. And we're expecting a similar collective level of deficit for this financial year, if not slightly higher. Now, these are managed deficits and we are not currently seeing critical short-term cash availability issues in the sector. However, the increase in funding from Diamond is a key part of enabling the sector to return to longer-term financial sustainability. Short-term challenges can be met if there's a reasonable prospect of future funding. You can manage in the short-term, but there comes a point when the big cost reductions and infrastructure reductions have to be made. And, again, having mentioned the pressures on pay, pensions and other challenges, it is difficult to gauge whether, if those factors come into play as well, some of these cost reductions may have to be made before funding comes in to replace—either Diamond funding or the European replacement funding.
Darren Millar AM: So, would it be fair to say that, in terms of the funding arrangements, and, in terms of the student numbers, one reason why we've got this recruitment problem is this lack of investment in the capital infrastructure that we've seen in recent years because of the financing arrangements from the Welsh Government, and the fee regime that we had previously, and the student finance regime that we had previously, not getting more cash into our Welsh universities perhaps, and that, over the next few years, there's going to have to be much more significant investment in capital if we're to raise the game and be more competitive, yes?
Bethan Owen: Yes, that would be fair to say.
Darren Millar AM: So, to what extent are they planning for more capital investment in those financial strategies that they've been preparing and presenting to you?
Bethan Owen: They are all planning for capital investment. They are in different positions in terms of capacity to borrow and the assumptions. This year, 2018-19, is the first time that we've had capital funding in our remit letter—so, we've got £10 million of capital funding, which is very welcome, with a prospect of a further £20 million. So, that we will be allocating shortly. That will make a difference, particularly to those institutions who are not finding it as easy to borrow from financial institutions. Some of our larger institutions have borrowed—Cardiff University issued a bond. However, there are internal governance processes that are putting tight restrictions and expectations of what that money will be invested in. But they all have plans to do it and they need the confidence that their forecasts and long-term future funding prospects are secure enough that they can get the confidence of borrowers then, and service the costs of those borrowers.
Darren Millar AM: So, the Diamond dividend you've mentioned a few times. What clarity is there from the Welsh Government at the moment in terms of how much they anticipate the Diamond dividend will be, and what proportion of that is going to be released to HEIs in the future?
Bethan Owen: I was very carefully not describing it as a dividend—a re-establishing of funding that we had in the past for higher cost and innovation and maintaining research funding. The timescales are difficult, because we have an annual remit letter, and we can work with Welsh Government officials, and they can only give us a sense of when they think the funding will be released. But 2018-19 is the start of the system, and because of cohort protection—so, protecting those students who came in on a different deal to the deal from 2018-19—in the early years there is an element of double cost; there's a cost of seeing out the old system and the different cost of implementing the new system. So, at the moment, we're certainly not in a position to tell the sector with any degree of certainty what funding would be beyond what we've allocated for 2018-19, with some sense of what 2019-20 numbers we're working with because we allocate our money over an academic year—so, by definition, we've already made assumptions of four months of the 2019-20 funding, albeit that's not approved yet in the budgetary process.
Darren Millar AM: But you're not being given a steer at all as to what you expect the additional resource that you might have to make available to Welsh universities might be as a result of Diamond. You must have some idea.
Dr David Blaney: I think it's fair to say that officials have been as helpful as they can be with us, in terms of the planning assumptions we make and indications about whether or not we are being too ambitious or not ambitious enough. So, I think they're being very helpful; as Bethan said, they're constrained by the process—they can't pre-empt a budget process. And you folks will be fully aware of that, of course. The other question I think you asked was how much of the money released by the new arrangements will come into higher education. At the moment, we are expecting all of it to come into higher education, as the product of the arrangement between the current Cabinet Secretary and the current First Minister. The extent to which any changes there cause that to come under threat is something I can't judge at the moment. But we have had in our remit letter from the Cabinet Secretary a clear indication that we can expect our resource to grow over the next few years, as the Diamond process unfolds.
John Griffiths AM: Okay. I'm just going to bring in Llyr at this stage.
Llyr Gruffydd AM: Bethan said in an earlier answer that, I think, the financial forecasting from universities forecast something pretty consistent in terms of what they're hoping to be receiving in income, for example. But we've already discussed the near 10 per cent drop, potentially, in international applications. So, does that tally, really, or are they going to be recruiting additional students from the UK market or—? What's the plan?
Bethan Owen: I was reflecting on the last point when we had consistent information across the sector.
Llyr Gruffydd AM: Okay. So, they may need to revisit that in the light of this.
Bethan Owen: I'm expecting that the forecast that we get at the end of this month will reflect the reduced applications we've seen, and an element of that will be reflected in reduced improvements as well.
Llyr Gruffydd AM: Okay. So, we don't really know, then, whether—it's unlikely that they are going to expect a consistent fee income, really.
Dr David Blaney: I think it's fair to say we would expect them to respond to what they're seeing in the UCAS process. Even if they didn't, they would all, in any case, have sensitivities for what they would do if things don't come out in the way they hope. And if they didn't have that then we would be on their case, of course, because we want them to be properly sighted.
Llyr Gruffydd AM: Okay. Thanks.
John Griffiths AM: And we have to stick to the Brexit impact. Darren.
Darren Millar AM: Can I just ask, in terms of the impact of Brexit, have you done any assessment of what you think might happen, or have any of the institutions made available to you any assessments of what they think is likely to happen to their individual institutions, going forward? You've mentioned scenarios earlier on, David, so what scenarios have you set out?
Dr David Blaney: There's a Welsh Government HE Brexit working group, which is chaired by one of the Government directors, and we sit on that. And we have provided that group with early summaries of the risks and the potential impact, in terms of the exposure of the sector to EU-sourced funding. We have, as part of that working group, explored those issues that it would be really very helpful for either the Welsh Government to try to put in place or for the Welsh Government to persuade UK Government to do. And I think, in our submission, we identified a number of areas of what we would consider to be a helpful action, and that has been worked through that working group. We know that it has informed Welsh Government's position, in terms of what it does and also in terms of the conversations that they have with Her Majesty's Government. Beyond that, what we haven't done in that working group is share the work that institutions are doing individually to look at how they would respond to different scenarios. We are not able to do that here either because, inevitably, they would have varying degrees of unpalatability and they would have to be managed very, very carefully. You take cost out, which is essentially the response, you actually take people's jobs out, and all of that has to be managed carefully. So, that's not really a matter for public consideration, but we do know that the institutions are looking at a range of scenarios on what they would do. Bethan mentioned earlier on that the current deficit for the sector is a managed deficit—it's not something that has taken them by surprise. They are responding to what they see as the dip between where Diamond was reporting and where the money starts flowing. Similarly, I think we're comfortable that there is a managed approach to the scenarios that they're testing within institutions. So, they will do what they need to do to sustain themselves. The bigger issue really, in a public policy context, is the potential damage for the sector to be able to deliver for Wales in terms of research and skills development and all the other contributions.
Darren Millar AM: So, you're confident that they're taking a robust approach to planning for various scenarios, going forward, are you, as individual HEIs?
Dr David Blaney: Yes, and as the deal becomes more clear politically, then they will obviously have greater clarity in terms of which of these scenarios they need to work up more fully, but they are sighted on it.
Darren Millar AM: Okay. Can I just ask about fee and access plans, and how Brexit might impact them? To what extent do you think that they could be impacted?
Dr David Blaney: I think there are two dimensions to maybe touch upon there. Fee and access plans are approved annually by us. They are approved in advance of the recruitment cycle for the year that they apply to. So, we're just in the process now of finalising our consideration of fee and access plans for the 2019-20 academic year. So, there's quite a long lead time. We, as part of that process, go through similar—we look at their financial sustainability, which is based on their forecasts—data to the stuff we've just been discussing. And also, of course, the fee plans themselves make assumptions about how many students of different types, from different domains, are going to be recruited. So, clearly, if there is a continuing downward pressure on EU student recruitment, then that will reduce the amount of fee income that's going to come in, unless they can find other students, and that will reduce the amount of investment in the various activities that are identified in the fee plans. In terms of process, we have two things that we can do. If institutions are becoming aware that the basis upon which they've submitted a fee plan is fundamentally different from the reality, then they can come into us for a change to their fee plan. So, we have a change process. If it's not fundamentally different, but there are always differences between what you plan and what happens three years later—. We also monitor after the event and, if there are differences, we would then obviously require institutions to explain those differences. If they've had fewer students and less investment, we would need to understand that. Conversely, if they'd had more students, and potentially more investment, we'd want to know what they'd spent it on, and if they've done different things, we'd want to understand that as well. So, we do challenge through a monitoring process. The only other thing that's perhaps worth saying is that, in the 2019-20 fee and access plans—they're not published yet, so I can't give you the full detail—five universities have made reference to Brexit and the Brexit impact, and things they want to do through their fee and access plan to try and address some of those issues, so they're in there as well.
Darren Millar AM: But we've already said, haven't we, that it may be nothing to do with Brexit, this dip in EU recruitment, because there are other factors like the attractiveness of the estates and the environment that young people might be educated in? But they're making assumptions that it's linked to Brexit, are they?
Dr David Blaney: Not really. I think they're making assumptions that it could be. There are things they want to do to enhance and to protect student mobility, and some of that will be funded through fee plan investment. So, the Brexit conversation between the EU and the UK Government might or might not sustain Erasmus engagement, and if it doesn't, then they need to find other ways of trying to support that sort of thing. So, that's what we're beginning to see in the fee plans. It's them thinking about how else we can do this stuff.
John Griffiths AM: Okay, Darren? Mark.
Mark Reckless AM: You mentioned the fee and access report. What else do you do to assure yourselves that Welsh higher education institutions are effectively planning for Brexit?
Bethan Owen: We've touched on contingency plans, but, in an environment of uncertainty, I think it's difficult for any of us to know what the right scenario is. I think rather than looking at worst-case scenarios, what the sector is also focusing on is the promotion and looking for additional or increased sources of funding. So, we touched on strengthening the Global Wales engagement in order to sell Wales, so more focus on marketing Wales overseas, but also within the UK. The other area where the sector is working at a UK level very hard is making the arguments to UK Government for maintaining access to the successor to Horizon 2020, which is arguably a larger part of the whole funding infrastructure—students is one part, but the whole funding infrastructure for maintaining research capacity. So, working with UK universities to make arguments at UK Government level for maintaining access to those sources of funding is also a part of what the institutions are doing. We mentioned the Welsh Government's HE Brexit group. That group, which is the Welsh Government group, is being advised by members on it, and that's informing Welsh Government officials when they engage with UK Government as well.
Mark Reckless AM: Do universities seek your advice on what the risks and, indeed, opportunities of Brexit may be and what you think they should be doing to plan for them, or is your role more one of monitoring what they do as opposed to advising what they should do?
Bethan Owen: They are autonomous institutions and ultimately their governing bodies are responsible for ensuring their sustainability. It's not a relationship where we would advise and direct, but it is a relationship where we would question the scenarios if we consider from our experience that we would have expected other scenarios to have been tested. It's that nature of conversation, rather than directing.
Mark Reckless AM: I understand you don't direct, of course, but my question was about advising. You're overseeing, or monitoring—or whatever you like to describe the role as—quite a number of institutions, and presumably you therefore have particular expertise within your organisation, and I just wondered whether higher education institutions are doing enough to draw on that.
Bethan Owen: I think we can advise—we can advise based on data and information that we can see. We can advise based on our judgment. The big thing in this whole Brexit scenario is the uncertainty and the extent to which our speculation is better informed than the governing bodies or the sector collectively is probably the issue.
Dr David Blaney: I think that's right. So, there's a relationship with the sector and there's a relationship with individual institutions, and they are different. So, we have engagement collectively with the sector. Bethan meets with the finance directors, and I meet with the vice-chancellors. We actually have the sector and the funding council together on the Welsh Government's group. So, some of these conversations are happening in various ways, where we're all gaining intelligence about what might be a sensible set of planning assumptions. Then, if we see an institution that is manifestly giving signs of not being sighted on some of these risks, either through their forecast or through other assurance activity, we will challenge. We have an annual cycle, with two points in the year where we reassess the overall risks of individual institutions, and that's based on a whole range of hard data but also a range of soft data. Our links into institutions are many and varied. We have lots of conversations and we take all of that in the round and form an assessment about the financial sustainability of the institutions but also the extent to which we think their governance and management arrangements are properly sighted and facing properly the challenges that they face. In some ways, we say it's not about the challenges they face; it's about how they face the challenges. Our alarm bells really ring when we get the sense that, actually, either an executive or a governing body hasn't really noticed. We're not in that place, I'm really pleased to say. I'm not worried about short-term crisis with any of the institutions. There are medium-term real challenges, both because of Brexit and because of other contextual factors, but at the moment the sector is a managed sector, which is good. It's not always like that, but we're in, I think, a good place at the moment. So, our role is definitely to challenge where we don't think they are making sensible assessments, but it's not to say that their assessment is wrong and ours is right; it's just to have a conversation about, 'Why have you done this and what has informed your thinking?' It's slightly more one step back and slightly more subtle, but it is, as you imply, us using the intelligence we gain from all of those conversations when we talk to individual institutions as well.
John Griffiths AM: Okay. Llyr.
Llyr Gruffydd AM: Yes, thank you. We had evidence last week from some of the higher education institutions, including Cardiff University, and it's very interesting, in relation to Erasmus+ and the mobility funding for students that, I think, only 40 per cent of the mobility funding in Cardiff is paid for by Erasmus+. I note that you've been consulting on national measures for higher education performance and that one possibility is using international mobility as a performance indicator. I was just wondering whether you might go further and expect universities to actually make commitments to funding international mobility from their own fee incomes as part of that.
Bethan Owen: Again, reflecting on the latest fee and access plans, seven of the universities are referring to mobility—either they have targets in them or are explaining what their plans are—so they are including an element of it from their own income and fee and access income. However, Erasmus is such a well-established and long-term plan—if we were looking at a scenario where that infrastructure wasn't available, to implement anything similar to that would be much less efficient and much more costly. And to enable an infrastructure that allowed—. Ideally, you'd want something that all Welsh institutions could take part in, and that takes some investment and some co-ordinating. And, equally, you need to have the arrangements with your overseas and European institutions. I think it's easy to underestimate the accumulation of time that has gone into establishing Erasmus. So, I think replacing it would be a challenge.
Llyr Gruffydd AM: And the point was made clearly last week that the brand is internationally recognised. When you enter into Erasmus+, you know exactly what you're going to get, and all of that. But there have been criticisms as well about degrees of flexibility and this, that and the other, so I'm just wondering whether—and there is presumably going to be some change on that front although I'm hoping we can buy into it, as others have done who aren't in the EU—that emphasis on encouraging institutions to look more proactively at funding their own mobility efforts would be positive.
Dr David Blaney: I think the—
Llyr Gruffydd AM: Sorry—especially if it means that they do more of it.
Dr David Blaney: Indeed. I think the Welsh sector is definitely committed to trying to find ways of promoting and resourcing that sort of mobility. There are signs that some of the restrictive elements of the Erasmus programme are going to change anyway, because that's under development and that's positive. There have been positive noises as part of the Brexit negotiations about wanting to carry on being able to access the Erasmus programme. Nothing is agreed until it's all agreed apparently, so we'll have to see on that one. That would be far better, I think, as Bethan indicates, than trying to replace it with a made-in-Wales only, but you could have a made-in-Wales on top. All of these challenges also create opportunities because they stimulate thinking, and so the fact that seven of the eight universities are already now using their fee plans as a vehicle for thinking about this is positive, and I think we can take that on from there.
Llyr Gruffydd AM: Because that 40/60 split struck me as being the opposite to what I perceived the situation to be. A key part of your role is to work in partnership with students, so I'd just like to ask what work have you done with students, in terms of maybe protecting their interests as the Brexit scenario evolves?
Dr David Blaney: Well, as you say, we do work with students. We were the first of the funding councils in the UK to have a memorandum of understanding with the National Union of Students in Wales. We work very closely with them and the president of NUS is an observer on our council. So, we have close links with NUS Wales and we're very proud of that, and it's very productive. They don't have a vote, but they do have a voice and it really matters. We we're, again, ahead of the rest of the UK in requiring all HE providers to have student charters and there are elements of student protection within the student charter. The UK-wide quality code also has elements in it where arrangements have to be specified about the protection of student interests. That is particularly, in essence, around circumstances where a provider gets into difficulties and they might wish to close a course or something more drastic and then what arrangements are in place to make sure that those students who are in train are protected. So, that is there and we've worked hard with the sector and with NUS Wales to get those measures in place. There's more development work in train at the moment, so we've asked Universities Wales to construct a protection that takes account of the approach to protecting the student interests in higher education. We're also requiring further education institutions who are regulated and deliver higher education to do similar or the same, and that's very important. The students who are HE students in FE are absolutely not second-best, and they should have the same protections.
Llyr Gruffydd AM: But is all this a general piece of work? It's not Brexit-specific, although, no doubt, it may—.
Dr David Blaney: I think that's fair to say, yes. The other dimension around Brexit is the immigration status of EU students, and that's, kind of, beyond our pay scale—that's a UK Government issue.
Llyr Gruffydd AM: Is that something that you have a view on?
Dr David Blaney: It's clearly in the interest of the enrichment of the curriculum and the student experience for students in Welsh institutions to be able to have students from other EU countries in the mix. So, it would be nice to find ways of continuing to facilitate that.
Llyr Gruffydd AM: Okay. Now, of course, you have a statutory duty as well to assess the academic quality of the work in our higher education institutions, and I'm just wondering what potential impacts you think that Brexit might have on that particular aspect.
Dr David Blaney: I think there are possibly a couple of things to say, and one, in a sense, echoes what I was just saying in the final part of my previous response, which is that part of the quality of the student experience is the richness that you get from having students in your cohort who have different backgrounds and different perspectives. So, if there is a continuing reduction in the number of EU students coming into Welsh institutions, then that richness deteriorates. That doesn't mean to say that the base or the threshold standard of what's required for a degree will come under pressure, it's just about the richness on top of that, which will be, in a sense, a quality-enhancement issue. That would be something that we would wish to try to protect against, but in the end you can't force EU students to come—you have to try and look attractive, and we've touched on that. The baseline requirement assessment of quality will not be affected by Brexit, except in so far as the machinery we use to discharge our statutory responsibility, which is through the Quality Assurance Agency, which themselves are accredited with European Association for Quality Assurance in Higher Education, the European machinery for higher education quality. And there's a set of standards around that, and we would obviously wish not to be in a position where our ability to use and adhere to those standards is adversely impacted upon. Those standards will still exist, and it will be possible for the British system to adhere to them, even if they're not actually able to play in the same way. Then the only other thing I would say is that one of the factors that can cause the quality of the learning and teaching experience to be likely to become inadequate is when institutions come under financial pressure, just because their capacity to maintain the same sort of student experience can get under pressure. So, clearly, we will be looking for and making sure that institutions manage the financial pressures, if there are any—and there are some at the moment, as we've described—and manage those carefully. And in all of that, we will expect institutions to do their duty to make sure that the commitments they've already made to students are carried through. So, where students have already started on the course, they need to be able to finish that course—you can't just pull the plug out. So, all of that comes into the arrangements for quality as well. So, we'll be keeping an eye on that.
Llyr Gruffydd AM: Okay. A lot of what you've told us in the last three quarters of an hour or so will have costs attached, depending on the impacts. Certainly, we're in choppy waters as a sector anyway, and the risk is that things will be even more choppy, if you'll excuse that level of political interpretation, over the years to come. I'm just wondering what advice you might have given the Welsh Government in terms of what level of transition funding, or Brexit transition funding, might be required by the sector, and if you have, what the Welsh Government might have told you.
Bethan Owen: I mentioned earlier that, obviously, we've provided information in terms of the assumptions that the sector are making on income. So, for the year 2017-18, that was £129 million. I think the extent to which that needs to be replaced or supported with transition funding depends absolutely on what the final arrangements for Brexit are, but it's an appropriate point to refer to the report that Professor Graeme Reid has produced, commissioned by Welsh Government. That was, and has, provided advice and recommendations for supporting research and innovation in the transition period. But, again, the Reid recommendations in that report build on the Diamond recommendations, and as soon as Diamond is in place—and Reid is providing recommendations in addition, to establish funding on the basis that the funding needs to be available in Wales to maintain and develop and strengthen the research and innovation infrastructure that we have.
Llyr Gruffydd AM: Are you not worried, though, that the clock is ticking and that we really don't know what the situation is at this point?
Dr David Blaney: Do you mean the Brexit situation?
Llyr Gruffydd AM: The Brexit clock, yes.
Dr David Blaney: Uncertainty is unhelpful, because as I've said several times, the sector is a managed sector at the moment. I don't think there's—. We're not seeing maverick stuff, but actually you can only manage, really, what you can see and what you can reasonably predict. So, the longer the uncertainty persists, the more difficult that is for institutional management and, indeed, for the rest of the machinery to support them. So, yes, the sooner we get clarity, the better for everybody, I imagine.
Darren Millar AM: Chair, can I just ask a question?
John Griffiths AM: Yes, Darren.
Darren Millar AM: In terms of uncertainty, though, we've still got this uncertainty over whether the extra cash that the Government's going to have to spend as a result of Diamond being implemented is coming to the HE sector. They've given a political commitment, but you've got absolutely no other assurance of the sums of money that are coming in. We've got the reform of tertiary education arrangements in Wales, which are also under way, so it's a bit of a perfect storm for you, isn't it, really, with all of these three things happening at the same time?
Dr David Blaney: We're certainly kept busy.
Darren Millar AM: But two of those things are in the gift of the Welsh Government to sort out for you, aren't they?
Dr David Blaney: Well, the policy on the reform of the post-compulsory sector absolutely is a Welsh Government policy. The extent to which they can pre-empt a budgetary process and give us clear sight of the amount of money in future years is—. Well, again, it's not for me to comment. My understanding is that that's difficult for them to do, and I would repeat what I said earlier: officials have been as helpful as I think they can be in respect of that. I mean, you're right, we've only got a political commitment between two people currently in post. It would be great to have that firmer. I'm not sure how that could be done.
Darren Millar AM: I mean, that statement about the savings accrued from Diamond being reinvested wholly into the HE sector has not been repeated, frankly, has it, since the coalition deal was struck?
Dr David Blaney: No, but it hasn't been rescinded either, so—.
Darren Millar AM: No, but there have been opportunities—repeated opportunities—in the Chamber, where the Cabinet Secretary's been asked to repeat that commitment, and the First Minister's been asked to repeat that commitment and has not given that commitment. That must concern you, and must concern your university sector even more than, perhaps, some of the elements of Brexit that we're discussing.
Dr David Blaney: Bethan has outlined earlier on in this session the fact that institutions are currently running deficit budgets in order not to lose the infrastructure on the assumption that the Diamond money will come in. If anything were to cause significant perturbation, either to the timeline of that or to it coming in at all, then there would be much more of what Medwin Hughes calls 'houskeeping' that would be required, and that would be significant. So, at the moment—I don't like the expression 'valley of death', but there is a valley to cross, and I think the sector is reasonably confident about how wide and how deep that valley is. There's a demographic valley as well. So, there are several valleys that they're crossing—the metaphor fails, doesn't it, really, but I think you get the drift? So, there are a number of challenges and they can see their way out of some of those challenges, but if any one of these starts to get significantly disrupted, then that would be a real issue for them.
John Griffiths AM: Okay. Could I go on to ask about other barriers to Welsh universities gaining more funding from UK research councils? What would you say those barriers are?
Dr David Blaney: Well, I think there are a couple of things, really, to say. The first one—and we'll sound like a stuck record if we're not careful—is that there's an issue about investment and the Reid report makes this very clear. So, he has reaffirmed research that had been done previously that identifies that, actually, the quality of the research base in Welsh universities and the productivity of that Welsh research base are both good, there's just not enough of them, and that, in the end, is a product of investment decisions. They have particularly looked at the deficit in science, technology, engineering and mathematics areas, and I always say that research is not just STEM. I mean, STEM is important, and I'm not denying the deficit in that area, but we have to also remember that the research agenda for Wales is not just STEM—it's arts, humanities, it's social sciences. If you look at the impact on public policy that could come from social science research—tremendous. And we're very good at it in Wales. The Welsh impact in its research is better than anywhere else in the UK, so that's good. So, they do very well, and we just really need to invest a little bit further—so continue to do very well, but put it on a broader front. If you want to be able to play into the UK-wide research funding, then the investment has two dimensions to it. One is just having enough researchers to be able to play into those increasingly larger projects rather than small-scale projects. If you haven't got the critical mass, it's very hard to make the case that you can play. And the second thing is that UK-wide research pots nearly always fund at about 80 per cent of the total cost of the research, and the other 20 per cent is meant to be found from the core research funding for the university, and if you're in a situation where your core research funding is not competitive, then you're not going to be competitive at getting that money. So, that's, kind of, straightforward. There are other things. I think it's fair to say that the Welsh sector has not been sufficiently focused on getting in on the conversations with the research councils, making sure they're in the various committees and so on. We are intending to do a bit of work to see if we can systematise that a bit better—that engagement—because there's no doubt about it: it's not to say that this system is in any way inappropriate, but the more you're in the conversations, the more likely you are to be better placed to respond to the research challenges that come up.
John Griffiths AM: Okay. One final question: in terms of the researcher collaborations and networks that exist, do you see potential difficulties after Brexit for the continuation and enhancement of those, and are there any particular lessons to learn from Sêr Cymru II?
Dr David Blaney: I think that there are two things to say here as well. First of all, the Brexit deal might or might not impact adversely on the capacity of Welsh and, indeed, UK research infrastructure to play into broader collaborative activity across Europe, and, in a sense, that's a function of the deal whatever the deal looks like, and we'll have to wait and see. But we've mentioned playing into Horizon Europe, and being able to continue with that would be an important part of that capacity. It's not just the money, it's being in the club and it's the signalling that we're in the game. So, all of that would be important. And then the other part of my response to this would be that, actually, Wales will need to continue to be good at the research it does, so maintaining the quality, maintaining the impact, and hopefully growing the critical mass. The Sêr Cymru initiative has been quite important in doing that, because it's been very focused, capturing key research players, and the attractiveness that that has then to other researchers around them, and to industry collaboration, and they have been areas of real strength that we've invested in. And I think they are already showing dividends in terms of the capacity to win more research funding, and to establish an even stronger presence in the international research market.
John Griffiths AM: Okay. Just one further point, from Darren.
Darren Millar AM: Just very briefly, one of the pieces of feedback that the committee members received at a stakeholder engagement event, which took place prior to this inquiry starting, to receive oral evidence, was about the research funding that is available from the charitable sector, and how poorly Wales does in attracting some of that research. I think we had some figures from the British Heart Foundation, which said they have £100 million a year available for research grants, or something like that, and we're getting 1 per cent of that coming into Wales, which is obviously pretty low down. I appreciate that research into the type of activity that they want to put their money into, Wales may not be particularly good at, and there may be other opportunities with other charities and partnerships. What work are you doing in order to build the capacity that Wales has to attract more of that charitable sector research funding into Wales?
Bethan Owen: One of the issues is the capacity to engage with that funding, because of the overhead issue that David mentioned. Charitable funding at the moment doesn't attract any overhead funding. Again, that could be built in to our funding, if we had the capacity to increase our quality-related research funding. There is an element in England.
Darren Millar AM: But that pressure's the same in other parts of the UK, is it not? So the overhead funding is still an issue in England, and in other places.
Bethan Owen: There is an increased contribution, and I think it's an element that was increased this year to acknowledge that. But there will be differentiation between different charities. I'm fairly certain that some of our institutions will be very strong with the cancer charities, possibly not the heart foundation. And some of that will reflect on focusing on our strengths, but to have that fuller picture.
Darren Millar AM: So, this gearing issue that you mentioned earlier on, for every £1 that somebody else puts on the table, they can draw in another £4 on top, because that £1 will cover the overheads, whereas the rest of the research cash—.
Dr David Blaney: That's exactly it. So, the more you're able to invest—. You know, we sometimes get into a conversation about the unhypothecated nature of our research funding, but actually that creates a flexibility and the infrastructure investment that allows institutions to be able to respond to these other opportunities. Without that, they can't do it, because if you're not careful, you've got institutions engaging in UK-wide or charity-based research activities where they're actually having to pay for it themselves—they're running at a loss.
Darren Millar AM: So that's the main problem; it's not that Welsh universities aren't doing their best to get this cash in. Or is it a bit of both?
Dr David Blaney: I think, in the main, universities and researchers will get their cash from wherever they can, so I don't think it's a lack of appetite.
Darren Millar AM: Okay.
John Griffiths AM: Okay. Well, thank you, both, for coming in to give evidence to the committee this morning. You will be sent a draft of the transcript, to check for accuracy. Diolch yn fawr. Okay then, the next item is item 3, papers to note, the first of which is a letter from the Cabinet Secretary for Education on the school organisation code. The second is a letter from the Minister for Children, Older People and Social Care on the Childcare Funding (Wales) Bill. Paper to note 3 is a letter from the Chair of the Finance Committee regarding scrutiny of the Welsh Government's draft budget for the forthcoming financial year, which we will be discussing under item 6 on the agenda. Paper to note 4 is a letter from the Minister for Children, Older People and Social Care on parental attitudes towards managing young children's behaviour. And the final paper to note, paper to note 5, is a letter from the Minister for Children, Older People and Social Care on the children and family delivery grant, which we will discuss later on in private session, if Members are content. Okay. Are you content to note those papers on that basis? Okay. Thanks very much. Item 4, then, is a motion under Standing Order 17.42 to exclude the public from the remainder of this meeting, and also for items 1 and 2 of the 20 September meeting. Is the committee content? Yes. Thank you very much. We will move then into private session.