House of Commons - Education and Skills

Select Committee on Education and Skills Minutes of Evidence

Memorandum submitted by the Council for Industry and Higher Education (CIHE)

THE CIHE

The Council for Industry and Higher Education (CIHE) is a unique high-level partnership between leaders from businesses, universities and colleges. Our aim is:

To advance all kinds of learning and research through the fostering of mutual understanding, cooperation and support between higher education and business.

Hence we develop a joint agenda on the learning issues that affect us all, commission research so that policy can be better based on evidence, debate our agenda with the Governments across the UK and work with them and others to effect change. We want to ensure that the UK has a world class higher education system that in particular meets the needs of businesses for high quality graduates and internationally acclaimed research. Our members range (alphabetically) from the Managing Partner of the international IT consultancy business Accenture to the Chief Executive of the marketing and advertising multinational WPP.

BACKGROUND

The CIHE considers that in an increasingly competitive and knowledge driven world, the UK's future rests on continuous innovation especially by those organisations that compete internationally.[1] Their success generates the wealth that powers the rest of the economy and helps develop a more prosperous, coherent and caring society. In an increasingly flat interconnected world, it will be the peaks of excellence in the landscape that will increasingly differentiate the successful nations, regions and clusters from the rest. These clusters have higher education institutions (HEIs) at their core.[2]

The OECD and other commentators have noted that there is a correlation between high skill levels and economic performance.[3] The DTI has recently reaffirmed that businesses that invest in R&D have higher growth and premium FTSE ratings.[4] Businesses and other organisations across the UK need to have the absorptive capacity to be able to develop and then implement high value-adding strategies. Graduates and more highly educated managers and staff are key to that capacity building. However, the great expansion of higher education only took place from the mid 1980s. This means that a considerable majority of people currently in work have had little or no experience of formal higher levels of learning. There is an urgent need to upgrade the capabilities of the existing workforce as well as develop new graduates and post-graduates. Many competitors (USA, Nordic countries, Singapore etc) have higher percentages of graduates in their workforce than we have. Other countries (notably in Asia) are investing to raise their knowledge and skills base.[5] Overall UK participation levels have stalled and those in Scotland are slightly falling. The Council continues to work with the Government, funding agencies, employer groups and others to see how higher participation levels can be achieved. Our economic and social future depends on the UK achieving world-class levels of demand and supply of higher levels of learning.

THE ROLES OF HIGHER EDUCATION

Against this background we consider that higher education institutions (HEIs) have a range of roles:

— to educate students to be intellectually curious, creative, responsible and humane members of society and citizens of the world;

— to prepare students of all ages to be more employable and contribute to the creation of wealth; developing learners who have international and cross-cultural awareness and an underpinning set of values will be increasingly important;

— to serve as engines for the economic and social transformation of individuals and communities notably through widening their participation policies and practices; and

— to be at the forefront in the development, dissemination and application of knowledge and scholarship working increasingly through networks that include business and other organisations and in multi-disciplinary teams.

Institutions will have a range of missions and can be excellent in different ways. Indeed the diversity of the UK's system is one of its great strengths. That diversity includes further education colleges (FECs) some of whom have substantial provision at higher education level. Although the Select Committee is focusing on HEIs it will want to recognise that high level learning takes place in a variety of locations (including the workplace) and is delivered by a wide range of players (including private for-profit providers and corporate "universities" and training centres). Businesses look for a range of high quality provision that develops and releases the distinctive potential of individuals—whether through e-blended learning, "bite size" chunks, via informal learning networks, intermediate level or vocationally oriented courses or more traditional academic honours or post-graduate degrees. Much of what they need for employees is best delivered in-house rather than purchased from external providers, but there is a significant external spend on workforce development. Individuals require an equally wide range of flexible learning opportunities. A significant number (currently over a third of all HE students, and 47% of first degree) study part-time or at local higher or further education institutions or the Open University. So league tables that over-value research and undervalue teaching, enterprise or success in widening participation are unhelpful and distorting.

We want to stress the importance of lifelong learning. The great expansion of higher education in the UK is relatively recent. Even in 1985 only some 15% of young people went to university. This means that an overwhelming majority of managers of smaller businesses and staff in all organisations have had little or no exposure to higher levels of formal learning. Compared to our main competitors we are under-educated. Only some 52% of a sample of CEOs in the UK had a degree in 2004 against over 80% of US businesses (this updates a fuller analysis of 1999 data).[6] Other commentators have noted that management weaknesses and a lack of skilled staff are holding back the adoption and implementation of high value-adding strategies especially in smaller businesses.[7] Equally, as Lord Leitch has noted,[8] some 80% of the workforce of 2020 is already in work. The Sector Skills Development Agency has shown that a majority of the new jobs in the future will be at managerial, professional and similar levels with higher levels of learning a pre-requisite.[9] Our own work with multinational businesses confirms that the future competitiveness of UK-based businesses rests on continuous innovation and high value-added products and processes.[10]

Upgrading the capabilities of the existing workforce is one of the great educational challenges facing us. The potential for HEIs and FECs is considerable; but in a market worth some £5 billion, HEIs currently only have about a 4% market share.[11]

Our report Degrees of Skill[12] summarise the capabilities that large employers look for in graduates. We categorise these as:

— cognitive skills (analytical abilities, problem solving);

— general competencies (team working, communication, interpersonal skills);

— personal capabilities (learn for oneself, initiative, flexibility);

— technical ability (where appropriate for a specific job);

— business/organisational awareness (understanding of how organisations function, financial and commercial awareness); and

— practical and professional elements (personal development and professional practice).

This report and that on International Competitiveness highlight the general capabilities rather than specific skills most employers seek (though businesses such as pharmaceutical and IT services companies attach importance to deep knowledge included down to specific modules). The importance placed on the flexible generalist who has analytical, communication, team-working and self-learning capabilities is a feature of the UK recruitment scene in contrast to the position in many other EU countries.[13] The service sector focus of the UK economy may help to explain this emphasis on customer facing, presentation, networking and team skills as well as the development of the core analytical abilities ("the development of the powers of the mind") that should be the hallmark of all graduates.

Employer involvement in the roll-out of Foundation Degrees and the continued support of HNC/HNDs as well as historic involvement in engineering, medical, creative industry and a range of professional courses shows the importance they attach to applied and practice based learning.

As businesses seek to raise their added-value, they are looking to recruit an increasing number of post-graduates, including those with a range of Masters qualifications. We therefore urge the Select Committee not to over-focus on the traditional higher education market for young people and the conventional three or four year degree.

FUNDING HIGHER EDUCATION

Higher education is a public as well as a private good.[14] It adds to national wealth through the development, dissemination and application of knowledge, it develops citizens who are more healthy, less prone to crime and more active in their local and national communities and who are more tolerant of the views of others.[15] Equally individuals gain a substantial lifetime earnings premium from their higher education.[16] Businesses gain from the graduates and post-graduates they hire and then develop further; they pay a premium for such talent. They also benefit from research and knowledge exchange for which they are now increasingly paying a market price.

Higher education should be funded by all who benefit:

— the State (since higher education is a public as well as a private good);

— from graduates and post-graduates (since they enjoy a substantial premium from their higher level learning); and

— from organisations (who have to invest in their staff and in knowledge exchange if they are to remain competitive).

Closer working between all three is needed if market intelligence is to be improved, market imperfections reduced and the learning be appropriate to develop learners with the capabilities, awareness and experience that organisations and individuals need. Organisations have important roles in transferring awareness and knowledge, offering quality work experience opportunities and in co-funding the higher learning of their staff.

The CIHE has shown that there is a wide earnings premium depending both on the subject studied and institution attended.[17] Recent work by the IFS has reinforced the wide range of financial benefits.[18] Particular earnings premia attach to the study of certain high cost subjects (notably science, engineering and technology that also have a maths basis). These different costs and benefits supported the CIHE arguments for differential market pricing. The £3,000 cap and restrictions by the higher education funding councils on institutional numbers restrict the operation of a more open market and the improvements in quality and customer choice that should result. The CIHE will form a view on the raising of the cap on the basis of evidence on the working of the current arrangements.

Equally, the funding formula used by the funding councils do not currently adequately relate the price they pay to the cost of delivering the wide range of learning experiences. Science subjects are particularly disadvantaged and institutions cannot be expected to continue to offer such subjects when some make a loss on every student they educate. We therefore welcome the additional £75 million that HEFCE has recently allocated over three years for high cost science subjects but consider this to be only an interim solution. We have also welcomed their funding of initiatives by a range of learned societies in the STEM area; we hope that these initiatives are appropriately co-ordinated. However, no-one should underestimate the challenges involved in increasing the demand of young people to study STEM subjects. Our analysis of the demand chain suggests that a major impact has yet to be made in increasing the numbers of students studying the "hard" STEM options at university and at A-level and even in some areas at GCSE level.[19] The study of STEM subjects is not only important for STEM employers; A very high proportion of STEM graduates work in financial and business services and power these high value knowledge intensive businesses that are also fundamental to the international competitiveness of the UK.[20] There is asymmetry in the market information and not all students appreciate that studying a STEM subject opens a wide range of opportunities.

We look to the introduction of TRAC costing methodologies to enable the costs of reaching out into disadvantaged communities, attracting students from non-traditional backgrounds, helping them learn and develop the wide range of personal capabilities that employers seek to be better reflected in funding formulae. A better reflection of costs is also needed for the teaching of part-time learners. Rather than a range of funding premia and special allocations (which we are against in principle as we prefer institutional autonomy reinforced by block grants), we look to the funding councils and HEIs to develop and apply the TRAC costing methodologies so that institutions first of all know how much it costs to educate a particular set of students and secondly so that this can be better reflected in the price paid by the funding councils.

The Government will want to continue to invest in the knowledge base that resides in our universities. We have welcomed the substantial investment set out in the Science and Innovation Investment Framework 2004-14 but note that investment is still needed in research, laboratory and teaching infrastructure and that some continuation of the Science Research Investment Fund (SRIF) will be needed including to meet the shortfall between the 80% of costs that Research Councils will pay through project funding and the 100% needed to fully recover costs.

The CIHE also considers that the Government should reduce over time the economically and socially regressive blanket subsidy on all student loans. Currently all loans are on-lent at no real rate of interest irrespective of the subsequent ability of the graduate to pay. The full cost of this is not easy to assess but is probably some £1.7 billion per year across the UK.[21] As more enter higher education so the costs will rise. The high current cost is a major reason why support for part-time learners is so restricted—despite it often being these learners who are most in need and whose learning advancement could have high economic impact. To on-lend at the Government's cost of capital would still represent a good deal for students and graduates but could free some £700 million per year for reinvestment in raising the quality of the teaching infrastructure. This in turn would increase the attractiveness of the UK to overseas students and to employers who seek high quality in the graduates they recruit around the world.

On research funding we welcome the Government's decision to proceed on the basis of the dual support system. Businesses and other organisations need HEIs to be able to invest in exploratory research in new areas and through supporting new researchers in new fields and on multidisciplinary projects. It is increasingly at the boundaries of disciplines that new and exciting knowledge will be developed with the potential for innovation. We consider that a radical change to the current RAE process is needed and our response to the Government on the future of the research assessment exercise[22] emphasised (in addition to the points made above):

— the need for excellence in all forms of research including applied research to be recognised and rewarded; this implies supporting excellence in a range of institutions;

— the need for a UK wide approach; and

— our opposition to a single metric, that one size does not fit all disciplines and that each high level discipline panel or specially convened group with adequate end-user representation should decide the mix of metrics most appropriate to the discipline.

We welcome the announcement on 6 December that from the academic year 2007-08, £60 million of HEFCE's research funding will be allocated to HEIs according to how much research income they have received from business and industry. HEIs will want to ensure that research excellence is mirrored by the economic and social impact that research achieves (the Warry Report for RCUK is relevant here). UK Universities only capture some £250 million per year of business research funding (perhaps around 3%)[23] and need to be incentivised to capture more. It is important they work in particular to exchange knowledge with smaller companies who often need to increase their added-value. We welcome the move to full economic costing (FEC) as enabling universities better to appreciate the costs of their research and then take appropriate commercial decisions on pricing. We are pleased that (according to a recent survey initiated by the CIHE and Universities UK) a more mature relationship appears to be developing between universities and businesses based on mutual appreciation of the need for universities to cover their costs tempered by an awareness that they operate in a competitive global environment where full cost recovery may not always be possible.

We welcome the increasing formula based approach of the Higher Education Innovation Funding (HEIF3) stream from the DTI/OSI in offering greater security to institutions and staff on this important area of work.[24] Investment in this third stream should continue to be increased so that a more appropriate balance with RAE and Research Council funding is secured. There is merit in rewarding the interchange of people (students and staff) since it is through the flow of people that most knowledge is exchanged. Supporting more students to undertake a quality work placement in a small business for example can help increase the absorptive capacity of such businesses that we noted above was a constraint on their wealth creating capability. RDA funding might also support such placements schemes as aprt of a closer and more informed involvement in the HE agenda. There is a need to join up the range of current initiatives from the DfES, HEFCE, DTI/OST, RDAs and others in the area of local learning initiatives. Increasingly institutions are themselves having to do this.

HEIs will want to diversify their sources of funding. This will be particularly important for some institutions given the demographic decline in the cohort of younger students from 2010. Unless there are trend changes in the numbers both staying on in education and then having the qualifications to enter higher education, this change will reduce the market for traditional undergraduates. We noted above that while the market for employer expenditure on training that HE could potentially compete for is difficult to estimate it is likely to be worth around £5 billion. Currently the HE sector probably secures no more than £300 million (around 4%) of this CPD potential.[25] This income is concentrated in just a few HEIs. Our 2005 report on Workforce Development and Higher Education identified key issues for HE Institutions (and employers) to address in developing this market. Employer led provision often in a very different form to the traditional undergraduate degree course will be required. This in turn will have implications for the HE workforce and the reward structures that currently give priority to research rather than employer engagement and economic impact.

HEIs will also want to develop their sources of income from alumni and we note that many now have appointed experienced fund raisers.[26]

UK HEIs are international businesses. They compete internationally for students, staff and investments by businesses, foundations and alumni. In this international market they need to be able to charge market prices that reflect the value they offer. At the same time they will want to offer bursaries so that those from low income and non-traditional backgrounds are not excluded. They will want to develop world citizens in a socially responsible way.

Currently about 11% of the student body comes from overseas.[27] This is not out of line with the percentages in other nations. The UK has probably the most diverse student body of any system in the world; around 75 institutions have students from at least 100 countries.[28] Businesses value this diversity and multiculturalism because it increases the opportunities for cross-cultural awareness and better prepares graduates to take their place in international businesses where such understanding is increasingly necessary. Diverse teams are also more likely to be creative and innovative that mono-cultural ones. The CIHE considers that it is the richness of the cultural mix and the potential this offers for enriching the student learning experience that is the main benefit overseas students offer. Hence they need to be integrated into the student and local community and help inform a curriculum that is itself rich with international issues. The full funding that those from outside the EU bring is important but secondary. With support from all the funding councils and the British Council, the CIHE is working with the sector and drawing on overseas expertise to suggest how UK HEIs can best internationalise their institutions for the benefit of their students, communities and international businesses.

Some 40% of postgraduates now come from overseas.[29] While this signifies the strength and reputation of our higher education system, it may suggest that businesses and organisations that advise learners are not getting over a strong enough message to UK born students that as the UK moves ever further up the added-value chain so there will be an increasing need for graduates who have masters degrees. Three or four years of undergraduate learning may be adequate for many who recruit generalists but will be increasingly inadequate for those who need in-depth knowledge and experience (eg, in engineering and biosciences).

MANAGEMENT AND STRUCTURE

The sector has shown itself to have been remarkably well managed given the substantial 20+ year decline in the unit of teaching resource, the vast expansion in the size of the student body, the expansion in research volume, the sector's responsiveness to a range of government and other initiatives and its ability still to produce some of the best graduates and research in the world.

Further improvements are always possible. Greater co-operation and collaboration (an increasing feature across the sector) can improve efficiency and effectiveness; HEIs cannot be excellent at everything and a greater sharing can raise quality.[30] While wholesale mergers are unlikely, initiatives such as that in Scotland between chemistry departments, physics departments and built environment departments and similar initiatives in London on languages can be encouraged by funding councils oiling the wheels. Estates might be still better utilised and opened to the local communities; the example of Worcester University opening its library as a community resource centre is a recent example. Administrative functions might also be better shared; there is no compelling need for every HEI and Further Education College (FEC) to have their own payroll, pensions, IT, estates, careers services or library/resource functions. The development of purchasing consortia is an example that might be emulated elsewhere. The pooling of functions and raising of efficiency would be helped if the Government was to amend the rules on VAT so that services provided by internal consortia were not subject to VAT.

More joint curricula development might help learners of all ages better access a wider range of learning options and higher quality teachers and facilities. FECs are in an excellent position to work locally with their businesses, other organisations and a wider group of learners. They have good track records in delivering vocational learning and encouraging student progression. We generally welcome the recent HEFCE consultation document on these issues.[31] Private sector providers can also play a role where they are focused on specialist provision delivered flexibly and in the bite-sized pieces that small businesses in particular need. The HEFCE will want to develop a credit based approach to funding to support those institutions that want to address this market opportunity. Such an approach already operates in Wales.

The role of the Government and of the funding councils is to support the higher education sector to be internationally competitive. That involves:

— investing in our diverse system through block funding at levels that will at least maintain the unit of teaching resource;

— signalling its encouragement for and then financially supporting institutional proposals that will raise the quality of the learning and research offered and the overall efficiency and effectiveness of the sector;

— working to remove the barriers to change so that the sector can respond dynamically to the challenges and opportunities it faces (eg co-funding work based learning through credit systems);

— working with business and other organisations to improve the workings of the market through helping ensure there is more informed demand including for so-called strategically important subjects; market imperfections lead to some students being ill informed about what a modern career in STEM means and the generally higher than average salaries and lower unemployment associated with these jobs;

— implementing education policies in primary and secondary schools that do not result in learners foreclosing options and specialising too young while enabling them to be better taught by those who have relevant knowledge and experience of the subject; and

— supporting through the British Council and other agencies and through a partnership approach the marketing of UK higher education in overseas markets so that the strengths of the UK education brand is better appreciated, more overseas students and graduates choose to study and research in the UK for the benefit of HEIs and the enrichment of their own learning experience. UK based organisations will recruit this talent and benefit from their learning and research. The Government needs to have joined-up policies so that marketing efforts by one arm are not handicapped by visa and work-permit impediments placed in the way by other arms.

The CIHE does not consider that the Government should try and plan the shape of the sector, try and manage a market in learning or directly intervene even if that were legally possible given the autonomous nature of higher education institutions. HEIs stand as bulwarks of independent thought, expression, teaching and research. They have abiding values that transcend the immediate particular interests of Governments.[32] That is one of their great strengths and one that the Select Committee will want to uphold in its report.

END NOTE

This input reflects the views of CIHE Council members following the circulation of a draft paper. We would be pleased to elaborate our evidence through a discussion with the Select Committee.

We attach a copy of:[33]

International Competitiveness: Businesses working with UK Universities.

Degrees of Skill: student employability profiles.

December 2006

1 See in particular CIHE May 2006, International Competitiveness; businesses working with UK universities. Back

2 See in particular Florida, The Rise of the Creative Classes; CIHE November 2006 Oxford Entrepreneurs. Back

3 OECD 2006, Education at a glance. Back

4 DTI October 2006, Innovation Report. Back

5 OECD ibid. Back

6 Keep and Westwood 2002, Can the UK learn to manage, quoted in CIHE/AIM 2004, Solving the Skills Gap. Back

7 See eg. work by the SSDA including May 2006, Meeting Future UK Skill Needs. Back

8 Interim report. Back