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The Lord Bishop of Portsmouth: My Lords, the noble Lord is absolved.

Lord Brooke of Sutton Mandeville: My Lords, I was going to say that I genuinely thought—it is better for

27 Nov 2002 : Column 836

me to establish some credit with those on the Government Front Bench—that by that stage we had pressured the Government into finally producing a persuasive case. I am also happy to be following at one remove a former, distinguished vice-chancellor of London University in the noble Lord, Lord Sutherland, who made an enchanting speech.

I strongly support the comprehensive enthusiasm of my noble friend Lord Baker for untrammelling the universities and restoring their freedom. People behave in the way in which they are treated. If we manage them in a way that suggests that we do not trust them, they are less likely to be trustworthy. But if we confer on them the ability to manage themselves, they are likely to react responsibly. The noble Lord, Lord Sutherland, made the same point. I agree with the noble Lord and my noble friend Lord Baker about overseas student fees, and thus, on a fortiori grounds, with the noble Lords, Lord Desai and Lord Wallace of Saltaire, about European Union student fees.

I was the British Minister at the first Commonwealth conference of education ministers after the policy announcement that full fees would be charged. That was essentially a rerun of Rorkes Drift but, being within the Commonwealth, was all extremely affable. My principal assailant was the Zimbabwean Minister. Outside the plenary sessions, we were inseparably good-humoured—I must say, other times other manners—but the scars and wounds of that event were well worth wearing and winning because of the return.

I suspect that where I part company with my noble friend Lord Baker is over the consecration and elevation of polytechnics—not least because, disastrously, it enabled the Treasury to cut the unit of resource for prior universities to the level of that of the new polytechnic universities on the ground that, if they were now universities, their unit of resource was appropriate across the whole system.

The phrase, "a two-tier system", used by the noble Baroness, Lady Warwick, is dangerous because it can be ambiguous and even derogatory, but the regional groupings, of which the noble Lord, Lord Smith of Clifton, spoke, I find both attractive and with the grain of the wood, not least because even our greatest universities cannot do everything at the highest level.

Lord Baker of Dorking: My Lords—

Lord Brooke of Sutton Mandeville: My Lords, I hope that my noble friend will not take up too much of my time.

Lord Baker of Dorking: My Lords, I thank my noble friend for giving way. I would like to preserve what remnants I have of my reputation as regards the polytechnics. I was the last Secretary of State to defend the binary line because I believed that there was a distinction between such universities. My successors, who happened to be Conservative, were not as strong willed.

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Lord Brooke of Sutton Mandeville: My Lords, I am not in the least surprised by my noble friend's intervention.

I do not intend to rehearse all our present ills. They would gain nothing by repetition, and the debate is already a comprehensive quarry of them. But, as other noble Lords have said, the Government's 50 per cent target has probably made them worse. I wonder whether in the late 1980s and the early 1990s the Government considered the detailed HEFCE charts, the accelerated take-up then and where the accelerators came from, before they conceived their 50 per cent aspiration. Those charts were eloquent about the difficulties of the next stage of the advance. If the Government did look at them, how did they envisage that their target would be realised? If they did not, do they appreciate that they have probably made a bad higher education position even worse? In that regard, I share the views of my noble friend Lord Alexander.

Everything else that could be said has been said. I conclude as I began, with another declaration of interest, both personal and hereditary. Several noble Lords have spoken of the Robbins report and of what the universities were like in those days. Ironically, in terms of government, they were then run by the Treasury. My late noble kinsman, who, for extraneous reasons, had a decade earlier declined his first ministerial position from Churchill as the one junior Minister in the old Ministry of Education, was in 1961 the first Chief Secretary to the Treasury and in that capacity took and announced the decisions on student finance recommended by the Anderson Committee. The second Permanent Secretary to the Treasury then responsible for public expenditure was the present Secretary of State's father.

The debate in your Lordship's House on those developments was, I think, the one in which the noble Lord, Lord Longford, who had been a contemporary colleague of my late noble kinsman in the Conservative Research Department, said of my late noble kinsman that he had the disadvantage of having almost too much moral fibre.

Unlike my late noble kinsman, I accepted as my first departmental posting a junior office under the late, great Sir Keith Joseph—later Lord Joseph—at the DES, with responsibility for higher education. My opposite number at the AUT was the noble Baroness, Lady Warwick. As she knows, my respect for the AUT's research capability was diminished by it not digging out a speech that I had made in the other place in 1978 about the poor levels of academic salaries; and at least I have been consistent on that subject over the last quarter of a century.

I mention that role because the noble Lord, Lord Butler, with whose measured speech I broadly agree, said that the government of my party had not introduced tuition fees and the noble Lord, Lord Morgan, then effectively corrected him by reminding us that in 1984 Sir Keith had in fact tried but failed.

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It is worth briefly outlining the background, because history may have been different if we had then succeeded. A year earlier, I had recommended to Sir Keith that we eliminate half the minimum grant, which, regardless of their income, all students had in those days, which seemed to me unjustified at the higher levels of income. In the following year, I recommended to him that we eliminate the second half of the minimum grant and, further, that if that went as well as could reasonably be expected, we should return the following year to consider whether we could then put our toe into the Rubicon and test the reaction to a modest tuition charge that could later be raised. That would have avoided the problem to which the noble Baroness, Lady O'Neill, referred in her speech.

However, Sir Keith was also being persuaded by the late, also great, Sir David Phillips—later Lord Phillips of Ellesmere—that the research councils must receive a financial transfusion. However, Sir Keith, who certainly suffered from an excess of moral fibre, was determined not to go back to the Treasury but, instead, to find the money from within the department. The only solution that he could find was to eliminate the final minimum grant and consider the introduction of the first tuition fee in the same year, with no opportunity for rolling the wicket—Sir Keith was a fine cricketer—before the latter step. It was, I think, the shock to the parents of the simultaneous double move—the elimination of the remaining grant and the creation of the tuition fees—which provoked the seismic reaction to which the noble Lord, Lord Morgan, referred.

After Milton Shulman had exploded as a parent in his wayside pulpit in the Evening Standard, he also came on the line when I was doing a 'phone-in programme, although I cannot recall whether he was disguised as Milton of Chelsea or Milton of Fulham. We cannot tell now whether a slower approach would have been more successful, but in the long run, the scars and wounds from this were worth wearing, too. And, on the principle that it is an ill wind, the Treasury did give us the money for the research councils.

The number of the Economist to which my noble friend Lord Alexander referred also described Adam Smith finding that teachers who were paid by their students themselves taught better. I can illustrate the logic of that from my experience in the private sector where I gave charities a 90 per cent discount from our usual fees, but also spelt that discount out on the invoice. It made them more responsible clients, but they also owned what we did for them in a way they would not have done had our services been free.

If my noble friend Lord Baker had not intervened, I should have made one final comment, but I shall take it to my grave.

8.31 p.m.

Baroness Howe of Idlicote: My Lords, I shall have to follow the noble Lord to his grave to hear what it was. I join in the congratulations that have been heaped on the head of the noble Lord, Lord Baker, for this more than timely and extremely fascinating debate. My

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somewhat modest qualifications for joining so many experts is also that for which I should declare an interest. I am the current vice-chairman of the Open University and a governor of the LSE.

Perhaps I have one other qualification. Although visibly among the older age cohort of your Lordships' House, I suspect I took my undergraduate degree somewhat later than most as a mature—indeed, some might think positively overripe—graduate of the LSE's class of 1985. So perhaps I am a little nearer to the consumer coalface in that respect.

I turn directly to the key subjects of the debate: the huge and growing gap between our objectives and the resources, or lack of them, that we are prepared to find for them. The Government's repeated delays in producing their plans all underline not one but two crucial points: first, the scale of the funding deficit; and, secondly, the difficulty of the decisions we must all take.

As others have mentioned, it is important to realise how long the problem has been building up. The noble Lord, Lord Moser, mentioned the Robbins report, which he helped write. I wish that I had been involved at that time. However, the Government's response to that report—the White Paper of November 1963—was equally interesting and I shall cite three passages from it. First, the Government's acceptance that,

    "courses of higher education should be available for all those who are qualified by ability and attainment to pursue them and who wish to do so".

Secondly, the Government acceptance of the commission's 10-year programme of additional expenditure of 3.5 billion, which would more than double the cost of higher education in 10 years. Finally, and most importantly,

    "Plans are being put in hand and resources will be provided accordingly".

That is the pledge that has been more and more seriously disregarded. It underlines the point that others have made that it is not just this Government who can be blamed for the critical situation that we are in.

However, the huge funding deficit is only one aspect of the problem. Above all, perhaps, universities seem increasingly in danger of losing their independence if this goes on. Many would say that they have begun to lose it already. That, too, was foreseen even before the Robbins report. Some noble Lords may recall the Anderson committee on student grants which reported in 1958. But perhaps not many will recall the warning contained in the Report of the Minority, who, incidentally, were against the abolition of parental contributions. They feared,

    "real dangers to university independence",

of a kind which,

    "would . . . lead to centralised bureaucratic control".

They feared a,

    "public pressure on university authorities to provide a convincing explanation of the reason for rejection of every unsuccessful student".

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How right they were. For have we not recently observed the fulfilment of that prediction in the conflict between the president of Magdalen College Oxford and the Chancellor of the Exchequer himself, and, more recently, rather ominous rumblings about universities not meeting targets of entrants from deprived backgrounds? I must admit that when I read something like that I feel a profound unease.

I hope that I am second to none in being hugely enthusiastic about the attempts that the Government are making to include all those in society who have been left behind and whose talents we have not tapped before, but surely the time when we should be doing the most that we possibly can to bring those from deprived backgrounds into the system is very early on in a child's development—and certainly within the school system. We can and must do that far more effectively.

If we are to succeed we must clearly acquire enough money to eliminate the huge deficit and set the pattern for the future—enough to pay all the academic and other staff at universities what they deserve and their market value. We also need to provide a system of per student funding as similar as possible to that in the United States.

I do not believe that we have much choice between the various proposals under consideration. We need to adopt most of them in one form or another. Higher fees for some universities and for some courses, yes; and with them, it is to be hoped, freedom from price control; a variety of repayable loan systems; extended tax relief for charitable endowments—I rather like the idea of the noble Lord, Lord Baker, of 100 per cent relief for a short period—some contribution from local as well as central government; and certainly help from businesses with scholarships and, indeed, support and time off for employees who wish—or need—to work and take a degree at the same time.

Of course there will be difficulties with all this. There is a real risk of drop-out by students reluctant or unable to take on further debt. Alas, those most likely to fall into this category will be from less affluent and deprived backgrounds.

Perhaps I may suggest one very well established way of tackling the 50 per cent target, if that is what is wanted for that particular age group. Other noble Lords have queried whether or not that is a sensible target and I shall not enter into that argument. The Open University, that brilliant sixties concept of combining quality distance learning with the communications expertise of the BBC, is one shining example of an alternative method of doing so, a point referred to by the noble Baroness, Lady Carnegy.

We should remember the considerable role played by the Open University in opening up opportunities for a large "excluded" group—that is, women at home bringing up children. It is not only women who have benefited. Many who could not afford not to enter paid employment took advantage of this new opportunity to study on their own, to the country's as well as to their own advantage.

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Today, of course, on-line opportunities for gaining academic and other qualifications are expanding very rapidly indeed. I shall not go into the details because of time, but I have in mind schemes such as the pilot "e-skills4industry" which is underway in three Tower Hamlets schools. Some of the students targeted as potential drop-outs are continuing their A-level studies and the prospects, in one way or another, for the remaining 23 look promising. Although such schemes were originally geared to helping students in further, as opposed to higher, education, they will open up one further means whereby at a later stage students can join in.

There remains the question of how best to channel into the university system the equivalent of the present level of central government funding, or a more generous amount. I should like to see that done through some kind of voucher system: a basic state grant for everyone who qualifies for higher education, to be taken—I agree 100 per cent with the noble Lord, Lord Lucas—at any stage in their life, and payable direct to the institution of their choice. A voucher system could also be favourably adjusted for disadvantaged students, for courses where there was a shortage and for courses that cost more.

Coupled with an income-contingent loan scheme, or schemes, to cover all fees and maintenance, this, it is to be hoped, would also permit the abolition of the present centralising funding councils and help to restore independence, innovation and much greater freedom to university and student alike.

Such an approach would surely be more sensitive and less authoritarian than a graduate tax. With luck, it would end the prospect of Ministers criticising universities for having made the "wrong" judgment about individual would-be students.

8.41 p.m.

Baroness Sharp of Guildford: My Lords, I join other speakers in thanking the noble Lord, Lord Baker, for initiating what has been an excellent debate. We have ranged over many topics but have returned constantly to the central theme; namely, the future financing of universities.

I declare an interest, having been an academic for much of my life. I am currently a visiting fellow at the Science Policy Research Unit at the University of Sussex. In that capacity, in the 1980s, I was a member of the executive committee of an organisation called Save British Science. We paid visits to Ministers—including, I believe, the noble Lord, Lord Baker—and were generally regarded as Jeremiahs, even by some academics, who felt that we did the universities a disservice by pointing out that science was fundamental to Britain's competitive future and that if we went on squeezing the science budget and paying miserable salaries to scientists, both as academic lecturers and as post-doctorates, we should go down a slippery slope and no longer be able to claim the high quality science that we had. Today, many of the

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arguments that we were using then are now being regularly bandied about. Indeed, they are part of the stuff of this debate.

I believe that the argument on the science budget was recognised by the Labour Government when they came to power. Thanks partly to the prompting of the Wellcome Foundation in 1998–99, we have seen a considerable amount put into the science budget, largely for infrastructure and capital and equipment spending.

The Minister will, I suspect, quote the large sums that have been spent—1.4 billion here and 1.7 billion there. Most of that money has gone into the science budget for equipment and new buildings—which are very necessary to upgrade our science potential. But they have not gone into the regular teaching budget of universities. Today, the real argument is about the funding of teaching and the expansion of student numbers.

That argument is compounded by the objective to expand the universities to a 50 per cent participation rate of the 19 to 30 age range. Where this objective came from is not clear. It first emerged at the 1999 Labour Party conference when the Prime Minister needed a nice headline-grabbing "social inclusion thing" to announce. So it was announced—but in my view it was done without any proper thinking and certainly without any proper costing. The Labour Party has probably lived to rue the day it did so.

We Liberal Democrats have always supported the expansion of higher education. In the 1980s, when only 14 per cent of the relevant age group was participating, we argued that, given the competitive pressure upon the country, it was vital for us to expand the university population. But we have always said that it must be properly costed, properly funded and run in conjunction with further education; otherwise it would be absurd to expand higher education. We have probably a much more chronic shortage of skilled craftsmen at technician level than at graduate level. It is absurd that further education has been left out of the picture.

Many of us will have reminiscences of that era. I was amused to read George Walden's autobiography recently. I will quote what he said about the era of expansion at the end of the 1980s:

    "Our policy seemed to be to replace a selective by a mass system—the opposite in many ways to what we were trying to do in the schools. And of course it was mass cultivation on the cheap. Ever more students herded into ever expanding institutions to graze, untutored, on ever thinner pastures".

That has been very much the case, has it not?

The consequence of doubling student numbers with remarkably little increase in real funding for teaching was that the unit of resource dropped from 8,000 to 7,400 by 1997. It has not been increased since then. The crisis in funding was recognised at the time of the last general election, but both major political parties chose to kick the issue into touch via the Dearing inquiry. The Labour Party was able to go into the election pledging no tuition fees and to square its

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conscience afterwards by arguing that fees were the only way that universities could get the resources they needed.

Far from implementing the Dearing report, the Government reneged on two commitments. First, Dearing recommended that maintenance grants be kept for students from low-income backgrounds because he feared that the loan regime would intimidate precisely those students. Instead, the Government went ahead and implemented an all-loan regime, which, rather than the 1,000 fee, has been the central issue of student discontent. I agree wholly with the noble Baroness, Lady O'Neill, that loans to cover residential costs are the big problem for many students from poor backgrounds, not fees, which most of them do not pay. As noble Lords may remember, it was after meeting students during the 2001 general election campaign that Tony Blair declared that another way must be found.

Secondly, reneging on Dearing, far from giving universities the fee income for extra resources, the Treasury has neatly squeezed the HEFCE grant so that, de facto, the unit of resource remains static even though, if the student fee contribution was excluded, it continued to fall. The Government then had the gall to take credit for the fact that the total figure—fees plus the HEFCE grant—was no longer falling.

The current situation is that the unit of resource—around 4,800 per student—does not cover costs. Even for post-1992 universities the average cost per student is about 5,000. It is considerably higher in pre-1992 universities, especially those with medical schools. The entire university sector is now, by UUK figures, running at a deficit of around 50 million a year, as the noble Baroness, Lady Warwick, mentioned. It is being bailed out by overseas students. But is it right that some of our best universities restrict places to British students to keep themselves afloat? Is teaching also cross-subsidised by research in these institutions? Research income is an important constituent of income in our leading universities. It enables many universities to pay salaries that are well over the odds of the agreed pay scales for some members of staff.

A recent report suggested that overheads were not being properly covered. The Times Higher Education Supplement headline says it all: 2 billion is owed to the universities where research overheads are not being properly funded.

Exactly how much is the deficit? The noble Baroness, Lady Warwick, mentioned 10 billion. That figure has been bandied about. However, of that 10 billion 6.5 billion is capital expenditure. In these days of resource accounting, are we looking to capital expenditure as current expenditure? I hope not. The current expenditure requirement is 4.5 billion, spread over three years. We are looking at about 1.5 billion a year in recurrent costs. The key element in that, to which we shall come back time and again, is salaries. We need somewhere in the region of 1 billion a year extra to cover the extra salary costs. A number of people have mentioned the Bett report, which came

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after the Dearing report. Two factors came up in Bett. One was the institutionalised discrimination against women and ethnic minorities, which the universities have gone some way to answering but by no means the whole way. The second issue was the employment conditions of contract researchers. Fortunately, thanks to EU legislation, those shocking conditions have had to be reversed.

The conclusion is that we are looking for somewhere in the region of 1 billion to 1.5 billion a year in recurrent costs to keep the universities afloat. Much of today's discussion has been about how on earth one finds that. The DfES underspend last year was in the region of 1.7 billion. The Government's total capital underspend was 8.8 billion. There is a lot of money floating around in the system that might be harnessed to be put into the universities.

The Liberal Democrats were opposed to tuition fees and we continue to oppose flexible fees of any sort. We do so partly because we feel that it is unfair to charge the student up front. We know from experience that many parents did not pay what they were expected to pay. Our favoured solution is the Scottish solution—what might be called the Cubie solution—under which students are effectively asked to pay back something afterwards either as a lump sum or by adding the money to their loan. That is fairer in the sense that he who benefits should pay. The student benefits and should pay something back. I am uncertain how far we can go along that route in terms of keeping extra costs onto this endowment, but if one is looking at some increase in fees, the system has worked very well in Scotland and could be extended. We would like an experiment with that before we move in other directions.

To finish, I shall try to go a little beyond the narrow question of financing. It is necessary to look at these things more holistically. In many ways we live in very exciting times. We have witnessed an explosion in knowledge and in the knowledge-based economy. We know that in this highly competitive world we must live by our wits and by nourishing and nurturing them. We must also recognise that these advances are affecting the education system. The noble Baroness, Lady Howe, mentioned the Open University, the Internet and distance learning. We must recognise that these are coming together with campus-based learning. We must also recognise that many of our students who are supposedly full time are working 20 hours a week. Finally, we must recognise that 11 per cent of degrees come in the further education sector. We need a system that will bring those three things together. I very much go along with the ideas mooted by the noble Lord, Lord Baker, and the noble Baroness, Lady Howe, on an entitlement that the student carries forward. We should use the diversity of our system—the multi-university system that the noble Lord, Lord Moser, mentioned—to facilitate that. We should move towards the American system of horses for courses, with some colleges where you do a two-year degree, some where you do three years and some where you do more and the student can choose whether they wish to be full time or part time. That is

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a much more flexible system that would meet our needs for diversity and our need to look forward and provide a more flexible system for the future.

8.55 p.m.

Baroness Blatch: My Lords, I wish to associate myself with all noble Lords who have thanked my noble friend Lord Baker of Dorking for initiating this excellent debate. Not for the first time, my noble friend has brought the issue of higher education to our notice; and, not for the first time, his passion and enthusiastic support for higher education have shone through in a characteristically robust speech, for which we thank him most warmly.

We are certainly living in interesting times. One can hardly pick up a newspaper or listen to comment on television or radio programmes without noticing a reference to "higher education". Ministers, including spin-masters from the Prime Minister's Office, are hyperactive in feeding the media with lines and counter-lines on the future of higher education to the point where the only enlightenment for those of us who are interested in the outcome of the review is confusion. There is a lack of urgency, and there is very real sense of frustration.

In preparation for this debate, I went back to five specific debates on the subject that took place between June 2000 and May of this year. The Government cannot say that they have not been warned. Member after Member on all Benches in each of those debates, and again today, talked of the crisis in higher education. On each occasion came a complacent response from the Government claiming that funding for higher education had been increased and that, come what may, the target of 50 per cent would remain, irrespective of funding.

My noble friend Lady Carnegy of Lour reminded the House that the Scottish anomaly remains a live issue. I hope that the Minister will comment on the points raised. We welcome the points made by the noble Lord, Lord Sutherland, in what I believe to be a most marvellous speech; namely, that there is more to be heard about the Scottish experience.

Many noble Lords expressed their concern about the 50 per cent target, not just in relation to the cost but also in relation to other access issues—for example, social engineering through postcode only entry into university, which is very patronising. There is also concern about the quality and standards of university courses and, ultimately, the standard and quality of a university education; the detection of a seeming bias against students from private schools; the Government's increasing tendency to earmark moneys with their own priorities rather than those of the university—something which seriously intrudes upon the academic freedom of our universities; and the Government's use of excess pressure to shoehorn too many young people with questionable qualifications into university, especially those students who would

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benefit more from the choice of high quality, vocational education—preferably closer to home—through a further education college.

I agree with all those who have said, not just today but in each of our previous debates, that the Government should not have introduced the 50 per cent target without thinking through the consequences. On 22nd October—over three years after the Government came to office—the then Secretary of State for Education and Skills, Miss Estelle Morris, said:

    "Over the last ten to twenty years, the higher education system has seen a huge shift from being an elite to a mass system, but without anyone necessarily thinking strategically about what we want universities to be achieving. As we expand further we need to give this more thought".

Apart from this astonishing statement coming over three years into the first term of the Government, it is not true to say that the issue had not been thought about strategically during the previous 10 years.

As I have readily admitted on a number of occasions in our debates—in fact, as recently as 18th November in response to the gracious Speech—under the Conservative government the number of students rose from one-in-eight students entering university to one-in-three. During that expansion, it is true to say that the unit of funding was reduced. That is why the noble Lord, Lord Dearing, who we miss from our debates, was invited in 1996 to review higher education—a review that could have been the basis for a wider public debate and which, at that time, had all-party support. The review was published in 1997, and was available to the incoming government.

Higher education students have good reason to remember 1st May 1997. They believed the Prime Minister who had pledged that "tuition fees" would not be introduced. However, not only were tuition fees introduced within months of the Government coming to office, but all maintenance grants were abolished. That was the real rub for many of our students. It resulted in students from low-income families leaving university with greater debt than students from higher-income families—a point which was very well made by the noble Baroness, Lady O'Neill of Bengarve.

It is therefore not surprising that there is an air of scepticism about the forthcoming review. On 25th October 2001, answering a point made by my noble friend Lord Griffiths of Fforestfach in a debate on student finance, the noble Lord, Lord Davies of Oldham, replying for the Government, said:

    "the noble Lord . . . may have identified the strategy about which the Government are unconvinced. I refer to what is vulgarly called top-up fees, although the noble Lord used more delicate terms . . . The Government are not persuaded by that argument".—[Official Report, 25/10/01.]

I wonder whether the noble Lord has shared a free lunch with the Minister for Higher Education, Margaret Hodge, who appears to have a very different view. Indeed, in the Financial Times of 16th February 2000, Mr David Blunkett said:

    "There will not be top-up fees while I am Secretary of State. But then I won't be Secretary of State forever".

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One argument used to support the introduction of top-up fees is that, over a lifetime, graduates earn about 400,000 more than a non-graduate. There are weaknesses in that argument. First, graduates spend at least three or four years, if not more, not earning when their non-graduate friends are in work. Secondly, many graduates working in, for example, academe, nursing, pathology, speech and occupational therapies and other services in the National Health Service do not earn very high salaries. Thirdly, many non-graduates earn substantially more than graduates, particularly in the media and—dare I say it—as Members of Parliament. Fourthly, as the numbers in higher education increase, and as the quality of some degrees leaves much to be desired, the number of graduates having to take jobs for which a degree is not essential is also increasing.

Like my noble friend Lord Baker, the noble Lord, Lord Patel, and others, I have very serious reservations about a graduate tax. Despite what Ministers have said time and again about higher education funding, the Government are not spending as much either in real terms or as a percentage of GDP as the previous Conservative government. That information is there for all to see in issue 6/02 of the National Statistics Bulletin, published in September 2002.

We all have to agree that there are undoubtedly problems in the funding of higher education. That was so when the Dearing report was published, and it remains the case almost six years later. Now, however, the problem is considerably more serious, and much of it is of the Government's own making. One example is the introduction of the 50 per cent target without considering the resource implications. That real policy gap has not been dealt with—to provide a wider range of high-quality vocational education at all levels which is closer to home, and especially to combat the problem of the 25 per cent of young people leaving school without adequate vocational or academic qualifications. Then, of course, there is the serious issue of higher education salaries which was addressed by the Betts report, of which the Government seem to have washed their hands.

There is much confusion at the heart of government on the issue of student finance, and the level of uncertainty is putting in doubt the futures of too many young people. It is particularly putting in doubt the future of our universities, which have to manage.

There are cogent arguments both for and against top-up fees and about by whom they should be paid. Many of those arguments were played out today. However, my plea is that a number of related issues must be settled first. The Government should abandon the 50 per cent target. In The Times of 3rd January 2001, Professor Zellick, of London University, said:

    "The current pressures on universities to distort their recruitment and admissions processes are, in my view, grossly improper. It is an abuse of Government power".

In referring to the waste of money, he went on to say:

    "You've got people of moderate ability doing questionable academic courses culminating in degrees, leaving university as they arrive, with inadequate literacy and numeracy".

I might add that they are also leaving in debt.

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Professor Alan Smithers agreed with Professor Zellick by saying:

    "Professor Zellick has hit the nail on the head. Higher Education has been expanded as a superior form of youth training to keep down unemployment. There are a lot of courses which do not lead to a good understanding of the world or equip students for a job".

Government must stop patronising young people by social engineering; for example, allowing postcode entry into higher education.

Government must increase the quality and range of vocational education and training, especially close to home—as I said previously—to meet the real shortage in key skills. Government must cease offering financial incentives for universities to take pupils with poor A-levels but should encourage entry on merit by improving education in schools, especially in the inner cities. Government must stop passing moneys to higher education with strings attached; it only distorts priorities and interferes with academic freedom.

I have one final but crucial point. When the Government finally determine a funding system for higher education, income, if it is to come from top-up fees, must be truly additional and not simply benefit the Treasury by displacing government's contribution. I say that because the Government's record since the introduction of tuition fees, as the noble Baroness, Lady Sharp, has just said, is not good in this respect.

The aim for education is to provide what is appropriate for all abilities and aptitudes at further education and higher education levels and to free up the institutions and professionals to provide education without government interference.

My noble friend Lord Baker of Dorking can be well pleased with today's debate. Although many views have been expressed about a way forward, there has been no disagreement about the nature of the crisis and the sense of urgency that is required to see it resolved, upon which the economic and cultural well-being of our country depends. I thank my noble friend most warmly.

9.6 p.m.

The Parliamentary Under-Secretary of State, Department for Education and Skills (Baroness Ashton of Upholland): My Lords, I, too, am grateful to the noble Lord, Lord Baker, for securing this debate. I agree entirely with the noble Baroness, Lady Blatch, that it could not be more timely. It has stimulated important and valuable contributions from all sides of your Lordships' House. It will be some time before I forget the corsets mentioned by the noble Lord, Lord Sutherland.

It is important to recognise the debate that is taking place outside your Lordships' House to which the noble Lord, Lord Baker, referred. It is important that we view today's debate in the context of that broader and wider debate. I wish to start by outlining the key principles behind the review that is currently taking place. None of us is in any doubt that the funding of

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higher education is an important, if not crucial, issue. It is one that presents the Government and all of us with significant challenges.

The principles behind the review are: to find means of helping institutions obtain more funding to remain internationally competitive and prevent a decline in higher education standards; and that that funding should come from some combination of those who benefit from higher education; that is, the state, students, their families and, as the noble Lord, Lord Watson, said, business and employers. I say to the noble Baroness, Lady O'Neill of Bengarve, to whom I pay tribute for the tremendous work that she does, that we should bear in mind that over half of students currently make no contribution to tuition fees.

At this stage it is right to say that nothing is ruled in and nothing is ruled out. I want to focus on what it is that I believe we are all agreed on. Good government is about more than taking steps to solve yesterday's problems. Our responsibility must be to anticipate the challenges that are to come. It is not enough to see that this sector survives. We have to look forward over the next decade and beyond and make sure that our universities and higher education colleges can flourish as strong, independent and autonomous institutions. We need them to ensure that not only our economy but also our society can continue to flourish. The noble Lord, Lord Hannay, talked of a bridge that we need to get our universities from where they are now to the 10-year strategy and vision.

It is because we start from that principle that we are working on a wide-ranging strategy for higher education that will be published in January. It is not easy. I do not believe that there is anyone in your Lordships' House who does not recognise that. If you want to reflect on a set of difficult issues, think about higher education. We cannot allow this sector to drift into complacency and mediocrity. Our international competitors are not doing that; nor can we. I confirm to my noble friend Lady Warwick and agree with the noble Lord, Lord Butler of Brockwell, that the review is for all universities. I say to the noble Lord, Lord Smith of Clifton, that it will recognise business schools.

I say to the noble Lord, Lord Norton, that we need an holistic approach to what we are trying to do. I was very pleased that the noble Lord, Lord Sutherland, raised the whole question of the role of the regions and the relationship between universities and the regions.

There were champions for each type of approach. With apologies to the noble Baroness, Lady O'Neill, we had, from the noble Lord, Lord Baker, the question of top-up fees; from my noble friend Lord Morgan we had a graduate tax; from the noble Lord, Lord Renfrew, we had direct taxation; from the noble Baroness, Lady Perry, we had differential fees; from my noble friend Lord Desai we had the jobseeker's allowance; from the noble Lord, Lord Wallace of Saltaire, we had the American state system versus the European system, which I know well because my nephew and niece are educated in the US; from the

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noble Lord, Lord Alexander, we had the Australian loan system; from the noble Baroness, Lady Howe, we had some form of voucher system; from the noble Baroness, Lady Sharp, we had the Scottish system; and—perhaps my favourite—from the noble Lord, Lord Hannay, we had the judicious combination.

Within your Lordships' House we have the full breadth of experience and knowledge; we recognise that there are many different approaches. Each has its pros and cons and each has its champions in your Lordships' House and well beyond. For that reason, last week my right honourable friend the Secretary of State published a set of issue papers, which are available on our website. They set out the challenges facing higher education today. I hope that those noble Lords who have seen them will recognise the questions and challenges that they raise. He did so in order to stimulate this wider debate, which is very important.

I say to the noble Lord, Lord Renfrew, that I personally applaud the Secretary of State's decision to wait until January; he felt the need to get on top of all of these issues. That has helped the debate in your Lordships' House and beyond.

The first of the challenges is that of enabling our universities to secure the funding they need to provide high-quality teaching and research and allow the best universities to continue to hold their own. The second challenge is to enable more able students from poorer backgrounds to go to university. That, as the noble Lord, Lord Butler, said, should be based on merit. The noble Lord, Lord Baker, talked about the role of parental payments within that system. As noble Lords will be aware, we have been looking at the question of what one is at 18; is one an adult or a dependant? The noble Baroness, Lady Sharp, has on many occasions raised the perception of debt; the issue has also been discussed by other noble Lords on the Liberal Democrat Benches in particular. Thirdly, there is the issue of the economic challenge in a globally competitive world. How do we ensure that our universities are able to cope?

No one doubts that the funding of higher education is the important issue that presents the challenges. The noble Baroness, Lady Blatch, said that the amount of funding for full-time equivalent students fell between 1989 and 1997. As the noble Lord, Lord Butler of Brockwell, said, we asked the beneficiaries of higher education—the students—to pay a contribution. We believe that we were able to secure the steady reversal of the decline in funding and that we have turned the corner. By 2003–04, publicly planned spending on higher education will have risen by 15.6 per cent after inflation, compared with the figures for 1997.

The noble Lord, Lord Hannay, directly asked: what is the backlog? We can point to a 4.7 billion teaching infrastructure backlog. If we add to that figure the research infrastructure backlog, we get closer to 7 billion. To those who asked about the 9.9 billion raised by Universities UK, the figure is based on its assumptions about where it is and where it wishes to be. I would not wish to argue with it about that. We start from a different premise. We have a good

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dialogue in relation to the figures. The noble Baroness, Lady Sharp, gave us some very important figures about the ongoing needs of universities. To use the vernacular, we are in the same ballpark, but we are considering how to develop the system so that we can continue to maintain the world-class universities that we currently have.

We have invested in research. I shall not quote the large figures that the noble Baroness, Lady Sharp, said I might. Noble Lords have pointed to our investment in science in particular. We have 500 million specifically in research to get rid of the backlog in relation to poor maintenance and refurbishment.

We believe it is important that we have invested in research and continue to do so. I shall, indeed, pass on the concerns raised by the noble Baroness, Lady Warwick, about Northern Ireland. Research funding in Northern Ireland is provided by the Department for Employment and Learning and the research element of that grant comes to 27.7 million this year.

I am pleased that the noble Baroness, Lady Perry, raised the question of the increase in funding for science research. I agree that business has an enormous role to play within that. That is a matter to which we should return. I recognise what was said by my noble friend Lord Desai on social research and the importance of looking in a broader context. I dug out what he said at the end of his speech on 11th December 1997. He stated:

    "In 2002 we should have another hard look at how far we have improved the funding of higher education".—[Official Report, 11/12/97; col. 294.]

We have a prophet in our midst, for here we are doing so.

Some noble Lords raised the question of the letter from the Higher Education Funding Council and its delay. We are in constant contact with the council; we are in dialogue. We are delaying the letter, but the letter and strategy document are produced together because in a sense they are linked. However, we would not want in particular the noble Baroness, Lady Warwick and the noble Lord, Lord Baker, to feel that we are leaving them in the dark because that would not be appropriate.

The noble Baroness, Lady Blatch, spoke of the national statistics bulletin. Indeed, she is right in what she says. In GDP terms that is correct, but that is because GDP is so much better. The 2000 spending review meant that publicly planned spending on higher education rose by 18 per cent in real terms between 1997 and 2003.

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