HL Deb 27 November 2002 vol 641 cc752-63

3.17 p.m.

Lord Baker of Dorking rose to call attention to the financial situation of British universities; and to move for Papers.

The noble Lord said: My Lords, I must apologise for my husky voice which will be more painful for your Lordships, having to listen to it, than it is for me in making my speech.

This House has debated universities twice in the past two years: first in December 2000 under a Motion tabled by the noble Lord, Lord Jenkins of Hillhead, who asked me to apologise on his behalf today as he is abroad; and in June 2001 under a Motion which I tabled. On both occasions Members from all sides of the House argued strongly that the Government should concentrate on the financial crisis that was beginning to hit universities and do something about it. It is a matter of regret that so little has been done.

I am sure that the Minister will say that in the last triennium the Government have increased expenditure in real terms. However, that is totally inadequate. Universities UK, of which the noble Baroness, Lady Warwick, is chairman, has estimated that the funding gap for universities is £10 billion. That has not been challenged by any Minister. Indeed, the new Secretary of State for Education, Mr Clarke, accepted in public that the gap for capital spending in universities is £5 billion. Independent consultants reckon it is about £7 billion or £8 billion.

There is an urgent need for universities to receive, each year for the next five years at least, an extra £3 billion. That is totally and utterly unrealistic. This debate will be interrupted by a Statement saying that the Government's finances are getting into the red and that borrowing will increase this year and next. There is not enough money in public funds, the public sector and the public kitty to meet the demands of universities.

It is regrettable that the spending review keeps being postponed. Not only has it been postponed from summer to early autumn, then to late autumn, Christmas, and now to January, but universities do not know what their budget will be for next year. That is a disgraceful situation. When it comes to universities, it is not "Education, education, education" but "Dither, dither, dither".

As a result of such underfunding, the decline in universities is now apparent. Classes get larger; there is less individual tuition; research facilities are not updated as they should be; and libraries are underfunded. Salaries are a disgrace. For a 30 year-old person to be offered a post at Oxford, Cambridge or one of the other universities, at £24,000 a year with two degrees—one a postgraduate degree—is absolutely disgraceful and should not be accepted in our country. Members of Parliament pay their secretaries more. As a result, there has been a gradual decline in academic salaries of 40 per cent. If any group in our society needs a 40 per cent rise, it is not the firemen; it is academic staff.

When universities decline, they do not suddenly drop over a precipice. It is a little like a scene from an Edwardian novel: they adjust slowly to reduced circumstance—all the little pretences of shabby gentility, of slow accommodation to a lower standard of living—always hoping that the situation will not prove quite as bad as it really is.

Where do the Government stand? In the two previous debates Front-Bench spokesmen rejected top-up fees. I am glad to see that the Government are moving on this. There is now a general debate about what one should do about the universities. The Government have published on their website a very interesting consultative document that covers the possible ranges of what can be done.

Margaret Hodge, the Minister for higher education, has said very clearly that as graduates earn substantially more—about £400,000 over their lifetimes—as a result of being graduates, it is only right that they should pay something towards their education; exactly the argument I used in 1988 when I introduced student loans. So there is some movement.

I have been rather encouraged by articles that have appeared and the interviews that Mr Clarke has given. He recognises that something has to be done. He does not mind using the word elite. That is a change. The word "elite" always stuck in the gullet of the noble Baroness, Lady Blackstone. But the Government now recognise that there are certain elite research institutions in our country and that they need attention.

Therefore, what should I say to Government? First, I urge them not to make the situation worse by having a target of 50 per cent participation by the year 2007–08. That is an absurd target. What does it mean? It means another 362,000 students. It means, as the Minister can perhaps tell us when she replies, another 17,000 academics. How—I say this directly to the Minister—is she going to attract 17,000 more academics into one of the most lowly paid professional groups in the country? It is simply not going to happen. We should recognise that.

So how should universities he funded? I am not dealing here with research; that is a quite separate matter. As regards teaching, universities should continue to get what is called the teaching grant. That is the per capita sum which universities receive for students. Currently, they get £2,800 for humanities, £5,600 for science and £12,600 for medicine. I introduced the per capita funding for students rather than the old grant because I envisaged that over the years it would develop into a student's entitlement. Therefore, when a student was qualified, he would have that entitlement to take with him to a university of his choice. I believe that that is how it should happen.

That system should please the Treasury. It has total control. It controls the amount per subject—£2,800 for humanities and £5,600 for science—and it controls the numbers that are available each year. That should continue to be the public contribution to universities. But, on top of that, I believe that universities need to charge top-up fees.

When I started advocating that system four or five years ago, I was rather a lonely voice. Now there are many people in the university world—not just from the leading universities of our country but right through the whole university body—in favour of it.

Universities are not unfamiliar with top-up fees. Overseas and post-graduate students pay top-up fees. Indeed, the universities should recognise the contribution that my noble friend Lady Thatcher made to this issue. In 1981 she was vilified for saying that overseas students should pay full rates. By that action she saved the financial position of most universities in our country, not a role that has been fully recognised in her record.

So universities are used to charging top-up fees. But so far as the Government are concerned, top-up fees start at Kuala Lumpur. So parents in Kuala Lumpur can pay top-up fees whereas parents from Kidderminster cannot. That presents an ethical and interesting position for the Government because if top-up fees are discriminatory, harsh and disruptive of social harmony, those effects would be felt in Kuala Lumpur just as they would in Kidderminster. So the Government accept top-up fees so long as the person paying is not British. But of course British postgraduates pay top-up fees.

One of the advantages of that fee relationship is that one establishes a customer-contractor relationship between the student and his or her chosen university. So the public service, which is the university, is answerable to its users. I have heard endless Ministers saying that that is what they want to do with public services. They want to make the public service answerable to its users. This is a way it could be done.

Therefore, I favour a system whereby universities are allowed to charge top-up fees. Some will say, "Well, the elite universities will charge a large amount". That in a way is an opportunity for those universities that are not elite because they will be able to charge lower fees for their own excellent and very good courses.

The question then arises: how should the fees be paid? The days of free higher education are well and truly over. I believe that the obligation should be on students to pay. The fees would accumulate as a loan over the period of three or four years. They would not be repayable until the student had graduated; and they would bear a low rate of interest. That is exactly how student loans are dealt with today. They are called "income contingency loans". As student loans operate today, a graduate will not repay any of the loan unless he earns £833 a month—£192 a week. We agree on those figures. Above that level, the employer deducts 9 per cent of the excess and pays it to the Inland Revenue, which eventually pays it to the student loan scheme operators.

That system works very well. I believe that that is how it should operate in the future. I am strongly opposed to the idea of a graduate tax, which has suddenly become the flavour of the month. First, if one has a loan, one has a set amount. A medical student knows how much has been borrowed over the seven years of one's training; an historian knows how much has been borrowed over one's three or four years. It is a set amount. A graduate tax is an open-ended obligation right through life. So those who favour a graduate tax must answer many questions. Is the graduate tax intended to cover the cost of one's education at university? The cost of educating medical students is over £20,000 because they need wonderful equipment. Today, as I passed the Marsden hospital on my way here, I saw that early next year it is to use a new clinical machine costing £2.4 million. That is the true cost of education for a medical student.

Someone who studies to be a philosopher needs lots of plain paper, a pencil and possibly a rubber. Some actually would not need the rubber. So is a graduate tax fair? Should someone who is of minimal cost to the system pay the same as someone of maximum cost on the system? It is clearly unfair. There are other anomalies. The woman graduate who marries a fairly rich man and decides not to work does not pay graduate tax as she has no income. Her sister who works for the NHS has to pay the graduate tax. These are the kinds of things that make a graduate tax absolutely inoperable.

What about those students who, after they graduate, work overseas? They have a free ride. No one will tax them. But if they have a loan they can be pursued for that loan. What will happen to postgraduates and late entrants in the graduate tax?

How will the universities benefit from a graduate tax? If the Chancellor is thinking favourably of introducing a graduate tax—an extraordinary development of a hypothecated tax, but never mind—how will it be paid to universities? He will say, "Trust me. I will make it up to you. It doesn't come in for 10 or 12 years". The universities should recall what he said to the museums: "Trust me", he said, "we'll do away with charging, and I'll make it up to you". There are more galleries closed in national and regional museums today than in our history. That is the deceit in the Government's promises.

Charles Clarke has said that he wants to encourage giving by alumni. Will alumni give to their university if they already have to pay a graduate tax? Of course, they will not. For all those reasons, I hope that the graduate tax will not be introduced.

Another way of covering students' loans, fees and living costs is for companies to pay off loans or part thereof. That is common practice in more and more companies. It is common practice for lawyers and accountants, and teachers now to have their loan paid off. I do not see why doctors should not have their loan, or part of their loan, paid off by the National Health Service. After all, that is the investment that has been made by the state in their education.

The last important element is that access to universities must be needs-blind. If we have a system of teaching grants and fees, we must also have an effective system of bursaries alongside it to ensure that there is proper social inclusion. I want to see more young people from the unskilled and low-skilled groups in our society going to university. We should not blame the universities for not getting them in. Only 7 per cent of the children from the unskilled and low-skilled socio-economic groups have 2 A-levels. The fault is not in the university admissions system; it is in the failure of the schools to prepare those young people for university. That is what should be addressed.

I believe strongly in social inclusion. How can we ensure it? There must be more bursaries. Our universities do not benefit from great endowment funds such as those of the American universities. The endowment fund of Harvard is 18 billion dollars; [hat is twice the amount of the total endowment funds of all our universities, built up over the past 100 years. What can we do to bridge that gap? The Government could do two things. First, access funds—now called scholarship funds—which I introduced now amount to £75 million a year. That money is given to universities to help students who cannot afford the fees. The amount should be at least trebled to £250 million.

Secondly, there must be a tax incentive to increase giving for scholarship funds. I can recommend a scheme that the Minister should take back to the Chancellor. If everyone was allowed to give up to £5,000 a year for three years—otherwise the erosion of Treasury income would be significant—and got a 100 per cent rebate on that, we would build up substantial endowment funds in a short time. The Minister will appreciate that that is a tax credit: the Chancellor likes those and goes on about them. That is an attractive tax credit for a good social end.

Our universities are important assets. They are among the West's oldest civil institutions. Some have lasted for centuries—as long, in some cases, as this House. It is important that we, as custodians of those institutions, do everything we can to enhance them and ensure that they make as great a contribution in the future as they have done in the past. However, the gap between them and the American universities is widening. The number of people contending for Nobel prizes has dropped dramatically since 1990. We are proud of our Nobel prize record, but the number is dropping. Why is that happening? In America, 3 per cent of the gross national product is spent on higher education; we spend half that. Half of the American spend is from the private sector. It is recognised in the United States that higher education is not just a public good but a private good. I suggest that we should also recognise that.

In all of this, I find the Government's policy confusing. Not only are the funds inadequate, but the Minister's department—the DfES—wants more students. The DTI wants world-class research. The Chancellor of the Exchequer wants laboratories for social engineering. The real trouble is that Gordon Brown treats universities as a nationalised industry—almost the last of our nationalised industries. They are underfunded, overcontrolled and bullied. I hope that Charles Clarke will wrest back from the Chancellor control over university policy.

I have put some ideas to your Lordships today—the teaching grant, fees, loans and bursaries. Unless such a pattern emerges, our universities will continue to decline. One of the great virtues of such a system is that universities would become independent again. In its 800-year history, Oxford has had state money for only 80 years—a tenth of its life. All universities—not just the Oxfords of this world, but the provincial universities too—now realise that they are interfered with and told what to do. Their admissions policies are interfered with, and there is endless measurement. Recently, I spoke to a young clinical researcher who was going to America. I asked him why he was going, and he said, "For three reasons: first, my salary will be more than doubled; secondly, the research facilities are better; and, thirdly, there is no government interference". Everyone in the university world wants to be free of government interference.

I hope that the Government will take the issue and act along the lines I have suggested. I know that it is politically difficult. I know that it is difficult to persuade the middle classes to pay more. Our job is to persuade the middle classes that, if they pay more, we can reinforce the excellence of our institutions and that that will be good for all bright youngsters, including theirs. That is the task, and I hope that the Government are up to it. I beg to move for Papers.

3.36 p.m.

Baroness Warwick of Undercliffe

My Lords, I declare an interest as chief executive of Universities UK. It is only a few days since I last spoke to your Lordships about the financial situation of the UK's universities. I am glad that that important subject is now receiving the attention that it deserves. I thank the noble Lord, Lord Baker of Dorking, for giving us all a chance to consider the issue in depth. It is a welcome sign of how seriously the issue is now considered that so many noble Lords wish to speak in the debate.

The most fundamental change that I have seen in recent weeks is that there now seems to be general acceptance that there is a real problem facing our universities. This week, the Economist said: That universities need more money is no longer controversial". Rather than the Universities UK figure of nearly £10 billion over the next three years being seen as a sign that universities are in cloud-cuckoo-land, it is the benchmark for what is needed.

What is the problem? The starting point for any discussion is that universities have been seriously underfunded for more than 20 years. While I pay tribute to the noble Lord, Lord Baker of Dorking, for his thorough analysis of current problems, those problems certainly go back to the period of his government. Universities now face a major investment backlog. Universities UK set that out in its spending review submission, Investing for Success. The problems have not been relieved in recent years. This year, the sector faced a deficit of almost £51 million. That is now the status quo. If we are to provide the kind of university education that our young people need for the future, the status quo is no longer an option. The Secretary of State said last week, in the Independent on Sunday, that there is a backlog in capital investment alone of £5.3 billion.

I stress that it is not an issue facing England alone. Higher education throughout the UK is in a similar financial position. In Scotland, the Executive has announced new money in its spending review. That has, of course, been most welcome, but that money is concentrated on research, with not much left over for teaching. It is vital that the link between teaching and research is fully understood in Scotland, as elsewhere. Scotland, it seems, will have no new money to maintain teaching standards and no new money to implement the Disability Discrimination Act 1995 and the new pay arrangements. Scarce university resources will be stretched further.

In Wales, as in England, institutions do not yet know what they will get next year, let alone in the following two years. But institutions in Wales are also hindered by a plethora of competitive funding initiatives. That discourages the very collaboration that the Welsh Assembly is so actively seeking from institutions, as they have to compete against each other for scarce additional funding rather than work together, as they are being requested to do.

In Northern Ireland there is great concern about the lack of research funding in the draft Northern Ireland Budget. Today I have been in Westminster with representatives from Queen's and Ulster Universities, who have been here to meet noble Lords and Members of another place who represent Northern Ireland constituencies right across the political spectrum. They want to raise the parlous state of higher education research funding in Northern Ireland, which has been made a great deal worse by the fact that no funding whatever is available for the improved performance of both those universities as a result of the recent research assessment exercise. I hope that my noble friend will agree to pass on my concerns to the relevant Ministers in the Northern Ireland Office.

Meanwhile, in England, which falls within the direct remit of this House, we await the outcome of the Government's strategic review of higher education in, it is hoped, two months' time. What do universities need from that review? They wanted to be consulted. I am glad that the Government now have a more open approach to that issue. We now have a discussion paper. Although it contains issues on which I had hoped the department would have done some work over the past year—that probably sounds a little churlish—we very much welcome the opportunity offered by the paper to put our views.

What else do universities need? They need to know what new resources they are likely to get from the 2002 Spending Review. We had expected to know this month what the sector would get over the next three years. As the noble Lord, Lord Baker, has said, we shall not get that information until January. That places universities in a very difficult position. It is difficult for them to know how to plan activities in multi-million pound businesses when they have no idea at all of the income to be expected until only a few months in advance. It is therefore vital that there should be no further delay in the release of that information, and I hope that the Government will be able to confirm that.

Messages from the Government indicate that the £9.94 billion funding gap identified by Universities UK is not likely to be met from public funds alone. There are too many other priorities, and I respect that. Other ways of raising funds are needed. There is clearly a lively debate to be had. There is a wide range of opinions among vice-chancellors, about which the noble Lord, Lord Baker, has strong views, and I suspect that many options will be raised and pursued today. Indeed, Universities UK has offered advice on a range of options.

It is clear that, whatever solution is found to the funding crisis in our universities, public funding will remain at the core of the financial health of the higher education sector. No solution that places all its emphasis on private contributions can answer the needs of the whole sector. In my view, such a solution would lead to a two-tier system—the better off and the underfunded—which I and others would find wholly unacceptable. That kind of differentiated system would simply not deliver the high quality expansion opportunities that the Government clearly want.

However, rather than talk too much about what we need, perhaps I may explore the question of what the extra resources will be spent on. They are needed to maintain high quality higher education across the entire university sector. One of the less welcome aspects of recent debates on higher education has been the focus on so-called "top universities". In my opinion, that fixation cart be quite dangerous. No one would ever argue that all our universities are the same. However, that does not equate to some universities being good and others poor. Different universities offer different opportunities. Some are very involved in their communities; some are at the vanguard of efforts to widen participation to those from lower socio-economic groups; some concentrate on research. It is worth making the point that new universities produce world-class research in exactly the same way as do old universities. The noble Lord quoted the example of philosophy. I simply quote that of history at Oxford Brookes.

We need the resources to be able properly to pay those who work in universities, to adequately reward and motivate them for the hard work that they do, and to modernise pay structures. Recruitment and retention difficulties for both academic and support staff have worsened progressively over the past four years, and they continue to do so.

Were we to change the arrangements by which we award PhDs, as recently suggested in the press, we would find ourselves out of step with the rest of Europe at a time when we are setting up the European higher education area, since there are no other universities in Europe that do not award PhDs. Universities have delivered on widening participation, on research and on links with business and local communities, at the same time as funding per student has been reduced drastically by some 37 per cent.

I conclude with the words of the Secretary of State from his article in the Independent: We must not let our universities down and risk undermining their ability to build for the future". We would certainly let down our universities, our students and the country if the solutions led to an entrenched two-tier system in which some institutions flourished and others withered. I therefore ask my noble friend to confirm that the results of the review will address the needs of the whole university sector, not just a part of it.

3.46 p.m.

Lord Smith of Clifton

My Lords, there has not been a coherent dialogue about British tertiary education for at least the past two decades. In congratulating the noble Lord, Lord Baker of Dorking, on initiating today's debate, it is to be hoped that it will trigger a wider public discussion on the subject. His perceptive speech should encourage that.

So I start by bewailing the absence of such a wider public debate. One looks in vain to any political party, even to the vice-chancellors or to the academic trade unions, for some glimmer of a more positive and holistic approach. Instead, all that one finds are stop-start disputations about funding. The Dearing Report of 1997 could have served to kick start a broad dialogue about the future of higher education, but it was largely ignored and now languishes in the dustbin of educational history.

In the mean time, the state of British universities has been allowed to move from bad to worse, as the two previous speakers have said, and their condition is now quite critical. No one has attempted to tackle the basic tension between, on the one hand, the pursuit of excellence and, on the other, the goal of widening access. The failure to address that question and related issues has been the root cause of the decline of our universities. It is no exaggeration to say—the noble Lord, Lord Baker, hinted at it—that the UK now lacks any multi-faculty university that can claim to be on a par with those of the Ivy League in the United States.

There are, of course, specialist institutions, such as Imperial College and the London School of Economics, that contain a large measure of international excellence, and many universities have so far managed to maintain varying amounts of research activity that can compete with the best in the world. As the noble Lord, Lord Baker, indicated, the slippage is to be seen in the decline in British Nobel Prizes for science. Thirteen were won in the 1970s, four in the 1980s, and only two in the 1990s. I repeat that there is now no multi-faculty university in Britain capable of competing with the Ivy League across the board.

Like transport, health and schooling, the universities have increasingly been underfunded for three decades. The implementation of the Robbins Report in the mid-1960s saw the last time that significant sums were injected into the universities. The present Government's new-found awareness of the crisis is to be welcomed, so far as it goes. However, they were warned about the gravity of this situation, as was stated in at least two debates in this House during the last parliament, but to no avail.

The recent realisation of how parlous the situation has become has led only to an analysis of the pros and cons of raising more money by means of big hikes in top-up fees, with more extensive loans or a graduate tax, means tested or otherwise. That is to define the debate on the future of the universities far too narrowly. A broader perspective is essential if we are to recreate a higher education system to fit us for the next 30 years, in which, of course, how it is financed is fundamental.

Most noble Lords speaking today will concentrate on the relative merits of the different possible funding streams on offer. Clearly much more money is needed. On this particular subject, I will simply make two points. First, contrary to the views of the noble Lord, Lord Baker, which I found persuasive in certain respects, huge top-up fees and loans will seriously inhibit those from poorer homes and seriously impede wider access. Merely the perception of top-up fees of a huge kind will be enough to deter many people. Some form of means-tested graduate tax would be preferable, and at this stage of the argument I would opt for that, although I accept that there are many administrative difficulties in its implementation.

I wish to look beyond mere finance at the broader picture because that, too, has financial implications. We need to devise a more systematic approach to the future of higher education. It would be foolish as well as presumptuous of me to offer anything like a definitive blueprint. That can emerge only from a wide but urgent public dialogue. But I venture to sketch some likely items for the agenda of such a debate.

First, as I have said, must be the overall aim to square the circle between the pursuit of excellence and wider access to tertiary education. Those twin goals do not have to be mutually exclusive, as the academic Neanderthals of the Kingsley Amis school assert: more does not have to mean worse!

Secondly—and I stress this—given the limited resources of cash and staff, there must be both subject and level rationalisation, particularly in big science and technology if those are to be well founded. Universities need to specialise much more than they have already to maintain and improve research and teaching. That was done in the case of geology and materials science some years ago.

More needs to be done. If that is necessary for those two areas, it is even more necessary in the provision of business and management education. It has been a boom subject of the past two decades, it has experienced a bacterial growth and is, frankly, now in disarray. To use a football metaphor, the UK has one business school in the premier division, the London Business School, which can compete with the best in the US. We have none in the first division; three or four in contention for the second division; perhaps half a dozen in the third: with the vast majority in the bottom of the fourth, struggling not to be its Accrington Stanley. The general quality of the teaching, to say nothing of the research output of this last group, is abysmal. The better business schools should he encouraged to franchise their courses to the others, subject to adequate quality controls.

Thirdly, I referred to the level of provision. It really is highly questionable—and here I take issue with the noble Baroness, Lady Warwick—that all tertiary institutions should be able to offer the full spectrum from sub-degree courses to bachelor and masters degrees and doctorates. Other countries impose restrictions: junior colleges which offer sub-degree work and in some cases with bachelor degrees or modules that can be transferred towards such degrees elsewhere; intermediate institutions that offer bachelor degrees and masters; and senior institutions that are accredited to offer the full range of awards from bachelors to doctorates.

The junior and intermediate institutions are a vital driver in encouraging wider access and in that they can bat to their strengths. The senior ones should cater for excellence and they would recruit more able students both straight from school and also from the other institutions. What I have described is, of course, the Californian model, and similar systems are to be found in other states of the Union. They enable access and excellence to be pursued in tandem.

I would not recommend that such a system be incorporated wholesale into the UK, but it could be adapted. I believe that there is a case for some large-scale experimentation on a regional basis. That would, it is to be hoped, harness economies of scale. For example, in Yorkshire and the Humber, there could be created a regional tertiary education confederation. One could envisage the Universities of Hull, Leeds, Sheffield and York forming the top tier, with Bradford, Huddersfield, Sheffield Hallam and Leeds Metropolitan forming a second intermediate one, with various further education and sixth form colleges forming the third tier.

There are some embryonic prototypes already existing in the form of the research-based White Rose Partnership, consisting of Leeds, Sheffield and York, and a more inclusive regional, tertiary education forum. These could be built on. Who knows, they might even combine to form an internationally acclaimed business school for the region.

That kind of regional approach could be applied elsewhere; for example, to the North West, the North East, the East and West Midlands and the London area. The more outlying universities, without dense hinterlands, should be encourage to follow the model of the great American liberal arts colleges such as Smith, Vasser, Oberlin and Swathmore, where the finest undergraduate teaching in the world is now to be found. I confess that I do not know how to accommodate the distinguished University of Bristol in my scenario, but a solution might come from a full public debate.

There is not much time left to prevent a further rapid erosion of the university system in the UK. We need now to rehabilitate it and not shrink from the requirement for rationalisation.