University Funding

HL Deb 06 March 1996 vol 570 cc300-48

3.7 p.m.

Lord Annan rose to call attention to the cuts in current expenditure and in capital (including equipment) grants which have been imposed upon universities; and to move for Papers.

The noble Lord said: My Lords, I want to begin by congratulating the Secretary of State on being a woman. After a series of males, each one more disastrous than his predecessor, it is a relief to have someone who immediately calls in Sir Ron Dearing to review the funding and operations of universities. For 12 years we have had policy for universities made off the cuff. But now I hope that we have someone who wants to listen to those in higher education and hear how they suggest the formidable problems that face government and themselves might be solved.

Sir Ron Dearing's appointment reminds me of the bad old days in industrial relations when a strike would be called, followed by weeks of fruitless negotiation and millions of pounds lost, and then Mr. Jack Scamp was called in to produce a settlement. I never could see why Mr. Scamp was not called in at the beginning of the dispute. So let us be grateful that Sir Ron, the scamp of the 1990s, has been appointed before the vice-chancellors carried out their threat to impose a £300 tuition fee on all students. Let there be no doubt that it was that threat—which the vice-chancellors no more than the Government wanted to carry out—that brought the department to the negotiating table. The Secretary of State has displayed admirable sensitivity in seeing how serious the situation had got; and it is serious.

There seems to be only one thing in which the Government want to be wholeheartedly European and that is to make our universities resemble those on the Continent. There, for instance in Rome, buildings designed for 10,000 students accommodate today 100,000. There students never meet or discuss their work with their professors. Is that what we want? For years Britain has been admired for the quality of its university higher education. Foreign students are amazed by the personal attention and tuition they got, and still get, from their teachers. I know this from the German students who for the past three years have lodged with us and studied at the LSE and at the University of Essex. Do we want to throw that away?

I have no doubt that in his reply the Minister will say that universities have to learn how to teach larger numbers of students. Student numbers have certainly increased—since 1979 by 45 per cent. In the past six years recurrent funding per student has declined by 28 per cent. and a so-called "small" class now numbers 25 to 30. The old tutorial system is in danger of collapse. Heads of departments, particularly in science, tell their junior staff that, if they devote time to tutorials instead of getting on with their research and adding to the department's publications list, they will not get promoted.

I remember Lord Robbins, back in the 1970s saying that he thought that perhaps staff/student ratios were a bit lavish. He thought that a ratio of 1:15 would be reasonable. It is now 1:20 as an average, excluding medical schools. In practice, that means a ratio of 1:30, or more in popular subjects. In the management-speak in which the present Permanent Secretary at the department is a master, that would be called an enormous increase in "productivity", having regard to the "down-sizing" of staff.

And what has been the reward for academic staff? Since 1979 they have seen their salaries fall far behind those of any other professional group. I am not going to join the Government in bashing school teachers—most of them deserve better than they get. Still their salaries have risen by over 30 per cent. since 1985. Academic staff salaries have risen by 10 per cent. Is that a fair deal? It is simply an indication of how much the Government despise dons. They treat them like petits pions, a low form of life to be sneered at or bullied by the Chancellor of the Exchequer.

On top of that gross unfairness, the Government have added vastly to the paperwork demanded of universities. Indeed, a new monster has appeared, the Higher Education Statistical Agency, which is churning out demands for information never before demanded. Then there is the quality exercise, in which every department receives a visitation every three years and is assessed. The paperwork, the waste of time—time that should be spent on teaching and research—is incalculable.

What about the inspector from a former poly who told a junior lecturer in a prestige London University college that how well she knew her subject was not the concern of the inspector, but she should not stand before her class because it was too "authoritarian".

Skilful heads of department jockey with each other for assembling impressive lists of publications. Anyone who has been a don knows that mere numbers of publications are a delusion. The more entrepreneurial vice-chancellors never miss an opportunity of luring on to their staff by hook, and often by crook, scholars or indeed simply writers whose publication record seems to be impressive. The other day a talented consultant at one medical school perfectly reasonably was offered a post as professor at another medical school, but only on condition that he was in post by 31st March. "Why that date?", asked his present employer. It became clear that had he been in post by 31st March, all his publications for the past five years would have enriched the research record of the hiring university and would have deprived the university in which he had been for the past five years of their credit.

I hope in answering this point the Minister will not talk a lot about "accountability". When was there last a complaint about the quality of university teaching or of the devotion of dons to their pupils in the old universities? I challenge the Minister. There have been complaints, we know, of bad teaching in some primary and secondary schools. But when were there similar complaints of universities? Let us have chapter and verse.

I would not dispute that some departments need visitations. But do the pre-1970s universities require this? Once a university has been audited and found in good shape, can it not be left alone for, say, seven to 10 years? It is not likely to get all that better or all that worse during that time.

What does the Secretary of State expect from Sir Ron Dearing? I hope she will ask him to do what he did when he examined education between 16 and 18. I mean by that to issue a general principles paper by December of this year which can be sent to all interested parties for consultation.

I do not think there is any doubt that Sir Ron will have to propose a different balance in finance between the state, employers and graduates. Every quality newspaper now accepts that students must make a contribution to their own fees. They, or their parents, may not be able to make it at the time when they are undergraduates, but something like a contribution by those who have graduated must come about. I recognise that some will question whether someone such as myself who graduated in 1938 should now be required to pay this tax or whether it should be levied upon those who graduated post-1960. Speaking for myself, I would willingly pay such a tax provided it was hypothecated and guaranteed to be used for higher education and not disappear into the maw of the Treasury. I can imagine that the Treasury will refuse that because it always declines to accept anything which is hypothecated.

Above all, Sir Ron must bring other government departments such as the DTI and the Department of Health into these matters. When universities are cut, the staff of the hospitals of the Secretary of State for Health are affected. Posts have to be frozen and consultants' posts cut. I am told that there are at least 17 cases in which essential work in hospitals will be curtailed because of the present cuts.

There are now 105 universities and it seems to me inevitable that there will have to be two clusters, one of which will be full research and teaching universities and the other teaching universities whose courses are linked to professional institutions, though that would not inhibit a particular department gaining support for research from industry or even indeed from the Higher Education Funding Council.

Government policy is so full of paradoxes. They came into office determined to cut bureaucracy, yet they add layers of bureaucracy in the universities. They create opt-out secondary schools and special technical schools, but they abolished the distinction, without any consultation, between universities and polys—and what is more, threw a considerable sum of money at those new universities as an indication that they were now in the top league.

When Sir Toby Weaver persuaded Mr. Crosland to create the polys, he envisaged them as a cheaper form of higher education because the polys made no pretence at being research institutions. In fact today unit costs at a number of the old polys are higher than those in the old-established universities.

And what has happened to the Department of Education and Science? It is now the Department for Education and Employment. Science has been turned out and made to walk the streets of Whitehall like a whore. At last she has been picked up by the Department of Trade and Industry. It is as if Jane Austen had been told to lodge with Casanova. It is ridiculous because for years scientific research has been angled towards industry. What is needed now is protection for the fundamental research that has to be done if new applied research is to be developed from it.

The problem before us this afternoon is not so much what should Dearing recommend; it is what is to be done between now and 1999, when such recommendations as Sir Ron makes may be implemented, so as to enable universities to weather the storm caused by a cut of 6 per cent. this year, 5 per cent. next year and 5 per cent. the year after that, and a cut of 47 per cent. in the capital and equipment grant. Capital grants are used to buy equipment. It will mean that books cannot be bought for the library or equipment for the extra students in the labs. At Durham the grant is sufficient only to upgrade IT equipment—nothing else.

The Government say, "Go out and find benefactors under the private finance initiative". But you cannot get private finance to fund the repair of fume cupboards which have been condemned by an inspector from the Department of Health. I wonder whether the department realises just how large a contribution the private sector already makes to universities. Consider Sheffield university, a fine old but not unrepresentative civic university. Today 47 per cent. of its income comes from private sources. Per contra some of the newest universities get 94 per cent. of their income from the taxpayer via the HEFC.

When the HEFC sends universities their allocations for next year the wizard Merlin will not be needed to predict what will happen. Vacancies will be frozen. Worse still, more students will drop out. I am sure that the Government will blandly answer all questions in this House by saying to a noble Lord who airs any grievance that he should not address them but the HEFC. In 1994–95, 21,000 students, 20 per cent., left universities without qualifications for academic reasons. That rate of drop-out was unheard of 10 years ago.

Incidentally, perhaps the Minister can tell me why it is that the Scottish and Welsh universities have been cut less than the English universities. Is it hoped that the noble Lord, Lord Cledwyn, will cross the Floor of the House in gratitude?

This afternoon I have spoken out of character. Noble Lords who have heard me speak over the past 30 years know that I always play the part of Bottom: I will roar you as gently as any sucking dove; I will roar you as 'twere any nightingale". Nearly always I have been a blackleg among vice-chancellors because I thought the universities were selfish in the days of their prosperity, did little to help the government reduce their expenditure and were indifferent to the plight and standards in the schools. But today I speak in anger. I beg to move for Papers.

3.22 p.m.

Lord Renfrew of Kaimsthorn

My Lords, as a university teacher may I declare an interest that I hope is more than just pecuniary? Like all of us, I owe a debt to the noble Lord, Lord Annan, for initiating the debate today. University education in this country is now in a state of crisis. This is odd, because there are many positive things that can be said. First, the reputation of our universities stands high. Secondly, the higher education sector has expanded by 100 per cent. since 1979. Thirdly, there have been so-called efficiency gains of some 28 per cent. over the past four or five years. The per capita investment in each student from public funds compares favourably with that of most industrialised nations. There is a reasonably coherent system in place to make available cheap loans to help students pay their maintenance. We know that a thorough review by Sir Ron Dearing's committee is expected by September 1997.

Of course, the crisis arises from the swingeing cuts that have been recently announced. These cuts come after the 28 per cent. so called efficiency gain—that is to say, the reduction in unit funding, over the past four years. On the university and tuition side—recurrent funding—the cuts announced amount to a 4.7 per cent. squeeze in real terms in the coming year, rising to 9.4 per cent. in real terms by 1998–99 in relation to last year's funding. On top of that, capital grants will be down 47 per cent. by 1999. These are savage cuts. Some universities may be bankrupt before Sir Ron Dearing's reforms can take place, which will not be before 1999. One has to add to that the plight of individual students. Here I talk about student maintenance. For example, at current rates, a four-year science student who begins his or her studies this October will have a loan of £7,811 by the year 2000 on graduation, to which one must probably add inflation. If on an average salary, the student will be expected to pay off that loan within five years.

For years the Government have been advised on all sides to have an income-contingent repayment scheme—that is to say, a graduate tax. Neither party has had the guts to grasp the nettle of a new tax. What disturbs me is that the impending crisis, which arises largely from increased student numbers, has been blindingly obvious for at least three years, as noble Lords have been telling my noble friends with remarkable consistency. Where is government policy? In September 1993 when Labour produced, and then suppressed, a shadow Green Paper—for which the shadow Minister in the other place, Mr. Jeff Rooker, was dismissed from his position—my right honourable friend, the then Secretary of State for Education, called a press conference. He dismissed it with ridicule with its talk of a graduate tax and the hint that students might be asked to contribute to tuition costs. When Mr. Patten was succeeded by the current Secretary of State the first thing that my right honourable friend did was to commission a study. A few months ago her Green Paper was said to exist in draft. A year later, where is it? Where is government policy?

I wish that I could say better for the party opposite. The then Leader of the Opposition dismissed Mr. Rooker from his position; but what happened to the policy? Indeed, what is their policy? The noble Lord, Lord Morris of Castle Morris, in the Second Reading debate on the Education (Student Loans) Bill two weeks ago, spent some time discussing the Conservative Political Centre's report entitled The Future of Britain's Universities. I am sure that the CPC was suitably grateful. But where was the exposition of Opposition policy? What is that policy? I hope that in four minutes we shall begin to learn.

In his speech the noble Lord alluded to four clear principles on which the Labour Party was alleged to be working: to encourage access; to protect and enhance quality; not to discriminate among students; and to be fair both to students and the taxpayer. Your Lordships will be surprised that he omitted motherhood and blueberry pie, but was there a glimmer of policy among that welter of platitudes? There was none. Is Labour advocating a graduate tax, as Mr. Rooker was said to have done? Sometimes, it sounds like it. I hope to know in three minutes' time. This country has not been well served by the Opposition in the matter of higher education. They have suffered a collective loss of nerve. In the past couple of years successive Ministers of Education have also failed to grapple with these obvious and emerging funding problems. One may harbour the suspicion that officials in the Department for Education have not been energetic in proposing alternative strategies.

If serious lasting damage is not to be inflicted on our universities and student population, something has to be done now. We can expect more from government and from the opposition than drafts of Green Papers which never see the light of day, and more than a committee of inquiry to report in 18 months' time—however welcome it will then be—and to be implemented we know not when. We hope we shall see swift action.

3.28 p.m.

Lord Morris of Castle Morris

My Lords, Mark Antony in Shakespeare's Julius Caesar looks down at the stab wound in Caesar's corpse made by Brutus's knife and says, This was the most unkindest cut of all", so giving grammarians the most famous example of the double superlative adjective to achieve emphasis, and your Lordships' House the most "bestest" description of the Chancellor's bloody butchery of universities in his last Budget. The Chancellor's knife removes £107 million from the capital programme, a cut of 31 per cent. at a stroke. Capital expenditure is not simply expenditure on buildings. This cut will affect the purchase power of libraries, will lengthen the backlog of maintenance of properties, compromise health and safety standards and prevent the purchase of vital equipment.

Take engineering, which is essentially an equipment-based subject. One vice-chancellor recently pointed out that funding of engineering in British universities had unquestionably declined relative to the rest of the world. He said that the replacement rate for engineering equipment—normally about three years—would become seven, eight, nine or ten. Computer equipment becomes redundant 50 per cent. in year one; 25 per cent. in year two; and you can write it off after about four years. But no, not in British universities—not any more.

Let me give your Lordships two examples: first, in Sheffield University, where Professor Ian Cooke's department of obstetrics and gynaecology was planned to move to the Royal Hallamshire Hospital in a big new scheme. That is now in jeopardy, because the university's £2 million share of the project is under threat from this recently announced cut. That department is one of the world leaders in the field of molecular aspects of fertility. Its successes in treating infertility are world famous. It will be a calamity if its development is prevented by being forced to work in huts and hovels, anywhere that the vice chancellor can find it.

Secondly, consider the case of the University of Manchester Institute of Science and Technology. UMIST has nothing but departments, some of them world-renowned, whose major expenditure is on scientific equipment. The same is true of Imperial College in London. Yet UMIST's capital grant is cut from £2.8 million to £1.8 million at a stroke and at short notice. As its vice-chancellor said recently: If this capital cut is not reversed in next year's funding round, the Government will be signalling the UK's withdrawal from the international competition in science engineering". Hard words!

Those two examples can be multiplied by every university in the country, and were there time I would quote the example of the Royal Postgraduate Medical School. But gaily and insouciantly, the Government have suggested to universities that the private finance initiative is the solution to all their problems. The Secretary of State for Wales, writing to the University of Swansea, says so: Planned capital expenditure for higher education has been reduced in line with most other public expenditure programmes. The reduction in provision reflects the policy that capital should, wherever possible, be financed through private finance". He speaks as if there is some queue of beneficent capitalists waiting to shower universities with money, and asking next to no return for considerable risk. There is not, just as there is no queue of banks and building societies eager to finance a student loans service. Surely the student loans Bill before us is now irrevocably doomed when the NatWest has turned down the Government's blandishments?

No, the PFI simply will not solve this problem, and I can tell the Government why. First, universities have to prepare bids, and very significant costs in time and money are required to do so. At all the stages of their preparation, they incur professional charges from accountants, lawyers, architects, engineers, and the like, and all those costs have to be borne by the organisation seeking private finance. I am told that sums of the order of £500,000 can be incurred by universities from public funds without any certainty whatever that the project concerned will go ahead.

Secondly, the PFI is comparatively inefficient. Universities have a long tradition of borrowing from banks to raise funds for capital projects. This can be done quickly because the parties know one another; universities are recognised as good risks, and so they get very competitive rates of interest, often much more favourable than a private developer could obtain. So why bother?

Thirdly, where university buildings are concerned, only things like student residences, sports facilities or catering outlets are even vaguely suitable for PH funding. Those have a separate income stream, and they can be used intensively throughout the year; but even for residential accommodation normal loan finance is usually better value for money than the PFI. But academic buildings like laboratories, on the other hand, generate no separate income stream, and the only return for private sector investment comes from recurrent funding of the universities themselves. So to use the PFI to fund academic building would simply be a drain on recurrent funding, and such a switch would simply reduce the already ludicrously low unit of resource available for teaching. You cannot rob Peter to pay Paul.

The PFI has been powerfully trumpeted by the Government in recent years. They seem to think that it is the solution to problems created by this 47 per cent. cut in university capital budgets in the three years from now until 1998–99. It is not. PFI applies only to a small section of university buildings, and it is next to useless for equipment. I challenge the Minister here today to explain to the House how the private finance initiative could possibly be used to fund the purchase of an anti-proton storage ring. But the utter irrelevance of the PH as a solution to the crisis facing universities in the next five years is proved beyond peradventure by its past record.

The PFI's record in universities is not encouraging. People do not want to take it up. Why should its future be different? The CVCP has given due warning: if this cut is not rapidly reversed, major building programmes will be abandoned; there will be massive reductions in library books, computer and other equipment; there will certainly be staff redundancies; and we may see universities facing unmanageable deficits, closure or merger.

The mindless savagery of this 31 per cent. cut in capital expenditure proves beyond doubt the utter bankruptcy of this Government's policy for higher education. In the words of the poet John Donne: 'tis all in pieces, all coherence gone". No wonder they have run away and left Sir Ron Dearing to sweep up the bits.

Lord Renfrew of Kaimsthorn

My Lords, before the noble Lord sits down, may I make the point that I spoke only for six minutes out of my eight. May I offer him 30 seconds to say whether Labour has a policy on these matters, as I asked in my speech?

Lord Morris of Castle Morris

My Lords, if I may be granted the leave of the House just a few seconds to answer that question, I refer the noble Lord to what I said in the debate which he quoted, which he will find clear and sufficient to answer his question.

3.37 p.m.

Earl Russell

My Lords, I enjoyed that exchange but I hope that it does not come out of my eight minutes. I should like to thank the noble Lord, Lord Annan, for introducing the debate and for the delightful image of Jane Austen seeking lodgings with Casanova. I enjoyed the exchange between the noble Lords, Lord Renfrew and Lord Morris of Castle Morris. There is more than one party opposite the noble Lord, Lord Renfrew. Our party has already grasped the nettle of an income contingent repayment scheme in our new policy which my noble friend Lord Tope will develop in more detail.

When we introduced that, my right honourable friend Mr. Ashdown said to us as we were considering it, "If you reject this policy, you have three other options: to let quality continue a rapid decline; to put 4 pence on the income tax; or to lie". The first of those is clearly the policy of Her Majesty's Government, and has always been. I wait to know which of those three is the policy of Her Majesty's Opposition.

I must of course declare an interest in this debate, not only as a university teacher but, more specifically, as a teacher at King's College, which has suffered a particularly savage cut in its recurrent grant. We are a college that does individual tutorials, and will continue to do so as long as we can. In the humanities, in the research assessment exercise, we came second after Cambridge. Having assisted in doing the research assessment exercise, I would be reluctant to ask the House to take that information too literally, but that does not happen to a second-rate place.

If this was done deliberately, it is curious. If it is the result of a formula, the House knows what I think about formulae. I am advised that it is going to cause us a lot of problems with teaching rooms. It will impose on us a need, through the closure of some rooms, to teach in smaller rooms, which means either more teaching hours or fewer students. I am also, like the noble Lord, Lord Morris, deeply concerned about books. Without books in my subject one might as well not be there at all.

The House knows my general views on universities and I shall not repeat them at length. However, in addition to my party policy I now find that I must support the proposal of the CVCP for a fee charge on individual students. The House knows what I think of the financial burden on students. The House will believe that I feel like Cromwell dissolving the Rump—that I have sought the Lord day and night that He would rather slay me than put me upon the doing of this work. But we cannot await Dearing. If we do not do it, we might as well close down.

Having spoken so many times on universities I will say something on a subject on which the House has not heard me. It is the private finance initiative; the Deus ex machine which is supposed to fill up all the gaps. The private finance initiative does not seem to have been cast taking into account that most of our capital budget does not go on great glorious new buildings. It is not that kind of period. It goes on repairing the roof, buying computers, mending window frames and so forth. The Welsh and Scottish Offices understand that those items are not suitable for the private finance initiative. I wish that the Department for Education and Employment did the same.

The private finance initiative is essentially a lease-back system. It means that the costs are deferred and, as anyone with a mortgage will know, the ultimate total cost rises. I wish to know whether the Treasury has calculated the long-term cost of the private finance initiative to the state. They think only in five-year terms down there; we up here ought to do a bit better.

The lease-back of small items creates problems. I am reminded of the time when Camden Council, borrowing money from Japanese banks, passed over to them the title to every bath tap in every council house in Camden. I wondered how the Japanese bankers would foreclose if that were necessary.

We face much the same problem. If we have banks and private firms getting titles to defective window frames I do not know what they will do with them. It has been pointed out that repayment can come only out of recurrent grant. Defective window frames do not generate income. It is also crucial to the private finance initiative that ownership of the item in question is passed over. If ownership of a teaching room is passed over to a private body it must become involved in decisions about what is done with the room. What is done with the room will determine the teaching programme of the university in question. We are getting private firms involved in the planning of academic teaching and it really will not work. It is one of a succession of hare-brained schemes which go a long way back.

When Henry IV of France visited King James I, King James held forth on the cost of his court. Henri Quatre assured him that one could feed 300 courtiers for two days on one ostrich egg. In the accounts of the Keeper of St. James's Park a few months later appears the entry: "To Coles, for one month's trial to hatch ostrich eggs; 13s 4d". Those eggs did not hatch and neither will these.

3.44 p.m.

Lord Dainton

My Lords, I must first declare my interests in institutions which are significantly affected by changes in government funding of universities. I have been Chancellor of the University of Sheffield for 17 years. I thank previous speakers for their references to that university, which were so gracious and were so well deserved. I am also president of the Royal Post-graduate Medical School and president of the Arthritis and Rheumatism Council, which is a medical research charity devoting most of its income to encouraging and paying for research within the universities. In common with other medical charities, it is profoundly affected by what happens to the universities.

I too am grateful to the noble Lord, Lord Annan, for initiating the debate, which is very timely. I will not attempt to match his flights of oratory but shall begin by quoting the words of the opening speech of a similar debate in another place. In arguing for the simple and, in my view, entirely just proposition; that the obligations imposed upon the universities are matched by the resources made available to them", the speaker said, We are at present witnessing a crisis on the campuses of Britain's universities … the universities are being forced to make major restrictions not only in fringe matters but in some of the essential services that enable universities to do their job properly".—[Official Report, Commons, 13/1/78; col. 2016.] Then he elaborated on the effects of the cuts in teaching, research, libraries, scientific equipment and other cognate matters which have been amply illustrated today. From my vantage point as chairman of the University Grants Committee, and with my heavy responsibilities, I could only applaud and endorse all that the speaker said, which applies with much greater force today.

Mr. Malcolm Rifkind—for the speaker was none other than today's Foreign Secretary—was completely right. In looking back at my UGC papers, I remembered one year in which the university inflationary cost index, which was nearly larger than the Government's deflator, touched almost 30 per cent. By throwing in all our reserves, switching the capital furniture and equipment grant to meet recurrent costs and by appealing at length, and successfully, for some help to the then Secretary of State, who became the noble Lord, Lord Prentice, we managed to reduce what would have been an entire catastrophe: a cut of almost 30 per cent. to one of just over 11 per cent.

The noble Lords, Lord Annan and Lord Renfrew, told us that the best indicator of the trend in government funding of the universities is the average amount of recurrent annual income per student from government directly and also from fees in respect of British and European Union students. It is called the average unit of resource. My UGC papers showed that in 1972–73 that was £2,762. Using the Government's own annual deflators, which are specifically—and I quote the Government— provided for use in constructing comparisons over time on a consistent basis", I calculate that what that cash bought in 1972–73 would require £19,000 of today's money. What is the position today? The old universities—and I restrict myself to them because they are the only ones for which the data are sufficient over a long period—are not receiving that sum but £6,700 of today's pounds. In other words, the cut over the period has been 65 per cent. which is two-thirds. Often that is referred to as an "efficiency gain". That is a misuse of the English language because it is nothing of the sort.

How did the universities react throughout the prolonged period of repeated cuts in recurrent funding? In my view, they have been exemplary. They loyally accepted the duty of the expansion of higher education which the country needed and for which the Government called. Inevitably, teaching loads increased and staff/student ratios deteriorated dramatically. House of Lords Paper 60, issued on 19th July last year, shows that, despite the great increase in student numbers, the total number of established staff of those universities increased by only 4 per cent. in the 16 years after 1978. More detailed statistics are available for 1984 onwards. If one looks at the age profiles of the staff one will see that they have risen by about 10 years. That indicates little recruitment of younger staff, which is never a good sign in universities where youthful intellectual vigour and imagination is essential if quality is to be maintained.

Finding themselves in that very difficult position, the universities assiduously sought and received funding from sources other than the funding councils, principally research grants and contracts. The noble Lord, Lord Annan, has referred to the performance at Sheffield. I am grateful to be told about things that I did not know in relation to my own university. That extra money was used mainly to support so-called contract researchers, whose numbers trebled from about 7,000 to 22,000 in 16 years. Those people keep research activity alive and help with teaching. They comprise many people of high quality but, as the same House of Lords paper shows, they constitute an underclass of temporary staff and are disadvantaged in all manner of ways relative to established staff of comparable age. Moreover, the women in that category are even more disadvantaged and are a kind of "super underclass". I shall not expand on that because I hope that your Lordships will be able to debate that particular issue after Easter. I merely use that as an illustrative example today.

Your Lordships can see that, faced with those figures, there must be a real crisis, worse than that identified by Mr. Rifkind. But even worse is to come. Government plans call for recurrent funding to be cut further; money for building and equipment to fall by 17 per cent. per annum in the next three years. That will erode further the science base, as has been mentioned, although it is generally acknowledged that the laboratories of universities are no longer "well-found" as they should be, if universities are to maintain the standards in research and teaching which the nation demands.

The Government have stated that non-governmental sources can make good those cuts in government capital funding either by direct arrangements or the private finance initiative. I have inquired of industry what is the position and Dr. Peter Doyle, who runs Zeneca, which is an extremely large and successful high-tech company, has said that it will not support the initiative. I am told also that the Association of Medical Research Charities is resisting paying indirect costs and the research councils, government departments and the European Union have strict financial rules which give them little, if any, manoeuvrability to help in relation to capital funding.

I know that all those points have been made to the Department for Education and Employment and many are in the public domain. At last, that department has acknowledged that there is a problem and has responded by setting up a national committee of inquiry. We must all be grateful for that. But the committee will not report until late 1997 and any decisions based on its conclusions will be even later. What is needed is action now to resolve the financial crisis that faces the universities now. All I ask is that today's equivalent of the noble Lord, Lord Prentice, will acknowledge the parlous financial realities and will persuade the Chancellor of the Exchequer to produce that absolutely minuscule sum from the Budget in November which would enable the projected cuts in capital and recurrent funding to be revoked until we can have a proper plan for the universities. I assure your Lordships that I know that I am not alone among those who have experience of university funding in expressing those views.

3.53 p.m.

Lord Beloff

My Lords, some 30 years ago at an international conference in Canada I followed the noble Lord, Lord Dainton, in a discussion about university finance. At that time I said that I thought that a higher education system wholly dependent on the public purse was very vulnerable. The noble Lord, Lord Dainton, was a little more optimistic than I was.

Today we see the consequences which are not of the particular malice, wickedness or incompetence of particular Ministers because the problem that we face is shared by everyone. We face the problem that we have allowed one generous impulse—the expansion of higher education—to override what should always be in the mind of any government putting forward a new policy; namely, how they were to persuade the country to pay for it. It is my view that the problem is not due to a particular government and therefore I do not wish to enter into controversy with the noble Lord, Lord Morris of Castle Morris. It is due to the fact that we have come up against a ceiling in the public apprehension of the proportion of taxpayers' money which should be spent on higher education as it was understood 30 years ago.

Therefore, we face not merely the current crisis—and I shall not elaborate on that because there are people who are closer to the current scene than I am—but the need to rethink from the beginning the whole of our system of higher education. Instead of 105 universities, we must consider groups of universities performing different functions and requiring different levels of finance. No country in the world, not even the United States, has 105 research-led major universities. If we had 10 or 12, we should be doing better than most countries of our size and with our resources.

Universities will be asked to face merely not this current problem, whose seriousness I do not under-estimate, but a total change in the way in which both their own expenditure is financed and, as we have learnt, the way in which students are supported.

It is clear that some contribution in some form from those who benefit from university education should be demanded. Some of us pointed that out in the original debate on student loans some years ago and were ruled out of court by the then government and the then Minister. That is coming back—income contingent refunding.

After all, that is what happens elsewhere where there are major universities. I agree totally with the noble Lord, Lord Annan, that the last thing that we want is to have universities on the Italian, North German or, indeed now, French model, although in the case of the French and in a different way in the case of the Germans, that is made up by research and high-level teaching being concentrated in particular institutions. All that needs to be done. It is a major operation which is bigger because it must be done relatively quickly if the crisis is to be overcome. It is a major operation which can be compared only with the extension of secondary schooling after the war.

For a year the Government have been apparently indulging in consultation. I must say so far as I perceived it, that consultation was not very radical or deep, and clearly the results have not satisfied the Government or they would have published them. Therefore, the matter has now been handed to a new committee. But it is all very well to say, "Let us wait for the committee". What is the committee going to produce? If it produces, as I hope and believe it must, that major transformation of the whole higher education scene—the grouping of universities, the singling out of those led by research and the singling out of those where individual teaching is maintained at a high level—inevitably it will offend and upset a great many people in the higher education system. You cannot have radical change and satisfy everyone.

If that is the case, that committee will need to have the understanding, approval and sympathy of the entire university community. I do not believe that the Government have altogether grasped that point. Sir Ron Dearing is no doubt a valuable and experienced public servant, but he has no experience of higher education at any level. As I have been going round since his appointment was announced consulting people from a variety of universities, I find everywhere a lack of confidence that he can on his own overcome that considerable disadvantage. After all, if a hospital has a patient who has to have a heart bypass, it sends for a surgeon; it does not send for a plumber however good the hospital plumber may be.

This is a serious matter because the fortunes of the committee depend on two things: terms of reference which will allow it to consider from the beginning the kind of higher education system that we should have, the institutions that should compose it, and the finance that should go into it; and how we prevent this appalling falling off in the standards of our student welfare and the serious lessons of the drop-out rate. For that we need at least a Lord Robbins. I do not know—it would be presumptuous of me to know—who is the Lord Robbins of this generation. But he has to be found. Even if Sir Ron Dearing remains as chairman, it could be possible to find members of a committee to consider those issues from the kind of experience with which we have been favoured by noble Lords who have spoken today and those on the list before us. But it will not be easy and it is as well that Her Majesty's Government should realise the difficulty of the task.

4.1 p.m.

Baroness Dean of Thornton-le-Fylde

My Lords, we owe a great debt to the noble Lord, Lord Annan, for putting this Motion before us today. Not only Members of this Chamber but many thousands of people outside are affected by these education cuts. I must confess to a little trepidation in putting my name down on the list of speakers. It looked almost what I might term a closed shop of providers from the higher education field. However, I plucked up my courage—at least until I heard the noble Lord, Lord Beloff, refer to plumbers. Perhaps I am the plumber in this context. I did not go to university. In many respects that gives me all the more determination to ensure that people have the advantage of going to university where their ability allows them to do so.

I have an interest to declare. I am a member of the Council of the Open University. It is from that aspect that I should like to address my brief remarks. In student numbers it is the largest university in the country, with 150,000 students. Many of those are people I met in my former days as a trade union officer. I met them on factory floors and in the office. I met people who never had the opportunity to go to university and to have the higher education provision that many fortunate people now have.

With the development of the Open University there has been development of different course structures. As a consequence, 37 per cent. of all part-time students in the United Kingdom in university education are within the Open University provision.

If the proposed cuts are agreed, it will mean that the Open University will have to reject 5,000 students next year. I gather that that is the equivalent in student population of a medium-sized traditional university in Great Britain. That is frightening. I suggest that it is also a big threat to Britain's competitive position in the future. I make no apologies for introducing in a debate about education our overall well-being as a nation in the industrial and commercial field competing world-wide. The fact of the matter is that many of our people at work today have not been given the education training back-up that they need to enable the country to compete world-wide. That pressure will increase. It will not go away. It will not decrease. Cuts today in education mean a deficit of skills in a decade's time. That is what we need to consider in the debate.

Seventy per cent. of students at the Open University maintain full-time employment while they are on their courses. I regard that as a tremendous achievement, not just for the education sector but for those people as individuals. It is tremendous to see the pride they have for the skills and the education that they receive.

The problem is that the Open University feels a little like the meat in the sandwich, between government policy on the one hand advocating strongly that part-time courses are the way forward, and, on the other, the Higher Education Funding Council cutting back on the funding provided for the Open University.

I suggest that it is not the fault of the HEFC. At fault are the overall budget provisions available. If the measures are carried through, at worst it could mean next year a cut-back in funding of £6 million against an increase in expenditure of £1 million.

Those are real concerns. Today's debate is to me a privilege to partake in. It is like sitting in on a master class, a tutorial, not on a one-to-one basis but with this marvellous array of eminent and extremely experienced people from the education field for whom I have the utmost respect. I hope that in the debate we do not forget the many thousands of people out there who depend upon the education system for determining not only the quality of their lives in the future but how they provide for themselves and their families.

I should like to refer to the impact that these cut-backs will have on medical education. It is almost a double jeopardy. I declare a tenuous declaration of interest. I am the deputy chairman of University College Hospital in London. We have strong links with University College London. The partnership that UCL has with the NHS on research and capital expenditure is of major benefit not only in the education field but as regards the health of the nation. The cut-backs will mean some quite profoundly damaging implications, involving something like £3 million.

However, these bodies are told that they will have to raise the money through the public finance initiative. We have had some initial experience of that in the National Health Service. At present the University College Hospital is engaged on a tender process involving PFI for a new hospital. When faced with such cut-backs, where does the Minister expect the universities to obtain the resources involved as regards a business plan with all that a public finance initiative means? It is not an easy thing to do. One cannot do it in-house. One is talking about a major investment resource in that respect alone.

I recently found out about the dual support system relating to research. Noble Lords will understand this issue better than I do. In 1992 there was a change in the way in which that was calculated and assessed for the research council grants. It meant a £3.2 million loss to University College London.

We are faced with serious issues here and now in the education field—whether in the future people will have a good quality of life and be allowed to develop as individuals in the way in which they should be allowed to do. I share the concerns of noble Lords who have spoken. I hope that when the Minister responds he will be able to answer those key issues.

4.10 p.m.

Lord Kirkwood

My Lords, looking at the recent budget on university funding, clearly the most dramatic and potentially damaging items are the cuts in capital spending which have been alluded to. There is a 32 per cent. cut for English universities this year, rising to 47 per cent. in 1998–99, compared with 1995–96. The Scottish and Welsh universities will suffer similar deprivations. The suggestion that this can be made up from the private funding initiative is—as many noble Lords have suggested, and in the opinion of the vice-chancellors themselves—laughable. The noble Lord, Lord Morris of Castle Morris, elaborated on that matter in his speech. Funding by this means is not well tested and it would certainly take a period of time to set up and get running in the universities, and time is in short supply. The consequence of the cuts in capital spending will certainly mean that many building projects will now have to be halted or cancelled.

It should be remembered that apart from buildings the capital budget provides for books and equipment. Without books—even in this age of information technology provided by computers—there is no university as we understand it. Unfortunately, technological progress means that equipment, particularly scientific equipment, rapidly becomes outdated and has to be replaced if universities are to pass on those skills required by society, and if they are to maintain themselves in the forefront of research and not begin to drop behind their competitors.

The commercial partners in PFI can have no interest in providing and investing in hooks and equipment: unlike buildings, they cannot provide extra income. It is ironic that one inevitable consequence of decreasing funding will be the loss of active university teachers. This cannot be compensated for by improved efficiency or productivity through introducing newer teaching technologies such as computer-aided learning because the equipment budget is being cut at the same time. There appears to be no way out of this dilemma except by lowering standards, and possibly the bankruptcy of some institutions of higher education.

However, while the capital spending cuts are most dramatic, there is another less sensational effect of this budget but which has no less serious consequences, and that is the effect on unit costs. In England there will he a decrease in the total funding in cash terms of 2.1 per cent. in 1996–97 over the previous year. As a result of inflation and a small rise of 0.4 per cent. in student numbers, the net effect on funding per student is a drop of just over 5 per cent. over the year. This is predicted to continue on the same scale in the following two years.

It really is almost impossible to describe the effects that this will have on the morale of already overstretched university staff. They are already badly paid in comparison with those in like professional occupations, and they are falling behind in public esteem. They certainly cannot expect any recompense for the additional stresses they will be put under. However, that is not my main concern.

My main concern is with the quality of education that future university students are likely to receive. I know that the noble Lord, Lord Annan, has discussed this particular aspect but I think it needs to be stressed strongly. Degrees at British universities used to be highly valued throughout the world. We used to think that a bachelor's degree from the United Kingdom was superior to an American bachelor's degree from most universities in the States. Sadly, I feel this is no longer the case. We then had graduates of high quality and a low drop-out rate. The higher education system was, in economic terms, highly efficient. This was partly achieved by having dedicated, highly motivated academic staff who had the space, in time, to become excellent scholars and researchers in their own fields. They were often men and women of international reputation, teaching students by way of lectures, tutorials and small group seminars, and they often had close personal contact with their students, providing inspiration for learning and often acting in a pastoral role as well. That was, of course, an expensive, élitist system and was probably only possible with small numbers in the higher education system. So, inevitably, it has had to give way to a system in which there are huge lecture theatre audiences and tutorial groups which are large and impersonal and cannot engender the one-to-one discussion and debate that used to exist. So what we used to think of as education of the individual is fast becoming the force feeding of a passive audience with information to be regurgitated at exam times.

It is clear that there is room for improvement in the methods of passing on knowledge. Traditional lectures in some ways are outdated, except those given by the occasional inspired performers, and not many university lecturers will claim to be that. Pre-recorded lectures by good presenters, such as have been pioneered by the Open University, with professional quality illustrations, animated diagrams, film clips and the rest, which can be run and re-run by students in their own time, have definite advantages for both students and teachers. However, it seems to me that what we cannot do without in a university education worthy of the name is the teacher of small groups of students—the tutorial—who challenges and probes assumptions, and allows the critical approach to knowledge gathering to become a part of the student's intellectual equipment. This is as true for history or literature as it is for science and engineering.

What this cruel Budget will do is to continue the process of underfunding each student's education, which must inevitably lead to further reduction in the staff/student ratio; reduce the quality of our highly valued university education; and result in a great increase in the number of student drop-outs and failures. Can the Government really wish this to be the ultimate consequence of their important and vital experiment in providing more universal higher education? They must back their vision with adequate financial investment of public money; it cannot be done on the cheap.

4.18 p.m.

Lord Walton of Detchant

My Lords, I, too, thank the noble Lord, Lord Annan, for initiating this debate which could not possibly be more timely. At the outset I apologise to him and to the Minister for the fact that I may not be able to stay until the end of the debate because of a pressing early evening engagement. I had set down my name to speak in this debate having been assured it would be likely to last some two-and-a-half hours.

The universities of this country have served the country well. They have a high graduation rate still. The honours degree which most of them award is justly regarded highly, nationally and internationally. When I had the privilege two years ago of debating in your Lordships' House the report of your Lordships' Select Committee on Science and Technology of an inquiry which I had chaired on international investment in UK science, it was clear that because of the quality of the science base in the United Kingdom—much of it within our universities—40 per cent. of all American and 42 per cent. of all Japanese overseas investment in science came to the United Kingdom. That science base is now not only under threat: it is in decline.

There has been a universal welcome in the higher education sector for the Dearing review; but, as the noble Lord, Lord Beloff, has said, it is crucial that it looks at a restructuring exercise relating to the higher education structure as a whole, although it is important to realise that one can never tell within such a setting where the new rising star in research is going to appear. For that reason any such restructuring must not be too rigid in grouping universities.

As the noble Lord, Lord Morris of Castle Morris, said, the recent 30 per cent. cut in capital expenditure for the coming year and 47 per cent. over three years has been the unkindest cut of all, and I agree with those who have said that the assumption that this can be replaced by the private finance initiative is totally misplaced, at least in relation to equipment. I have never known any decision which so enraged the vice-chancellors, who now oscillate between anger and despair. Last week's announcement of the Higher Education Funding Council settlement means that many universities now face staff redundancies, deficit and closure or possibly merger. These are not idle threats. They are a genuine statement of the present position.

The salaries of academic staff now begin for a young lecturer with a PhD, as the noble Lord, Lord Annan, said, at £14,137 per annum—almost less than a private soldier would earn—rising after many years of service to £33,898 as a senior lecturer, and a professorial minimum of £32,000, far below comparable professions. Now we see the repeat of the annual charade where the universities will not be able to pay the award of the Doctors' and Dentists' Review Body, normally translated for clinical academic staff, until there has been a decision about the pay of other staff, if any, the department has said, with salary scales at that level. It is intolerable that the academic staff should be so far held back. Thank goodness for the review of clinical academic medicine which used to be undertaken by the Oxford academic, Sir Rex Richards. As I said in last week's debate on the NHS, there are 24 vacant clinical chairs in United Kingdom medical schools, 10 of which have been vacant for lack of suitable applicants for more than a year.

Higher education is costly and I wholly agree that no developed country can afford to pay full maintenance grants and fees. But when will the Government realise that the present loan system, even modified as proposed by the legislation under consideration in your Lordships' House, is pleasing no one? It is crucially important that we should move to repayment through the national insurance or tax systems, beginning when the individual has begun to earn an appropriate sum, and repayment of the sum borrowed like repaying a mortgage, not a lifetime graduate tax. I know that the Minister will yet again, rather wearily no doubt, repeat the comment that has been made on this matter before, that the national insurance and tax systems are not there for debt repayment. Why not, my Lords? This has worked in other countries. Why can we not make it work? How long will the Treasury continue to wag the tail of the governmental dog?

The National Commission on Education, which I had the privilege of chairing, strongly proposed that not only should the maintenance grant be repaid through such a mechanism but also a contribution towards university fees, say, a flat rate of 1,000 per annum. That would be wholly acceptable to the student body. Medical students, who have a five or six-year course like dental students and veterinary students, are suffering particular hardship, working as they do a 48 to 50-week year, with no possibility of earning outside their training. It is therefore very important to recognise how great is their hardship when we have a shortage of doctors. As the NHS debate last week showed, doctors are difficult to recruit in accident and emergency departments and the Government now propose, very reasonably, an increase of 200 medical students per annum. Where are the resources going to come from with these cuts in the universities?

The Committee of Vice-Chancellors and Principals has now listed 17 vital, high priority capital schemes in medical schools, many of them in partnership with the National Health Service, where the university must contribute a capital sum and the National Health Service will contribute another capital sum. All of these, in the light of this savage cut in capital expenditure, are now under threat and I am given to understand that some of these vital schemes may have to be abandoned.

We will welcome the outcome of the Dearing review, but these issues simply cannot wait and I trust that the Government will be persuaded to think again about this capital cut, at least in November's Budget this year, if not before.

4.25 p.m.

The Earl of Limerick

My Lords, on 19th February this House addressed the Second Reading of the student loan Bill. I did not speak but I listened. It was striking how speaker after speaker, having commented on the Bill, often to dismiss it as irrelevant, went on to address the wider issues of funding. It is therefore most timely that the initiative of the noble Lord, Lord Annan, should give us the opportunity to examine these issues in detail today. I have an interest to declare as the chairman of the governing body of a former polytechnic, now one of London's new universities, and also as the current chairman of the Committee of University Chairmen. Chairmen of universities collectively—although they may be less heard in public—feel no less strongly than their vice-chancellor about these issues. I speak with concern and, I have to add, in sorrow. I shall divide my remarks into three parts: what has gone wrong; what is the current effect, and what might be done?

What has gone wrong? It is easy to see with hindsight. As numbers have expanded further and faster than was predicted, there has been a failure to adapt a limited elite system to an open access system with a participation rate recently increased three-fold to about 30 per cent. Universities were urged to increase numbers in higher education. They responded with energy and with success but there was no overall plan. There was no preparation for the increased funding which clearly would be needed if those numbers were to be achieved. In effect, those running universities were conned, and I am not suggesting that there was any intent that they should be conned. I am suggesting that this was the effect of the funding regime under which they were achieving this expansion in numbers. After the rapid expansion came a rapid application of the brakes. There was an inability to continue recruiting into courses already started and financed in many cases. There were annual changes in funding methodology which led to additional problems in budgeting, probably most so in the case of those with a high proportion of part-time students.

My Lords, what is the current effect of this? Universities have to be thought of in funding terms as medium-sized businesses, some of them at the small end of large businesses. Typically, 70 per cent. of their total recurrent costs are attributable to staff, both teaching and non-teaching, and the conclusion is obvious. If funding falls in real terms, courses and departments will be cut and are being cut. Choice will be limited. Some of this one accepts as inevitable as competitive forces distinguish successful from less successful courses. However, to cut staff when student numbers are not reducing has the obvious effect: student/staff ratios deteriorate towards the point of frustration for those working in the system trying to deliver an adequate educational experience.

I therefore have to join those who urge that we find the courage to resist the misuse of the word "efficiency". We never quite reach the point where all efficiencies have been achieved. That should not be a claim. However, we are long past the point of diminishing returns. One can perhaps achieve another 10 per cent. efficiency in a particular area, but that leaves one with only 90 per cent. That is a real cut.

I am cautious about joining those who cry wolf about the quality of our system. It does no good to denigrate what is still, in general, an excellent product. It goes without saying that all concerned in the system will do their utmost to maintain that quality of education.

So what do we see in practice? The 40 per cent. cut in real terms in funding over 10 years has resulted in fewer books, and in some cases fewer libraries in which to house them; fewer computers on which people can work; longer queues; and buildings in which we can no longer take pride. Managing that process brings no satisfaction.

I turn now to consider what might be done. The first conclusion is that the present system, and many of its constituent universities, will not stand another dose of start/stop. The least that is needed in the short term is a stable funding regime against which to plan without the threat of further real cuts in the recurrent funding. I associate myself with the remarks made about the shock sustained from the swingeing cuts in the capital funding budget last November.

We need to face facts. Sources of core funding are central government, local government—neither of which is able to come up with any additional money and, indeed, both are consistently cutting budgets—and the student community itself and the families who support it. It is therefore long overdue that there should be a serious and urgent study of a system of graduate recovery. That has worked successfully in other countries and there is no reason to suppose that it should not work successfully here. It has to be a system which is seen as acceptable and fair. I make only one observation in that respect. Current student loans are repayable over four years once the threshold is reached. If a first-time buyer in the housing market can get a 25-year mortgage, why should not education for a lifetime be thought of in the same terms? The second caveat is that the system has to bring additional finance and should not be used merely as a means for further cuts in central government provision for higher education.

My final point concerns Sir Ron Dearing and the task that faces him. Sir Ron may not have a degree but he has earned the respect of the education sector and deserves all the help that he can get in his important and urgent task. I listened with great interest to the speech of my noble friend Lord Beloff. It is easy to follow him intellectually in his argument, but it leaves me with a great anxiety. I do not believe that Dearing should be thought of like Robbins. There is no time for that. That is not to deny the need for such a fundamental root and branch analysis, but Dearing has to concentrate on numbers and finances. We have income from foreign students which is estimated at £700 million a year. That would be at risk quite quickly if it was felt that standards were deteriorating.

There is little point in designing the best possible higher education system for the 21st century if many universities may not be in business to see the millennium.

4.34 p.m.

Lord Sewel

My Lords, I begin by declaring an interest as Vice-Principal of the University of Aberdeen. I join with others in thanking the noble Lord, Lord Annan, for providing the opportunity for this debate. I am also conscious of the number of noble Lords who wish to speak, and as I spoke on the student loans Bill I shall be brief today.

The causes of the present difficulties facing higher education have been very well identified by other noble Lords. In essence, what has been happening over a number of years is that the universities have responded to government policy by increasing student numbers, and they have been rewarded by continuing and increasing reductions in the funding per student. In other words, we have the sheer perversity of policy penalising productivity and of government penalising virtue. That is not a prudent way forward.

During the period of rapid expansion the pressure of efficiency savings—or, to be brutally honest, cuts—was partly hidden by universities expanding out of their immediate difficulties through increasing student numbers, although that was often on the particularly disadvantageous terms of so-called fees-only students and was effectively storing up trouble for the near future. So even before this year the system had been squeezed and squeezed again.

There comes a time when the seeking after efficiency gain after efficiency gain becomes the enemy of effectiveness. That is the state that we have reached in higher education. The immediate problem has been made evident by a policy of consolidation of student numbers, therefore cutting off the quick-fix approach of immediate expansion, together with a funding settlement which produces an actual cash reduction in the amount of money available to universities.

My day job is that of what is now known as an academic manager. As I roll forward my own faculty's plans for the next three to five years, I have to tell the Minister that there is already a real crisis in terms of maintaining activity and quality. When plans are rolled forward on the basis of the Government's stated policy the situation deteriorates, and it does so very quickly indeed. That is the fundamental and urgent danger we face today.

The Government have announced the Dearing review. That is both welcome and important. It is perhaps our last best hope, but it is not enough. The danger is that very severe and possibly irreparable damage will be inflicted on the system before Dearing can report and long before Dearing can be implemented.

I urge the Government as strongly as I can to review the course upon which they are presently set, to recognise and repair the damage caused by this year's decisions, and above all to put into the system a period of stability, particularly over the crucial period between now and the report and implementation of Dearing. If that is not done then Dearing will be confronting a system going rapidly into a tailspin. That is the danger.

In Scotland, we have seen the development over recent months of a near disaster in the area of local government finance, producing a last-minute panic reaction from the Secretary of State for Scotland. That disaster was the product of a combination of ignorance and arrogance in the Scottish Office. If the same happens with higher education, the Government cannot plead ignorance.

4.39 p.m.

Lord Porter of Luddenham

My Lords, I do not suppose that there is anyone in your Lordships' House who is not in favour of better educational opportunities for everyone. It probably comes higher in the scale of virtues than motherhood and blueberry pie, to which the noble Lord, Lord Renfrew, referred. Only one argument against it carries any weight and it is the only argument that we have heard: that we cannot afford it. But in making the case, have the Government given proper consideration to the economic benefits of education against the costs of a poorly educated Britain? Among them we may count unemployment, crime and an unskilled workforce.

Other big spenders are defence, health and the social services. Of those, only health could be argued to have an economic pay-back that is comparable with that of education. I shall quote an example which is close to my heart and has been eloquently referred to by the noble Baroness, Lady Dean. It is the Open University. Do the Government believe that by allowing a reduction in the number of Open University students of 5,000 this year, they are contributing to the future prosperity of the country?

4.41 p.m.

Baroness Lockwood

My Lords, if there were any doubts in the minds of noble Lords before the debate began, there can be none at all now that our universities are in a deep state of financial crisis. Noble Lord after noble Lord has referred to the latest cuts which came as a result of the 1995 Budget. As the noble Lord, Lord Dainton, indicated, they come on top of a series of cuts since 1981 which have reduced the unit of resource considerably.

Like other noble Lords, I have to declare an interest as Chairman of the University of Bradford and a member of the Committee of University Chairmen, chaired by the noble Earl, Lord Limerick. Bradford University is a medium sized university, but as a result of the 1995 Budget it will be £750,000 worse off in recurrent expenditure. That might not seem a large amount, yet it is equivalent to 30 members of academic staff—and not junior members either. On top of that, there has been a further £750,000 reduction in capital expenditure which means that capital expenditure, this year will have to be concentrated on maintenance work in compliance with health and safety regulations alone. Yet, like other universities, the University of Bradford has been struggling to meet a long list of essential priorities in maintenance and renewal of equipment.

Since 1981 there have been: first, a confusing stop-go policy on recruitment which has made effective planning difficult. Secondly, changes in methods of funding research have added to the bureaucracy and administrative burden of universities. Thirdly, there has been underfunding of the cost of living salary adjustments each year. Fourthly, there have been fundamental changes in student support.

All that has meant that the recurrent funding per student has declined by about 28 per cent. over the past six years; that the research selectivity exercise, now approaching its third round, is increasingly polarising universities in terms of whether or not they conduct research. The noble Lord, Lord Beloff, may be right when he said that not all our universities should be involved in research, but we cannot tolerate the present system which has introduced a disruptive, inefficient and expensive level of competition between universities in search of research stars which leaves nothing to be learnt from the transfers that football clubs carry out. Fortunately, the end of this month will see the end of that scramble because it will no longer be worth while poaching research staff.

It has also meant that academic salaries have lagged far behind other professions, as the noble Lord, Lord Walton, indicated. The dual support of grant and loan plus the withdrawal of benefits has led to an unacceptable level of student poverty which contributes to the higher levels of student withdrawal before courses are completed. I am not saying that we can continue to fund about 30 per cent. to 40 per cent. of the 18 year-olds at university in the way that we funded 12 per cent., regrettable though that decision might be. But we need a much more sensible student loan system than the one we have at the moment or the one that the Government now propose under their new Bill.

Moreover, universities have not been helped by the tight and often contradictory policies and procedures of the Higher Education Funding Council. I again use Bradford as an illustration. Universities are now expected to set a tight student recruitment number. If a university fails to meet that target, it is penalised financially. If it overshoots the target and recruits more students than it said it would, again it is penalised. The University of Bradford will suffer a penalty of about £435,000 this year because it under-recruited by 279 students.

A further example is shown in the table published in The Times Higher Education Supplement of 16th February. It shows a strange diversity in the funding of similar courses which results apparently in Oxford Brookes University receiving £468 per student taught more than the mean. The University of Luton receives £484 less than the mean. Bradford University is funded at £136 less than the mean per full-time student. That has led to a reduction in its funding of £777,000, compared to funding at the mean. On top of that, it would have received additional funding if its part-time students had been funded at the mean. There are many anomalies in the system which contradict the policies which the Government appear to put forward.

Universities have coped with these problems remarkably well, and have attempted to follow government policy while at the same time maintaining standards and thus the high reputation of British universities. However, I am afraid we are now in a situation where that cannot continue. Some very drastic steps will have to be taken to repair matters. Like the CVCP, I suggest that the first significant step should be to remove the 1995 cuts.

4.50 p.m.

Lord Quirk

My Lords, although this debate, which we owe to the noble Lord, Lord Annan, is a welcome opportunity to draw attention to the acute financial distress in our universities, I would like, as a preface to my words, to insist that, for my own part, our educational priorities as a nation must be solidly at the primary level: the first five or six years in the education of our youngest children. This needs to be emphasised not only because this sector has for too long been at the mercy of mediocre ideas and practices but because it is the sector which provides for all our children and not just the agile minority who go on to university. It is the sector, what is more, on which universities themselves crucially depend if the pool from which they recruit their students is to be replete with the wherewithal for a full and challenging basic education.

So I for one am very glad that, over the past 10 years, strenuous efforts have been made to transform primary education, with a national curriculum and a system for monitoring and enhancing standards which we can be confident will bear fruit in due course.

Those same 10 years have wrought a transformation in higher education too, at which—in many respects—we can rejoice. We have discarded the increasingly artificial boundary between the polytechnics and universities, producing a single system but one that embraces an attractive and healthy diversity of mission. We have achieved a dramatic increase in the proportion of our youngsters going on to university, putting the UK at the top table internationally in respect of our participation rate. In the early eighties, there were about 1.5 million university graduates in this country; by the end of the present decade, we shall have about 3 million.

But this sea-change, as we have been reminded repeatedly this afternoon, on which all concerned are to be thankfully congratulated, whereby a university education—once the preserve of a lucky few—is now nationally perceived as being within reach of the indefinitely many, is at a cost that has become more frightening with every passing year. As an arts man, I see this cost not least in our libraries. Between 1985 and 1995, the number of students per member of library staff has risen by over 150 per cent., while the number of books per student bought by the libraries has fallen by 30 per cent. More broadly, during the past six years alone, while student numbers have risen by an impressive 45 per cent., the nationally funded unit of resource has fallen by a horrifying 28 per cent., and the HEFCE allocation announced last week for the approximately 80 institutions in their sector of the UK entails a further immediate reduction of several more percentage points.

It is all too likely that the effect will be to destroy the benefits that increased participation in university education should bring, and I deplore (for example) the signs of waste through drop-out—a phenomenon this country hitherto has been proudly able to avoid. And of course it is particularly worrying—as other noble Lords have said—that whatever panacea emerges from the Dearing inquiry, it can only be for a future some years down the road and can bring no comfort to universities wrestling with an incomparably grim present.

Now, I have no doubt that all the universities addressed by the HEFCE are in a similarly tight predicament. But I make no apology for expressing a particularly grave concern for a minority among those 80 institutions—a minority, as the noble Lord, Lord Beloff, has indicated, on which we draw disproportionately heavily for the quality of the research and postgraduate education which has a direct and immediate impact on the intellectual, economic and industrial health of the nation. And since I have a naturally close interest in the colleges of London University, I was shocked, for instance, to find that Imperial College was to have an immediate cash reduction of 3.7 per cent., King's of 3.8 per cent., Queen Mary and Westfield of 4.4 per cent., and the School of Pharmacy of a staggering 4.7 per cent. Even with fairly low inflation, this means actual and immediate cuts of around 8 per cent. or even more. We simply cannot afford thus to snuff out excellence at British institutions of world-class quality. And Imperial College is one that obviously comes into that category.

So let me ask the Minister to give urgent consideration to an expedient which, though bringing little relief, I fear, to the majority of institutions, could do something positive for the leading research institutions—and which need not wait upon the deliberations of Sir Ron Dearing.

In November last year, the Office of Science and Technology received a report by Coopers and Lybrand reviewing the current operation of the dual support system. This report argues convincingly that the present level of support for indirect costs provided by the research councils was—at 40 per cent.—grossly inadequate for the research infrastructure in university departments which each research grant automatically assumes. Rather, says the report, these indirect costs should be funded at a rate well over 50 per cent. and perhaps by as much as 65 per cent. The benefit to the research councils (and to the nation they serve) would lie in higher quality outcomes from better resourced projects, while the benefit to the universities where the research is actually done is likely to be quite extraordinarily significant. Let me illustrate from figures provided by a London college which I have not yet mentioned but with which I have—like the noble Lord, Lord Annan—a particularly close tie: UCL, the biggest of them all.

At University College London—the noble Baroness, Lady Dean, has already alluded to this—it is reckoned that since the changes to the dual support system introduced in 1992, diversion of funds to supplement the indirect costs of research has come to be running at £1.5 million a year. If the Coopers and Lybrand report were accepted and implemented even at a level well below the optimum therein suggested (say at 53 per cent.), the resulting redeployment of funds would be enough to restore UCL's annual loss of £1.5 million—and partially offset the certain annual loss of £4 million (and rising) that that particular college now starkly faces. But UCL is just an example. The changes recommended in the Coopers and Lybrand report would bring comparable benefit to all our top research universities—institutions on which, as we must surely all agree, our future most especially depends. It is in such a spirit of disinterested enthusiasm that I urge this proposal upon the Minister.

5 p.m.

Lord Winston

My Lords, I too express my gratitude to the noble Lord, Lord Annan, for introducing the debate, as, I am sure, will many colleagues throughout the universities of Great Britain. I should declare an interest as a professor working in the Royal Postgraduate Medical School at London University, bridging the gap between medicine and science in a university setting. It is rather difficult to be the fifteenth speaker in a debate of this kind. Nearly all my points have already been made, in many cases much more eloquently than I could make them and by those certainly more eminent than myself. I have some sympathy for the noble Lord, Lord Henley, who must speak at the end of the debate. Perhaps I may come back to that sympathy in a moment.

It might be most appropriate if I speak briefly about medical schools. That is the area of my greatest expertise. It cannot be denied that there is a very serious problem, which typifies much of what is happening in our educational and research base. Salaries have already been mentioned. At London University we effectively face a much bigger cut. Because the basic cuts are involved with the additional funding needed for salary increases, our institutions will be in particular trouble. It is interesting to examine the figures quoted by the noble Lord, Lord Quirk. For the non-medical schools in London, the overall cut is around 2.75 per cent. I calculate that for the medical schools it is something in the order of 4.1 per cent. or 4.2 per cent. That will be much more when account is taken of the salary increases needed. That affects recruitment; it is very important for research; and it is quite critical.

Perhaps I may give noble Lords one example. Our country is proud of the Nobel Prize awarded to Cambridge University—Watson and Crick, who understood the structure of DNA. That is a signal and most important achievement in science. It is now altering our fundamental understanding of human life and medical treatment. When one considers how DNA technology is now being employed, it is clear that there is a very real problem. It is a technology in which we led the world. The universities are currently threatened with cuts which mean that in one place a genetic research centre probably will not be built; in another university a child health department will be cut, which depends absolutely on the molecular genetics; animal house facilities which are currently being built and which are absolutely essential for the study of molecular genetics, because of the need to look at gene action in animals, may be cut; and at another university an immunology department is under serious threat. All over the country, where new molecular genetic set-ups are being undertaken, containment laboratories cannot be built.

In my own institution we need containment for recombinant DNA experiments. Obviously, one cannot afford to allow infected viruses to get out into the population. That means that either the research will not be done at all or that it will be done with some danger to the research workers and the surrounding population.

Yesterday in my clinic I spoke to a medical student who came from the north of England. She is at one of the very good universities in the north and her story is quite typical. I asked her, as a fourth-year medical student, what were her current bank borrowings and what she thought most of her colleagues in a similar situation in the penultimate year of medical school were facing financially. She said that her current bank borrowings were over £6,000 and she expected them to be closer to £10,000. She felt that most people in her university year would borrow £10,000 by the time they qualified.

That may seem like excessive spending. But in that particular university, in order to have their medical education, those young men and, in particular, women need a motor car to travel to quite far-flung areas to obtain clinical experience. So one begins to see that they will have a huge debt at the start of their career. If they are to go into medical science, there is no way that they can repay the debt. As a house surgeon at £15,000 a year and on a fairly reduced salary, it will be a serious burden for them to pay off the debt. We do need to look at that.

Noble Lords are very protected. I was in my operating theatre this morning when one of my colleagues was operating and during an idle moment I looked through Dodd's Parliamentary Companion (I also watched the operation). I took a sample of just under 600 noble Lords. Some 62 per cent. went to a university and 42 per cent. went to Oxford or Cambridge. It is interesting that a very large number of your Lordships went to Trinity College; then came New College, Oxford, and Balliol featured very highly—not Jesus College, Cambridge. My point is that many of us have come from very protected institutions which are relatively wealthy. But the truth is that out there in most red brick universities—the universities should be providing our research base—there is that very serious problem.

Lord Vinson

My Lords, I wonder whether the noble Lord would be gracious enough to give way. I take the point that he makes about the shortage of finance. I have two daughters currently at university. I am convinced that the three-year term for which they are there could be reduced to two years, or the four-year term reduced to three years. That may not be necessarily right for medics. But if the students worked a little harder, a great deal of resource would be released and money saved, which could then be used for the kind of purposes mentioned.

Lord Winston

My Lords, the noble Lord is perfectly entitled to make that point himself during his own time. Perhaps I may briefly continue and make one final comment despite that interruption. I do not see this as a political issue or even an electioneering issue. It is an issue at which we need to work collectively.

The fact of the matter is that we are in a society which now has a very much reduced manufacturing base and that will inevitably continue. The future of Britain must lie in our science and technology. Looking at the Far East, we begin to see the threat that looms up for our children. We must provide that kind of educational base in order to be competitive, to attract people back into this country and to promote our technology.

In conclusion, the Minister has had a very clear message from everybody in this House. No one has disputed the crisis that now faces our universities. I ask the Minister to take back the message and see what can be done by the Government this time.

5.7 p.m.

Lord Armstrong of Ilminster

My Lords, I should declare an interest in the subject of this debate, as Chancellor of the University of Hull. Hull is not a new university but is, relatively speaking, one of the younger universities. It is a sobering thought, I suppose, that I am likely to be the last chancellor of Hull who is older than the university.

Though it was founded on the generosity of locally based industry, personified by Mr. Ferens of Reckitts, it does not have the benefit of private endowments on the scale of some of the older universities. So we are heavily dependent, as are all universities (some even more so than Hull) on the public funding which we receive, through the HEFCE, from the Government, from local education authorities and from research councils.

Our unit of resource—the amount of money paid in respect of each student each year—has been diminishing steadily and sharply for some years now. On the present plans, the reduction will by 1998 have amounted to the best part of 40 per cent. in eight or nine years. Of course, the university has been doing everything that it can to trim costs and improve efficiency. It has cut back desirable expenditure on books and libraries, and on buildings and maintenance, where possible—often short-term expedients with long-term penalties, but they have had to be accepted in order to safeguard core educational objectives and programmes.

We were at one time able to blunt the effect of the reduction on our overall funding by taking on large extra numbers of students with the expansion of higher education. But numbers have in effect been frozen for several years, as the noble Baroness, Lady Lockwood, pointed out, and will continue to be frozen for several years to come. This relief is no longer available to us.

The problems would not be significantly eased by charging students an entry fee. Indeed in our case, and I suspect in the case of many other universities, the consequence of such a fee would be likely to be that fewer students would come forward for admission, because of inability to afford the entry fee. The effect would thus be to deny access to higher education to some students who would otherwise get it and benefit from it. Is that what we want to achieve?

Universities are rightly expected to use their resources prudently and efficiently. But we cannot expect universities to be able to meet rising expectations; to cope with greatly increased numbers of students; to play the sort of role that they ought, and would like, to be able to play in their local communities; to uphold, improve and enlarge the country's research base, and to give a good standard of tuition and pastoral care, on the basis of the present amounts of, and arrangements for, funding.

Reducing the number of students is no answer to the financial problem, even if we were willing to reverse the trend of recent years, since the size of the grant, albeit diminishing, is directly related to student numbers. Our expenditure, as has been pointed out is, above all, on staff, and if we are to achieve spending reductions of the size now being imposed upon us, we can really do so only by reducing the number of staff. Inevitably, the first to go are likely to be younger staff on short-term contracts—just the people on whom the quality of future teaching and research specially depends.

The alternative to that is of course to pay older staff public money to take early retirement. Either way we shall be taking measures to meet short-term financial constraints at the expense of long-term quality and effectiveness. What sort of sense does that make?

Apart from the need at least to maintain the amounts of funding for universities in real terms, and the effects of the cuts which we are discussing, there is the separate issue of the uncertainty created by changes year by year in the amount of funding provided.

I am old enough to remember the time when UGC grants were set not annually, year by year, but quinquennially, for five years at a time. Even the Treasury—that tail which wagged the government dog—in those days understood the need for a measure of stability in university funding. Indeed, I believe that in those days the Treasury, led by Mr. R. A. Butler and at official level led by that great, good and wise man, Sir Edward Bridges, would have regarded annual reviews of university funding levels as an unacceptable erosion of academic freedom.

If that view was held, it has long since gone by the board in Whitehall and in Westminster. But the principle was right. If we are to have universities which fulfil all the purposes to which I have referred, what is needed is a wider understanding of the nature and purposes of higher education, and an altogether more stable system of funding.

So we at Hull, and all noble Lords here this evening, very much welcome the appointment of the educationally ubiquitous Sir Ron Dearing as the chairman of the committee on higher education. It must be about the only part of education which he has not honoured and graced with his attention. Some noble Lords have suggested that he cannot be expected to do the sort of job that the Robbins Committee did a generation ago. I disagree with that and I hope that he and his colleagues will be able to do what Robbins and his committee did a generation ago: assemble and set out the facts, figures and arguments, and so provide the universities and the country with a solidly constructed base from which to proceed for the future. They will need to redefine for our day and age the nature and purposes of higher education, the aims to which universities should be working, and the implications of all that for funding, from private as well as from public sources.

Of course, that will take time. I hope that the Government will make sure that the universities have the resources to enable them to sustain themselves until Dearing's report is available and can be acted on. If we cannot do that, and as a result establish a greater measure of trust between the world of universities and the world of government and politics, we shall be at grave risk of doing serious damage to our system of higher education, from which it will take a generation to recover. We owe our young people a duty to do better than that.

5.15 p.m.

Lord Goold

My Lords, I, too, would like to thank the noble Lord, Lord Annan, for initiating this debate on higher education which comes at a most opportune time. I must also declare an interest as the Chairman of Court of the University of Strathclyde. Like others, I welcome the appointment of the Dearing Committee of Inquiry. I believe that this review is timely because higher education is at a crisis point.

The past 10 years have been a period of great achievement. There has been a massive expansion—over 50 per cent. in student numbers. Research funding has been focused on areas of excellence, and the management and the output of university research have improved considerably. New systems of public accountability have been introduced, and rightly so, with both teaching and research now subject to rigorous peer review—not, I hasten to say, from your Lordships' House.

There is an evident concern on the part of the universities to maximise the beneficial impact which they have on their communities—and it is immense. In Scotland, the tremendous economic impact of the higher education sector has been analysed in the McNicoll Report, published recently by the Committee of Scottish Higher Education Principals. Scottish universities generate some 68,000 jobs, and more than half of these are created in other sectors of the economy through the knock-on effect of the universities' activities. The economic impact of the universities on the Scottish economy is equivalent to some £2.5 billion each year—significant achievements indeed.

Higher education has therefore been a success story for the Government, and the achievements have depended on the commitment and dedication of university staff. So what of the future? I am afraid that the achievements of the past decade are now being threatened by a misguided belief that universities will continue to provide a first-class service with sharply reduced levels of finance. An efficiency gain of some 30 per cent. has already been achieved by the sector in the past five years. There are few, if any, similar gains still to be made.

If, as planned, the Government now cut funding by a further 10 per cent. over the next three years, many of the staff who have contributed to the successes of the past decade will soon be redundant. Staff numbers will be driven sharply down. University estates will deteriorate as institutions try to protect staffing budgets by making savings on maintenance. Some will try to weather the storm by borrowing and will simply mortgage their future. Some may even go out of business. It is essential that the Government should take stock before taking this policy further.

The Dearing committee has been asked to consider the size, structure and funding of the university sector. In doing so, particular note should be taken of the following points. As regards the size of the university sector, the Committee of Vice-Chancellors and Principals has for many years urged further expansion. That is an understandable line for such a body to take, but I am strongly of the view that the maintenance of standards is now a far more important issue than the promotion of expansion. Further growth is not vital: the protection of standards is.

Regarding the structure of higher education, I would like the Dearing committee to address three issues. The first is the question of so-called "research universities". Here I am sorry to take issue with the comments of my noble friend Lord Beloff and agree with the noble Lord, Lord Walton. The Russell Group is a small club of prestigious universities which would like to monopolise funding for research, leaving their fellow institutions with the less glamorous job of teaching. Sir Ron Dearing and his committee should quash those ambitions. The Government's current policy of focusing research funding on areas of excellence is the correct one. There are areas of excellent research in universities the length and breadth of the country which will be starved of vital funds if the ambitions of the Russell Group are realised.

Secondly, Dearing must consider the role of further education. Many of the newer universities would like to expand through merger with further education institutions. That development concerns me. It may undermine the role of the FE sector, reducing the commitment of FE institutions to meet the nation's need for basic skills training. Dearing should support a strong, independent FE sector.

A third issue in relation to structure is Scotland. We hope that Dearing will recognise the distinctive nature of Scottish higher education and the value of a distinct Scottish funding system. Since 1992 when the Scottish Higher Education Funding Council was established, Scottish universities have benefited from close dialogue with their funding body and with Scottish Office Ministers. That close dialogue has had tangible benefits. Scotland has led the way in developing its academic computing infrastructure through the Metropolitan Area Networks. Those networks may now be the key to realising the vision of a University of the Highlands, as set out by my right honourable friend the Secretary of State for Scotland in his recent statement to the Scottish Grand Committee.

The final and perhaps the most significant area of the Dearing committee's work relates to the funding of higher education. In terms of the funding of the universities themselves, if the Government are serious about high academic standards and enhancing the quality of teaching and research, the current policy of progressive funding cuts must be halted. If we will the end, we must also will the means. While the Dearing committee is deliberating, the current level of funding should be maintained.

The funding of students is another vital issue, as many noble Lords have said. Graduates already contribute enormous amounts to the Treasury through income tax. It can be argued quite plausibly that they already pay for their higher education. That being said, with the financial pressures which the Government face, it may be reasonable for student maintenance to be funded in future through loan rather than grant. Alternatively, some form of graduate tax or fee could he the answer. What the Dearing committee can contribute to this issue is clarity. Uncertainty over student funding has now been a cause of distress to students and their parents for several years. We should hope that a committee of inquiry which has cross-party support can come to a clear recommendation which will settle the matter.

In conclusion, therefore, I welcome the establishment of the Dearing committee. The past decade has seen great things achieved in higher education by the Government and by the higher education institutions. Perhaps I may be the first in this debate to congratulate the Government and my noble friend the Minister on those achievements. However, our priority now must be to maintain the fine standards which have been set by our universities.

5.22 p.m.

Lord Ashley of Stoke

My Lords, like other noble Lords I must declare an interest because I am Chancellor of Staffordshire University. I thank the noble Lord, Lord Annan, for initiating the debate and congratulate him on his splendid speech.

We have heard many speeches critical of the Government and underlining the havoc that has been wrought by the many cuts in the higher education budget. However, after that bombardment of criticism from both this House and outside it is amazing that the Government do not seem to comprehend the magnitude of the cuts or their effect on the universities. That is astonishing.

Members of this House, Members of the other place, the Committee of Vice-Chancellors and Principals, university lecturers and students have all complained about the cuts, yet the Secretary of State made a remarkable statement in another place a little while ago. On 19th February, when responding to the legitimate claim that higher education faced a crisis, she said: I cannot accept that any sector that receives £7 billion of funding—21 per cent. of the total funding of the education system—is in crisis".—[Official Report, Commons, 19/2/96; col. 24.] The official declaration of the Secretary of State in another place was "no crisis". However, speaker after speaker today has talked of a crisis. The noble Lord, Lord Annan, was outspoken in his criticisms and he was followed by the noble Lord, Lord Renfrew—unfortunately he is not in his place—who referred time and again to a "crisis". In fact, as noble Lords will remember from our recent debate on student fees, the noble Lord said then that there was a crisis which may lead to a "catastrophe". There should be no doubt in people's minds about the present situation or about the Government's failure to appreciate that the universities are facing a crisis.

Perhaps one of the reasons why the Government do not fully understand the seriousness of the situation is that many universities are afraid of acknowledging that they face a crisis. When Ministers meet members of universities, they may be given a false sense of security and a complacent impression. The universities are understandably reluctant to admit publicly that they are in crisis. They are trying to attract students from both home and abroad and do not want to declare themselves a disaster area. That is understandable, but it may well be misleading. I should like the universities to be able to be more outspoken about the seriousness of their situation. If the Government continue to turn a Nelsonian eye to the crisis in our universities, they are storing up trouble not only for themselves, but also for the universities.

The CVCP has warned time and time again that major building programmes will be abandoned, about massive reductions in library books and computers, and that salary bills may have to be reduced, leading to redundancies and closures. Anyone connected with the universities knows about the larger classes, the queues waiting to use computers and the unfilled academic posts. Despite the Secretary of State's £7 billion, but because of her cuts, our universities are resembling decrepit firms worrying about bankruptcy. There is blight at every level of our university system. There has been negligent corrosion of the system that is designed to develop our seedcorn.

I shall speak only briefly because a number of other noble Lords are waiting to speak, but I must point out that I believe that the Dearing inquiry and the subsequent report will be of great benefit to our universities. I do not agree with the noble Lord, Lord Beloff, who, as always, made a marvellous speech, but who criticised the fact that Sir Ron Dearing is to lead the inquiry. It does not matter that Sir Ron is not as knowledgeable as the noble Lord would like him to be. In fact, I think that that is a positive advantage because Sir Ron will not be full of the prejudices, anxieties and partisan views which can affect so many of those who have been involved in the university debate for so long. I think that that will be a great asset. Sir Ron Dearing is an outstanding individual, whom I have had the great privilege of meeting. He is a marvellous, well-endowed man. Apart from the singular note struck by the noble Lord, Lord Beloff, he is rather like David Attenborough. They are the only two men who are universally loved and admired. Sir Ron Dearing will do a marvellous job, but his report will not come out until after this Government leave office.

I do not wish to make a partisan point, but we must face facts. The Labour Government will have to cope with Sir Ron Dearing's report. In the meantime, this Government will have to cope with the crisis. All of these facts, which are adduced by people who are far more knowledgeable about the universities than I am, add up to a condemnation of the present university system. Students and university staff are suffering, and therefore the nation is suffering. University education is being neglected and is going downhill. I hope that the Minister will be able to respond in the constructive fashion adopted by all speakers who have participated in the debate.

5.31 p.m.

Lord Broadbridge

My Lords, I too am grateful to the noble Lord, Lord Annan, for securing this most timely debate. Like others who have spoken, I am dismayed at the magnitude of the budget cuts announced last week. I think of the well-known literary adage: Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery". But that statement treats only of a marginal situation. The prospect that faces some 200 universities and higher education colleges is far from marginal. A steady decline in budget income has prevailed for several years, but now, instead of a breather without budget cuts to allow for rebuilding and consolidation, out of the blue come the most swingeing cuts of all, in both recurrent and capital expenditure.

The implications have been variously stated and referred to by earlier speakers. The one that I should like to stress is that of the Association of University Teachers. Last Thursday that body said that many universities were their town's biggest employers and claimed that the cuts would lead to more than 10,000 job losses. As to this, I think of a university like St. Andrews in Fife, Scotland. It is one of our most ancient. The town is the university and the university the town. I know it well, because my eldest daughter obtained her degree there. The situation is analogous to that of a large firm that is cutting back. There are actual job losses and, in real terms, a decrease in spending power of the directly employed. But there is a halo effect throughout the community which affects the viability of shops and suppliers of services such as restaurants—in fact nearly everybody.

Professor Gareth Roberts, vice-chancellor of Sheffield University (where I have a house) and chairman of the CVCP, warned that some universities could close as a result of the cuts and that four—which he did not name—were already in trouble. The Government appear to rely for mitigation of the effects of their cuts, in my opinion unwisely, on two matters: first, the inquiry into the funding of higher education by Sir Ron Dearing, who is due to report in the summer of next year. The principle of this move is admirable and will, I am sure, be extremely valuable, but the results will come much too late to mitigate the present cuts. Even if he meets his deadline—it is an enormous task—it is hard to see how legislative teeth can be put into his recommendations before 1998 at the earliest, probably 1999.

Secondly, the other tactic upon which the Government seem to rely is the application or the private finance initiative (PFI) to higher education. The CVCP's reaction is that such funding, if appropriate at all, is relevant and can be effective only in a tiny segment of their members' area of capital costs, for example student accommodation and perhaps sports facilities and catering outlets, because these are revenue-bearing, especially with an eye to conference and seminar use during vacations. They argue persuasively that the great bulk of capital expenditure on construction and maintenance of academic buildings, laboratories and computer systems will have no appeal whatsoever to PFI providers. There are also significant costs in putting together a PFI bid. They may be as high as £500,000 without any certainty that the project will go ahead. There are only a few successful PFI projects in the pipeline, and in any case the costs of leasing capital under PFI will have to be taken from the now reduced recurring funding, which is not meant to be used to pay for capital.

The funding per student is in very worrying decline. Having fallen by over 28 per cent. over the past six years, the prospect of a further near 10 per cent. over three years is profoundly alarming. I believe that this point was made forcefully to Mr. Eric Forth, the Minister of State for DFEE, on 11th January. The reduction in funding per student should particularly alarm your Lordships. Supervisors have a corporate responsibility not only for their students' academic progress but their general welfare. For example, if a student repeatedly attends for supervision looking worn out, the supervisor has a responsibility to inquire why and, more time-consumingly, perhaps to do something about it. One university has reported to the CVCP that each member of staff now has to take responsibility for 40 per cent. more students than as recently as 1989.

It is a worrying fact that student stress, drop-out and breakdown are increasing as, more tragically still, is student suicide. The announced student funding cuts are in a literal sense most unhealthy. They are also unhealthy for academic staff. Salaries are often falling in real terms and stress-related illnesses are rising. We face the real prospect of the increasingly sick having responsibility for looking after the increasingly sick. Book purchases per student are falling. Outside, overseas and more highly paid staff cannot equitably be recruited generally and, in particular, to research teams for which Britain is famous. Staff drop-out and chairs cannot be filled. It is a litany certainly not in line with the strategic general and economic aims of this country.

While I am the last to say that a degree is essential to the production of leading men and women—arguably, the greatest Briton of this century, Sir Winston Churchill, hardly shone in his early education—nevertheless significant numbers of graduates tend to enhance the performance of industry, commerce, the professions, the arts and the public and administrative sectors. Although both of my degrees are from Oxford, nevertheless I believe Cambridge to be a wonderful place. I am sad to see that it heads the list of budget cuts at 7 per cent. or £6 million in real terms. That is a sad state of affairs for a country renowned as a centre of innovation, invention and academic excellence. One Cambridge College, Trinity, has produced more Nobel laureates than the whole of France.

I turn to capital grants. I have already mentioned the CVCP's argument that PFI is inappropriate for the bulk of academic buildings and equipment. Whether for arts or sciences, equipment that is required for teaching today, particularly for research, is frequently computer-based and very expensive. With the pace of modern change, it requires constant renewal and maintenance, as do buildings. When in the late 1930s Sir Howard (later Lord) Florey and his team at Oxford developed penicillin and tested it successfully on the first human being, it was done largely on the basis of bucket chemistry. Perhaps it should be described as bucket bacteriology. Buckets come cheap. Not so today's equipment. New universities, without the riches of medieval, post-medieval or Victorian industrial magnates' endowments, are at a particular disadvantage, as are new colleges within older universities. I think of my own college, St. Katharine's, Oxford. It is particularly relevant as the founding master, the noble Lord, Lord Bullock, is a Member of your Lordships' House, as is the present master, the noble Lord, Lord Plant. Some donations have been embarrassingly large, but it is difficult to compete with, say, Henry VIII.

In conclusion, I both deplore and am greatly saddened by what is happening. I very much bear in mind the biblical words that as ye sow, so shall ye reap. I fear that we shall reap the wind if we go on like this.

5.39 p.m.

Lord Tope

My Lords, when the debate started this afternoon I thought that I would be one of the few people with no interest to declare. Earlier, the noble Lord, Lord Renfrew, made an unfavourable comparison with the pay increases of school teachers and university lecturers. I suppose that I should now declare that my wife is a school teacher. I feel a little as the noble Baroness, Lady Dean of Thornton-le-Fylde, did in looking at the list of distinguished speakers. Having heard 19 of them, they have expressed an astonishing degree of unanimity. Comparisons have been made with the debate on the subject of student loans the week before last. I recall that in that debate there was one speaker who supported the Government. Today, we have yet to hear a speaker support the Government, although I suspect that there may be one before the end of the debate.

Speaking as the fifteenth speaker, the noble Lord, Lord Winston, said that many points had already been made. That is even more true speaking as I do as the twentieth speaker, but most of those points bear repetition of course. Much reference has been made to the Dearing review. It was in fact announced on the day that we had the Second Reading debate on the student loans Bill. I gave it then a qualified welcome which I am happy to repeat now. We welcomed it as being at least a recognition by the Government that there is a problem in higher education which needs addressing urgently.

But, as others have said, the Dearing review will not be reporting until the summer of 1997. That is after the general election, and it is hoped that many of its proposals will need some legislative action, certainly if the funding arrangements are to change. We are probably looking at real changes not coming into effect until the end of the century. That assumes that we have a government who are willing to tackle these difficult problems.

The funding crisis is now; it is here; and it needs to be tackled now. We cannot do nothing until the end of the century, merely waiting for a useful report to be made. By then, the damage will have been done. Today people have spoken with real feeling, knowledge and experience of the problems that they know that their universities are experiencing. Reference has been made to the fact that since 1989 student numbers have increased by 45 per cent., yet funding per student has decreased by 28 per cent. Mention is often made of economies of scale. I read that one institution had put starkly to the CVCP its own experience: Each member of staff now has to take responsibility for 40 per cent. more students than in 1989 … there are no economies of scale in the need for individual attention to each student's work … their examination papers or their pastoral care". Reference has also been made to efficiency savings. To someone who is much better versed in the role of an LEA than a university, reference to efficiency savings comes as nothing new. Speakers have pointed out that we are long past being able to make savings on anything like the magnitude expected by the Government through increased efficiency. The sort of things being euphemistically called "efficiency savings" now are real cuts and damaging cuts. That is the case in local government, and I am certain that it is equally the case in the world of our universities.

Capital funding has also been mentioned. Reference has been made to the 30 per cent. reduction in next year's capital budget, and its halving over the next three years to 1999. I was going to talk of the effects of the PFI. It has been well and fully covered in the debate. I shall not allude to it except to repeat what others have said. PFI is in no way an answer to the capital crisis facing our universities. Indeed it can worsen the crisis. Significant costs are usually involved in preparing a scheme for the PFI. Those costs must be borne, and there is no guarantee that the application will be successful.

What will be the effects of the cuts? New and much needed projects will have to be abandoned or, at best, postponed indefinitely. Urgently needed, up-to-date equipment will not be acquired. Our universities will no longer be able to offer modern state-of-the-art facilities. That is bad enough, but I have sufficient confidence in the energy and initiative of our universities to believe that against all the odds they will overcome some of those difficulties. What concerns me even more are the effects on the unglamorous but vitally important area of care and maintenance budgets. As we all know, one can postpone maintenance and care for perhaps a year or two years, but one cannot do it year after year after year without there being some disastrous effects.

I wish to quote from the National Audit Office report entitled The Financial Health of Higher Education Institutions in England. In 1994 it noted that a backlog of maintenance work and work needed to comply with health and safety legislation was putting pressure on the majority of the sector. In its submission to the public expenditure survey the following year, the CVCP estimated: a backlog of maintenance work totalling £1,269 billion across the university system, as a result of government underfunding". Those problems are urgent and they will not go away. We need to find a means of tackling them.

Earlier in the debate, my noble friend Lord Russell trailed my giving some information about my party's proposals in this area. There are few people who are fortunate enough to have my noble friend as a warm-up man, but I shall do my best in the few minutes that remain to me. I need to say for the benefit of my colleagues, if not for the House, that the proposals are to be debated at our spring party conference the weekend after next, and only then will they be party policy.

The proposals recognise that we can no longer expect the taxpayer to bear all the cost. We say that as a party which is committed to increasing taxation if necessary to fund education. We recognise that the cost needs to be shared among the three stakeholders—we claim that we thought of the word first—in education. The first is the Government. We would increase contributions from the Government to tertiary education, although that would not be our top priority. We recognise that employers have a role to play in contributing towards the education of their employees and society generally. We propose a 2 per cent. remissible education and training levy on company payrolls, although we would exempt small firms.

Perhaps most important and relevant to the comments that have been made in the debate, we recognise that individual learners themselves will have to make some contribution. We do not propose a graduate tax. We propose an income contingent repayment scheme. We will establish what we would call a learning bank into which the contributions will be paid, and in which each student can open an individual learning account to receive contributions, if necessary, borrow from it, and to repay in the way I have described.

I cannot do full justice to a 17-page document which is not yet party policy in the few moments left to me. Those are our proposals, and as my noble friend Lord Russell pointed out to the noble Lord, Lord Renfrew, there is more than one opposition party on this side of the House. Those are our proposals. They are up for discussion and consultation. As my noble friend also pointed out, our leader Paddy Ashdown in launching the proposals said that there are only three alternatives to them or something like them: one is to let quality continue its rapid decline; the other is a 4 pence increase in income tax; and the third is to lie. We know which policy the Government have chosen. We wait to hear which policy the Labour Party is going to choose. I look forward to hearing the next speaker outlining that. She has had at least 10 minutes more notice of it than I had earlier.

To conclude, the terms about which we are talking, and the implementation of the Dearing review, which may well bear a startling resemblance to what is in the document, will need to be implemented, but they are not likely to be implemented before the turn of the century. We need an urgent solution to the problem. We need the Government to tackle it. We cannot wait for the Dearing report. We cannot wait for the election of a Liberal Democrat Government, although the two may well be coincidental in timing.

By setting up the Dearing review, the Government have recognised that there is a problem with higher education that needs addressing. The Government must be brave enough to recognise that the funding crisis is here and now. After the debate today they cannot possibly not recognise that. It cannot wait for another two or three years, especially with the cuts proposed for those years. Action is needed now. We should support the CVCP's call for a significant reversal of the proposed funding cuts next year, and especially over the following two years. Preserving the quality of our education for the future is much more important than tax cuts now.

5.50 p.m.

Baroness Farrington of Ribbleton

My Lords, I congratulate the noble Lord, Lord Annan, on initiating what has been for me, as a comparatively new Member of this House, one of the most informative debates that I have attended and in which the unanimity of views has been remarkable. In introducing the debate, he referred to the parameters of the cuts during the past six years, the collapse of the tutorial system and the need for us to recognise that in this and other areas the Government have increased the cost of bureaucracy and paperwork by the policies they have introduced. It is also important to note, as he did, the need to obtain agreement on how higher education is to be funded.

The Government are in danger of pretending that the problems arising from the cuts in revenue and capital spending will go away during the period in which the Dearing Committee is to produce its report. The problems will not go away, as so many speakers have made plain. I echo the words of the noble Lord, Lord Annan, in referring to the danger of students dropping out and the problems which are faced if the cost of student drop-outs begins to come into the equation. Perhaps I may refer to a university lecturer who pointed out that as regards tuition, maintenance and infrastructure costs British university degrees are the cheapest in terms of public funds for completed degrees within the OECD. However, the same lecturer went on to point out that part-time students are so tired that the drop-out rate is increasing. That is a problem not only for the universities but for the country.

The noble Lord, Lord Renfrew, referred to the importance of the cut in capital funding. That point was raised by speaker after speaker in terms of its effect. My noble friend Lord Morris of Castle Morris spoke of the problems of capital funding having to cover libraries, health and safety equipment, maintenance and computer equipment. He gave graphic illustrations using Sheffield and UMIST. He could have cited many universities across the country. What answer will the Minister give in the light of such widespread anxiety?

The issue of PFI capital has run like a recurrent thread through the debate. In introducing PFI as an idea for funding, the Government in the early stages recognised that it must be additional to essential underpinning capital expenditure and not used as a substitution. The much referred to Treasury dog is now turning it into a substitution as an alternative to the full and necessary funding. What is the Minister's answer to the fact that many universities are unable to match the private-sector funding which is essential to their ability to develop PFI initiatives?

The noble Earl, Lord Russell, referred to the problem of most of the capital having to be spent on repairs and maintenance, and not on investment and equipment. The noble Lord, Lord Dainton, referred to the Government's misuse of language in efficiency savings. As a comparatively new Member of this House, but as a much more longstanding member of the local government team, I cannot but echo and strongly underline his point. It is pointless for the Government, in the teeth of the detailed, knowledgeable, carefully researched opinions put forward by the universities, to maintain that efficiency savings during the next three years, and during the wait for Dearing, will solve the problems of the cuts which now face the universities. The noble Lord, Lord Dainton, also referred to the growing concern about contract research and the conditions in which young people work. We are in danger of losing them.

The noble Lord, Lord Beloff, surprised me somewhat, if he will forgive me for saying so. I had not realised that he was so close to being recruited to New Labour. I was delighted by his contribution in which he raised extremely important comparisons with other European Union countries. We hope that that factor will be taken into account by the Dearing committee because of the mobility of students and the need for us to be effective in competition with our European Union partners. As someone whose father was a plumber, I hope that the noble Lord was not suggesting that Sir Ron Dearing is in danger of behaving like a plumber as regards timing, because if so the universities will be in deep trouble.

My noble friend Lady Dean referred to the problems facing the Open University. It would be a tragedy if the cuts were to go ahead. It would be a particular tragedy for the students because of the exciting work that is being developed by the Open University in collaboration with other universities in credit transfer schemes, which may be a solution in particular for mature students. Furthermore, the European Union has recognised the contribution of the Open University to the quality of the different styles of learning developed in the UK.

It is impossible to cover all the points raised by all the speakers. The noble Lord, Lord Walton, referred to the quality of the science base in our universities which attracts inward investment. That point is critically important in terms of the economic viability of the country and the fact that partnership schemes are being put at risk.

The noble Earl, Lord Limerick, and the noble Lord, Lord Beloff, referred to the question of whether there should be concentration. The only point that I would raise in advance of Dearing is the importance of accessibility in as many parts of the country as possible to the full range of course options because of the growing number of non-standard entry students.

My noble friend Lord Sewel was right in saying that the current Government policy penalises and punishes success. It is extremely important to recognise that it would be a tragedy if during the period leading up to the Dearing Report the Government believed that they could rest on what today's debate has demonstrated are some pretty shaky laurels in terms of the position of the universities during the next two or three years.

We cannot say that efficiency savings will protect our universities from cuts. The noble Lord, Lord Broadbridge, referred to the tragedy that would be caused to the local economy were any of our institutions to become bankrupt during that period. I come from a small town whose former polytechnic is now a university and I know the importance of that point. We cannot afford to allow any of our universities to become bankrupt in quality or bankrupt in terms of finance.

It has been a wide-ranging debate. The Government are on the witness stand in terms of what they intend to do. If before it is possible to implement Dearing the Government have money to subsidise a private-sector loan scheme, would it not be better to use that public money to protect the system so far as possible before changes are made with all-party support after Dearing reports?

Lord Renfrew of Kaimsthorn

My Lords, before the noble Baroness sits down, perhaps I may ask whether the only expression of New Labour policy that we are to hear this evening is a glimmer, allegedly from my noble friend Lord Beloff.

5.59 p.m.

The Minister of State, Department for Education and Employment (Lord Henley)

My Lords, like my noble friend, I was very interested in that exposition of the higher education policy of the party opposite.

Some time ago the noble Lord, Lord Porter, said that he suspected that in this House most of us are in favour of education, motherhood and apple pie. That made me think of the remarks of W.C. Fields who said that someone who hates children and dogs cannot be all bad. That is not my policy nor is it the view of Her Majesty's Government. We very much value education in the whole and higher education in particular.

I join all noble Lords in congratulating the noble Lord, Lord Annan, on introducing this debate and on attracting such a considerable amount of expertise in the higher education sector to it. It was not until we reached the Front Bench speakers that the lay voice was allowed to be heard. I believe that only one speaker before that did not have a connection with the higher education sector. Therefore, to some extent it has been a one-sided debate but it is none the worse for that. I have certainly taken on board the messages given to me by the noble Lord, Lord Annan, and others on this occasion and by the noble Lord, Lord Annan, when he came to visit the department the other day, and I am sure that he will visit on other occasions.

I heard the comments by the noble Lord, Lord Armstrong, about the old UGC and its relationship with the Treasury. He reminded the House that in the old days grants for the UGC were set by Her Majesty's Treasury. If that were still the case today, I should not be standing at the Dispatch Box because one of my other noble friends would be here representing the Treasury. I understand that in those days it was not a matter for the Department of Education, in whatever guise.

I begin by setting out some of the background. The noble Lord, Lord Ashley, poured scorn on the figures given by my right honourable friend. But I do not apologise for saying that the Government are currently spending over £7 billion of the taxpayers' money on higher education in the United Kingdom. That is a very substantial sum by any standards. I do not believe that it indicates, as the noble Lord, Lord Annan, expressed it, that we despise dons. It may be that that was unworthy of the noble Lord. The allegations of butchery put about by the noble Lord, Lord Morris of Castle Morris, are also unfair. That spending represents over 20 per cent. of the £35 billion total public funding for the education system as a whole. I was extremely grateful to the noble Lord, Lord Quirk, for stressing the importance of other parts of the education system and that extremely difficult choices have to be made in terms of achieving the right priorities. I remind the House that in what turned out to be a very difficult spending round—and I appreciate that it was particularly difficult for the higher education sector—we were able to increase funding for schools by a fairly considerable amount.

I remind the House also that we spend more per higher education student than any other country in Europe and rank among the top five in the world. Obviously, we spend far more on each higher education student than we do on each student at school, whether at primary or secondary level, and we spend far more on each higher education student than we do on each further education student. It must be asked at some point whether that gap should be widened or whether it is about right. I hope that Sir Ron Dearing will address that point among the many other points which need to be addressed by his review.

In the late 1980s and the early 1990s, higher education was one of the fastest growing public spending programmes. In real terms funding from my department for higher education in England rose by over 23 per cent. between 1989–90 and 1994–95. I accept that at the same time we saw an increase of some 57 per cent. in student numbers. But that is something on which the universities should be congratulated and I hope that they will accept those congratulations.

Like every other publicly funded service, higher education is part of the wider economy. The 1995 Budget was designed, as I hope are all Budgets of whichever government, to control public spending in the interests of a healthy economy and a speedy recovery. The Government expect the universities to manage within the public funds that are made available.

I accept that much has been said in recent weeks about the Budget settlement for higher education. The noble Lord, Lord Ashley, made a rather interesting point that many higher education institutions are afraid to make their concerns known to Ministers. That picture of blushing virgins somewhat amazed me. I have not noticed any shyness on the part of any higher education institutions in relation to coming forward and telling Ministers in no uncertain terms exactly what they feel. I should have thought that this evening's debate was a good example of that. I suspect that the noble Lord may wish to retract or withdraw those remarks.

Reports have highlighted reductions of 6 and 7 per cent. in funding compared with 1995–96. When transfers to the Teacher Training Agency are taken into account, the recurrent and capital grant and tuition fees for English institutions will reduce by 2 per cent. in cash terms. That represents a reduction of 5 per cent. after allowing for inflation. Therefore, that is marginally lower than the 6 or 7 per cent. which has been alleged.

Perhaps I may say to the noble Lord, Lord Annan, that that is broadly the same as the position in Scotland. The position in Wales is slightly different, but I assure the noble Lord that there are perfectly valid reasons for the difference in the Welsh figures. They are not based on any attempt to try to lure the noble Lords, Lord Morris of Castle Morris and Lord Cledwyn, over to these Benches. I am sure that our own arguments will do that in due course.

Despite a very tough Budget, our spending plans maintain the recurrent provision announced in 1994. They allow for the participation of young people to be maintained at what I think everyone accepts is the current record level of over 30 per cent. and for increases in the number of part-timers, most of whom are mature students. The total package of student support has been increased in line with inflation.

But our policy is that capital expenditure should wherever possible be financed from private sources. The Budget reduced the universities' capital provision in line with that with most other publicly funded programmes. We believe—and I shall say more about this in due course—that the private finance initiative offers scope for private sector expertise as well as private funds to deliver value for money.

I accept that that reduction in capital provision for 1996–97 is substantial. But it is small in relation to more than £1.6 billion of capita] investment financed by universities in recent years. Universities will receive a single grant and be free to make their own decisions on the balance between capital investment and other priorities.

I turn now to the private finance initiative, about which many anxieties have been expressed. I accept that it will take some time to develop in the higher education sector. But universities and colleges are used to commercial transactions. The private finance initiative offers opportunities for them to achieve better value for money by transferring risks and management of projects to the private sector. There is also scope for funding capital projects through loans or facilities management-type contracts.

A number of firms have approached the private finance panel to discuss potential PFI projects of all sizes. Higher education institutions are taking forward some fairly exciting PFI projects. I could give examples and examples have been given. There is a general acceptance that a number of projects are relatively easy to carry out, particularly in the larger sector; for example, student halls of residence and so on.

But I do not accept the argument put forward by the noble Lord, Lord Morris of Castle Morris, that the PFI cannot be used for smaller-scale projects. There have been successful smaller projects. There have been a number of such projects in the National Health Service where we are talking about sums in the range of £1 million to £2 million. Again, I could give examples but in view of the time, it would be wrong to do so this evening. Experience in the NHS suggests that the key factor behind private sector interests in a project is not its size but its type.

The noble Lord, Lord Morris, asked whether we could fund an anti-proton storage ring by means of the private sector finance initiative. Obviously I cannot say whether one could or could not. I can give an example from my own department of a small project relating to equipment which we managed to fund by PFI and made considerable savings as a result. That was one where the Employment Service turned to the private sector to replace its outdated computerised personnel system. The chosen system will save an estimated £1.2 million over the seven-year life of the contract. Payment is related to the number of live records on the system but ownership of the computer remains with the private sector. I believe that ideas of that kind can be explored further.

I note the concerns that have been expressed by the CVCP and others about the impact of the Budget settlement. I know that there are considerable worries about the effect of continuing productivity improvements on the quality of teaching and learning and on research. I know that there are concerns about the scope for private finance to meet the full range of universities' capital needs.

The noble Lord, Lord Annan, quite rightly asked, as did others, what we should be doing as a result of those pressures between now and what we call post-Dearing. As the noble Lord will be well aware—he came to see us the other day—we have listened to the CVCP and we shall continue to listen to it. We have set up two groups to work with it. The first group will collate evidence about the impact of public funding levels on universities and report to us in the department. The second group will examine the scope for PFI in higher education in achieving value for money and will assess its potential for offsetting the reduction in public funding for buildings and equipment. It will identify apparent obstacles to PFI and the means of overcoming them.

As I said earlier, I pay tribute to the excellent work of the higher education sector in achieving efficiency gains approaching some 30 per cent. since 1989–90. Those who claim that the squeeze has gone too far should note that up to 1993–94 universities and colleges achieved higher efficiency gains than the Government had planned through their own recruitment decisions. Independent assessment reports from the Higher Education Funding Council for England suggest that quality is at least satisfactory and in some places excellent. I believe that it was the noble Lord, Lord Annan, who pressed me to give examples of teaching which was unsatisfactory. I shall not give him such examples; there are no such examples. What the report indicated was that to date some 26 per cent. of courses have been found to be excellent, 73 per cent. satisfactory, and only 1 per cent. was initially judged to be unsatisfactory. All of those courses which have since been re-examined have been found satisfactory; so universities are managing.

Further—it was a point that the noble Lord, Lord Kirkwood, would like us to explore—new technology can open up the possibility of new ways of teaching and learning and delivering higher education in new and exciting ways. Again I refer not only to the speech of the noble Lord, Lord Kirkwood, but also to a very interesting article on this subject in today's Daily Telegraph. I imagine that even the noble Lord, Lord Morris of Castle Morris, can bring himself to read the Daily Telegraph on occasions. We have identified this area in the terms of reference for the Dearing inquiry. I very much hope that that will be pursued.

On research, funding benefited from the fast growth in higher education spending earlier in the decade when it was not subject to the efficiency gains delivered in teaching. In 1996–97 the Higher Education Funding Council for England allocated a total of £638 million for research. We have asked the funding council to have particular regard to equipment needs, especially equipment for research. And with the Office of Science and Technology it has set up a challenge funding initiative to fund research equipment in Technology Foresight priority areas. Subject to matching funds from industry, charities and other users, these and similar schemes run by the other higher education bodies could yield up to an extra £36 million for research equipment.

As regards the specific point put to me by the noble Lord, Lord Quirk, I am grateful to him for drawing my attention to the major contribution which our leading research universities make to our intellectual and economic well-being. I understand his concerns to ensure that they receive appropriate funds for the indirect costs of publicly funded research projects. It is certainly one of the issues which the Government will be taking into account when considering the responses to the review of the operation of the dual support system referred to by the noble Lord.

I turn now to the inquiry itself. Many noble Lords have stressed the importance of a properly funded university sector. That is why we believe that it is necessary now to review the future of higher education over the next century. I can give an assurance that our own internal departmental review looked at the issue and developed its own ideas. However, it recognised that there are extremely complicated and complex issues. That is why on 19th February my right honourable friend announced a national committee of inquiry under the chairmanship of Sir Ron Dearing. I am certainly grateful for the fact that Sir Ron agreed to take this on.

I am grateful for the welcome that many noble Lords have given to the fact that Sir Ron will take on the task. Perhaps I may assure my noble friend Lord Beloff that he is a man of considerable experience in the world of education and in higher education. Like the noble Lord, Lord Ashley, he is a chancellor of a university—in this case Chancellor of the University of Nottingham. Perhaps I may correct my noble friend Lord Limerick. He has a degree from the University of Hull, I understand, but I presume that that was before the noble Lord, Lord Armstrong, was a chancellor of that university. As others with, I believe, greater experience of the educational world will know, he also has considerable experience from his times as chairman of the Council of National Academic Awards, of the Polytechnics and Colleges Funding Council, of the UFC and of the HEFCE. He also has considerable experience throughout the entire education world from his work with SCAA and from the various reviews that he has done. I have considerable faith in Sir Ron. I am pleased to note that so many other noble Lords in this House also have faith in Sir Ron and what he will provide.

His committee and the composition of its size have not been decided. It is a matter for discussion. We welcome views. I think that many noble Lords would have strong views about the size of the Committee. I believe that most would agree that it should not be too large. As regards its composition, as my noble friend Lord Beloff said, it is important that it should have representatives of higher education. We also believe that it should have representatives not only of the providers but also the consumers of higher education. It must also have representatives who deal with the world of research, or from other parts of the country; it is not purely an English review. Getting the composition right, and keeping its size at the right level, will be difficult. But I and the department will be more than happy to consider all recommendations.

Sir Ron Dearing's committee will consider and make recommendations on future funding arrangements. It can only do so once it has considered other fundamental issues first.

As we move into the 21st century, the decisions that we take on the future of our higher education system must enable universities to retain and develop their capacity to innovate. They must foster universities' contribution to the research base which underpins the United Kingdom's ability to harness scientific and technological advances, and they should encourage universities to enhance wealth creation and our quality of life, and help to drive local and regional regeneration through services to employers. That is why we have asked them to make all the recommendations on how the shape, structure and size of the sector should develop to meet the needs of the United Kingdom over the next 20 years. It is only in the context of those fundamental issues that it can then move on to the funding arrangements, many of which have been discussed this evening.

I do not believe that anyone will expect me to comment today on the merits of a graduate tax, a pay-roll tax. That might or might not be the policy of the party opposite. I can see considerable dangers in terms of increasing the non-wage labour costs for large numbers of employers, putting a large number of jobs at risk. I hope that that is an issue which the Liberal Conference—I shall not be attending it over Easter—will manage to address.

Obviously there are other matters which can also be addressed: whether the national insurance system can be used, whether there should be a loan or whether it should be an income contingent scheme. However, I stress that our scheme is partially income contingent; and that should be recognised. I can also assure the noble Lord, Lord Ashley, that I very much look forward to receiving that report, and receiving it when in government.

As I said earlier, I believe that with the £7 billion going to higher education, the universities are generously funded from the public purse. But, as I have made quite clear, I understand the concerns that have been expressed today. As I have said, we have taken note of those concerns and we will continue to take note of those concerns. We have listened to the CVCP, and on occasions when addressing this House I have felt I have been listening to the CVCP. We will continue to listen to the CVCP. As I said, we have set up two joint working groups with it to consider the very points that it has made to us.

Higher education has expanded and it has expanded rapidly, but we now need to plan for the next century. I believe it is Sir Ron, and Sir Ron's framework and his conclusions, which will set the framework. In future young people are going to need the higher levels of skills, understanding and flexibility to enable us to compete in the modern economy.

Lord Morris of Castle Morris

My Lords, before the noble Lord sits down, I have been dying to interrupt him on the question of the private finance initiative, but I did not do so because I think interruptions are a bit of a nuisance, especially in a time-limited debate. But before the noble Lord finishes, I hope he can be helpful to me. I find it difficult to get precise facts and information about how many instances of the private finance initiative there are successfully working within universities. If there is information available within the noble Lord's department, I hope that he will be so kind as to write to me at some future date.

Lord Henley

My Lords, I should like to write to the noble Lord on that issue, but on the wider issue of private finance throughout the whole of government I believe there are lessons which the higher education sector can learn from others. I shall certainly write with greater detail because I think, having already exceeded my 20 minutes, now would not be the time to embark on a new debate.

Lord Annan

My Lords, it only remains for me to rise and thank everyone who has spoken in the debate. It has been a remarkable debate and I thank noble Lords for attending. I hope that I may make one point to the Minister. Despite what he said, I have the feeling that in the past years antagonisms, and rather unhappy ones, have arisen between universities and successive Secretaries of State. Would it be possible for the Secretary of State to meet the vice-chancellors en masse and, having heard what they have to say, the Secretary of State could say, "I have heard your problems; may I tell you some of mine?", because she has problems which concern the funding of schools. If we cannot get school education right, the universities will be turned into remedial teaching institutions for their first-year students. I do not know whether the Secretary of State would be bold enough, or indeed wise, to appeal to a Dunkirk spirit in the universities. However, it looks to me as if that is what she will have to do if no further funding is forthcoming. I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.