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Lord Renfrew of Kaimsthorn: My Lords, before the noble Lord sits down, may I make the point that I spoke only for six minutes out of my eight. May I offer him 30 seconds to say whether Labour has a policy on these matters, as I asked in my speech?

Lord Morris of Castle Morris: My Lords, if I may be granted the leave of the House just a few seconds to answer that question, I refer the noble Lord to what I said in the debate which he quoted, which he will find clear and sufficient to answer his question.

3.37 p.m.

Earl Russell: My Lords, I enjoyed that exchange but I hope that it does not come out of my eight minutes. I should like to thank the noble Lord, Lord Annan, for introducing the debate and for the delightful image of Jane Austen seeking lodgings with Casanova. I enjoyed the exchange between the noble Lords, Lord Renfrew and Lord Morris of Castle Morris. There is more than one party opposite the noble Lord, Lord Renfrew. Our party has already grasped the nettle of an income contingent repayment scheme in our new policy which my noble friend Lord Tope will develop in more detail.

When we introduced that, my right honourable friend Mr. Ashdown said to us as we were considering it, "If you reject this policy, you have three other options: to let quality continue a rapid decline; to put 4 pence on the income tax; or to lie". The first of those is clearly the policy of Her Majesty's Government, and has always been. I wait to know which of those three is the policy of Her Majesty's Opposition.

I must of course declare an interest in this debate, not only as a university teacher but, more specifically, as a teacher at King's College, which has suffered a particularly savage cut in its recurrent grant. We are a college that does individual tutorials, and will continue to do so as long as we can. In the humanities, in the research assessment exercise, we came second after Cambridge. Having assisted in doing the research assessment exercise, I would be reluctant to ask the House to take that information too literally, but that does not happen to a second-rate place.

If this was done deliberately, it is curious. If it is the result of a formula, the House knows what I think about formulae. I am advised that it is going to cause us a lot of problems with teaching rooms. It will impose on us a need, through the closure of some rooms, to teach in smaller rooms, which means either more teaching hours or fewer students. I am also, like the noble Lord, Lord Morris, deeply concerned about books. Without books in my subject one might as well not be there at all.

The House knows my general views on universities and I shall not repeat them at length. However, in addition to my party policy I now find that I must support the proposal of the CVCP for a fee charge on individual students. The House knows what I think of the financial burden on students. The House will believe that I feel like Cromwell dissolving the Rump--that

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I have sought the Lord day and night that He would rather slay me than put me upon the doing of this work. But we cannot await Dearing. If we do not do it, we might as well close down.

Having spoken so many times on universities I will say something on a subject on which the House has not heard me. It is the private finance initiative; the Deus ex machina which is supposed to fill up all the gaps. The private finance initiative does not seem to have been cast taking into account that most of our capital budget does not go on great glorious new buildings. It is not that kind of period. It goes on repairing the roof, buying computers, mending window frames and so forth. The Welsh and Scottish Offices understand that those items are not suitable for the private finance initiative. I wish that the Department for Education and Employment did the same.

The private finance initiative is essentially a lease-back system. It means that the costs are deferred and, as anyone with a mortgage will know, the ultimate total cost rises. I wish to know whether the Treasury has calculated the long-term cost of the private finance initiative to the state. They think only in five-year terms down there; we up here ought to do a bit better.

The lease-back of small items creates problems. I am reminded of the time when Camden Council, borrowing money from Japanese banks, passed over to them the title to every bath tap in every council house in Camden. I wondered how the Japanese bankers would foreclose if that were necessary.

We face much the same problem. If we have banks and private firms getting titles to defective window frames I do not know what they will do with them. It has been pointed out that repayment can come only out of recurrent grant. Defective window frames do not generate income. It is also crucial to the private finance initiative that ownership of the item in question is passed over. If ownership of a teaching room is passed over to a private body it must become involved in decisions about what is done with the room. What is done with the room will determine the teaching programme of the university in question. We are getting private firms involved in the planning of academic teaching and it really will not work. It is one of a succession of hare-brained schemes which go a long way back.

When Henry IV of France visited King James I, King James held forth on the cost of his court. Henri Quatre assured him that one could feed 300 courtiers for two days on one ostrich egg. In the accounts of the Keeper of St. James's Park a few months later appears the entry: "To Coles, for one month's trial to hatch ostrich eggs; 13s 4d". Those eggs did not hatch and neither will these.

3.44 p.m.

Lord Dainton: My Lords, I must first declare my interests in institutions which are significantly affected by changes in government funding of universities. I have been Chancellor of the University of Sheffield for 17 years. I thank previous speakers for their

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references to that university, which were so gracious and were so well deserved. I am also president of the Royal Post-graduate Medical School and president of the Arthritis and Rheumatism Council, which is a medical research charity devoting most of its income to encouraging and paying for research within the universities. In common with other medical charities, it is profoundly affected by what happens to the universities.

I too am grateful to the noble Lord, Lord Annan, for initiating the debate, which is very timely. I will not attempt to match his flights of oratory but shall begin by quoting the words of the opening speech of a similar debate in another place. In arguing for the simple and, in my view, entirely just proposition;

    "that the obligations imposed upon the universities are matched by the resources made available to them",
the speaker said,

    "We are at present witnessing a crisis on the campuses of Britain's universities ... the universities are being forced to make major restrictions not only in fringe matters but in some of the essential services that enable universities to do their job properly".--[Official Report, Commons, 13/1/78; col. 2016.]
Then he elaborated on the effects of the cuts in teaching, research, libraries, scientific equipment and other cognate matters which have been amply illustrated today. From my vantage point as chairman of the University Grants Committee, and with my heavy responsibilities, I could only applaud and endorse all that the speaker said, which applies with much greater force today.

Mr. Malcolm Rifkind--for the speaker was none other than today's Foreign Secretary--was completely right. In looking back at my UGC papers, I remembered one year in which the university inflationary cost index, which was nearly larger than the Government's deflator, touched almost 30 per cent. By throwing in all our reserves, switching the capital furniture and equipment grant to meet recurrent costs and by appealing at length, and successfully, for some help to the then Secretary of State, who became the noble Lord, Lord Prentice, we managed to reduce what would have been an entire catastrophe: a cut of almost 30 per cent. to one of just over 11 per cent.

The noble Lords, Lord Annan and Lord Renfrew, told us that the best indicator of the trend in government funding of the universities is the average amount of recurrent annual income per student from government directly and also from fees in respect of British and European Union students. It is called the average unit of resource. My UGC papers showed that in 1972-73 that was £2,762. Using the Government's own annual deflators, which are specifically--and I quote the Government--

    "provided for use in constructing comparisons over time on a consistent basis",
I calculate that what that cash bought in 1972-73 would require £19,000 of today's money. What is the position today? The old universities--and I restrict myself to them because they are the only ones for which the data are sufficient over a long period--are not receiving that sum but £6,700 of today's pounds. In other words, the cut over the period has been 65 per cent. which is

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two-thirds. Often that is referred to as an "efficiency gain". That is a misuse of the English language because it is nothing of the sort.

How did the universities react throughout the prolonged period of repeated cuts in recurrent funding? In my view, they have been exemplary. They loyally accepted the duty of the expansion of higher education which the country needed and for which the Government called. Inevitably, teaching loads increased and staff/student ratios deteriorated dramatically. House of Lords Paper 60, issued on 19th July last year, shows that, despite the great increase in student numbers, the total number of established staff of those universities increased by only 4 per cent. in the 16 years after 1978. More detailed statistics are available for 1984 onwards. If one looks at the age profiles of the staff one will see that they have risen by about 10 years. That indicates little recruitment of younger staff, which is never a good sign in universities where youthful intellectual vigour and imagination is essential if quality is to be maintained.

Finding themselves in that very difficult position, the universities assiduously sought and received funding from sources other than the funding councils, principally research grants and contracts. The noble Lord, Lord Annan, has referred to the performance at Sheffield. I am grateful to be told about things that I did not know in relation to my own university. That extra money was used mainly to support so-called contract researchers, whose numbers trebled from about 7,000 to 22,000 in 16 years. Those people keep research activity alive and help with teaching. They comprise many people of high quality but, as the same House of Lords paper shows, they constitute an underclass of temporary staff and are disadvantaged in all manner of ways relative to established staff of comparable age. Moreover, the women in that category are even more disadvantaged and are a kind of "super underclass". I shall not expand on that because I hope that your Lordships will be able to debate that particular issue after Easter. I merely use that as an illustrative example today.

Your Lordships can see that, faced with those figures, there must be a real crisis, worse than that identified by Mr. Rifkind. But even worse is to come. Government plans call for recurrent funding to be cut further; money for building and equipment to fall by 17 per cent. per annum in the next three years. That will erode further the science base, as has been mentioned, although it is generally acknowledged that the laboratories of universities are no longer "well-found" as they should be, if universities are to maintain the standards in research and teaching which the nation demands.

The Government have stated that non-governmental sources can make good those cuts in government capital funding either by direct arrangements or the private finance initiative. I have inquired of industry what is the position and Dr. Peter Doyle, who runs Zeneca, which is an extremely large and successful high-tech company, has said that it will not support the initiative. I am told also that the Association of Medical Research Charities is resisting paying indirect costs and the research councils, government departments and the European Union have strict financial rules which give them little, if any, manoeuvrability to help in relation to capital funding.

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I know that all those points have been made to the Department for Education and Employment and many are in the public domain. At last, that department has acknowledged that there is a problem and has responded by setting up a national committee of inquiry. We must all be grateful for that. But the committee will not report until late 1997 and any decisions based on its conclusions will be even later. What is needed is action now to resolve the financial crisis that faces the universities now. All I ask is that today's equivalent of the noble Lord, Lord Prentice, will acknowledge the parlous financial realities and will persuade the Chancellor of the Exchequer to produce that absolutely minuscule sum from the Budget in November which would enable the projected cuts in capital and recurrent funding to be revoked until we can have a proper plan for the universities. I assure your Lordships that I know that I am not alone among those who have experience of university funding in expressing those views.

3.53 p.m.

Lord Beloff: My Lords, some 30 years ago at an international conference in Canada I followed the noble Lord, Lord Dainton, in a discussion about university finance. At that time I said that I thought that a higher education system wholly dependent on the public purse was very vulnerable. The noble Lord, Lord Dainton, was a little more optimistic than I was.

Today we see the consequences which are not of the particular malice, wickedness or incompetence of particular Ministers because the problem that we face is shared by everyone. We face the problem that we have allowed one generous impulse--the expansion of higher education--to override what should always be in the mind of any government putting forward a new policy; namely, how they were to persuade the country to pay for it. It is my view that the problem is not due to a particular government and therefore I do not wish to enter into controversy with the noble Lord, Lord Morris of Castle Morris. It is due to the fact that we have come up against a ceiling in the public apprehension of the proportion of taxpayers' money which should be spent on higher education as it was understood 30 years ago.

Therefore, we face not merely the current crisis-- and I shall not elaborate on that because there are people who are closer to the current scene than I am--but the need to rethink from the beginning the whole of our system of higher education. Instead of 105 universities, we must consider groups of universities performing different functions and requiring different levels of finance. No country in the world, not even the United States, has 105 research-led major universities. If we had 10 or 12, we should be doing better than most countries of our size and with our resources.

Universities will be asked to face merely not this current problem, whose seriousness I do not under-estimate, but a total change in the way in which both their own expenditure is financed and, as we have learnt, the way in which students are supported.

It is clear that some contribution in some form from those who benefit from university education should be demanded. Some of us pointed that out in the original

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debate on student loans some years ago and were ruled out of court by the then government and the then Minister. That is coming back--income contingent refunding.

After all, that is what happens elsewhere where there are major universities. I agree totally with the noble Lord, Lord Annan, that the last thing that we want is to have universities on the Italian, North German or, indeed now, French model, although in the case of the French and in a different way in the case of the Germans, that is made up by research and high-level teaching being concentrated in particular institutions. All that needs to be done. It is a major operation which is bigger because it must be done relatively quickly if the crisis is to be overcome. It is a major operation which can be compared only with the extension of secondary schooling after the war.

For a year the Government have been apparently indulging in consultation. I must say so far as I perceived it, that consultation was not very radical or deep, and clearly the results have not satisfied the Government or they would have published them. Therefore, the matter has now been handed to a new committee. But it is all very well to say, "Let us wait for the committee". What is the committee going to produce? If it produces, as I hope and believe it must, that major transformation of the whole higher education scene--the grouping of universities, the singling out of those led by research and the singling out of those where individual teaching is maintained at a high level--inevitably it will offend and upset a great many people in the higher education system. You cannot have radical change and satisfy everyone.

If that is the case, that committee will need to have the understanding, approval and sympathy of the entire university community. I do not believe that the Government have altogether grasped that point. Sir Ron Dearing is no doubt a valuable and experienced public servant, but he has no experience of higher education at any level. As I have been going round since his appointment was announced consulting people from a variety of universities, I find everywhere a lack of confidence that he can on his own overcome that considerable disadvantage. After all, if a hospital has a patient who has to have a heart bypass, it sends for a surgeon; it does not send for a plumber however good the hospital plumber may be.

This is a serious matter because the fortunes of the committee depend on two things: terms of reference which will allow it to consider from the beginning the kind of higher education system that we should have, the institutions that should compose it, and the finance that should go into it; and how we prevent this appalling falling off in the standards of our student welfare and the serious lessons of the drop-out rate. For that we need at least a Lord Robbins. I do not know--it would be presumptuous of me to know--who is the Lord Robbins of this generation. But he has to be found. Even if Sir Ron Dearing remains as chairman, it could be possible to find members of a committee to consider those issues from the kind of experience with which we have been favoured by noble Lords who have spoken

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today and those on the list before us. But it will not be easy and it is as well that Her Majesty's Government should realise the difficulty of the task.

4.1 p.m.

Baroness Dean of Thornton-le-Fylde: My Lords, we owe a great debt to the noble Lord, Lord Annan, for putting this Motion before us today. Not only Members of this Chamber but many thousands of people outside are affected by these education cuts. I must confess to a little trepidation in putting my name down on the list of speakers. It looked almost what I might term a closed shop of providers from the higher education field. However, I plucked up my courage-- at least until I heard the noble Lord, Lord Beloff, refer to plumbers. Perhaps I am the plumber in this context. I did not go to university. In many respects that gives me all the more determination to ensure that people have the advantage of going to university where their ability allows them to do so.

I have an interest to declare. I am a member of the Council of the Open University. It is from that aspect that I should like to address my brief remarks. In student numbers it is the largest university in the country, with 150,000 students. Many of those are people I met in my former days as a trade union officer. I met them on factory floors and in the office. I met people who never had the opportunity to go to university and to have the higher education provision that many fortunate people now have.

With the development of the Open University there has been development of different course structures. As a consequence, 37 per cent. of all part-time students in the United Kingdom in university education are within the Open University provision.

If the proposed cuts are agreed, it will mean that the Open University will have to reject 5,000 students next year. I gather that that is the equivalent in student population of a medium-sized traditional university in Great Britain. That is frightening. I suggest that it is also a big threat to Britain's competitive position in the future. I make no apologies for introducing in a debate about education our overall well-being as a nation in the industrial and commercial field competing world-wide. The fact of the matter is that many of our people at work today have not been given the education training back-up that they need to enable the country to compete world-wide. That pressure will increase. It will not go away. It will not decrease. Cuts today in education mean a deficit of skills in a decade's time. That is what we need to consider in the debate.

Seventy per cent. of students at the Open University maintain full-time employment while they are on their courses. I regard that as a tremendous achievement, not just for the education sector but for those people as individuals. It is tremendous to see the pride they have for the skills and the education that they receive.

The problem is that the Open University feels a little like the meat in the sandwich, between government policy on the one hand advocating strongly that part-time courses are the way forward, and, on the other, the Higher Education Funding Council cutting back on the funding provided for the Open University.

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I suggest that it is not the fault of the HEFC. At fault are the overall budget provisions available. If the measures are carried through, at worst it could mean next year a cut-back in funding of £6 million against an increase in expenditure of £1 million.

Those are real concerns. Today's debate is to me a privilege to partake in. It is like sitting in on a master class, a tutorial, not on a one-to-one basis but with this marvellous array of eminent and extremely experienced people from the education field for whom I have the utmost respect. I hope that in the debate we do not forget the many thousands of people out there who depend upon the education system for determining not only the quality of their lives in the future but how they provide for themselves and their families.

I should like to refer to the impact that these cut-backs will have on medical education. It is almost a double jeopardy. I declare a tenuous declaration of interest. I am the deputy chairman of University College Hospital in London. We have strong links with University College London. The partnership that UCL has with the NHS on research and capital expenditure is of major benefit not only in the education field but as regards the health of the nation. The cut-backs will mean some quite profoundly damaging implications, involving something like £3 million.

However, these bodies are told that they will have to raise the money through the public finance initiative. We have had some initial experience of that in the National Health Service. At present the University College Hospital is engaged on a tender process involving PFI for a new hospital. When faced with such cut-backs, where does the Minister expect the universities to obtain the resources involved as regards a business plan with all that a public finance initiative means? It is not an easy thing to do. One cannot do it in-house. One is talking about a major investment resource in that respect alone.

I recently found out about the dual support system relating to research. Noble Lords will understand this issue better than I do. In 1992 there was a change in the way in which that was calculated and assessed for the research council grants. It meant a £3.2 million loss to University College London.

We are faced with serious issues here and now in the education field--whether in the future people will have a good quality of life and be allowed to develop as individuals in the way in which they should be allowed to do. I share the concerns of noble Lords who have spoken. I hope that when the Minister responds he will be able to answer those key issues.

4.10 p.m.

Lord Kirkwood: My Lords, looking at the recent budget on university funding, clearly the most dramatic and potentially damaging items are the cuts in capital spending which have been alluded to. There is a 32 per cent. cut for English universities this year, rising to 47 per cent. in 1998-99, compared with 1995-96. The Scottish and Welsh universities will suffer similar deprivations. The suggestion that this can be made up from the private funding initiative is--as many noble

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Lords have suggested, and in the opinion of the vice-chancellors themselves--laughable. The noble Lord, Lord Morris of Castle Morris, elaborated on that matter in his speech. Funding by this means is not well tested and it would certainly take a period of time to set up and get running in the universities, and time is in short supply. The consequence of the cuts in capital spending will certainly mean that many building projects will now have to be halted or cancelled.

It should be remembered that apart from buildings the capital budget provides for books and equipment. Without books--even in this age of information technology provided by computers--there is no university as we understand it. Unfortunately, technological progress means that equipment, particularly scientific equipment, rapidly becomes outdated and has to be replaced if universities are to pass on those skills required by society, and if they are to maintain themselves in the forefront of research and not begin to drop behind their competitors.

The commercial partners in PFI can have no interest in providing and investing in books and equipment: unlike buildings, they cannot provide extra income. It is ironic that one inevitable consequence of decreasing funding will be the loss of active university teachers. This cannot be compensated for by improved efficiency or productivity through introducing newer teaching technologies such as computer-aided learning because the equipment budget is being cut at the same time. There appears to be no way out of this dilemma except by lowering standards, and possibly the bankruptcy of some institutions of higher education.

However, while the capital spending cuts are most dramatic, there is another less sensational effect of this budget but which has no less serious consequences, and that is the effect on unit costs. In England there will be a decrease in the total funding in cash terms of 2.1 per cent. in 1996-97 over the previous year. As a result of inflation and a small rise of 0.4 per cent. in student numbers, the net effect on funding per student is a drop of just over 5 per cent. over the year. This is predicted to continue on the same scale in the following two years.

It really is almost impossible to describe the effects that this will have on the morale of already overstretched university staff. They are already badly paid in comparison with those in like professional occupations, and they are falling behind in public esteem. They certainly cannot expect any recompense for the additional stresses they will be put under. However, that is not my main concern.

My main concern is with the quality of education that future university students are likely to receive. I know that the noble Lord, Lord Annan, has discussed this particular aspect but I think it needs to be stressed strongly. Degrees at British universities used to be highly valued throughout the world. We used to think that a bachelor's degree from the United Kingdom was superior to an American bachelor's degree from most universities in the States. Sadly, I feel this is no longer the case. We then had graduates of high quality and a low drop-out rate. The higher education system was,

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in economic terms, highly efficient. This was partly achieved by having dedicated, highly motivated academic staff who had the space, in time, to become excellent scholars and researchers in their own fields. They were often men and women of international reputation, teaching students by way of lectures, tutorials and small group seminars, and they often had close personal contact with their students, providing inspiration for learning and often acting in a pastoral role as well. That was, of course, an expensive, elitist system and was probably only possible with small numbers in the higher education system. So, inevitably, it has had to give way to a system in which there are huge lecture theatre audiences and tutorial groups which are large and impersonal and cannot engender the one-to-one discussion and debate that used to exist. So what we used to think of as education of the individual is fast becoming the force feeding of a passive audience with information to be regurgitated at exam times.

It is clear that there is room for improvement in the methods of passing on knowledge. Traditional lectures in some ways are outdated, except those given by the occasional inspired performers, and not many university lecturers will claim to be that. Pre-recorded lectures by good presenters, such as have been pioneered by the Open University, with professional quality illustrations, animated diagrams, film clips and the rest, which can be run and re-run by students in their own time, have definite advantages for both students and teachers. However, it seems to me that what we cannot do without in a university education worthy of the name is the teacher of small groups of students--the tutorial--who challenges and probes assumptions, and allows the critical approach to knowledge gathering to become a part of the student's intellectual equipment. This is as true for history or literature as it is for science and engineering.

What this cruel Budget will do is to continue the process of underfunding each student's education, which must inevitably lead to further reduction in the staff/student ratio; reduce the quality of our highly valued university education; and result in a great increase in the number of student drop-outs and failures. Can the Government really wish this to be the ultimate consequence of their important and vital experiment in providing more universal higher education? They must back their vision with adequate financial investment of public money; it cannot be done on the cheap.

4.18 p.m.

Lord Walton of Detchant: My Lords, I, too, thank the noble Lord, Lord Annan, for initiating this debate which could not possibly be more timely. At the outset I apologise to him and to the Minister for the fact that I may not be able to stay until the end of the debate because of a pressing early evening engagement. I had set down my name to speak in this debate having been assured it would be likely to last some two-and-a-half hours.

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The universities of this country have served the country well. They have a high graduation rate still. The honours degree which most of them award is justly regarded highly, nationally and internationally. When I had the privilege two years ago of debating in your Lordships' House the report of your Lordships' Select Committee on Science and Technology of an inquiry which I had chaired on international investment in UK science, it was clear that because of the quality of the science base in the United Kingdom--much of it within our universities--40 per cent. of all American and 42 per cent. of all Japanese overseas investment in science came to the United Kingdom. That science base is now not only under threat: it is in decline.

There has been a universal welcome in the higher education sector for the Dearing review; but, as the noble Lord, Lord Beloff, has said, it is crucial that it looks at a restructuring exercise relating to the higher education structure as a whole, although it is important to realise that one can never tell within such a setting where the new rising star in research is going to appear. For that reason any such restructuring must not be too rigid in grouping universities.

As the noble Lord, Lord Morris of Castle Morris, said, the recent 30 per cent. cut in capital expenditure for the coming year and 47 per cent. over three years has been the unkindest cut of all, and I agree with those who have said that the assumption that this can be replaced by the private finance initiative is totally misplaced, at least in relation to equipment. I have never known any decision which so enraged the vice-chancellors, who now oscillate between anger and despair. Last week's announcement of the Higher Education Funding Council settlement means that many universities now face staff redundancies, deficit and closure or possibly merger. These are not idle threats. They are a genuine statement of the present position.

The salaries of academic staff now begin for a young lecturer with a PhD, as the noble Lord, Lord Annan, said, at £14,137 per annum--almost less than a private soldier would earn--rising after many years of service to £33,898 as a senior lecturer, and a professorial minimum of £32,000, far below comparable professions. Now we see the repeat of the annual charade where the universities will not be able to pay the award of the Doctors' and Dentists' Review Body, normally translated for clinical academic staff, until there has been a decision about the pay of other staff, if any, the department has said, with salary scales at that level. It is intolerable that the academic staff should be so far held back. Thank goodness for the review of clinical academic medicine which used to be undertaken by the Oxford academic, Sir Rex Richards. As I said in last week's debate on the NHS, there are 24 vacant clinical chairs in United Kingdom medical schools, 10 of which have been vacant for lack of suitable applicants for more than a year.

Higher education is costly and I wholly agree that no developed country can afford to pay full maintenance grants and fees. But when will the Government realise that the present loan system, even modified as proposed by the legislation under consideration in your Lordships' House, is pleasing no one? It is crucially important that

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we should move to repayment through the national insurance or tax systems, beginning when the individual has begun to earn an appropriate sum, and repayment of the sum borrowed like repaying a mortgage, not a lifetime graduate tax. I know that the Minister will yet again, rather wearily no doubt, repeat the comment that has been made on this matter before, that the national insurance and tax systems are not there for debt repayment. Why not, my Lords? This has worked in other countries. Why can we not make it work? How long will the Treasury continue to wag the tail of the governmental dog?

The National Commission on Education, which I had the privilege of chairing, strongly proposed that not only should the maintenance grant be repaid through such a mechanism but also a contribution towards university fees, say, a flat rate of £1,000 per annum. That would be wholly acceptable to the student body. Medical students, who have a five or six-year course like dental students and veterinary students, are suffering particular hardship, working as they do a 48 to 50-week year, with no possibility of earning outside their training. It is therefore very important to recognise how great is their hardship when we have a shortage of doctors. As the NHS debate last week showed, doctors are difficult to recruit in accident and emergency departments and the Government now propose, very reasonably, an increase of 200 medical students per annum. Where are the resources going to come from with these cuts in the universities?

The Committee of Vice-Chancellors and Principals has now listed 17 vital, high priority capital schemes in medical schools, many of them in partnership with the National Health Service, where the university must contribute a capital sum and the National Health Service will contribute another capital sum. All of these, in the light of this savage cut in capital expenditure, are now under threat and I am given to understand that some of these vital schemes may have to be abandoned.

We will welcome the outcome of the Dearing review, but these issues simply cannot wait and I trust that the Government will be persuaded to think again about this capital cut, at least in November's Budget this year, if not before.

4.25 p.m.

The Earl of Limerick: My Lords, on 19th February this House addressed the Second Reading of the student loan Bill. I did not speak but I listened. It was striking how speaker after speaker, having commented on the Bill, often to dismiss it as irrelevant, went on to address the wider issues of funding. It is therefore most timely that the initiative of the noble Lord, Lord Annan, should give us the opportunity to examine these issues in detail today. I have an interest to declare as the chairman of the governing body of a former polytechnic, now one of London's new universities, and also as the current chairman of the Committee of University Chairmen. Chairmen of universities collectively--although they may be less heard in public--feel no less strongly than their vice-chancellor about these issues. I speak with concern and, I have to add, in sorrow. I shall divide my remarks into three parts: what has gone wrong; what is the current effect, and what might be done?

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What has gone wrong? It is easy to see with hindsight. As numbers have expanded further and faster than was predicted, there has been a failure to adapt a limited elite system to an open access system with a participation rate recently increased three-fold to about 30 per cent. Universities were urged to increase numbers in higher education. They responded with energy and with success but there was no overall plan. There was no preparation for the increased funding which clearly would be needed if those numbers were to be achieved. In effect, those running universities were conned, and I am not suggesting that there was any intent that they should be conned. I am suggesting that this was the effect of the funding regime under which they were achieving this expansion in numbers. After the rapid expansion came a rapid application of the brakes. There was an inability to continue recruiting into courses already started and financed in many cases. There were annual changes in funding methodology which led to additional problems in budgeting, probably most so in the case of those with a high proportion of part-time students.

My Lords, what is the current effect of this? Universities have to be thought of in funding terms as medium-sized businesses, some of them at the small end of large businesses. Typically, 70 per cent. of their total recurrent costs are attributable to staff, both teaching and non-teaching, and the conclusion is obvious. If funding falls in real terms, courses and departments will be cut and are being cut. Choice will be limited. Some of this one accepts as inevitable as competitive forces distinguish successful from less successful courses. However, to cut staff when student numbers are not reducing has the obvious effect: student/staff ratios deteriorate towards the point of frustration for those working in the system trying to deliver an adequate educational experience.

I therefore have to join those who urge that we find the courage to resist the misuse of the word "efficiency". We never quite reach the point where all efficiencies have been achieved. That should not be a claim. However, we are long past the point of diminishing returns. One can perhaps achieve another 10 per cent. efficiency in a particular area, but that leaves one with only 90 per cent. That is a real cut.

I am cautious about joining those who cry wolf about the quality of our system. It does no good to denigrate what is still, in general, an excellent product. It goes without saying that all concerned in the system will do their utmost to maintain that quality of education.

So what do we see in practice? The 40 per cent. cut in real terms in funding over 10 years has resulted in fewer books, and in some cases fewer libraries in which to house them; fewer computers on which people can work; longer queues; and buildings in which we can no longer take pride. Managing that process brings no satisfaction.

I turn now to consider what might be done. The first conclusion is that the present system, and many of its constituent universities, will not stand another dose of start/stop. The least that is needed in the short term is a stable funding regime against which to plan without the

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threat of further real cuts in the recurrent funding. I associate myself with the remarks made about the shock sustained from the swingeing cuts in the capital funding budget last November.

We need to face facts. Sources of core funding are central government, local government--neither of which is able to come up with any additional money and, indeed, both are consistently cutting budgets--and the student community itself and the families who support it. It is therefore long overdue that there should be a serious and urgent study of a system of graduate recovery. That has worked successfully in other countries and there is no reason to suppose that it should not work successfully here. It has to be a system which is seen as acceptable and fair. I make only one observation in that respect. Current student loans are repayable over four years once the threshold is reached. If a first-time buyer in the housing market can get a 25-year mortgage, why should not education for a lifetime be thought of in the same terms? The second caveat is that the system has to bring additional finance and should not be used merely as a means for further cuts in central government provision for higher education.

My final point concerns Sir Ron Dearing and the task that faces him. Sir Ron may not have a degree but he has earned the respect of the education sector and deserves all the help that he can get in his important and urgent task. I listened with great interest to the speech of my noble friend Lord Beloff. It is easy to follow him intellectually in his argument, but it leaves me with a great anxiety. I do not believe that Dearing should be thought of like Robbins. There is no time for that. That is not to deny the need for such a fundamental root and branch analysis, but Dearing has to concentrate on numbers and finances. We have income from foreign students which is estimated at £700 million a year. That would be at risk quite quickly if it was felt that standards were deteriorating.

There is little point in designing the best possible higher education system for the 21st century if many universities may not be in business to see the millennium.

4.34 p.m.

Lord Sewel: My Lords, I begin by declaring an interest as Vice-Principal of the University of Aberdeen. I join with others in thanking the noble Lord, Lord Annan, for providing the opportunity for this debate. I am also conscious of the number of noble Lords who wish to speak, and as I spoke on the student loans Bill I shall be brief today.

The causes of the present difficulties facing higher education have been very well identified by other noble Lords. In essence, what has been happening over a number of years is that the universities have responded to government policy by increasing student numbers, and they have been rewarded by continuing and increasing reductions in the funding per student. In other words, we have the sheer perversity of policy penalising productivity and of government penalising virtue. That is not a prudent way forward.

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During the period of rapid expansion the pressure of efficiency savings--or, to be brutally honest, cuts--was partly hidden by universities expanding out of their immediate difficulties through increasing student numbers, although that was often on the particularly disadvantageous terms of so-called fees-only students and was effectively storing up trouble for the near future. So even before this year the system had been squeezed and squeezed again.

There comes a time when the seeking after efficiency gain after efficiency gain becomes the enemy of effectiveness. That is the state that we have reached in higher education. The immediate problem has been made evident by a policy of consolidation of student numbers, therefore cutting off the quick-fix approach of immediate expansion, together with a funding settlement which produces an actual cash reduction in the amount of money available to universities.

My day job is that of what is now known as an academic manager. As I roll forward my own faculty's plans for the next three to five years, I have to tell the Minister that there is already a real crisis in terms of maintaining activity and quality. When plans are rolled forward on the basis of the Government's stated policy the situation deteriorates, and it does so very quickly indeed. That is the fundamental and urgent danger we face today.

The Government have announced the Dearing review. That is both welcome and important. It is perhaps our last best hope, but it is not enough. The danger is that very severe and possibly irreparable damage will be inflicted on the system before Dearing can report and long before Dearing can be implemented.

I urge the Government as strongly as I can to review the course upon which they are presently set, to recognise and repair the damage caused by this year's decisions, and above all to put into the system a period of stability, particularly over the crucial period between now and the report and implementation of Dearing. If that is not done then Dearing will be confronting a system going rapidly into a tailspin. That is the danger.

In Scotland, we have seen the development over recent months of a near disaster in the area of local government finance, producing a last-minute panic reaction from the Secretary of State for Scotland. That disaster was the product of a combination of ignorance and arrogance in the Scottish Office. If the same happens with higher education, the Government cannot plead ignorance.

4.39 p.m.

Lord Porter of Luddenham: My Lords, I do not suppose that there is anyone in your Lordships' House who is not in favour of better educational opportunities for everyone. It probably comes higher in the scale of virtues than motherhood and blueberry pie, to which the noble Lord, Lord Renfrew, referred. Only one argument against it carries any weight and it is the only argument that we have heard: that we cannot afford it. But in making the case, have the Government given proper consideration to the economic benefits of education against the costs of a poorly educated Britain? Among them we may count unemployment, crime and an unskilled workforce.

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Other big spenders are defence, health and the social services. Of those, only health could be argued to have an economic pay-back that is comparable with that of education. I shall quote an example which is close to my heart and has been eloquently referred to by the noble Baroness, Lady Dean. It is the Open University. Do the Government believe that by allowing a reduction in the number of Open University students of 5,000 this year, they are contributing to the future prosperity of the country?

4.41 p.m.

Baroness Lockwood: My Lords, if there were any doubts in the minds of noble Lords before the debate began, there can be none at all now that our universities are in a deep state of financial crisis. Noble Lord after noble Lord has referred to the latest cuts which came as a result of the 1995 Budget. As the noble Lord, Lord Dainton, indicated, they come on top of a series of cuts since 1981 which have reduced the unit of resource considerably.

Like other noble Lords, I have to declare an interest as Chairman of the University of Bradford and a member of the Committee of University Chairmen, chaired by the noble Earl, Lord Limerick. Bradford University is a medium sized university, but as a result of the 1995 Budget it will be £750,000 worse off in recurrent expenditure. That might not seem a large amount, yet it is equivalent to 30 members of academic staff--and not junior members either. On top of that, there has been a further £750,000 reduction in capital expenditure which means that capital expenditure, this year will have to be concentrated on maintenance work in compliance with health and safety regulations alone. Yet, like other universities, the University of Bradford has been struggling to meet a long list of essential priorities in maintenance and renewal of equipment.

Since 1981 there have been: first, a confusing stop-go policy on recruitment which has made effective planning difficult. Secondly, changes in methods of funding research have added to the bureaucracy and administrative burden of universities. Thirdly, there has been underfunding of the cost of living salary adjustments each year. Fourthly, there have been fundamental changes in student support.

All that has meant that the recurrent funding per student has declined by about 28 per cent. over the past six years; that the research selectivity exercise, now approaching its third round, is increasingly polarising universities in terms of whether or not they conduct research. The noble Lord, Lord Beloff, may be right when he said that not all our universities should be involved in research, but we cannot tolerate the present system which has introduced a disruptive, inefficient and expensive level of competition between universities in search of research stars which leaves nothing to be learnt from the transfers that football clubs carry out. Fortunately, the end of this month will see the end of that scramble because it will no longer be worth while poaching research staff.

It has also meant that academic salaries have lagged far behind other professions, as the noble Lord, Lord Walton, indicated. The dual support of grant and

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loan plus the withdrawal of benefits has led to an unacceptable level of student poverty which contributes to the higher levels of student withdrawal before courses are completed. I am not saying that we can continue to fund about 30 per cent. to 40 per cent. of the 18 year-olds at university in the way that we funded 12 per cent., regrettable though that decision might be. But we need a much more sensible student loan system than the one we have at the moment or the one that the Government now propose under their new Bill.

Moreover, universities have not been helped by the tight and often contradictory policies and procedures of the Higher Education Funding Council. I again use Bradford as an illustration. Universities are now expected to set a tight student recruitment number. If a university fails to meet that target, it is penalised financially. If it overshoots the target and recruits more students than it said it would, again it is penalised. The University of Bradford will suffer a penalty of about £435,000 this year because it under-recruited by 279 students.

A further example is shown in the table published in The Times Higher Education Supplement of 16th February. It shows a strange diversity in the funding of similar courses which results apparently in Oxford Brookes University receiving £468 per student taught more than the mean. The University of Luton receives £484 less than the mean. Bradford University is funded at £136 less than the mean per full-time student. That has led to a reduction in its funding of £777,000, compared to funding at the mean. On top of that, it would have received additional funding if its part-time students had been funded at the mean. There are many anomalies in the system which contradict the policies which the Government appear to put forward.

Universities have coped with these problems remarkably well, and have attempted to follow government policy while at the same time maintaining standards and thus the high reputation of British universities. However, I am afraid we are now in a situation where that cannot continue. Some very drastic steps will have to be taken to repair matters. Like the CVCP, I suggest that the first significant step should be to remove the 1995 cuts.

4.50 p.m.

Lord Quirk: My Lords, although this debate, which we owe to the noble Lord, Lord Annan, is a welcome opportunity to draw attention to the acute financial distress in our universities, I would like, as a preface to my words, to insist that, for my own part, our educational priorities as a nation must be solidly at the primary level: the first five or six years in the education of our youngest children. This needs to be emphasised not only because this sector has for too long been at the mercy of mediocre ideas and practices but because it is the sector which provides for all our children and not just the agile minority who go on to university. It is the sector, what is more, on which universities themselves crucially depend if the pool from which they recruit their students is to be replete with the wherewithal for a full and challenging basic education.

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So I for one am very glad that, over the past 10 years, strenuous efforts have been made to transform primary education, with a national curriculum and a system for monitoring and enhancing standards which we can be confident will bear fruit in due course.

Those same 10 years have wrought a transformation in higher education too, at which--in many respects--we can rejoice. We have discarded the increasingly artificial boundary between the polytechnics and universities, producing a single system but one that embraces an attractive and healthy diversity of mission. We have achieved a dramatic increase in the proportion of our youngsters going on to university, putting the UK at the top table internationally in respect of our participation rate. In the early eighties, there were about 1.5 million university graduates in this country; by the end of the present decade, we shall have about 3 million.

But this sea-change, as we have been reminded repeatedly this afternoon, on which all concerned are to be thankfully congratulated, whereby a university education--once the preserve of a lucky few--is now nationally perceived as being within reach of the indefinitely many, is at a cost that has become more frightening with every passing year. As an arts man, I see this cost not least in our libraries. Between 1985 and 1995, the number of students per member of library staff has risen by over 150 per cent., while the number of books per student bought by the libraries has fallen by 30 per cent. More broadly, during the past six years alone, while student numbers have risen by an impressive 45 per cent., the nationally funded unit of resource has fallen by a horrifying 28 per cent., and the HEFCE allocation announced last week for the approximately 80 institutions in their sector of the UK entails a further immediate reduction of several more percentage points.

It is all too likely that the effect will be to destroy the benefits that increased participation in university education should bring, and I deplore (for example) the signs of waste through drop-out--a phenomenon this country hitherto has been proudly able to avoid. And of course it is particularly worrying--as other noble Lords have said--that whatever panacea emerges from the Dearing inquiry, it can only be for a future some years down the road and can bring no comfort to universities wrestling with an incomparably grim present.

Now, I have no doubt that all the universities addressed by the HEFCE are in a similarly tight predicament. But I make no apology for expressing a particularly grave concern for a minority among those 80 institutions--a minority, as the noble Lord, Lord Beloff, has indicated, on which we draw disproportionately heavily for the quality of the research and postgraduate education which has a direct and immediate impact on the intellectual, economic and industrial health of the nation. And since I have a naturally close interest in the colleges of London University, I was shocked, for instance, to find that Imperial College was to have an immediate cash reduction of 3.7 per cent., King's of 3.8 per cent., Queen Mary and Westfield of 4.4 per cent., and the School of Pharmacy of a staggering 4.7 per cent. Even with fairly

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low inflation, this means actual and immediate cuts of around 8 per cent. or even more. We simply cannot afford thus to snuff out excellence at British institutions of world-class quality. And Imperial College is one that obviously comes into that category.

So let me ask the Minister to give urgent consideration to an expedient which, though bringing little relief, I fear, to the majority of institutions, could do something positive for the leading research institutions--and which need not wait upon the deliberations of Sir Ron Dearing.

In November last year, the Office of Science and Technology received a report by Coopers and Lybrand reviewing the current operation of the dual support system. This report argues convincingly that the present level of support for indirect costs provided by the research councils was--at 40 per cent.--grossly inadequate for the research infrastructure in university departments which each research grant automatically assumes. Rather, says the report, these indirect costs should be funded at a rate well over 50 per cent. and perhaps by as much as 65 per cent. The benefit to the research councils (and to the nation they serve) would lie in higher quality outcomes from better resourced projects, while the benefit to the universities where the research is actually done is likely to be quite extraordinarily significant. Let me illustrate from figures provided by a London college which I have not yet mentioned but with which I have--like the noble Lord, Lord Annan--a particularly close tie: UCL, the biggest of them all.

At University College London--the noble Baroness, Lady Dean, has already alluded to this--it is reckoned that since the changes to the dual support system introduced in 1992, diversion of funds to supplement the indirect costs of research has come to be running at £1.5 million a year. If the Coopers and Lybrand report were accepted and implemented even at a level well below the optimum therein suggested (say at 53 per cent.), the resulting redeployment of funds would be enough to restore UCL's annual loss of £1.5 million--and partially offset the certain annual loss of £4 million (and rising) that that particular college now starkly faces. But UCL is just an example. The changes recommended in the Coopers and Lybrand report would bring comparable benefit to all our top research universities--institutions on which, as we must surely all agree, our future most especially depends. It is in such a spirit of disinterested enthusiasm that I urge this proposal upon the Minister.

5 p.m.

Lord Winston: My Lords, I too express my gratitude to the noble Lord, Lord Annan, for introducing the debate, as, I am sure, will many colleagues throughout the universities of Great Britain. I should declare an interest as a professor working in the Royal Postgraduate Medical School at London University, bridging the gap between medicine and science in a university setting. It is rather difficult to be the fifteenth speaker in a debate of this kind. Nearly all my points have already been made, in many cases much more eloquently than I could make them and by those certainly more eminent than myself. I have some

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sympathy for the noble Lord, Lord Henley, who must speak at the end of the debate. Perhaps I may come back to that sympathy in a moment.

It might be most appropriate if I speak briefly about medical schools. That is the area of my greatest expertise. It cannot be denied that there is a very serious problem, which typifies much of what is happening in our educational and research base. Salaries have already been mentioned. At London University we effectively face a much bigger cut. Because the basic cuts are involved with the additional funding needed for salary increases, our institutions will be in particular trouble. It is interesting to examine the figures quoted by the noble Lord, Lord Quirk. For the non-medical schools in London, the overall cut is around 2.75 per cent. I calculate that for the medical schools it is something in the order of 4.1 per cent. or 4.2 per cent. That will be much more when account is taken of the salary increases needed. That affects recruitment; it is very important for research; and it is quite critical.

Perhaps I may give noble Lords one example. Our country is proud of the Nobel Prize awarded to Cambridge University--Watson and Crick, who understood the structure of DNA. That is a signal and most important achievement in science. It is now altering our fundamental understanding of human life and medical treatment. When one considers how DNA technology is now being employed, it is clear that there is a very real problem. It is a technology in which we led the world. The universities are currently threatened with cuts which mean that in one place a genetic research centre probably will not be built; in another university a child health department will be cut, which depends absolutely on the molecular genetics; animal house facilities which are currently being built and which are absolutely essential for the study of molecular genetics, because of the need to look at gene action in animals, may be cut; and at another university an immunology department is under serious threat. All over the country, where new molecular genetic set-ups are being undertaken, containment laboratories cannot be built.

In my own institution we need containment for recombinant DNA experiments. Obviously, one cannot afford to allow infected viruses to get out into the population. That means that either the research will not be done at all or that it will be done with some danger to the research workers and the surrounding population.

Yesterday in my clinic I spoke to a medical student who came from the north of England. She is at one of the very good universities in the north and her story is quite typical. I asked her, as a fourth-year medical student, what were her current bank borrowings and what she thought most of her colleagues in a similar situation in the penultimate year of medical school were facing financially. She said that her current bank borrowings were over £6,000 and she expected them to be closer to £10,000. She felt that most people in her university year would borrow £10,000 by the time they qualified.

That may seem like excessive spending. But in that particular university, in order to have their medical education, those young men and, in particular, women

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need a motor car to travel to quite far-flung areas to obtain clinical experience. So one begins to see that they will have a huge debt at the start of their career. If they are to go into medical science, there is no way that they can repay the debt. As a house surgeon at £15,000 a year and on a fairly reduced salary, it will be a serious burden for them to pay off the debt. We do need to look at that.

Noble Lords are very protected. I was in my operating theatre this morning when one of my colleagues was operating and during an idle moment I looked through Dodd's Parliamentary Companion (I also watched the operation). I took a sample of just under 600 noble Lords. Some 62 per cent. went to a university and 42 per cent. went to Oxford or Cambridge. It is interesting that a very large number of your Lordships went to Trinity College; then came New College, Oxford, and Balliol featured very highly--not Jesus College, Cambridge. My point is that many of us have come from very protected institutions which are relatively wealthy. But the truth is that out there in most red brick universities--the universities should be providing our research base--there is that very serious problem.

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