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.