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Lord Wallace of Saltaire: My Lords, I thank the Minister for that Answer. May I ask the House to remember that, nevertheless, universities receive a substantial amount of their income--in most cases more than half--from government funds; that over the past six years the amount per student has fallen by 30 per cent. while the number of students has risen by 45 per cent.; and that in the past year funding has been cut by a further 7 per cent. and capital funding by 30 per cent.?

Is the Minister aware that the general agreement of all university administrators is that that is not sustainable and that the university system cannot wait for Dearing? The idea that you can cut both current expenditure and PFI is simply not acceptable--

Noble Lords: Order! Question!

Lord Wallace of Saltaire: My Lords, will the Minister say whether the Government accept that universities must now begin to charge fees or must go down the road to further cuts?

Lord Henley: My Lords, we do not see a case for undergraduate contributions to fees in the current funding context. Perhaps I may remind the noble Lord, as he reminded the House, that we spend considerable amounts of public money on higher education; some £7 billion, which is 20 per cent. of the total education budget. Difficult decisions have to be made in terms of priorities. I accept that we have reduced the amount available for capital spending in the forthcoming year. I also accept that the universities might find that difficult and we are looking at ways in which the universities can access other funds through the private

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finance initiative and so forth. We will look at the evidence from the higher education sector about the impact of levels of public funding on the universities and colleges. Obviously, we will take that into account together with all other considerations relating to education and wider public expenditure in the current public expenditure round.

The Earl of Lauderdale: My Lords, are any of the institutions of higher education taking steps to market their post-graduate expertise in the way in which the LSE is now doing very effectively?

Lord Henley: My Lords, my noble friend raised an interesting point. I hope that all universities are doing what they can to find other sources of finance in the private sector. The noble Lord, Lord Wallace of Saltaire, stressed that in his view many of them are gaining a considerable amount of private finance. I hope that they will continue to do so and and I hope they will consider ideas such as that mentioned by my noble friend.

Lord Winston: My Lords, perhaps I may first present my apologies to the Minister for being present in the House this afternoon. I could have chosen to join some of the members of my rowing team at Henley.

Does the Minister agree that one of the most serious financial crises in the universities is that affecting medical education and that the cuts which are now being faced will affect not only teaching but also our vital research base and clinical services in the National Health Service?

Lord Henley: My Lords, perhaps I may say to the House how pleased I am to see the noble Lord in his place this afternoon and how sorry I am that he has missed his chance to see his rowing colleagues perform at Henley, where I am sure they have performed with distinction.

Obviously, we accept that in all sectors there will be difficulties as a result of the cuts in capital expenditure, which we necessarily had to make. We will look at all the evidence produced by the higher education sector in the current public expenditure round, as I made clear to the noble Lord, Lord Wallace of Saltaire. However, the noble Lord, Lord Winston, would not expect me to give any assurances about decisions which are dependent on all other relevant considerations.

Lord Beloff: My Lords, is my noble friend aware that one important possible source of finance for universities is from their contacts with industry? Ought it not to be taken into account that if capital equipment in laboratories is cut, those laboratories look less attractive and many important firms prefer to go to universities in other countries where their research equipment is up to date?

Lord Henley: My Lords, the first part of my noble friend's question made the point that it should be for

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the universities themselves to look to the private sector. I hope that they will do that and I believe that there are rich pickings out there which they can pursue.

Lord Morris of Castle Morris: My Lords, is it not a fact that the Minister's department makes careful calculations about the funding of universities before making cuts of the magnitude that have recently been made? In the light of that information, can he tell the House what percentage of the gap in universities' finances the Government believe can be covered by the private finance initiative?

Lord Henley: My Lords, as I made clear earlier, we make considerable resources available to the higher education sector. As I said, it is some £7 billion, which is 20 per cent. of the total education budget for the United Kingdom. It is up to the funding councils then to allocate that to universities. I believe that they do a good job in that and it is not for us to interfere with that process.

Baroness Gardner of Parkes: My Lords, am I correct in believing that overseas students pay full fees and that that can be a valuable source of income? Are there any limitations on the number of overseas students who can be accepted by universities?

Lord Henley: My Lords, overseas students pay full fees, which is a useful source of income for universities. We are pleased to see a considerable number of overseas students in this country. The party opposite opposed the move to make them pay full fees and made it clear that they believed that there would be a reduction in the number. I am pleased to tell the party opposite that that is not the case and that during the past few years we have seen an increase in the number of overseas students.

Earl Russell: My Lords, can the Minister explain how the private finance initiative can be used to finance things which do not generate an income?

Lord Henley: My Lords, we have cut capital expenditure for universities; we have not abolished all grants of capital expenditure for universities. There is still a considerable amount of money available for them. One should look at the cut of some £100 million in the context of some £1.6 billion of capital investment which has been financed by the universities in recent years. It is not that large a cut.

British Airways: Proposed Alliance

3.19 p.m.

Lord Berkeley asked Her Majesty's Government:

    Whether the proposed merger between British Airways and American Airlines will benefit air travellers.

The Parliamentary Under-Secretary of State, Department of Transport (Viscount Goschen): My Lords, the Director-General of Fair Trading is examining the proposed alliance under the mergers

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provisions of the Fair Trading Act 1973 and will be assessing whether it promotes the interests of consumers.

Lord Berkeley: My Lords, in thanking the noble Viscount for that Answer, perhaps I may declare an interest as a consultant to Eurotunnel. Is the Minister aware that only three months ago British Airways opposed a Lufthansa/United Airlines merger which would have created a combined share of the UK-Europe market of 14 per cent.? Indeed, BA's chief executive was quoted in the Financial Times of 6th March as saying:

    "What Lufthansa wants to do is reduce the level of competition by relaxing the anti-trust laws".
Is the Minister aware that the proposed merger between British Airways and American Airlines would create a combined market share of double that figure; namely, 28 per cent. in UK-Europe and 70 per cent. on London/Kennedy routes? Can we assume that British Airways agrees that that will reduce competition? Will the Minister support a referral of the proposed merger to the Monopolies and Mergers Commission?

Viscount Goschen: My Lords, the first series of points made by the noble Lord are matters for British Airways. I do not speak for the company. The noble Lord will have to ask the chief executive of British Airways about his views. The noble Lord's second series of remarks are matters which will be taken into consideration in terms of competition by the Director-General of Fair Trading.

Baroness O'Cathain: My Lords, in asking my noble friend the Minister a question, perhaps I may also declare an interest. I am a director of British Airways. Will my noble friend make clear to the House that what we are discussing is not a proposed merger; it is a proposed alliance. There is no change of shareholding; it is only a marketing alliance. Can my noble friend the Minister also confirm that some 50 per cent. of the transatlantic traffic emanating from this country is actually transit traffic to and from Europe for which there is a balance of payments advantage to Britain?

Viscount Goschen: My Lords, on my noble friend's first point, I understand that the proposed alliance is indeed just that--an alliance. It does not specifically involve a change in the capital basis of the two companies. There is a great deal of traffic between this country and the United States, some of it transit traffic and some of it direct point-to-point traffic. Our airlines do extremely well. It is a market in which there is a great deal of competition. But that competition is restricted by the Bermuda 2 agreement we have with the United States. We believe that it would be in all our interests to progress liberalisation on that issue.

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