My Lords, we recognise that many validation arrangements are highly successful and beneficial to the institutions involved and to students. Validation will remain the chosen route to entry for many under the new regulatory framework. Under our reforms we plan to put in place an alternative route for high-quality providers to obtain DAPs without a track record, but this will not be the right route for everyone. We want providers to be able to choose the right option to meet their specific needs. It is therefore important that the validation services on offer are comprehensive and accessible to providers.
Unfortunately, this is not always the case at the moment, as Members of this House have recognised. In compiling his review of higher education funding, the noble Lord, Lord Browne, said he and his panel spoke to many organisations and found that in many instances validation arrangements simply did not work. Highly lucrative for the established providers, they created a closed shop that stifled innovation and competition among new entrants and, as a result, reduced student choice. As the noble Baroness, Lady Garden, acknowledged, the protectionist practices are sometimes adopted when it comes to current validation arrangements. This is why the Bill enables the OfS to take concrete steps aimed to improve validation services. Should this prove to be insufficient, the OfS may enter into commissioning arrangements with other providers.
The OfS cannot force registered higher education providers to enter into such commissioning arrangements. However, once a provider enters into the arrangements, the OfS could then require that provider, in line with the terms of the arrangement, to offer to validate. This is not unlike other arrangements where, for example, a party to a contract may require, in line with the terms of the contract, another party to do something. We in no way expect the OfS as part of this arrangement to require validation where the provider had legitimate concerns regarding the quality of provision. I cannot imagine a scenario where a provider would agree to such terms or where anyone would think it beneficial. Clause 3 sets out clear factors that the OfS must have regard to when exercising its functions, which include the promotion of quality.
The protections set out in Amendment 117A are therefore not required. Remedies for failing to act in accordance with the arrangements and for resolving disputes about them are expected to be provided for in the commissioning arrangements. Where they are not, other laws, such as the law of contract, may apply.
Turning to Clause 48 and Amendment 119, we anticipate that in the event that the OfS is still unable to address significant shortcomings in the validation market through other means, the Secretary of State may make regulations to allow the OfS to become the validator of last resort. I understand that there are still concerns about how this would work in practice and how the OfS would set up such a function. Let me help to this extent. Noble Lords may have received a letter I circulated today. I wish that this letter could have been circulated earlier. For very good reasons it was not able to be. To that extent, I apologise to the House.
I can confirm that, as part of the regulatory framework consultation, we will consult on how the OfS could best establish a validation service to ensure it is underpinned by the necessary expertise and that it is delivered in a way that prevents or effectively mitigates any conflicts of interest. This would enable the OfS to have a blueprint that has been stress tested with the sector through consultation and to be ready to act, subject to Secretary of State and parliamentary approval, as a validator of last resort should this become necessary. I stress that these regulations are subject to parliamentary
scrutiny, so there will be an opportunity to scrutinise these powers. We expect the OfS to make a case to the Secretary of State as to why it is necessary for it to act as a validator of last resort, clearly setting out the nature and severity of the issues in the validation market.
There are further safeguards, in that the Secretary of State may attach conditions, such as ensuring that the service the OfS provides is underpinned by the necessary expertise and is sufficiently independent from its regulatory function, for example by being housed in a separate division. We have heard arguments that this would be unprecedented, but that is simply not true. For example, the Bank of England regulates many aspects of the financial sector to maintain financial stability in the UK, but in extremis will also act as the lender of last resort, or a market maker of last resort—that is, buying and selling assets such as government bonds to provide liquidity—at a time of financial stress.
There are also strong mechanisms in place to ensure that the quality of the OfS’s validation provision is high. We would expect the OfS’s advice to the Secretary of State to clearly set out how it will ensure its validation service is best in class. This could, for example, involve the OfS drawing on sector-recognised best practice principles, exemplar templates and processes. If the Secretary of State designates a body to fulfil the OfS’s quality assessment function, I would also expect the OfS to draw on information from the designated quality body to help formulate its advice and recommendations to the Secretary of State, and to help inform how it can develop the capacity and reach of existing validation services while safeguarding the quality and standards of awards granted. These would be nominally in the OfS’s name, but, importantly, would bear the overall branding of the institution being validated, which answers some of the questions that were raised. I hope that full explanation also answers the question my noble friend Lord Willetts asked about what “last resort” means.
Before I finish, I shall briefly address Amendment 118 and—without too much surprise, I hope—reassure my noble and learned friend Lord Mackay that Clause 48(6) replicates a standard provision relating to the awarding of degrees. These powers are simply designed to enable the degree-awarding body—in this case the OfS—to deprive students of their degree should this become necessary: for example, if it is discovered that it was wrongly obtained, such as through plagiarism.
Without Clause 48, the OfS would be left without adequate powers to ensure full and ongoing provision of good-quality validation services. As I said earlier, we will consult on how the OfS can best establish a validation service as part of the regulatory framework consultation, which will enable further input from the sector. With that explanation, I hope the noble Baroness will withdraw Amendment 117A.