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The vice-chancellors of the Russell group universities have already expressed their concern about what appears to be about £1 billion in cuts. Universities UK has also reacted by saying, "Well, if that's it, then we needn't turn a drama into a crisis". However, I am afraid that my own view is more pessimistic; I do not think that that is it. I recall that in early 2008 the chairman of the strategy group for Universities UK, Professor Geoffrey Crossick, said that the golden period of higher education funding was over. That was long before the current international financial crisis hit this country. I think we must assume that economically the situation is going to get worse and that universities are going to have to play their part, as, after all, the poorest sectors of the community will do.

I think that a separate case is to be made for science, and it has been made very eloquently on these Benches. My noble friend Lady Greenfield is right. Schrödinger, along with one other person, was employed by de Valera during the war at the Institute for Advanced Studies in Dublin. Schrödinger was very unpopular in the pubs of Dublin. The other chap was an historian, and it was commented that this chap had proven that there were two St Patricks and Schrödinger had proven that there was no God. That was thought to be the only product of the Institute for Advanced Studies, but in fact we now know that the institute's work was very fine and very important.

However, I am going to assume that things will get worse. In these circumstances, the crucial thing is mode of address to academics-something that we forget about in our society. I do not include only

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politicians here; there are also questions relating to practice in our universities. This week I was disturbed to read in the Financial Times that from 2003 to 2008-09, our universities employed three administrators for every one academic. There are reasons why that happened; none the less, I cannot be alone in regarding it as a disturbing figure. Especially when one is talking about the humanities, it is very important that, when we are going to be asking more from our academics, they are spoken to in a way that is not oppressive. Unfortunately, in recent years we have had Philistine remarks from government Ministers about those who work on the study of ancient civilisations. We also have a tendency to argue that elitist admission to our great universities is a function of the mentality of admissions tutors, when in fact it is much more profoundly rooted in the economic and social structures of our society. Anyone who knows anything about the instincts of fairness among academics who work in this field will know that it is not their fault that we still have such a regrettably inegalitarian pattern of admission to our great universities. It is also quite frequently said by politicians of both parties that, although Britain has a good reputation with regard to the drop-out rate, the increase in that drop-out rate must be a reflection of bad teaching. Any teacher will tell you that these days students are not turning up in the way that they used to. That is the fundamental reason for drop-out rates and, again, it relates much more profoundly to economic and social factors in our society.

One other crucial issue for academics is the impact assessment of the REF, which has replaced the RAE. The RAE has been vital in maintaining the international competitiveness of our universities and it must remain in place. However, whereas when it started out it was too idiosyncratic and eccentric, it is now arguably too bureaucratic and formal. Certainly academics, who cannot be expected to produce an easily accessible public impact assessment, should have some way of having their work properly recognised and not be penalised.

In conclusion, my argument is that in the difficult times that are coming, we are going to have to find a way of getting the best from our academics, and that will be determined to some degree by how our society talks to academics as a whole.

3.39 pm

Lord Watson of Invergowrie: My Lords, I, too, congratulate the noble Lord, Lord Baker of Dorking, on securing this debate on what is a very important and urgent topic. When he addressed the All-Party Parliamentary University Group yesterday evening, the Minister opened his remarks by saying that he likes to think UK higher education bears comparison with the world's best. I like to think so too and would suggest that, at present, that claim can be justified. However, I am much less certain that that will be the case in five or 10 years' time. I say that because of the Government's announcement of a reduction in funding for universities for the coming year of just under 5 per cent and for 6 per cent in each of the next three financial years. I accept that these cuts are being made from a strong base, with the years since 1997 having

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seen a 25 per cent increase in real terms in higher education funding, the research base more than doubled and participation up to 43 per cent.

I also accept that the cuts are part of the Government's response to the effects of the global financial crisis. But one of those effects is that more people than ever are now applying for higher education places, especially those aged 25 and up, as a means of re-training to prepare for the job market once the economy picks up. Applications to UK universities this year have already increased by almost a fifth, meaning that anything up to 200,000 young people, as noble Lords have already said, are likely to be left without a place at universities and colleges. That is a matter of great sadness.

Like the UK, our major economic competitors are suffering the effects of the global economic crisis; so what is their response? Reference has been made to this already. Last December, President Sarkozy announced plans to increase spending by €35 billion to boost the nation's scientific and technological competitiveness, with €11 billion of that earmarked to boost the global competitiveness of French universities. What is telling is that to fund this France will add to its already sizeable national debt by raising €35 billion, some €22 billion through government borrowing plus €13 billion repaid by French banks which borrowed from the state during the financial crisis.

Earlier this month, President Obama, in his State of the Union speech, proposed a 6 per cent increase in post-school education spending for next year, aimed at combating unemployment and developing skills. His message was that, even as the US introduces a three-year freeze on general public spending to tackle the deficit, it must,

Research funding is to receive a 6.4 per cent increase from last year, with universities to be the biggest beneficiaries from the increase.

Meanwhile, last year, the Deutsche Forschungsgemein- schaft, the foundation involving Germany's leading research universities, which is financed by the German states and the federal government, despite the economic climate, voted a further €2.7 billion to continue the excellence initiative, which promotes top-level research aimed at improving the quality of German universities and research institutions in general, thus making Germany a more attractive research location and making its economy more internationally competitive.

My question to the Minister is, why, when economies broadly similar to ours react to the global recession by investing more in ensuring that they are able to maximise their economic recovery, is the UK apparently moving in the opposite direction? I fear that some of the excellent educational and scientific advances achieved as a result of the increased resources to the higher education sector over the past 13 years stand to be lost because of the abrupt about-turn now being proposed.

Of course, this debate also concerns further education. It is often forgotten that colleges are a vital part of the higher education mix as well. In fact, colleges supply 40 per cent of higher education entrants, and higher education students in colleges often do not possess traditional academic qualifications and frequently come

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from families with no tradition of university study. They have a vital role in educating and training people of all ages-at present some 3 million a year-and in contributing to the country's economic recovery, but the potential of colleges stands to be unfulfilled because of public expenditure cuts which, for them, start this academic year.

The Association of Colleges is concerned that, when the economic restraints hit universities, they may find cutting their links with colleges a relatively straightforward means of saving money. That would be a heavy blow to colleges, which have been experiencing reduced funding in recent years. An Association of Colleges survey revealed that colleges have recently suffered an average 16 per cent cut in their funding for adult learning. It is important to say that, unlike the current debate about university funding cuts which are projected, these changes are happening now and they will hit students trying to enrol this year. The April 2009 Budget pencilled in £400 million of efficiency gains in 2010-11 for further and higher education, with 75 per cent of that falling in the further education sector, despite it being a smaller part of the sector.

One of the bases required for an expanding economy is a well-trained construction industry, yet, perversely, according to the Association of Colleges, cuts to college budgets will affect courses in areas such as bricklaying, joinery, electrical installation and other trades that are vital for equipping the next generation of skilled young people.

HEFCE is not due to announce its detailed funding allocations until next month, but I hope the Government will re-assess the effects of its proposals for funding higher and further education on this country's ability to emerge from the economic crisis in a fit state to ensure not simply that our economy is strong, but that it remains able to compete with other countries which appear to have recognised the importance of investing now in universities, colleges and training.

3.44 pm

Lord Luce: My Lords, about 20 months ago, I had the privilege of leading the House's most recent debate on higher education, and I congratulate the noble Lord, Lord Baker, on finding time for this debate. I must agree with him that it is very regrettable that the Secretary of State has decided not to answer the debate. That is no reflection on the Minister who is answering the debate, but it shows a certain contempt for Parliament, and I very much regret it. Many of the issues that we discussed 20 months ago have featured again today, but the focus is sharper because of the economic crisis that we face and the funding cuts that we are debating.

The question that we must ask ourselves is: what lessons can we now learn to strengthen ourselves for the future? The first, in my view, is that our 160 or so universities must focus increasingly on their strengths and not try to do everything. They need to decide whether they are doing research or teaching, whether they are vocational or academic, and focus on their strengths. The standards of excellence of any institution can then be judged by its objectives and mission. There will be closures, there will be adjustments, there will be mergers-that is inevitable.

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I now have something rather nicer to say about the Secretary of State, in that I am pleased that he focused on the value of the two-year degree. That is something that I have experienced as a former vice-chancellor of the University of Buckingham. The two-year degree was pioneered by a very distinguished academic, the late Lord Beloff, and it has proved to be a success. It is not for nothing that for the past three years, in the Times Higher Education Supplement, the student satisfaction level has been higher at Buckingham than at any other university. I hope that there will now be more focus on the value of that degree-although, for my part, I took a four-year degree.

Something that has not featured today, to my surprise, is that we must accept that the number of 18 year-old students is likely to climb in the next 10 years or so. That must be counterbalanced by what I think will be an increasing demand for part-time students. We must recognise that they are not well financed at all.

For a moment, I focus on the question of diversity of funding, because that is the best way to strengthen the autonomy of universities and their sources of income. It is up to the Government to create the climate for that. I know that, some years ago, they introduced matching funding, and that is certainly one way of creating a challenge for universities to raise private finance. Indeed, I suggest that, had there been less regulation on student fees, much of the demand in recent months for student places in universities could have been satisfied with extra money for universities-buttressed, of course, by support for the less well-off students.

Within that, research funds must be ruthlessly selective. In the United States, only a very few universities focus on research. In Europe, almost every university seems to focus on research. It is far more effective in terms of international competition if we focus on a few, carefully selected universities. Then we have to consider the types of funding. Imagination will have to be shown in the months and years head, but I want to focus on one type of funding: endowment funding. Nothing can be better for the stability of a university, for universities as a whole and for their independence than to have strong endowment funds. In the United States, more than 200 universities have funds of more than $100 million in endowment; there are only eight in this country. Princeton has $19 billion-worth; Cambridge has $8 billion-worth. That is an area where the Government can help other universities to build up endowment funds.

The last issue I will focus on, which has been mentioned today, is that of international students. It is a benchmark of our success that we are second in the world in numbers of overseas students. It is essential that we keep that up. Something near 12 per cent of our students are from overseas and they contribute nearly £6 billion to our economy. That link is invaluable for Britain. It brings in resources and focuses on post-graduate degrees. It is essential for the Government to show their support by making sure that we continue with government scholarship schemes. The reputation of our universities for excellence is at the heart of everything we are discussing today. It is essential that

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we maintain the quality of our institutions. For that, we have to be very imaginative. The next Government will have a very big challenge.

3.50 pm

Baroness Verma: My Lords, I join noble Lords in congratulating my noble friend Lord Baker of Dorking on giving us this opportunity to take stock of the cuts and the uncertainty that they have caused among students, universities and colleges and to discuss their consequences. Much of what needs to be said has been said, but I believe it is important to repeat a number of the points raised.

No one has ever argued that people wishing to go on to higher or further education should not have the opportunity to do so, but to set arbitrary percentages and demand that universities and colleges respond without any long-term planning was not right. There is general consensus that previous levels of government spending cannot be sustained under current economic conditions, and the Minister now needs to say how much more his department is going to take away from higher and further education budgets and when universities and students will be told. Will he say how he expects FE colleges to make efficiency savings of up to £600 million by 2012 when rising adult unemployment will mean that more people will look to retrain and reskill?

We should be careful about trying to make a virtue of a regrettable necessity, as the Government have sometimes appeared to do. The Minister's department has attempted to sell the cuts by emphasising the long-term benefits. We know that these cuts will lead to increased student-staff ratios, people losing their jobs and departments being closed. A promise by this Government to increase participation in higher and further education has been crushed by effectively refusing places to thousands of young people and penalising universities. Prospects and aspirations for economic mobility have been removed, especially for the groups that would have benefited the most. Moreover, it seems perverse to try to console academics who are being made to reapply for their jobs and whose departments are facing closure by making a case for the long-term benefits for those institutions. One way the Government could reassure universities and colleges is by saying definitely whether there are any more cuts in the pipeline. Will the Government take this opportunity to offer some consolation to universities and colleges and tell them truthfully whether the latest cuts will be the last? Can the Minister give assurances that there will not be any more surprises in the next funding letter?

Even before these cuts, the past year or so has revealed some worrying trends in some of our universities' finances. I remind noble Lords that, last summer, the Department for Innovation, Universities and Skills, in response to a freedom of information request by Times Higher Education, released information on the Higher Education Funding Council's secret list of bodies at higher risk of financial failure. I understand that seven institutions were judged to be at risk in June last year. It would be interesting to know whether the Government have made any predictions about the number of

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institutions whose finances might move into the red as a result of these cuts. How many more does the Minister estimate will be added to the list?

What concerns me most is the thought that these cuts will hit people from poorer backgrounds hardest. As I am sure noble Lords are aware, the Higher Education Funding Council last month published a report suggesting that, as a country, we are failing to tap higher education's potential as a vehicle for social mobility. I fear that young people from poorer backgrounds will represent a disproportionate number of those students for whom universities can no longer find places. The Government have introduced a number of schemes to help widen access to such young people, through which universities engage with local schools. What is the future of these schemes?

We want a highly skilled, knowledge-based population in order to remain competitive in the global marketplace. We want our employers to have the best talents available to them. Yet as soon as the Government take us into an economic crisis of a size that we have never had to witness before, they shift their responsibility and place the burdens on employers, colleges and universities as if those institutions do not already have enough problems of their own. Perhaps that is why I have been frustrated by some recent articles and what has been said in the past few months in relation to the Government's decision to make these cuts. The Government have fudged their real intent, which has been a failure to ensure that universities and colleges have the finances and funding that they require. I have one page left, but I have run out of time.

3.56 pm

Baroness O'Neill of Bengarve: My Lords, I, too, thank the noble Lord, Lord Baker, for securing an, alas, too timely debate. I have some interests to declare as a life-long university teacher and a former president of the British Academy. We have no doubt that these are real and large cuts. My question is: how could we make them most intelligently with the least damage to what really matters? If we look back, I believe that there is a lesson to be learnt from the 1980s when the number of students was growing but the unit of resource was shrinking. Universities cut departments and units. With a nice rhetorical flourish, these were called efficiency gains. They were cuts. Unfortunately, they tended to impact certain areas in unco-ordinated decisions with disproportionate effect.

One might say that that was the inevitable cost of university autonomy. We will face unwanted cuts and unwanted patterns again, and we have begun to see that in another topic we have recently debated. The provision of language degrees has been cut here, there and yonder. But we need to think more strategically. For whose sake should the cuts be made? Do we want to protect universities, academics, students or regional employment and development? They are all important and one would like to protect them. But I believe that that is the wrong focus. We should aim to protect good research, good teaching and flourishing disciplines. We should not provoke crises in disciplines where suddenly we find that we need yet another initiative to rescue the teaching of strategic languages, such as Arabic, because we have just let it go.

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There are difficult cases and we need to consider the incentive structures with which we are living. I believe that the present research assessment exercise-soon to be the REF-comes at a very high cost and that it creates incentives that go largely to universities, not to researchers. Of course, the universities press the researchers to conform to the requirements.

When we look at incentives for teaching, we discover that there are mainly sticks and rather few carrots around. As regards the incentives for protecting the strategic disciplines, we discover that dispersed decision-making makes it very hard to protect them. Do the Government have a comprehensive list of endangered disciplines? What action do they intend to take to ensure that that danger is not realised?

There is a suggestion that we would best alter the incentive by rewarding that research which has impact. For those with perfect foresight, it makes perfect sense. For the rest of us, it sounds a bit unlikely. One cannot identify which research will have impact antecedently. Research is done by individuals and by teams. They do not always need to be co-located. It does not have to be given to universities. We need to preserve the rewards for those who are doing good research, but we need not put them in one place. There are good examples of collaborative research across institutions, and I know of a number in Scotland.

We also need to recognise that good teaching can be done by small units, and we need to reward them for doing it well rather than telling them that, because they are not large enough to do the very best research, they cannot be maintained at a level to sustain the teaching. On the disciplines, we must not again disperse hard-won skills, particularly in the rarer languages and area studies.

Lastly, the impact is not good for any sort of institution. No one knows how to measure it. We do not know the causal pathways or the timeframe-I sit between colleagues who know far more than I do-in the STEM subjects. The research that feeds the creative industries is dispersed across a multiplicity of disciplines, including many in the humanities and social sciences, and so is the research that feeds effective public policy formation. When we think about impact, I remember the first time I heard the term, because it was a curious one. I was talking to conservation architects and through them met two church canons who were responsible for the fabric of Canterbury cathedral. They reported to two "canons" of the cathedral called Canon Impact and Canon Treasurer. I asked what Canon Impact did. "Canon Impact does pilgrimages" was the reply. When we think about impact, we must realise that it is a rather elastic term. In the mean time, we must be absolutely certain that we do not incentivise poor research in order to have a high impact.

4.01 pm

Lord Rees of Ludlow: My Lords, I will focus on one segment of higher education, that of the strong research universities, and I declare an interest as a Cambridge professor and college head. These "research universities" benefit us through direct knowledge transfer from university laboratories to industry, but their diffuse benefit is probably even more important in the form of the collective expertise of their faculty

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and the consequent quality of the graduates they feed into all walks of life. To retain their standing, such universities must sustain world-class faculty, and they will not do that unless they can provide comparable opportunities to those on offer in the US, Singapore and elsewhere. There is now an international market too for the very best students.

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