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We must also be concerned about the number of adults who are functionally illiterate. Approximately 5 million adults are currently functionally illiterate, while 17 million people struggle with numeracy skills. The Leitch review of skills revealed that over one third of adults in the UK do not have basic school leaving qualifications. While we all recognise the huge importance placed on an educated and skilled workforce, we cannot ignore the 7.9 million people, 13 per cent of the UK population of working age, who remain economically inactive. It is vital that the Government and higher education institutions reach out to this last group of people who may consider education as something you leave at school and cannot access afterwards. To reach this disengaged group, a culture of continuous learning must be available, one that offers much more flexibility and support in the different activities in higher education.

The higher education sector works closely with business and industry, and is of course the key to improving the nation’s skills and productivity. As my noble friend Lady Rawlings highlighted, the contribution made by higher education institutions to the economy is substantial. In particular they are often the drivers of regional economies. Universities are now contributing increasingly to a knowledge-driven economy that relies on innovation and productivity growth. The noble Lord, Lord Bhattacharyya, was absolutely right to say that universities need to be freed from excessive bureaucracy, while my noble friend Lord Geddes highlighted the need to recognise the value of specialist institutions and how they add to our culture economy, in which we are world leaders in many areas.

Let me take as an example of developing and retaining skilled individuals in the region the work of the University of York. York produces approximately 2,000 first-degree students and 1,000 postgraduates each year. The university is proactive in promoting local and regional employment for all graduates. It is also proactive in collaborative projects with businesses, while the activities of the science park yield substantial revenues for the region. However, can the Minister tell the House how he intends to address the shortage of science facilities in UK universities, and the question of access to separate science qualifications for school pupils? A large body of evidence indicates that chemistry and physics graduates will, on average, earn over 30 per cent more during their working lifetime than A-level holders of those subjects.

I have some concern that to ensure that participation in higher education continues to grow, the Government need to assist the process rather than hinder it. I shall explain what I mean. There is little evidence to suggest that when parents are asked to provide information on whether they have been to university, it increases graduate participation. We already have increased participation and we do not need to meddle in parents’ backgrounds. The

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National Union of Students is absolutely right to highlight the continued effort by universities to ensure greater participation by the black and minority-ethnic communities, those in the lower socio-economic groups and people with disabilities. We should be careful not to deter those for whom university would be a natural life choice by erecting artificial barriers against them. I look to the noble Lord for reassurance that measures to discriminate against the children of better-off families will not be pursued in this way.

I agree with my noble friends Lord Norton of Louth and Lady Bottomley of Nettlestone that the higher education sector, through the diversity of its students, adds economically, socially and culturally to our towns and cities. The research and development carried out in our universities has had groundbreaking results, thus greatly contributing to the wealth of our intellectual capital and economic growth. The Government must give assurances that our top universities will not face difficulties in attracting appropriate levels of funding to ensure a continuing stream of quality work using well funded resources for research and training. As my noble friend Lord Norton of Louth observed, the Government need a lighter touch.

I congratulate the noble Baroness, Lady Warwick of Undercliffe, on securing this important debate. I must declare that I have no interests to declare with any university.

4.10 pm

The Parliamentary Under-Secretary of State, Department for Education and Skills (Lord Adonis): My Lords, I join the noble Baroness, Lady Verma, in congratulating my noble friend Lady Warwick on initiating this debate and on her excellent speech. My noble friend deserves a great deal of personal credit for the strength of our universities today, in her longstanding role as chief executive of Universities UK. The recent UUK report on the economic impact of the UK’s higher education institutions is a typically thorough and incisive piece of work. I have a slight quibble with the noble Baroness, Lady Sharp: I have never known Universities UK to undersell its product. If it is indeed underestimating the economic impact of universities, I leave the two noble Baronesses to discuss that between them.

With the exception of the noble Baroness, Lady Verma, I have never heard so many interests declared in one debate in your Lordships’ House. Today’s debate has demonstrated yet again the breadth and depth of university expertise in the House. Going through the list of speakers, I tried counting the number of serving or former university chancellors, principals, vice-chancellors, heads of colleges and professors, but I soon gave up, because the number of your Lordships represented in more than one of those categories—some in very many of them—was so complicated that it was becoming a major piece of prosopographical analysis more fit for a doctoral thesis than a speech.

The economic benefits that universities bring to their societies have long been recognised. I have not

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gone back to Confucius, but as long ago as 1442 the citizens of Ferrara petitioned their Duke to found a university because,

The Renaissance Italians clearly understood the importance of overseas student fees, but I suspect that even the worldly wise Machiavelli and the Medici would have been astonished that there could in the future, in a fairly small country, be 300,000 overseas students, worth a staggering £1.5 billion a year to the economy in off-campus spending alone—not all of it, I believe, spent on wine and “other necessities of life” for the modern students; I am sure a good part of it also goes on books.

London has a particular attraction for overseas students. The LSE—once known as “Let’s See Europe”—is about as international an institution as it is possible to be, as my noble friend Lord Giddens testified. The most multifaceted strengths of London’s universities were all well attested to today by my noble friends Lord Paul and Lady Blackstone, the noble Lord, Lord Sutherland, and the noble Baronesses, Lady Rawlings and Lady Valentine. However, I hasten immediately to add that the rival and complementary attractions of Warwick, Oxford, Gloucestershire, Cambridge, Bournemouth, Staffordshire, Aberdeen, Liverpool and Hull have been equally well represented in the House this afternoon—as well, I should add, as the specialist arts and music institutions so rightly praised by the noble Lords, Lord Geddes and Lord Sutherland.

It is important at the outset to emphasise that the economic role played by universities represents only one of the many ways in which they contribute to society. I would not for a moment want to undervalue their powerful role as forces for social, cultural and intellectual advancement. As my noble friend Lord Bragg and the noble Baroness, Lady Deech, so rightly said, universities are, above all, a force for civilisation in our society. That, too, has long been appreciated. John Henry Newman wrote in 1854:

Newman’s words remain as true today as when he set them out as the Idea of a University.

Today’s debate is specifically about universities’ economic impact, and on that front, as the UUK report implies, our universities are in fact, if anything, too prone to hiding their light under a bushel. At the risk of reinforcing national stereotypes, I note that the US institutions are rather more forthcoming and unabashed. The front page of the UCLA website will tell you that every dollar the university receives from the Californian taxpayer generates $9 of economic activity within the state. The University of Oregon claims no less than $20 of impact for every dollar of public funding invested. Many of our universities could and perhaps should declare something equally impressive on their websites.

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It follows that UK taxpayers, most of whom have not, as the noble Baroness, Lady Verma, so rightly said, benefited from a university education, can be reassured that their very substantial investment in higher education produces a financial return in addition to the wider social return, which is to their good and that of the country as a whole.

As we have heard today, the economic impact of the universities is a powerful argument for greater public funding. This is an argument to which the Government have been consistently receptive over the past decade, and will, I assure my noble friend, continue to be receptive in the coming Comprehensive Spending Review. I pay tribute in this respect not least to my noble friend Lady Blackstone for her ministerial stewardship of the universities during four years in which their financial health was substantially restored.

We have gone further since then, not only with additional large increases in state funding, both in research and teaching, but in the wider reforms we have carried through—at some political cost—on student finance and, most recently, university endowments. During the last general election, I said at one political meeting that I expected to have the words “tuition fees” engraved on my tombstone; whereupon, someone shouted from the back: “Not soon enough!” At least let me share the blame for that particular reform with the noble Lord, Lord Dearing, who set the ball rolling precisely 10 years ago, and say to the noble Lords, Lord Hannay and Lord Butler, that the Government are committed to an independent review after 2009. I stress “independent review” to the noble Lord, Lord Hannay, not least because we want to take this vital issue of the future funding of our universities out of the political hurly-burly to the maximum extent possible for the good of the country.

We have demonstrated our commitment to supporting universities again and again. It has been shown in the growth to record levels of the numbers of students that our universities admit, and the fact that 43 per cent of all 18 to 30 year-olds now receive a higher education, with big increases in previously under-represented groups brought about not least by the newer universities so rightly emphasised by the noble Baroness, Lady Cox, and the noble and right reverend Lord, Lord Carey. It has also been reflected in the fact that this increase has been achieved without any real-terms reduction in the per capita public funding of university teaching after 25 years in which there have been substantial year-on-year per capita reductions and it has been shown in government funding of university research, which has more than doubled since 1997.

Scientific research has been the greatest beneficiary, thanks in no small part to the work until recently of my noble friend Lord Sainsbury of Turville as science Minister. I thank the noble Lord, Lord Butler of Brockwell, for his remarks on the way that we have stood by biomedical researchers, including at the University of Oxford. I assure him and the House that we will continue to do so.

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Of special relevance to this debate, the Government have demonstrated their commitment by creating the Higher Education Innovation Fund, which is currently providing universities with more than £100 million a year to help them engage with businesses and communities. That fund will continue beyond the current third year of funding. My right honourable friend the Chancellor announced in the Budget recently that the public funding of universities will continue to grow in real terms over the period of the Comprehensive Spending Review. This will enable us to honour the commitments on the unit of funding and student support made during the passage of the Higher Education Act 2004. It will also allow us to continue widening participation and increasing employer engagement.

With his customary panache, Boris Johnson said recently in his role as opposition spokesman on higher education:

I will not quibble either. Nevertheless, universities engage with the economy in a wide variety of ways, many of which we have heard described today. Some of these are easier to quantify than others.

The best source of information on what can be quantified is the latest Higher Education — Business and Community Interaction Survey, which gives an insight into the extent of universities’ external activities. It shows, for example, well over 1,000 licences a year being granted for non-software products and over 900 spin-out companies operating with at least one university as a partner. No less importantly, the survey shows more than 10,000 full-time equivalent staff days a year being devoted to free public lectures that were attended by some 400,000 people, and a further 1,000 staff days being spent on paying events for the public.

The greatest impact of universities’ external engagement is most often felt in their local communities which are, as my noble friend Lady Blackstone rightly said, frequently in areas of the country that are in need of economic development. To take just one example, the University of Hull, represented so effectively here today by the noble Lord, Lord Norton, and the noble Baroness, Lady Bottomley, was only last month awarded £4 million to develop the Yorkshire and Humber lifelong learning network. Nowhere in the country needs such investment more than Humberside—and every part of the country can boast of similar schemes in progress, often with universities in the lead in taking them forward. Often these universities are acting in highly innovative partnerships in so doing. At Medway, for example, as my noble friend mentioned, I have been extremely impressed by the collaboration between the University of Greenwich and the University of Kent at Canterbury in creating a completely new campus focusing on widening participation and with a substantial regeneration effect.

All these activities, and others that the survey describes, might be summed up in the phrase “making knowledge work”, which is one of the marketing

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slogans used by the University of Bradford, a prominent participant in knowledge transfer work as my noble friend Lady Lockwood described in her excellent speech. She also described the changes in higher education in recent years as a whole as “close to a revolution”—I think that those were her words. I would concur with that view.

Of course, universities’ economic impact extends beyond their direct business and community engagement activities. It also extends beyond these shores. It can be found, for example, in future use that students will make of the hard and soft skills that universities teach them, not least the language skills that students may acquire as part of their courses, or through extra-curricular activities, and about which the noble Lord, Lord Dearing, spoke so eloquently. I take this opportunity to thank him, and Dr Lid King, for their work in producing the recent report on languages, which has some important recommendations for universities, which my department is looking to take forward.

We talk a lot about the internationalisation of economies and of higher education, but perhaps without always appreciating how closely the two are linked. This is an important issue, and one to which I will devote the remainder of my remarks.

Our universities today are key actors in not only the domestic economy but also European and global economies to which our own prosperity is increasingly tightly bound. Of the £3 billion or so per year of private funding that universities receive for research contracts and other services, over £0.5 billion comes from sources outside the UK, and of the £4 billion in fee income they receive, about one-third comes from international students. The UK’s leading universities have recognised that, if they are to fulfil their role of ensuring that all learners are prepared for life in a global society and work in a global economy, they need to engage with other countries.

The name Bologna, whose university was founded in 1088, is rightly associated with this intent. The Bologna process aims to enhance the competitiveness of European higher education worldwide through greater compatibility and comparability of European higher education systems and greater transparency and recognition of degrees. This brings real benefits in opening up opportunities for student mobility; study abroad enables young people to develop the skills, knowledge and confidence to seize the opportunities available in today’s labour market, while inward mobility brings real economic benefits for the UK. This message will be strongly underlined when my right honourable friend the Secretary of State hosts a major conference of Ministers from the 45 Bologna countries in London next month. The Royal Society noted in February:

Bologna can indeed act as a spur to universities throughout Europe to make the changes necessary to remain competitive. All institutions need to identify

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their areas of excellence, improve their governance, develop new partnerships with employers and increase and diversify their funding sources. We can be proud that the United Kingdom is at the forefront of higher education reform in Europe in all the respects I have just mentioned. However, this further reform is necessary so that institutions can deliver excellent provision—helping graduates develop the essential knowledge, attitude and skills to compete in fast moving global markets.

The impact of UK universities is also felt beyond Europe. Not only is the UK the second most popular destination in the world for international students after the USA, but our universities’ reach extends far and wide, thanks to the partnerships they have developed abroad, and through the diverse ways in which UK qualifications are now delivered across the globe.

International students not only bring immediate financial benefits to the UK, they add to the cultural richness of our society and in particular to our national research capacity. Some stay on to work after completing their studies, adding to our skills base, and it is very much in our interests to make it easier for them to do so. That is why, from next month, a new International Graduates Scheme will be created to allow international students in any discipline to work here for up to a year after graduation.

Furthermore, international students who return home having enjoyed a positive study experience here often become lifelong friends to the UK, helping to forge trade, cultural and political links of immense value. This is not the least important of the many ways in which our country is aiding the developing world. I pick up the important point on Africa made by my noble friend Lady Blackstone. Here, too, the Government are supporting universities’ own efforts to expand their reach. One example that the noble Lord, Lord Hannay, will recall from his diplomatic service is the Chevening scholarships programme, which brings to us some of the brightest students from around the world, including those from developing nations. Building on this work must be a vital concern to us as a country in the years ahead. For example, the Shared Scholarship Scheme funded jointly by my department, the Department for International Development and participating universities helps bring to the UK academically able students from developing Commonwealth countries who are outside the scope of other schemes. This scheme specifically supports students who are unable to study here for financial reasons but whose area of study has the potential to bring developmental advantage to their home countries.

A large number of other points were made. My noble friend Lady Warwick sought assurances that funds would be made available to support teaching infrastructure in universities. My department has received a capital settlement of £10.1 billion in the forthcoming Comprehensive Spending Review. This is a generous capital settlement for the department, signalling that we shall continue our unprecedented investment in the fabric of our education infrastructure. I am sure that universities will share in that.

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The noble Lord, Lord Norton, raised his perennial but none the less important theme of bearing down on bureaucracy and red tape. I gave a full account of our policies in that regard in our previous debate, which I think he accepted was a move in the right direction but considered that we could go further. I fully accept that we can go further. A number of stakeholder groups are helping to advise us in that regard. The Higher Education Regulation Review Group was established in 2004 and reappointed for a further two years in summer 2006. Its membership is made up of front-line practitioners who have considerable experience and expertise and we believe that it is making an impact.

The noble Baroness, Lady Verma, raised important issues in respect of science education. I strongly support the tenor of her remarks about the vital importance of our schools—particularly those which have traditionally offered general science qualifications leading up to GCSE—having the opportunity to specialise to a much greater degree than has been the case in the past to encourage more students to stay on and study individual sciences at A-level. As she may know, we recently announced that from next year all schools with a science specialism will offer the three individual sciences at GCSE. We are seeking to expand that more widely across the system. We are also engaging in a very substantial increase in recruitment of science graduates into schools to change the unacceptable situation we have at the moment where only one in four state secondary schools has a fully qualified physics teacher with a degree. We seek to increase dramatically the proportion of schools which have qualified science teachers in all the main areas.

I will respond in writing to the many other points that have been made. I thank all noble Lords who have spoken, and I congratulate Universities UK on its contribution to the vital debate on the future of our universities, because nothing is more important to our future as a country.

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