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The present Government deserve credit for their commitment, sustained over a decade, to expand the university system, to strengthen its infrastructure and to support research. It would be a real own goal were this legacy to be put at risk by recent events. We should learn from history. The recent HEFCE cuts echo those of the 1980s which undermined university morale and pushed many scientists and scholars to go to the United States. But now the downside risk is greater because global competition is stronger. The Far East is striving for competitive excellence. Institutions on mainland Europe are competing for graduate students by offering instruction in English. Several countries such as Australia, Germany, South Korea and Canada have boosted their spend on science and innovation as part of a stimulus package. More important still, the Obama Administration have given America's already world-leading scientific community a massive boost in both morale and substance. The US science budget rose by 5.7 per cent this year.

So, even to retain our competitiveness, we need to raise our game, but what is happening is the reverse. If the UK slides now, it will jeopardise our position at the forefront of global science, possibly for a generation. It is hard to recover lost ground. Earlier this week there were widely reported comments from three leading US scientists that the UK will suffer a brain drain, which will eventually act as a disincentive to young people entering science.

What can be done, given the realistic financial constraints? First, as many other noble Lords have said, we need urgently to expand other funding channels, especially student fees. Secondly, we need greater diversity in the sector. It is very different now that it is educating more than 40 per cent of each cohort rather than when it catered for less than 10 per cent. So we need not just one league table but many, measuring excellencies of different kinds, more varied courses and a credit system that offers a second chance to those who drop out.

There would be real benefit in more concentration in graduate education, especially at PhD level. It is good news that the RAE uncovered "islands of research excellence" in many departments across the university system. However, that does not require all universities to offer PhDs in all subjects. A student aspiring to a PhD needs more than just one good supervisor; he or she needs to be in a graduate school where courses are offered over a wider range. One should surely welcome the formation of groupings and clusters at universities and concentrate graduate education in a smaller number of centres. I differ from the noble Lord, Lord Krebs, only in preferring that the demarcation between research-intensive courses and others should be subject-dependent rather than a rigid reversion to a binary divide. It would be welcome if a former polytechnic were to establish a strong graduate school in a special area.

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Why is all this so important? There is concern at the prospect of top talent in the finance sector leaving these shores, but the next phase of global economic growth will be associated with waves of new technologies; we must be equipped to ride these waves. So should there not be at least equal concern that dedicated academics spearheading frontier topics should not leave this country, or be discouraged from starting, for lack of support? It would surely be tragic if we squandered our current strengths.

4.06 pm

Lord Puttnam: My Lords, I, too, thank the noble Lord, Lord Baker, for introducing this timely debate at a time when the economic situation is extremely challenging to every aspect of the public sector; we all face difficult choices. It is clear that we will need to make better use of limited resources. At the same time, we need to protect quality and improve access. It is a difficult balancing act to pull off. It is also a time for serious innovation; a time to rethink the nature of higher education; a time to take very bold steps.

The Government's strategy document, Higher Ambitions, called for greater diversity and choice in undergraduate provision. It wanted to see more part-time programmes, more foundation and fast-track degrees. In essence, it wanted to see real change. John Hayes said something similar when he spoke recently at Birkbeck. He said:

"We will not make progress towards socially mobile higher education until we recognise that rather than making people 'fit' University life, we must enable more Universities to 'fit' the circumstances of many more potential learners".

I reinforce that plea. I would argue for innovation in higher education; for an engagement with information and communication technologies as a means of transforming what we now do; and that refocusing existing resources in new teaching methods and in ICT will help to bring the greater efficiency and the improved cost-effectiveness that we will undoubtedly be required to find.

I declare a number of interests as chancellor of the Open University and as a non-executive director of an educational technology company.

With public sector budgets under pressure, it is critical that we focus investment where it can have the greatest impact. There can be no doubt that, properly managed, ICT can make a major contribution to UK higher education. Indeed, the central question is not how HE can adopt and use ICT but, rather, how HE can find a new role for itself in a world that has literally been transformed by ICT.

This year is the 40th anniversary of the Open University-effectively the last serious innovation in the delivery of graduate-level education. The OU finds itself enjoying record admissions-well over 200,000 students from the UK alone. But if we are honest in the way that the noble Lords, Lord Butler and Lord Krebs, and my noble friend Lady Morris have been, then we have to concede that the higher education sector is not one that responds well to the type of challenge that this debate highlights. If you doubt what I am saying, read, I beg you, the debates that surrounded the introduction of the OU 40 years ago, when it was then called the University of the Air. It

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was not just the sector that took against the OU; neither House of Parliament comes out well in those debates.

The noble Baroness, Lady Morris, is right: this is a massive challenge. But in combination with the forthcoming report from the noble Lord, Lord Browne of Madingley, this is also a moment of extraordinary opportunity. The future will not be the same as the past-it will not even be the same as the present. Some 12 per cent of all this year's cohort of 18 year-olds will not find a place at university, irrespective of their exam results. That is a tragedy and the type of crisis that no Government can possibly ignore. It certainly will not be solved by an attitude of "business as usual". This is the time for a very fundamental rethink by whoever finds themselves in government of exactly what we want our higher education to deliver and what kind of future we need as a nation.

4.10 pm

Lord Ramsbotham: My Lords, I join other noble Lords in congratulating the noble Lord, Lord Baker of Dorking, on initiating this important debate. I am conscious of all the wisdom and experience that has gone into other contributions, but make no apologies for concentrating on an issue that has not so far been raised-namely, the impact of the cuts in higher and further education on offenders, both in prison and in the community. I admit to being seriously alarmed by a sentence in a letter dated 23 February from the Secretary of State to the noble Lord, Lord Baker, and those of us who added our names to a letter from him:

"There will be reductions therefore in the number of some adult course places next year as a result of efficiency savings, and reprioritisation of funding for apprenticeships and other work based learning".

The Government pride themselves on the aim that they have given to the criminal justice system in this country-namely to protect the public by preventing reoffending. It is well known that the single most effective contributor to that process is education. I have not time to go into statistics, but remind the House that 65 per cent of adult prisoners have a reading age of less than eight, which suggests that educational underachievement is a problem of major proportions facing both the prison and probation services. Yet, despite all the increase in resources, of which the Government are so fond of telling us, only 36 per cent of prisoners currently have access to education. I suggest, therefore, that any reduction in that figure, which is bound to impact on the protection of the public, can hardly be described as an efficiency measure. This is compounded by the fact that, from April, instead of all prison education being funded by regional learning and skills councils, that responsibility is to be devolved to a number of different agencies, each responsible for making cuts. Who will be responsible for looking at the accumulated effect of all these different cuts on offender learning and skills training? That question applies to all levels but, because it is the subject of today's debate, I shall focus on further and higher education. Here, I declare an interest as a patron of the Prisoners' Education Trust.

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Bearing in mind the vast number of educational underachievers in the system, it is hardly surprising that most available resources are devoted to levels 1 and 2. As a result, there is virtually nothing for those capable of reaching level 3 and above, which gap is almost entirely filled by the Prisoners' Education Trust. Last year, it funded over 2,200 prisoners to take distance learning courses, around 820 of whom began Open University study, for which the BIS helped with funding, as it, and LSCs, did for a further 220 distance learning courses. The trust also spent £480,000 on over 1,000 grants for courses at level 3 and above, many of which were specifically vocational, such as horticulture and plumbing, aimed at employment on release, for which it raised voluntary funding. Very sadly, a further 991 applications had to be refused for lack of funds. Applications this year are already up by 9 per cent, but the trust is having to discourage others because of uncertainty over funding.

Along with many education providers, the trust has two deep concerns about the future, following the cuts and the demise of the LSC. First, there is the impact on prison education of the 250 to 300 staff redundancies that have been announced by Manchester College, which is contracted to provide education in over 50 per cent of prisons. The second concern is that a number of prisons are already reporting that their capacity to support and co-ordinate distance learning has been reduced, no doubt due to the reprioritisation of funding of work-based learning announced by the Secretary of State.

There is one ray of hope in this unrelieved tale of gloom, which is the proposal, from a number of experienced people who are fed up with the inconsistency and lack of clear direction that characterise the current situation, to set up a national centre for offender education based at the University of London's Institute of Education, which will focus on research, evaluation of good practice and the production of evidence-based syllabi. It is a sad reflection on the present position that frustrated practitioners should have had to come together to do what the Government should have done years ago. Would that the results of their proposed work had been available to the Secretaries of State for BIS and Justice before the meeting that they no doubt had, to confirm that the cuts that are the subject of today's debate apply also to the protection of the public.

4.15 pm

Baroness Falkner of Margravine: My Lords, I, too, am grateful to the noble Lord, Lord Baker of Dorking, for initiating this highly relevant debate, which would have been pertinent even if we were not in such a severe public spending environment. Before I commence, I should declare that I am chancellor of the University of Northampton and that I have affiliations with the universities of Birmingham and Oxford. As a member of the B team which seems to be present on all the Front Benches today, I apologise for my noble friend Lady Garden of Frognal, who is unable to be here due to a prior commitment.

I do not want to single out noble Lords who have spoken because, as my noble friend Lord McNally pointed out, there are those who are from the ivory

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towers and there are the rest of us-I will not use his language-who are the plebs. I defer to the wide expertise that we have heard in this debate, although I will single out one noble Lord by congratulating the noble Lord, Lord Puttnam, on a significant birthday today. I note that he has spoken in both debates and I am not sure that my dedication to the cause on a significant birthday could equal that.

I highlight at the outset the fact that we are in agreement with all noble Lords who have spoken about the need for UK universities to maintain their pre-eminent status in the international league tables. We, like other noble Lords, regret that the mismanagement of the national economy has left us with some unpalatable decisions. However, higher education will, like other sectors, have to adjust to prevailing conditions. In the time available, I will limit my remarks to the problems that exist in the current funding regime and propose one or two points as to where the debate should now go.

We are clear that higher education, in addition to benefiting the individual, benefits society overall, both in the more immediate benefit of productivity gains and in the higher taxation that is paid throughout a graduate's career. However, until this last year, all the government pressure had been to lift participation to an arbitrary 50 per cent target, which was plucked out of the air by another Prime Minister preparing for a conference speech. We would have gone for a more targeted approach to widening participation and would have especially concentrated on the proportion of young people coming from lower socio-economic groups. The figures between 2002 and 2009 are not encouraging. For all their efforts, the Government have succeeded in raising the participation of the lowest socio-economic group from 17 per cent to only 19 per cent. However, it is not enough to focus on socio-economic groups. We also need to focus on technological training, HND-type qualifications and foundation degrees, which are rated at level 4.

For the moment, let me stay with socio-economics. What holds people back from going into higher education? Some fairly uncontroversial research shows that it is the combination of a lack of prior attainment, constraints on information and aspirations, and the credit constraint. I will briefly touch on each of these. Current policies concentrate too narrowly on the transition at age 18. Earlier interventions start with the availability of nursery education, actions to improve primary and secondary education outcomes and policies to encourage staying on at age 16. That is one reason why this party has been one of the first to embrace the idea of the pupil premium, meaning that the level of central government funding to schools is defined by individual pupils' characteristics rather than geographical characteristics. Hence, the pockets of deprivation where children have low attainment will no longer lose out. The funding is tagged to the pupil and follows them as they move, so it goes through their educational cycle at school. GCSE attainment-which, in turn, results in improved A-level scores-and subsequent higher education outcomes are affected by that measure.

In a climate of cuts to funding, it becomes all the more important to improve information and raise aspiration among those who decide early on that

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further and higher education are not for them. It is evident that those young people whose parents are graduates are more likely to be better informed about higher education and to aspire to becoming graduates themselves. When investment is scarce, therefore, there has to be a level of information and encouragement from universities into schools in order to demystify higher education. Improving that also involves the information that a young person needs about financial planning and the architecture of the student loan system. There is little knowledge at school level about the possibilities of obtaining grant funding, bursaries, education maintenance allowances or other encouragements to stay on at age 16.

On the issue of a credit constraint preventing access to higher education, it is often argued that people from poorer backgrounds are debt-averse and hence unwilling to borrow, thereby impeding their access. Professor Nicholas Barr argues that it is a mistake to see it as a blanket phenomenon of debt aversion, and points to the fact that credit cards and mortgages are well taken up in that group. He argues that students from poorer backgrounds are less likely to go to university because of a lack of information and a fear of the unknown. When added to the lack of understanding of a degree's benefits, including its employment outcomes, that becomes unsurprising.

The current method of financing student loans is based on a zero real rate of interest and, unsurprisingly, benefits the middle class most. That subsidy is justified on the basis that it will widen participation. The reason that it does not work is that those are not conventional loans but income-contingent repayments. A subsidised low interest rate does not reduce the loan or impact on monthly repayments; instead, it only serves to shorten the repayment period. Moreover, the subsidy is extremely expensive. The combined cost of the zero real rate and the 25-year write-off for fees and maintenance loans was about £1 billion in 2007-08, or 26 per cent of total lending to students in England.

Instead of spending billions annually, mostly to help the better-off, the resources should be used to promote access through better targeted activities and to raise quality. However, we may need to keep the interest subsidy for people on low current incomes, to make it more responsive to changes in earnings over a lifespan-so that it could be reinstituted, for example, when a woman graduate takes time off to bring up her family.

A further problem with the current loan structure is that it excludes other groups, including those in further and part-time education and postgraduate students. We argue that if you must work with the current structure, it is preferable to see a move towards loans being structured on the basis of real government borrowing costs, but to add in the principle that the subsidy must be available to those whose income drops off at a certain point. Other countries which appear to do that without affecting take-up are the Netherlands, Norway and Sweden, where a positive real interest rate is taken for granted.

In conclusion, I agree with other noble Lords who have argued that we will have to diversify the courses offered, the methods of delivery and, indeed, the

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teaching and research balance offered to staff. One size should not fit all. All aspects of the sector will need to think creatively if we are to deliver high-quality higher education to the many rather than the few. That intergenerational compact is at stake here, and it behoves us to bear it in mind more now than ever before.

4.25 pm

Lord De Mauley: My Lords, I join in thanking my noble friend Lord Baker of Dorking for initiating this important debate, and congratulate him on it. As we have heard from around the Chamber, universities and colleges face very tough times. The Association of Colleges says, and my noble friend Lord Baker reiterated, that the further education sector has recently suffered an average 16 per cent cut in the funding for adult learning-cuts which are affecting the sector right now. By my reckoning-and, again, I am grateful to my noble friend for confirming this-we are talking about cuts of £1 billion to higher education in the last year.

However, it is a question not just of the amount, but of how the cuts have been trotted out. In May last year it was announced that £180 million would be taken back to pay for student support reforms which the Prime Minister had announced in his first few days in office, but the costs of which he had not fully taken into account. Later that month a further £83 million was cut. Then the Pre-Budget Report took £600 million from the higher education, science and research budgets, just before a further £135 million of cuts was announced. This month we see a further cut of £51 million. Not only is the £1 billion terrifyingly large but coming as it has, in dribs and drabs, it sounds like death by a thousand cuts. The constantly changing figures reflect damaging and confusing policy indecision.

This confusion is not new. The FE capital spending fiasco last year showed the danger of broken promises. The student loans debacle left thousands of students without adequate funding because of huge backlogs in the student loan system. The confusion continues. On the one hand, as my noble friend Lady Perry said, the Prime Minister tells us that we must ensure that the recovery is securely embedded before any funding is cut. In this vein, in October even the noble Lord, Lord Mandelson, said in a speech to the CBI that in,

On the other hand, here he now goes making dramatic cuts in funding. Again, on one hand Ed Balls promises that spending will rise, but on the other the noble Lord, Lord Mandelson, now tells us, by both his actions and words, that we are talking about "reduction" and "tighter budgets". Indeed, cut after cut has been announced in accordance with that policy.

However, in other public sector departments, as my noble friend Lady Perry said, the clear public impression at least is of considerably less real cutting-certainly so far. Can the Minister put me right and detail some of the corresponding cuts that have been made in other public sector departments; or does this apparently disjointed policy, as I suspect, translate to universities and colleges suffering deep cuts while other departments are yet to have any serious reductions defined at all?

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Continuing the theme of confusing signals, on one hand the Government have for years imposed targets to increase student numbers but, on the other, universities have now been threatened, as my noble friend Lord Baker said, with fines for overrecruiting. On 21 January, the noble Lord, Lord Mandelson, suggested in this Chamber that there could be beneficial consequences to tighter budgets, such as being able to,

and finding,

Like my noble friend Lady Verma, I rather hope that the noble Lord, Lord Young, will enlighten us as to what he meant. Can he tell us what the new ways that will cost so much less money are? Can he confirm that "focus" does not just mean "narrow"? The Universities and Colleges Union said:

"You cannot make savage funding cuts without serious consequences, despite Lord Mandelson's insulting efforts to sell the cuts as an opportunity".

The approach the Government have taken, however, does not adopt this ethos of opportunity.

The shortfall in university places is but one of the consequences of the Government's confused approach and mismanagement of higher and further education. The resulting damage will be that, at a time of great economic strife, young people lose out on the education they need and-as several noble Lords have said-that we need them to have. A shortage of university places due to rising demand and demographic changes was entirely predictable, but the Government failed to head off the crisis. Nearly 23 per cent more people have already applied to go to university this year than at the same point last year. This, coupled with the cuts in funding, could result-as my noble friend Lord Baker said-in more than 200,000 applicants failing to find a place in 2010. We have already seen 110,000 lose out in 2008 and 140,000 in 2009. The figure for this year looks set to dwarf both of these. We simply cannot go on like this.

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