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As the noble Lord, Lord Baker, pointed out, in a knowledge-based and highly competitive world the Government need to make sure that our institutions of higher education are among the best in the world. Our universities have a lot to be proud of. They are the second most popular destination for overseas students. They get the second highest number of Nobel prizes

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and other forms of international recognition. They contribute £33.4 billion to the economy, which is 2.3 per cent of GDP. However, other countries are beginning to catch up with us and are even overtaking us. France has decided to contribute €11 billion to higher education. Germany has decided to contribute €18 billion to world-class research institutions, alongside university education. President Obama has committed an additional sum of $20 billion for federal education spending. It is important to bear in mind the fact that the French and German money is not just going to science and technology; it is also going to centres of migration studies, cultural studies, studies of long-term economic and political trends and so on.

It is important that the Government should constantly monitor how we are competing with other countries and what they are doing that we are not doing. They should also bear in mind the fact that, beyond a certain point, university education should be a protected sphere in exactly the same way as the health service, schools and the police are. Unless we recognise that, we are in danger of destroying great institutions that we have taken hundreds of years to build.

2.44 pm

Lord Patten of Barnes: I congratulate my noble friend on securing this debate on higher education. Like him, I find the absence of the Lord President lamentable. I declare an interest as chancellor of Oxford University.

The Prime Minister regularly refers to the importance of our world-class universities and regularly talks about ensuring that they remain at the top of the class. In a recent speech, he opined that over the next 20 years education is likely to be this country's biggest export. However, there is a certain disjuncture between his remarks and what is happening on the ground. My noble friend pointed to the £1 billion in cuts that has been identified by Universities UK. The noble Lord, Lord Parekh, referred to what is happening in our competitor countries-in France, Germany and the United States. As we know, the Institute for Fiscal Studies has predicted that there could be another £1.6 billion in cuts if the Government are to secure their target for cutting the fiscal deficit while ring-fencing programmes such as health.

I have on previous occasions welcomed the increase in spending on higher education since 2005-06. The Lord President has been very happy to quote me saying that, so I hope that he will quote what I am going to say today, if he can find the time to read this debate. What we are seeing over the years until 2012-13 is the obliteration of the splurge of spending on higher education since 2005-06. In fact, it is worse than that. If you look at the Universities UK figures, you see that, even at the high point of this spending and even with three years of tuition fees, the unit of resource for every student is in real terms £7,500, which is £1,500 less than it was when my noble friend was the Secretary of State for Education. There is substantially less money behind every student today. I hope that the noble Lord, Lord Browne, and his review provide some of the answers that are required, but it will be difficult to expect him to go the whole way.

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Let me describe briefly the situation at Oxford. It costs about £16,000 a year to teach a student there. Public funding plus tuition fees cover only about half of that, and the gap is steadily widening, not least as we have already had a cut of £11 million in our teaching grant and I doubt that that is the end of the road. One area that concerns me particularly is the impact on the humanities, which I referred to in a speech in this House before Christmas. In Oxford, we did very well out of the 2008 research assessment exercise. The research power index ranked Oxford as top nationally in French, German, Asian studies, English, history, classics, theology, philosophy and Middle Eastern and African studies. However, the Government, in order to accommodate an increase in spending on the so-called STEM subjects and to spread what is left over a rather wider area, have made substantial cuts in the QR funding for those top-of-the-league subjects at Oxford. We have seen a cut of over £600,000 for French, which is about 43 per cent, and a cut of over £500,000 for English, which is about 18 per cent, while the historians have taken a cut of well over £1 million, which is over 30 per cent. I warned before Christmas, as I say, about the problems that the humanities face. The Government sometimes give the impression that they do not much care what happens to the humanities because they are not, in their view, useful. I think that that is a particularly bleak view of the role of universities. If we are having those problems at Oxford, I hate to think what problems others are facing.

I just want to repeat one point that I made, again before Christmas. I do not think that, given the small proportion of GDP that we spend on higher education, we can go on giving young people what purports to be the same university experience in exactly the same institutions and at the same time defend a world-class research base. We simply are not spending enough money to do both. We will have to choose and we will have to reorganise the sector. It is not enough to fudge the figures, to deny that there is any pain and to pretend that all is for the best. Put very simply, it is not all for the best.

2.49 pm

Lord Smith of Clifton: My Lords, this is the second time in eight years that the House has been indebted to the noble Lord, Lord Baker, for introducing a debate on this topic. The noble Lord, Lord Mandelson, has announced swingeing cuts in the financing of universities and added his name to those who call for a much more vocational, utilitarian and philistine approach to both teaching and research. In this, it is a re-echo of one of the main thrusts of the Dearing report in 1999 and will doubtless be rehearsed again when the noble Lord, Lord Browne of Madingley, completes the latest review of university financing. It is not new. The Edwardian period was characterised by The Quest for National Efficiency. Then, Governments of all hues were alarmed that the UK would lose out to the superior competitiveness of German and Japanese industry. Now we are told that the UK has to compete with the rising economic power of India and China.

The recurring themes of efficiency, modernisation, vocationalism and prosperity have resulted in different policy manifestations over the years. Many of them

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were in response to the clamour of industrialists. The problem is that to pursue such siren voices is to follow the lurchings of a drunk; industry always wants the opposite of what it is getting. It is like a perpetual five year-old's birthday party: no present satisfies.

It is not entirely, or even partially, industry's fault. Policy-makers, whether Ministers or civil servants, have never stood back long enough to produce a coherent system of higher education. It has all been, as the noble Lord, Lord Baker, said, too piecemeal and knee-jerk. As I have said before in your Lordships' House, UK tertiary education ought to be based on something akin to Clark Kerr's comprehensive plan which revolutionised the situation in California.

Higher education needs to be regionalised. Its academic staff should teach on more than one campus; a peripatetic element would preserve a greater range of disciplines at a cheaper cost. Courses should be offered on a continuous basis so that students can take them over an intense period, à la the University of Buckingham, or over an extended one, à la the Open University. Such innovations would make higher education much more consumer-friendly and cost-effective.

I was a faculty dean at the time of the Thatcher cuts in 1981. Most universities adopted a rather desperate slash-and-burn approach. It will be much worse this time round, with compulsory redundancies being inevitable. I am glad that I am no longer a vice-chancellor.

In 1981, higher education funds were slashed throughout the developed world, with one exception. Lee Kuan Yew increased the budget in Singapore on the grounds that its best natural resource was the grey matter of its young people and that that had to be cultivated. The noble Lord, Lord Mandelson, should ponder that.

There is one final remark that I shall make-one that concerns intergenerational equality. As I wrote in a letter to the Guardian some months ago, it rather sticks in my craw that this generation of legislators is intent on placing a much greater share of the costs of third-level education on to the students. It is a generation that itself benefited from state scholarships and county awards that covered both fees and maintenance costs. The rate of return on a degree accrued significantly to the advantage of the individual. With a swingeing increase in fees, as the noble Lord, Lord Browne, is likely to recommend, the costs will be to the severe detriment of the graduate. There is a strong case for considering the imposition of a retrospective tax on those graduates who enjoyed the earlier regime that lasted for a half century. That would go some way to preserving equity between the generations.

2. 54 pm

Lord Patel: My Lords, I declare an interest: I am chancellor of the University of Dundee, a leader in life sciences research, and I am also a member of the council of the Medical Research Council.

Discussion related to funding arrangements for universities has to be conducted in the context of potential changes in the research assessment exercise, the widening participation agenda and the application of market forces to university education. The current government approach to all this gives one a feeling that higher education is now being used instrumentally

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as a commodity and a low-grade instrument of the economy and the marketplace, rather than in its own right as something that enriches society through thought, research, education, analysis and contribution to knowledge and understanding.

Government interactions affect teaching, research and university planning and strategy. In teaching, academics are now rewarded or punished for meeting or failing to meet student recruitment targets. Students are seen in market terms, as purchasers of educational services, forcing redundancies of staff or forcing universities to increase the number of overseas students, selling places to the paying public.

In research, Alistair Darling, the Chancellor of the Exchequer, revealed in his Pre-Budget Report in December 2009 that there will be substantial reductions in higher education, science and research budgets between 2011 and 2013. Peter Agre, the 2003 Nobel laureate in chemistry, stated:

"The nations that fund science are investing in the future, but those that cut funding are hoping for the best".

On 21 February 2010, Ralph Cicerone, president of the US National Academy of Sciences, said that the cuts in university and research budgets will force the most talented British scientists to find jobs in the US, Singapore and other countries that are continuing to invest in science throughout the global recession.

Yesterday, I heard our own 2009 Nobel laureate in chemistry, Professor Venki Ramakrishnan of the MRC laboratory of molecular biology in Cambridge, make a similar plea to parliamentarians. He said that he moved to the United Kingdom from the United States 10 years ago because the climate for basic science research in the UK was ideal at that time. His research already shows potential for developing new antibiotics. Although the research councils do fund blue-skies research, which is the basis of the renewal of knowledge and the development of new knowledge, there is increasingly a push towards more limited applied research.

Thus, government control of finance for universities which is tied to short-term economic returns extends beyond the direct funding that they provide for capitation. At a more macro level, the drive to treat research as an income-generating, cost-covering activity requires more staff to spend more time seeking outside funding, while those working in research units spend their time accounting for their time. Senior researchers spend more time on forward financial planning and answering questions from accountants about recovering 89 per cent of overheads than in doing actual research.

When it comes to planning and strategy, unstable government policy and the instrumental use of universities for political purposes, subject to the vagaries of the Treasury's thinking, mean that universities themselves cannot think strategically. Government should think hard about the nature and benefit of universities. The research that they conduct, especially basic and speculative research, is the basis of future economic development. Scientific research is a strategic good and the basis of future income generation and inward investment. Tying research to the market and the economy is short-term, reactive panic-thinking that will disallow the development of a solid base and production of future generations of scientists.

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Further cuts in funding, while continuing to put pressure on the universities to teach disproportionately high numbers of students-to generate income, to undertake short-term applied research, and to save money on staff and activities-will lead to our best academics leaving for universities that will use their research skills; to our teachers being burnt out and alienated from the market process; and to our students being offered an education that is not what university teachers would wish to offer nor what the students would wish to have.

We have already heard comments about how Obama, Sarkozy and Merkel have announced significant investment in universities since the global economic downturn, recognising the role that universities can play as an economic stimulus in long-term recovery. So my questions to the Minister are these. First, what do the Government understand the special purposes of universities to be? Secondly, in the face of significant investment in universities in other countries, when will the Government maintain the UK's leadership in teaching and research by committing to long-term planning?

2.59 pm

The Lord Bishop of Leicester: My Lords, I also am grateful to the noble Lord, Lord Baker, for his eloquent and effective introduction to this debate. In the diocese of Leicester we are delighted to work with three high-performing universities: Leicester, Loughborough and De Montfort. I declare an interest as a governor of De Montfort University and as chair of the governors of Westcott House theological college in Cambridge. It is from that direct personal experience that I want to say a word about higher education in general and about theological education in particular.

De Montfort University has performed outstandingly in widening participation in recent years. It has a growing reputation, a track record of strong student demand and excellent research records, yet it now finds itself facing an already announced 3 per cent reduction in recurrent grant, closing prematurely entry to a range of faculties-almost unheard of at this stage in the academic year-and rethinking its approach to widening access. Likewise, Leicester University has an exceptional recent record; it was named university of the year in 2009 by the Times Higher, and applications for undergraduate study have increased by over 75 per cent in four years.

What are those universities and others like them asking from the Government in the present uncertainties? I shall list four or five requests. First, implement the findings of the fees review swiftly and give higher education institutions more flexibility to generate their own income. Secondly, treat universities as trusted sponsors through the implementation of the points-based immigration system; do not tie universities in red tape that will threaten a valuable source of cultural diversity and income on campus. Thirdly, do not cut the sector twice. The cuts already announced are painful, as we know, but what is unannounced-and the fear that higher education may be disproportionately targeted-is probably more of a concern and a barrier to any medium to long-term planning. Finally, find some further limited expansion in the light of growing demand for places.

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It is well understood that funds are limited and entry to university should be competitive, but the current economic circumstances are leading to unprecedented demand. Talented young people, as the noble Lord, Lord Baker, pointed out, are better off in higher education than on jobseeker's allowance. Above all, we should help these institutions to remain internationally competitive. As has already been pointed out, the UK punches above its weight in academic citations-one reason why universities are able to generate billions for the economy through international student recruitment. Other Governments around the world are responding to the challenging economic climate by investing in their universities.

Perhaps I might also say a word about theological education. It is not just a minority interest for the church but a substantial interest for the building of social capital for the nation. As noble Lords will be aware, HEFCE was directed in 2007 to no longer fund students who are studying for an equivalent or lower-level qualification. That posed a significant if unintended risk to the church, as 75 per cent of ordinands in training already have a first degree. HEFCE has since been helpful in giving the church a two-year breather to explore exemptions to the rule offered, mainly through foundation degrees and employer co-funding. What is to happen next in that area?

If HEFCE funding is drastically reduced, we fear that the church will be able to afford far fewer people undertaking university degrees in our theological colleges, especially in Oxford, Cambridge, Durham and Leeds. That could easily have the effect of creating a generation of potential leaders who would not have had the opportunity to study to the highest possible level in a university department alongside people of no faith or of another faith. That is an important formational opportunity, not just for the church but for society as a whole. I hope that the Minister will be able to offer some comfort and reassurance to the church in its serious efforts to serve the needs of the whole nation, especially at a time of severe economic downturn.

3.04 pm

Lord Krebs: My Lords, I, too, thank the noble Lord, Lord Baker of Dorking, for providing us with the opportunity to debate this important topic. I declare an interest as the principal of Jesus College, Oxford. We have heard many times, from politicians across the political spectrum, of the importance of the knowledge-based economy for our future. I find it very hard to reconcile that with the position of cutting funding for universities in England over the years ahead. As the noble Lord, Lord Patten of Barnes, has pointed out, it is not as though the university sector has been well funded in historical terms in recent years. Per capita funding now, before any of the cuts are introduced, is 17 per cent short of that of 20 years ago.

When David Lammy, the Higher Education Minister, said last September that:

"Universities have had it good for more than a decade",

he had not looked far enough back in the record. Our investment in universities is not only low in the historical context but internationally. As others have pointed out, our competitors in other countries not only mouth

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the words about the knowledge economy: they put their money where their mouth is. The UK spends 1.3 per cent of GDP on higher education as a whole and the United States 2.9 per cent; the OECD average is 1.5 per cent. Does the Minister agree that our universities are underfunded both in historical and international contexts? As we have heard, the gap with other countries will widen in the years ahead. While we are cutting funding in higher education, others are increasing their expenditure.

The crucial question for the future is how the funding of universities can be put on a firm and sustainable footing. I have two points. First, the elephant in the room in any discussion of university funding is the binary divide. Until 1992, we had a funding system that encouraged diversity of mission among higher education institutions. Polytechnics focused on skills and training, often for local industries, while universities focused on education and research across the sciences, medicine, social sciences and humanities. That system emulated much that we admire in other countries such as the United States, where different higher education institutions fulfil different needs of society and of individuals. Since 1992, we have seen mission drift, with former polytechnics often aping the older universities-driven by the single ladder of reward up which all universities try to climb.

If there are to be cuts in funding, differences in mission should be rewarded by recognising the difference between research-intensive universities and institutions that provide training in skills and technical subjects. The latest RAE, however, led us in precisely the opposite direction, with the proportion of funding going to the Russell group of research-intensive universities declining by about 5 per cent. If we are to retain world-class universities, we need to distribute funding in a way that protects those intensive research institutions rather than spreading scarce resources thinly across the whole sector.

As others have already said, we are the only country outside the United States to have universities in the top 10 in the world. That is what enables us to attract the best students and academics in a highly competitive global market for talent. Other countries such as France, Germany and China are concentrating their resources in their leading universities. Does the Minister agree that our rivals in other countries will be absolutely delighted to see our pre-eminence destroyed by cuts in government funding?

My second point concerns student fees, currently under review by my noble friend Lord Browne of Madingley. The future of student fees and of university funding should, in my view, be linked to three basic principles. First, access to universities should be needs-blind. Secondly, universities need more income if they are to be sustainable and internationally competitive. Thirdly, not all universities should be charging the same fees. You do not buy a Rolls-Royce for the same price as a Ford Escort; students should not expect to pay the same for an education at all institutions.

In conclusion, our universities are one of the few enterprises in which the UK remains an undisputed world player. The then Poet Laureate, John Masefield, said on receiving his honorary degree from Sheffield University in 1946:

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"There are few things more enduring than a University. Religions may split into sect or heresy; dynasties may perish or be supplanted, but the ... University will continue ... and the thinker and the seeker will be bound together in the undying cause of bringing thought into the world".

Let us not destroy that ideal by ill thought-out cuts in funding in our world-class universities.

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