Universities and Private Sector Finance (Hansard, 4 May 1995)

Lord Lucas
My Lords, many universities have already attracted private sector finance for their major capital projects. We believe that private finance options should be fully considered for all capital projects undertaken by bodies in receipt of public funds, including higher education institutions. On that basis, we expect that private finance will make a substantial contribution to the capital investment needs of universities and colleges.

§ Lord Goold
My Lords, I thank the Minister for his reply. However, declaring an interest as the Chairman of Court of the University of Strathclyde, I ask whether he accepts that the cost of repaying capital and interest on borrowing for necessary building projects, which often cannot provide an income stream, will inevitably mean fewer recurrent funds being available for teaching and research. Will that not lead to a deterioration in the quality of university education?

Lord Lucas
My Lords, I do not accept that a university such as the one in which my noble friend plays a part is involved in a deteriorating quality of education. If anything, rather the opposite is true. But, to a certain extent, capital and income are interchangeable, as I am sure the accountants among us will agree. One can spend capital in order to avoid spending income and spend income instead of capital. The extent to which any university needs buildings will depend on what it wishes to do with them. The whole thing is a package. The private finance initiative is intended to take the best advantage of the best structure to find the money to educate our young people.

§ Lord Barnett
My Lords, I am grateful to the Minister for giving us a lesson in how to interchange capital and interest. I have done a little of it—not creatively, I hasten to add! Is not the noble Lord, Lord Goold, right? I am not opposed to the private finance initiative. However, are the Government saying that if money is required for both capital and interest, they will provide additional resources?

Lord Lucas
No, my Lords. What we are saying is that we will not tell universities, except within certain limits, how they should spend their money. They may use it as income or they may use it to finance borrowings to make capital investments.

§ Lord Morris of Castle Morris
My Lords, does the Minister agree that the private finance initiative may be appropriate for buildings like student residences where rents can be used to repay the capital, but that buildings devoted to pure research, to most contract-based research and certainly to all teaching purposes will simply not generate an income stream sufficient to repay the borrowing? Should not the HEFCs issue guidance to universities on how to avoid the seductive allurements of short-term solutions?

Lord Lucas
My Lords, universities are grown up people. They understand these matters. Yes, the HEFCs have limitations on the amount of income which universities can use for debt servicing. Otherwise, we leave it very much to universities. I should point out to the noble Lord that most of a university's income depends on getting students. That applies to accommodation income as much as to anything else. So there is risk in the provision of accommodation, just as there is in the provision of teaching facilities. Some of the most successful private finance initiatives by universities have come through the provision of laboratories for research jointly funded by industry which uses the product of that research.

§ Lord Gisborough
My Lords, will my noble friend say whether the finance initiative is flexible enough to meet demands for modest amounts such as £5 million or £10 million? Is he aware that some universities are worried that while it may be possible to arrange for larger loans, they will not be able to arrange loans of more modest amounts?

Lord Lucas
My Lords, clearly some sources of finance are closed to small institutions. If one wants to make a public bond issue in the UK capital markets, it must be of a certain size and £5 million would not be a viable amount. So a smaller institution may end up paying more for its capital. On the other hand, being a small institution may be an advantage in seeking joint ventures with industrial companies which are not looking to spend £50 million a time.

§ Lord Pearson of Rannoch
My Lords, does my noble friend agree that British universities might have a better chance of raising finance, both of a capital and an income nature, if the quality of education which they delivered—particularly in the teacher training, social sciences and humanities departments —were somewhat better than it is at the moment?

Lord Lucas
My Lords, my personal view of university education is that we have an extraordinarily good system which shows every sign of getting better year by year. Universities are putting a great deal of effort into ensuring that they improve the quality of their teaching. We applaud them for the efforts they are making and are pleased with the results they achieve. However, as in all aspects of education, we believe that there are opportunities for making this year better than last.