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 individualswhether 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 restricteddespite 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
9
SSDA 2006, Working Futures 2004-14. Back
10
CIHE 2006 International Competitiveness: Businesses working
with UK Universities. Back
11
DfES 2006 update of joint calculation set our in CIHE 2005 Connor
Work based learning. Back
12
CIHE October 2006 with the HE Academy and CSU Prospects. Back
13
See for example work by John Brennan at the OU's CHERI which
suggests that UK graduates are less likely than their continental
peers to have studied vocational subjects, to consider that their
higher education helped them master a specific discipline or that
it was "most appropriate" for their current work. Back
14
See eg the discussion in CIHE 2004 Higher Education and the
Public Good. Back
15
CIHE 2005 The Value of Higher Education quotes a range
of evidence. Back
16
IFS Dearden et al for Nuffield Foundation and update November
2006 broadly confirms the earlier DfES calculation of an average
£400K lifetime premium while stressing the wide variation
around that average. Back
17
CIHE 2002 Conlon & Chevalier Financial returns to undergraduates. Back
18
IFS ibid. Back
19
See Table 1 in the Annex. Back
20
See Chart 1 in the Annex. Back
21
CIHE June 2006 submission Funding quality and innovation refers
to work by Professor Nick Barr at the LSE. Back
22
CIHE October 2006 submission Reform of the RAE. Back
23
CIHE December 2005 HE meeting international business demand;
they also only capture a similar percentage of business spend
on staff development/CPD at higher learning level. Back
24
CIHE November submission What has changed since Lambert. Back
25
DfES communication updating a joint estimate in CIHE September
2005 Helen Connor Workforce Development and HE. Back
26
Many of these are from the USA. See also CIHE June 2004 HE
Leadership & Fundraising and the parallel report for the
Government from a group chaired by one of our members Professor
Eric Thomas. Back
27
Universities UK 2006 Patterns of Higher Education. Back
28
Derived from UUK ibid. Back
29
UUK ibid. Back
30
See CIHE 2002 Brown Co-operation and Collaboration: some reflections
on the US and UK. Back
31
Higher education in further education colleges, November 2006-48. Back
32
See eg the CIHE reports 2004, Higher Education & the Public
Good, 2005 Higher Education: more than a degree; 2006
Balancing Enterprise and Risk; 2007 pending International
Universities: a financial or moral imperative? Back
33
Not printed. Back
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