Public confidence in the higher education system is at risk, the regulator has warned, as figures show unexplained “spiralling” grade inflation exists at majority of universities in England.

More than four in five higher education providers show an increase in the proportion of first-class degrees awarded which cannot be fully explained by factors linked with attainment, report finds.

The Office for Students (OfS), which carried out the analysis, has called on universities to urgently tackle the issue to reassure students that their qualifications are reliable and will be respected.

Education secretary Damian Hinds said the new report should be “a wake-up call” to the sector and warned that institutions that are “unreasonably inflating grades” could face sanctions.

The warning comes amid fears that universities are giving out more top class degrees to improve their league table positions in a bid to recruit more students from a narrower pool.

Just last week, Ucas revealed that more than one in three students who applied to university were offered a place on a degree course, which costs up to £9,250 a year, regardless of their exam grades.

The analysis, which looks at changes in degree classifications between 2010-11 and 2016-17, shows that 84 per cent of institutions in England have unexplained grade inflation for top degrees awarded.

Of the top 20 institutions with the largest unexplained increases for the number of first-class degrees, seven are specialist arts institutions like music and drama colleges. This includes the prestigious Royal Academy of Music and the Conservatoire for Dance and Drama.

The report, which focuses on 148 universities and other higher education providers, also finds that graduates who entered higher education with the equivalent of grades CCD or below at A-level were almost three times more likely to graduate with first-class honours in 2016-17 than in 2010-11.

More than three-quarters (78 per cent) of first and upper second-class degrees were awarded in 2016-17, compared to 67 per cent just six years before. And the percentage of first-class degrees has risen from 16 per cent to 27 per cent, the report finds.

Nicola Dandridge, chief executive of the OfS, said: “It is fundamentally important – for students, graduates and employers – that degrees hold their value over time.

“This report shows starkly that there has been significant and unexplained grade inflation since 2010-11. This spiralling grade inflation risks undermining public confidence in our higher education system.”

She added: “We absolutely recognise how hard students work for their degrees, and accept that improved teaching and student support, and increases in the qualifications students gain before university, could explain some of the increase in grades.

“However, even accounting for prior attainment and student demographics we still find significant unexplained grade inflation. The sector must quickly get to grips with this issue.”

Ms Dandridge warned that the regulator would use its powers against universities if they did not work together to solve the problem. They could be issued with sanctions and fines, and in the most extreme cases, universities could be deregistered.

Education secretary Damian Hinds said: “I am urging universities to tackle this serious issue and have asked the OfS to deal firmly with any institution found to be unreasonably inflating grades.”

The minister added: “Students across the country work hard for their results and they deserve a grading system that properly recognises this.

“We want and expect to see results improve over time, but the scale of this increase in firsts and 2:1s cannot be proportionate to improving standards.

“I sincerely hope today’s figures act as a wake-up call to the sector – especially those universities which are now exposed as having significant unexplained increases. Institutions should be accountable for maintaining the value of the degrees they award.”

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Nick Hillman, from the Higher Education Policy Institute thinktank, said: “Clearly there has been a real issue with grade inflation and the incentives, such as league table positioning, to push through higher grades are so strong that only collective action is likely to prove successful.”

Last month, university bosses admitted that a continued rise in the number of top degrees could undermine confidence in the value of a degree, making them less useful for students and employers.

The report by Universities UK, GuildHE and QAA, the Quality Assurance Agency for Higher Education, recognised that increased competition to attract students has incentivised universities to perform well in league tables – which rate institutions on the number of top degrees awarded.

A UK-wide consultation has been launched to look at how the value of degrees can be protected.

Alistair Jarvis, chief executive of Universities UK, said: “Universities are already taking steps to tackle grade inflation.

“The report we recently published outlines a number of measures to protect the value of qualifications over time that are currently being consulted on by the UK Standing Committee for Quality Assessment.

“It is essential that the public has full confidence in the value of a degree.”

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A spokesperson for the Russell Group said: “There is a mixed picture across the sector, with significant variation between different universities in terms of awarding top degrees. It’s a complex trend and one we are working to understand better.