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Lord Renfrew of Kaimsthorn: My Lords, before the noble Baroness sits down, perhaps I may ask whether the only expression of New Labour policy that we are to hear this evening is a glimmer, allegedly from my noble friend Lord Beloff.

5.59 p.m.

The Minister of State, Department for Education and Employment (Lord Henley): My Lords, like my noble friend, I was very interested in that exposition of the higher education policy of the party opposite.

Some time ago the noble Lord, Lord Porter, said that he suspected that in this House most of us are in favour of education, motherhood and apple pie. That made me think of the remarks of W.C. Fields who said that someone who hates children and dogs cannot be all bad. That is not my policy nor is it the view of Her Majesty's Government. We very much value education in the whole and higher education in particular.

I join all noble Lords in congratulating the noble Lord, Lord Annan, on introducing this debate and on attracting such a considerable amount of expertise in the higher education sector to it. It was not until we reached the Front Bench speakers that the lay voice was allowed to be heard. I believe that only one speaker before that did not have a connection with the higher education sector. Therefore, to some extent it has been a one-sided debate but it is none the worse for that. I have certainly taken on board the messages given to me by the noble Lord, Lord Annan, and others on this occasion and by the noble Lord, Lord Annan, when he came to visit the department the other day, and I am sure that he will visit on other occasions.

I heard the comments by the noble Lord, Lord Armstrong, about the old UGC and its relationship with the Treasury. He reminded the House that in the old days grants for the UGC were set by Her Majesty's Treasury. If that were still the case today, I should not be standing at the Dispatch Box because one of my other noble friends would be here representing the Treasury. I understand that in those days it was not a matter for the Department of Education, in whatever guise.

I begin by setting out some of the background. The noble Lord, Lord Ashley, poured scorn on the figures given by my right honourable friend. But I do not apologise for saying that the Government are currently spending over £7 billion of the taxpayers' money on

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higher education in the United Kingdom. That is a very substantial sum by any standards. I do not believe that it indicates, as the noble Lord, Lord Annan, expressed it, that we despise dons. It may be that that was unworthy of the noble Lord. The allegations of butchery put about by the noble Lord, Lord Morris of Castle Morris, are also unfair. That spending represents over 20 per cent. of the £35 billion total public funding for the education system as a whole. I was extremely grateful to the noble Lord, Lord Quirk, for stressing the importance of other parts of the education system and that extremely difficult choices have to be made in terms of achieving the right priorities. I remind the House that in what turned out to be a very difficult spending round--and I appreciate that it was particularly difficult for the higher education sector--we were able to increase funding for schools by a fairly considerable amount.

I remind the House also that we spend more per higher education student than any other country in Europe and rank among the top five in the world. Obviously, we spend far more on each higher education student than we do on each student at school, whether at primary or secondary level, and we spend far more on each higher education student than we do on each further education student. It must be asked at some point whether that gap should be widened or whether it is about right. I hope that Sir Ron Dearing will address that point among the many other points which need to be addressed by his review.

In the late 1980s and the early 1990s, higher education was one of the fastest growing public spending programmes. In real terms funding from my department for higher education in England rose by over 23 per cent. between 1989-90 and 1994-95. I accept that at the same time we saw an increase of some 57 per cent. in student numbers. But that is something on which the universities should be congratulated and I hope that they will accept those congratulations.

Like every other publicly funded service, higher education is part of the wider economy. The 1995 Budget was designed, as I hope are all Budgets of whichever government, to control public spending in the interests of a healthy economy and a speedy recovery. The Government expect the universities to manage within the public funds that are made available.

I accept that much has been said in recent weeks about the Budget settlement for higher education. The noble Lord, Lord Ashley, made a rather interesting point that many higher education institutions are afraid to make their concerns known to Ministers. That picture of blushing virgins somewhat amazed me. I have not noticed any shyness on the part of any higher education institutions in relation to coming forward and telling Ministers in no uncertain terms exactly what they feel. I should have thought that this evening's debate was a good example of that. I suspect that the noble Lord may wish to retract or withdraw those remarks.

Reports have highlighted reductions of 6 and 7 per cent. in funding compared with 1995-96. When transfers to the Teacher Training Agency are taken into account, the recurrent and capital grant and tuition fees

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for English institutions will reduce by 2 per cent. in cash terms. That represents a reduction of 5 per cent. after allowing for inflation. Therefore, that is marginally lower than the 6 or 7 per cent. which has been alleged.

Perhaps I may say to the noble Lord, Lord Annan, that that is broadly the same as the position in Scotland. The position in Wales is slightly different, but I assure the noble Lord that there are perfectly valid reasons for the difference in the Welsh figures. They are not based on any attempt to try to lure the noble Lords, Lord Morris of Castle Morris and Lord Cledwyn, over to these Benches. I am sure that our own arguments will do that in due course.

Despite a very tough Budget, our spending plans maintain the recurrent provision announced in 1994. They allow for the participation of young people to be maintained at what I think everyone accepts is the current record level of over 30 per cent. and for increases in the number of part-timers, most of whom are mature students. The total package of student support has been increased in line with inflation.

But our policy is that capital expenditure should wherever possible be financed from private sources. The Budget reduced the universities' capital provision in line with that with most other publicly funded programmes. We believe--and I shall say more about this in due course--that the private finance initiative offers scope for private sector expertise as well as private funds to deliver value for money.

I accept that that reduction in capital provision for 1996-97 is substantial. But it is small in relation to more than £1.6 billion of capital investment financed by universities in recent years. Universities will receive a single grant and be free to make their own decisions on the balance between capital investment and other priorities.

I turn now to the private finance initiative, about which many anxieties have been expressed. I accept that it will take some time to develop in the higher education sector. But universities and colleges are used to commercial transactions. The private finance initiative offers opportunities for them to achieve better value for money by transferring risks and management of projects to the private sector. There is also scope for funding capital projects through loans or facilities management-type contracts.

A number of firms have approached the private finance panel to discuss potential PFI projects of all sizes. Higher education institutions are taking forward some fairly exciting PFI projects. I could give examples and examples have been given. There is a general acceptance that a number of projects are relatively easy to carry out, particularly in the larger sector; for example, student halls of residence and so on.

But I do not accept the argument put forward by the noble Lord, Lord Morris of Castle Morris, that the PFI cannot be used for smaller-scale projects. There have been successful smaller projects. There have been a number of such projects in the National Health Service where we are talking about sums in the range of £1 million to £2 million. Again, I could give examples but in view of the time, it would be wrong to do so this

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evening. Experience in the NHS suggests that the key factor behind private sector interests in a project is not its size but its type.

The noble Lord, Lord Morris, asked whether we could fund an anti-proton storage ring by means of the private sector finance initiative. Obviously I cannot say whether one could or could not. I can give an example from my own department of a small project relating to equipment which we managed to fund by PFI and made considerable savings as a result. That was one where the Employment Service turned to the private sector to replace its outdated computerised personnel system. The chosen system will save an estimated £1.2 million over the seven-year life of the contract. Payment is related to the number of live records on the system but ownership of the computer remains with the private sector. I believe that ideas of that kind can be explored further.

I note the concerns that have been expressed by the CVCP and others about the impact of the Budget settlement. I know that there are considerable worries about the effect of continuing productivity improvements on the quality of teaching and learning and on research. I know that there are concerns about the scope for private finance to meet the full range of universities' capital needs.

The noble Lord, Lord Annan, quite rightly asked, as did others, what we should be doing as a result of those pressures between now and what we call post-Dearing. As the noble Lord will be well aware--he came to see us the other day--we have listened to the CVCP and we shall continue to listen to it. We have set up two groups to work with it. The first group will collate evidence about the impact of public funding levels on universities and report to us in the department. The second group will examine the scope for PFI in higher education in achieving value for money and will assess its potential for offsetting the reduction in public funding for buildings and equipment. It will identify apparent obstacles to PFI and the means of overcoming them.

As I said earlier, I pay tribute to the excellent work of the higher education sector in achieving efficiency gains approaching some 30 per cent. since 1989-90. Those who claim that the squeeze has gone too far should note that up to 1993-94 universities and colleges achieved higher efficiency gains than the Government had planned through their own recruitment decisions. Independent assessment reports from the Higher Education Funding Council for England suggest that quality is at least satisfactory and in some places excellent. I believe that it was the noble Lord, Lord Annan, who pressed me to give examples of teaching which was unsatisfactory. I shall not give him such examples; there are no such examples. What the report indicated was that to date some 26 per cent. of courses have been found to be excellent, 73 per cent. satisfactory, and only 1 per cent. was initially judged to be unsatisfactory. All of those courses which have since been re-examined have been found satisfactory; so universities are managing.

Further--it was a point that the noble Lord, Lord Kirkwood, would like us to explore--new technology can open up the possibility of new ways of teaching

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and learning and delivering higher education in new and exciting ways. Again I refer not only to the speech of the noble Lord, Lord Kirkwood, but also to a very interesting article on this subject in today's Daily Telegraph. I imagine that even the noble Lord, Lord Morris of Castle Morris, can bring himself to read the Daily Telegraph on occasions. We have identified this area in the terms of reference for the Dearing inquiry. I very much hope that that will be pursued.

On research, funding benefited from the fast growth in higher education spending earlier in the decade when it was not subject to the efficiency gains delivered in teaching. In 1996-97 the Higher Education Funding Council for England allocated a total of £638 million for research. We have asked the funding council to have particular regard to equipment needs, especially equipment for research. And with the Office of Science and Technology it has set up a challenge funding initiative to fund research equipment in Technology Foresight priority areas. Subject to matching funds from industry, charities and other users, these and similar schemes run by the other higher education bodies could yield up to an extra £36 million for research equipment.

As regards the specific point put to me by the noble Lord, Lord Quirk, I am grateful to him for drawing my attention to the major contribution which our leading research universities make to our intellectual and economic well-being. I understand his concerns to ensure that they receive appropriate funds for the indirect costs of publicly funded research projects. It is certainly one of the issues which the Government will be taking into account when considering the responses to the review of the operation of the dual support system referred to by the noble Lord.

I turn now to the inquiry itself. Many noble Lords have stressed the importance of a properly funded university sector. That is why we believe that it is necessary now to review the future of higher education over the next century. I can give an assurance that our own internal departmental review looked at the issue and developed its own ideas. However, it recognised that there are extremely complicated and complex issues. That is why on 19th February my right honourable friend announced a national committee of inquiry under the chairmanship of Sir Ron Dearing. I am certainly grateful for the fact that Sir Ron agreed to take this on.

I am grateful for the welcome that many noble Lords have given to the fact that Sir Ron will take on the task. Perhaps I may assure my noble friend Lord Beloff that he is a man of considerable experience in the world of education and in higher education. Like the noble Lord, Lord Ashley, he is a chancellor of a university--in this case Chancellor of the University of Nottingham. Perhaps I may correct my noble friend Lord Limerick. He has a degree from the University of Hull, I understand, but I presume that that was before the noble Lord, Lord Armstrong, was a chancellor of that university. As others with, I believe, greater experience of the educational world will know, he also has considerable experience from his times as chairman of the Council of National Academic Awards, of the Polytechnics and Colleges Funding Council, of the

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UFC and of the HEFCE. He also has considerable experience throughout the entire education world from his work with SCAA and from the various reviews that he has done. I have considerable faith in Sir Ron. I am pleased to note that so many other noble Lords in this House also have faith in Sir Ron and what he will provide.

His committee and the composition of its size have not been decided. It is a matter for discussion. We welcome views. I think that many noble Lords would have strong views about the size of the Committee. I believe that most would agree that it should not be too large. As regards its composition, as my noble friend Lord Beloff said, it is important that it should have representatives of higher education. We also believe that it should have representatives not only of the providers but also the consumers of higher education. It must also have representatives who deal with the world of research, or from other parts of the country; it is not purely an English review. Getting the composition right, and keeping its size at the right level, will be difficult. But I and the department will be more than happy to consider all recommendations.

Sir Ron Dearing's committee will consider and make recommendations on future funding arrangements. It can only do so once it has considered other fundamental issues first.

As we move into the 21st century, the decisions that we take on the future of our higher education system must enable universities to retain and develop their capacity to innovate. They must foster universities' contribution to the research base which underpins the United Kingdom's ability to harness scientific and technological advances, and they should encourage universities to enhance wealth creation and our quality of life, and help to drive local and regional regeneration through services to employers. That is why we have asked them to make all the recommendations on how the shape, structure and size of the sector should develop to meet the needs of the United Kingdom over the next 20 years. It is only in the context of those fundamental issues that it can then move on to the funding arrangements, many of which have been discussed this evening.

I do not believe that anyone will expect me to comment today on the merits of a graduate tax, a pay-roll tax. That might or might not be the policy of the party opposite. I can see considerable dangers in terms of increasing the non-wage labour costs for large numbers of employers, putting a large number of jobs at risk. I hope that that is an issue which the Liberal Conference--I shall not be attending it over Easter--will manage to address.

Obviously there are other matters which can also be addressed: whether the national insurance system can be used, whether there should be a loan or whether it should be an income contingent scheme. However, I stress that our scheme is partially income contingent; and that should be recognised. I can also assure the noble Lord, Lord Ashley, that I very much look forward to receiving that report, and receiving it when in government.

As I said earlier, I believe that with the £7 billion going to higher education, the universities are generously funded from the public purse. But, as I have made quite

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clear, I understand the concerns that have been expressed today. As I have said, we have taken note of those concerns and we will continue to take note of those concerns. We have listened to the CVCP, and on occasions when addressing this House I have felt I have been listening to the CVCP. We will continue to listen to the CVCP. As I said, we have set up two joint working groups with it to consider the very points that it has made to us.

Higher education has expanded and it has expanded rapidly, but we now need to plan for the next century. I believe it is Sir Ron, and Sir Ron's framework and his conclusions, which will set the framework. In future young people are going to need the higher levels of skills, understanding and flexibility to enable us to compete in the modern economy.

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