University Finance

HL Deb 27 November 2002 vol 641 cc784-856

Debate resumed.

5.8 p.m.

Lord Butler of Brockwell

My Lords, in resuming the debate on the financial situation of British universities I start by declaring an interest as Master of University College Oxford.

I express my thanks to the noble Lord, Lord Baker of Dorking, for initiating the debate. I also congratulate him. No one in your Lordships' House has done more than he to bring attention to the looming crisis in higher education. The Government are now recognising that he is right. But former Cabinet Secretaries like to be politically even-handed and I agree with the noble Baroness, Lady Warwick. that he was less than fair to the present Government. Unlike their predecessors, the present Government recognised the problem sufficiently to take the crucial and difficult step of introducing tuition fees in 1998. The trouble was that they capped them at too low a level and by replacing the maintenance grant by student loans, built in a deterrent to the very students whom they wanted to encourage: able students from poorer families.

How, then, is the policy now to be carried forward and the Government's objectives achieved? They are not going to be achieved through general taxation; that appears to be generally recognised and I shall not spend more time on it. Apart from the fiscal situation that the Chancellor's Statement revealed, and which we have just been discussing, the story of the past 30 years has been that successive governments have reduced funding per student while expanding their numbers. The present Government, by requiring a contribution from the students themselves, stabilised funding per student for a time. However, stabilising funding per student is no good when costs go inexorably up; hence our present troubles.

What can be done about the situation? Since universities make a loss on every UK and EU student. one course is to replace those UK and EU students with foreign students for whom our fee is not capped. But, of course, such a course would not help to achieve the Government's objectives.

What else can we do? The Secretary of State for Education and Skills published some commendable reflections on the choices in the Independent 10 days ago and invited a public debate; an invitation which, I note, his senior colleagues in No. 10, Downing Street and the Treasury at any rate have not been slow to take up. Let me endorse two comments in the Secretary of State's article, which were well made in the speech of the noble Baroness, Lady Warwick. First. whatever solution is adopted, it must offer a way forward for all the diverse institutions in the higher education sector and not be geared to the needs of just one type of university. Secondly, it must promote, not hinder, the aim that access to higher education should he open to all and be based entirely on merit and not on ability to pay. If the funds are not to come from general taxation, the two other sources most frequently discussed are higher fees paid by students or their parents—so-called top-up fees—or deferred payments in the form of a graduate tax.

Higher fees are criticised on the grounds that they are a deterrent to poor families and would produce a two-tier system. So they would, unless they are means-tested or accompanied by bursaries that protect families with low incomes or with many children from their effects.

I cannot see any objection to means testing, which has already been introduced for the present tuition fee. Here I disagree with the noble Lord, Lord Smith of Clifton. By protecting the poor from costs, which the richer families have to meet, fees that are accompanied either by bursaries or which are means-tested make higher education relatively more accessible, not less accessible, to the poor.

A graduate tax, by contrast, is simply a deferred liability, like a loan. In fact, it is in addition to a loan because poorer students frequently take out loans to meet living costs, which richer students or their families can avoid by paying up front. That seems to be more divisive than means-tested fees or higher fees accompanied by bursaries. And of course a graduate tax would not provide the funds that universities need so sorely now. As the noble Lord, Lord Baker of Dorking, said, they would take some 12 to 14 years to build up and we simply do not have that time.

In his article, the Secretary of State for Education and Skills referred to a third source of funds: gifts from alumni. He said: Could the Government help to get contributions from alumni, particularly as many former students would be happy to put something back?". I believe that the culture is changing in Britain in that respect. At my college, the proportion of old members who have given to the college has been rising sharply in recent years, encouraged by incentives that the Government introduced, although they still do not reach levels in the United States. Old members who enjoyed free university education are particularly willing to help fund bursaries for today's and tomorrow's students, who do not have that advantage. With that help, my college is now giving bursaries to one in five undergraduates who joined us this year.

As the noble Lord, Lord Baker, said, one sure way to stop that progress is by the introduction of a graduate tax. I cannot believe that alumni would be willing to give funds voluntarily to their old university if they are also being forced to pay a graduate tax.

I believe that none of those measures by itself is a solution to the universities' problem. I am not in favour of a graduate tax. which seems to be a way of deferring the solution. But we will need a combination of: somewhat higher fees—not at the extreme levels that have been bandied about—with bursaries or means testing to protect students from poorer families; loans to cover living costs, which are repaid from the higher earnings that university degrees make possible; and support from alumni for those students who follow them. I hope that the Government will give some flexibility to universities, which are, after all. under the pressure of competition with each other, to combine those sources in ways that arc fair to all concerned.

I believe that the Government's help should be concentrated on those universities that take a higher proportion of students from poorer families. That help should be by means of contributions to the cost of bursaries or by increasing the "T grant" to such universities, or by a mixture of the two.

As the noble Lord. Lord Baker, said, the Prime Minister and the Secretary of State are surely right to say that we must face those choices, and do so now, and not let our universities down. If we continue to under-invest, we need look no further than the railways for a terrible example of what may happen. The problem of under-investment may create a problem that is beyond the power of any government to solve. Then our universities, now still offering a product that ranks high in the domestic and international marketplace, would have such a product no longer. That would indeed he a disaster.

Baroness Jeger

My Lords, I ask the noble Lord whether that will be a static—

Lord Davies of Oldham

My Lords, I am sorry but this is a timed debate and we are on very strict time limits. We really cannot take interventions when a speech has been completed.

5.17 p.m.

Lord Desai

My Lords, the only interest I have to declare is that I have been teaching for 38 years in the British higher education system. I bear witness to the steady deterioration in the physical, spiritual and moral standards in the sector. When I started, I had 15 tutees; I now have 37. When I joined, the pay of university academics was roughly in line with Civil Service pay; now it is about 40 per cent behind.

The per capita allocation that the noble Lord, Lord Baker, introduced has been cut by 37 per cent. As the noble Lord, Lord Butler, said, if we go on like that, we shall resemble not so much the railways as continental universities—people come from them to us. Why we subsidise EC students is beyond me, but I shall not go into that.

To friends of mine who want to continue the present system on the grounds that it is fairer to the poor—it is not, but I shall come to that later—I have one response to give: they must tell me exactly where the money will come from for universities to be able to meet the shortfall that was ably pointed out by my noble friend Lady Warwick. If you want us to stay like this, give us the £10 billion or shut up.

Exactly five years ago there occurred the Second Reading debate on the Teaching and Higher Education Bill. At that time we had introduced a small fee. which—again I agree with the noble Lord, Lord Butler—was inadequate. I said then, "In five years time we shall return to this matter because this will not solve the problem". What we did in 1997 was wrong in two respects: first, the fees charged for those who could afford to pay were far too low; and secondly, means testing was far too stringent so that very few ended up paying. We then made a mess of the maintenance grant. Those three factors almost simultaneously made it inevitable that we should have to return to this problem.

The US system is much more diverse, equitable and has much greater access. I would ask all noble Lords to ponder on the paradox of the US system, which is not like ours. It is very much dependent upon students paying their own way and is much fairer than our system. For 35 years I have heard the same argument: "If we change anything, the poor will not get access". The middle classes are clever; they always use the poor to justify their own subsidies. For 35 years, access to universities for working class people has not improved very much. But the middle classes have never had it so good. When I first joined the sector there were no fees and there were still no working class students. There were 100 per cent maintenance grants and no fees. Where were the working class students? They were not there. As the noble Lord, Lord Baker, said, that is because of our secondary school system being the way it is.

There are two problems. First, we confuse uniformity with equality, and, secondly, when we give subsidies we do not discriminate. I shall take the second point first. We give everyone a subsidy, including the very rich middle classes. That is partly because we are too afraid to implement a proper means test which would benefit only the poor, and partly because the fees are too low.

I believe we should make everyone pay the going rate—I would prefer an income-contingent loan system—and then take our entire current budget which is used for tuition fees and put it into a fund for bursaries. There should be zero subsidies. We could finance up to one-third of our students with full bursaries if we stopped the indiscriminate giving of subsidies to undeserving middle classes. We must be tough minded. The middle classes are good at political rioting. We should not pander to that.

We confuse uniformity with diversity. We think I hat "one size fits all" is a great egalitarian notion. It would be much better to allow different universities to charge different fees. We should let universities choose what they want to charge for whichever course. The state should give subsidies only to the deserving and should let them choose their university. If people want to become doctors, they can pay £12.000 because they will recoup that in future income. People's ability to pay does not depend upon their parents' income but on their future life-time income. The criterion of future life-time income is a much less unequal method by which to judge university students than is their parents' income.

The principle would be that the current funds used to subsidise students should be used only for bursaries for deserving students—deserving in terms of both their future income and their merit—and that universities charge whatever they want to charge. That means that people will make their own choices; get into whatever level of debt they choose; and pay from their future income on an income contingent basis. That would remove the problem of elitism or social class. If a university is offering a good course—he it an old or new university—it can choose the price it wants to charge and meet the demand.

What is happening now is that by charging a single price we have to ration. Such rationing results in bad education. I use the words "bad education"; I do not have the responsibility of my noble friend Lady Warwick who has to defend her patch. Who gets such bad education? People from lower income classes and ethnic minorities. They go to ghastly universities. I can say that and do not have to be diplomatic.

Research is underfunded. A little more has been done for natural sciences by my right honourable friend the Chancellor. However, research in social science and humanities is underfunded. HEECE gives only £10 million to English universities. If that could be increased, or even doubled to £20 million, that would be much better. It could be strictly monitored through a research assessment exercise.

Finally, I shall make one more wild spending proposal, for which I hope my noble friend will forgive me. It concerns maintenance grants. For a long time I have believed that the way to tackle maintenance grants is for every undergraduate in full-time education to be eligible for the jobseeker's allowance in term time. So, for about 30 weeks, every undergraduate can claim JSA if they so wish. That would solve the problem. With that I shall sit down.

5.27 p.m.

Lord Renfrew of Kaimsthorn

My Lords, we are grateful to my noble friend Lord Baker of Dorking for initiating the debate. We have heard some interesting speeches. I had the privilege of entering your Lordships' House at about the same time as the noble Lord, Lord Desai, and I always listen to him with great profit and interest.

It would be difficult to exaggerate the long-term gravity of the situation in higher education in Britain today, as a number of speakers have made clear. Britain's world-class universities and Britain's other universities besides have fallen into deficit through what has now become a bankrupting funding policy which, I am afraid, is of the present Government's own making, and about which many of us in this House warned when these matters were seriously debated here some five years ago, as the noble Lord, Lord Desai, remarked.

The problems were clear then, although perhaps not the solutions—I cannot claim that we all saw the solutions clearly—but they have become steadily worse. Moreover, the Government have not taken firm action in the interim: they cannot decide whether to arrange for funding by graduate tax, top-up fees or other unspecified means. Indeed, it is not unfair to say that the only decision they have taken was the purely political one to exclude top-up fees in the last election manifesto: a case of proclaim in haste and repent at leisure.

Lecturers' salaries are now so low in Britain's universities that one would certainly be better off working in transportation as an underground driver, for instance, or a lorry driver, without the six years' training on low income—often on borrowed money—which it takes to do a BA and then a PhD, which most lecturers need and, in pension terms, without the obligation to work 40 years. That is what it takes to acquire an entitlement to retire on a pension of half salary for university teachers, as the noble Lord, Lord Desai, and I both anticipate in a couple of years. I note with interest in recent disputes that the Government appropriately listened with care to the claims of workers who were to retire after 30 years' service on 60 per cent or more pension. Those matters should not be overlooked.

Meanwhile, universities have been expecting the October statement—now the November statement indicating the funding basis for the next financial year that begins in April. How does one run a business on those terms? Instead, one Secretary of State gets the vapours, the next steps in and, with the smack of firm government, defers the statement until January and issues a "consultation paper" that is all questions and no answers.

That is not government; that is muddle. The unworkable solution of four years ago following the Dearing report, has resulted, I am afraid, in drift and decline, with no discernible improvement in access for poorer students—that is a very important point since it is one upon which the Government have rightly laid stress—with worsening underfunding, and in place of a policy we now have a consultation paper.

The noble Baroness, Lady Warwick, said that she found that encouraging. I have to say that I find it astonishing. We were told a year ago that there was to be a paper and now after a year we have the issue of a consultation paper and the deferral by three months of any announced policy by the Government. I shall be very interested if the noble Baroness who is to reply has much policy to announce this evening. I imagine that that will be difficult for her if the Secretary of State is to make his views known in January.

The Government's dilemma is clear if one reviews a few rather uncontroversial principles, which have been emphasised but with different balance by previous speakers. First, Britain needs to retain world-class universities. That is not possible if they are to be funded through the present level of tuition fees—frozen as they have been. That is beginning to lead to irreversible decline, as noble Lords who commented on the award of Nobel Prizes have already suggested.

Secondly, it is desirable to increase the proportion of students from low income backgrounds who undertake higher education and important that many of them go to world-class universities, which will mean the more expensive universities; not just a two-tier system, but a many tier system where access is not controlled by parental means but by aptitude.

Thirdly—this is a point that we should not overlook as it is borne out by experience—many students from low income families prefer to follow the principle, "Neither a borrower nor a lender be". The Government's unsuccessful experiment in social engineering over the past five years has shown clearly that student loans do not appear to be the way to improve access. That is the worry, because each solution is blocked off.

Let us in passing dismiss the myth put about by the Minister for higher education, Margaret Hodge, that university graduates earn over £400,000 more during their career than their contemporaries. That may well be true of some; it may be true of the average; but it is clearly not true of the lower paid graduates. Tell that story to a university lecturer who will have trained for at least six or seven years on a negative income. The Government have devised a system of negative incentives, which a graduate tax will do little to ameliorate.

I suggest that there is only one evident solution if we are to promote the world-class excellence which Britain needs and the truly progressive access to which the Government pay lip service, and which our universities need if they are to recruit the best brains.

First, we need to call a pause in the headlong expansion of higher education. The notion of an intake up to 50 per cent will produce catastrophe until the funding problems are solved. It is a fine long-term objective, but really we should be stopping at 40 per cent, or roughly the current figure, until these problems can be solved.

Secondly—and the present Government are unlikely to do this—I have come to the conclusion that we should be paying for tuition out of taxation, as we all did until the Chancellor and the noble Baroness, Lady Blackstone, got their way some time ago—no top-up fees, no graduate tax and no hypothecation.

That is a difficult nettle to grasp. The noble Lord, Lord Butler, appropriately said that he thought it was not an easy solution. But where is the other solution? If we are really keen on access, the issue of student loans is a difficult one. A number of speakers have, I think rightly, made criticism of a graduate tax. If it is so much to the benefit of the country that we have a well-educated population, I do not really see why there is objection in principle to paying for it out of taxation. Of course it implies a burden. It implies either more borrowing or a higher level of taxation. But I think that it is a nettle to be grasped, simply because I do not see which alternative will work. Although I much valued the speech of the noble Lord, Lord Butler, who speaks with great authority as the Master of University College, I just do not see his view working. I am not sure that I see the American model working in this country. I regret that that is the case, but that is what I fear.

I am cynical about the present Government's commitment to higher education in the light of their performance over the past 12 to 15 months. I do not expect them to find a satisfactory way out of the present muddle. I am pessimistic about the future of higher education in this country since I think that the nettle will be a very difficult one to grasp; nor do I expect to see a world in which the decline in British academic salaries is halted.

I predict that we shall continue to hear government Ministers imply that it is " élitist" that some universities should be better and more expensive than others. Do they imagine that every university will be a world-class university in every field?

So I am pessimistic about the present situation. I expect to hear continuing disputations about top-up fees and about graduate taxes, but I think that we should all be advocating a multi-tier, multidimensional system where there is real equality of access.

I am angry that the Government have allowed this predictable situation to develop over the past five years. I do not myself see any solution other than to grasp the nettle and to pay for it out of direct taxation. I am very sceptical about the other solutions that have been proposed.

5.36 p.m.

Lord Watson of Richmond

My Lords, I join noble Lords in welcoming the debate and in thanking the noble Lord, Lord Baker of Dorking. It is a debate, which. like the wider one in the media and in the country, is much agitated about top-up fees at universities. I do not wish to focus on that issue other than to observe that the current kite-flying exercise—because that is what it is—on top-up fees is clear testimony that the Government, in stating a target that 50 per cent of all young people should go to university, have willed an end without willing the means. In politics, as in business, that is a dangerous way to proceed.

In truth, if we are to provide for 50 per cent of young people at our universities, we will have to create 30,000 additional university places every year until 2010, which would require at the very least over £400 million of additional resources.

It is well known, and has often been emphasised by noble Lords when this House has debated higher education—which I am glad we do quite frequently—that the funding of university education in this country is significantly below that of the best universities in the world, perhaps by a factor of 4. Yet that general. if alarming, statistic understates the specifics of the real crisis facing universities.

In one of our earlier debates—in April this year I believe—the noble Lord, Lord Moser, pointed out that by 2010, the target date for the 50 per cent objective, nearly half of all our high-quality academics will be eligible to retire or approaching that stage. They will have to be replaced. Indeed their numbers will have to be increased if rhetoric is to become reality and the Government are to raise not only hopes but also means.

Such an increase in university staff at the required level will not be easy while academic salaries, as has been pointed out, remain so low and uncompetitive. When we talk about competition. of course that is competition both against other professions in the United Kingdom and—very critically if we are not to lose our best to American universities—also with salaries paid in the United States. Those are currently double our own. While we cannot match that—and perhaps do not need to at this moment—we certainly need to start closing the gap.

Let me at this point declare two interests and briefly describe them. They illustrate vividly the challenge for universities in their financial predicament. I am patron and chairman of an appeal now being launched to endow German scholarship and teaching at Oriel College at the University of Oxford. There has been much debate—many questions have been asked in this House—about the disturbing decline of foreign language learning in Britain. The Minister knows my views well, both my hopes for what the Government may do in primary schools and my dismay that foreign language learning is being dropped as a compulsory subject at 14. If foreign language learning is allowed to wither at the top of the tree—at our universities—it will surely and progressively expire at the roots as well. No primary school entitlement to foreign language learning will save it if scholarship in foreign language learning expires at the apex of the system. Why and how could that happen?

The Oriel appeal at Oxford is essential because the level of government funding to Oxford and Cambridge and to other universities is now too low to secure the future, in particular, of the person-to-person tutorial system that has produced such excellence for so long. We must endow the college's teaching post in German to safeguard the teaching of a key European language in that way in Oxford and, indeed, in Britain. There are now few places in Britain—less than a handful in all—where the German language can be studied from its origins to its contemporary use. If those places disappear, the consequences will be dire for the study of German. If the same thing happens in other foreign languages, the consequences will be equally bleak.

Why do universities—in particular, Oxford and Cambridge—no longer have the resources to ensure the continuation of such person-to-person tuition? The vice-chancellor of Oxford wrote this month in the Oxford University Galette that the transparency review had demonstrated that the underfunding of higher education now stood at about £1 billion annually. He wrote that the current crisis in the public funding of university teaching resulted from the long decline of the unit of resource, which is the amount paid per student in the block T-grant to universities. That grant declined by 38 per cent between 1988 and 2000 following a previous decline of 20 per cent which started in the mid-1970s. The funding decline accelerated, and so, too, did the number of students to be taught. At Oxford, the transparency review last year reported a proven shortfall of, I believe, £23.3 million for the publicly funded teaching costs that fall on the university as such. As I understand it, the colleges must cross-subsidise the publicly funded teaching costs that fall to them. Increasingly, they cannot, burdened, as they are, by a myriad of other demands, including the maintenance of fabric—hence the appeal.

If our ability to teach languages at the highest level is important to our competitiveness as a country, our need to keep pace with the best internationally in science is self-evident. I declare a second interest: I chair the advisory board for "Chemistry at Cambridge". We have raised very large sums for "Chemistry at Cambridge", in no small part due to the generous and far-sighted contributions of British firms, notably Unilever and BP. We have increased facilities and enhanced capability, and we are right to do so because the chemistry department at Cambridge is at the cutting edge of international science. There are 11 fellows of the Royal Society active in research at the department, and the department provides an outstanding environment for inter- and multidisciplinary research.

At the end of the day, research, even at that level, is as good as the people who undertake it. The fact is that we lack sufficient start-up grants for new staff—for the science stars of tomorrow. As a consequence, researchers spend vital early years at Cambridge raising money rather than raising their research game and establishing their research. Companies are cautious. They prefer, perhaps, the conventional sectors of chemistry, but we know that the best often comes from high-risk and inspired innovation. Thus we are trying to raise funds for next generation fellowships, providing talented scientists with £50,000 a year for five years to enable them to pursue independent "blue sky" research. It is agonisingly difficult to raise such funds for those people and that talent.

My fear is that, in pursuit of the numerical dimensions of university education, the Government are in danger of losing their sense of perspective. Their target is 50 per cent, but there is no commitment to what that will take in money and facilities. I agree with the previous speaker that, given that lack of clarity or commitment, it may be better to drop the target. After all, if the target is the thing, why be so timid? Why not 60 per cent, with 50 per cent getting firsts?

Such aspirations are, of course, unreal, but, in pursuit of such targets, we risk raising hopes without means. We risk, as a country, becoming overqualified on paper but underskilled in practice. Our failure to raise productivity in Britain is directly related to our lack of skills, not our lack of paper qualifications. My question to the Minister is this: what concrete assurances can the Government give us that, in planning the future of higher education, they will will the means as well as the ends? We do not need more kites in the sky; we need more resources on the ground.

5.45 p.m.

Baroness Warnock

My Lords, I join other noble Lords in congratulating the noble Lord, Lord Baker of Dorking, on introducing the debate and thanking him for allowing us the chance to discuss what is now agreed to be a crisis in the universities. I share with the noble Lord a certain relief that it is now recognised as a crisis on all sides and that it is agreed that it is an important matter. It matters to everybody that the universities are in decline and must be rescued. At last, universities are no longer regarded as an optional extra or as a sort of frill on the education system; they are understood to be central to the status of the country and its civilisation.

The question of funding for universities cannot be discussed separately from the issue of all education from the age of 16—even 14—onwards. There, I agree with the noble Lord, Lord Smith of Clifton. We treat the universities as a separate subject at our peril. Only in the context of all education from 16 onwards can we address the crucial question of what we want of our universities. If I concentrate on undergraduate funding, that is not because I underestimate the importance of funding for research. The two go together, and, in the best universities, research and teaching must go hand-in-hand.

My main point is something that has been mentioned by other speakers. Part—only part—of the cause of the present financial crisis is the Government's earlier insistence on having a target of 50 per cent of school leavers going on to higher education. As far as I know, there was no great discussion of that figure; it emerged as an aspiration, as we heard, and as a bright idea. In fact, it was not a bright idea. In the early 1960s, at the time of the Robbins expansion of the university sector, 40 per cent of pupils at school passed 0-levels with high enough grades to proceed to A-level, and 30 per cent of A-level candidates passed with high enough grades to proceed to university. That yielded a figure of roughly 12 per cent for school leavers going to university. In order to approach the figure of 50 per cent, we would need a rate of 80 per cent for passes at GCSE high enough to enable students to proceed to A-level and a rate of 60 per cent for grades at A-level good enough for entrance to university. That yields a figure of approximately 48 per cent for entry to university.

The implications for standards at GCSE and A-level are obvious. It will be said that, since the 1960s, universities have changed and multiplied. There are more numerous and more varied courses on offer than in the 1960s. Have not the polytechnics become universities? There are plenty of courses to suit even 50 per cent of school leavers, so the argument would go.

However, I believe that that is part of the cause of our crisis. All those students need to be funded; they all need to be taught; and, equally, their teachers need to be paid. If universities were permitted to charge realistic top-up fees and to administer scholarships according to aptitude in the manner of Harvard and the great American universities, then at least the hypocrisy of pretending that all universities were of equal academic standing could be allowed to wither away.

People speak with horror of a "two-tier" system of universities. But we already have a poly-tier system. That used to be more or less marked—although rather crudely—by the distinction between polytechnics and universities, which were of course differently funded. Abolishing what used to be called the "binary line" was, in my view, one of the worst mistakes ever made in educational policy and one that cannot be laid at the door of this Government.

I believe that, one way or another, we should stop filling our universities with students who displayed no interest in academic matters at school, whose talents are more practical than theoretical, and who will not change. They may proceed to university for a variety of motives: because they are very bright; because they like the idea of student life; or because they have been led to believe in what has been referred to as the "myth" that obtaining a degree will make them necessarily individually more employable and lead to a better salary. But too few of them have any interest in continuing to learn. They have no very clear idea of the point of what they are going to learn or what they will do with it. For many of them, their years at university will, if they stick them out, he expensive and a waste of time.

We most urgently need a system which enables far more students, on leaving school—whether at 16 or 18—to work and study at a hands-on, skill-enhancing level on day release or sandwich courses, or whatever we choose to call them, which will lead to diplomas of varying standards but will not necessarily add up to a degree.

Of course, if, as they get older, those students become more interested in theoretical, mathematical, historical or philosophical subjects, then they will be in a position to attend a more academic course on the basis of the diplomas that they already have. We need a proper emphasis on the acquisition, through apprenticeship and clay release, of recognised qualifications of a high standard. In that connection, the statement of the Chancellor of the Exchequer in another place with regard to apprenticeships is greatly to be welcomed.

We need a variety of institutions 'to provide degree courses and the qualifications of which I have just spoken. If we wish to call them all "universities'', there is no particular harm in that; there is simply a certain absurdity. But I believe that, while they are at school, some people will always become deeply interested in learning, and learning more, whether the study is science, mathematics, history or languages. I do not believe that we should fret too much if many such people come from among the children of the professional classes or whether those children are educated at maintained or independent schools.

Historically in this country, we have, on the whole, been quite good at opening the professions to new recruits. It is of crucial importance that we continue to do so through the administration of scholarships. I call them "scholarships" because I believe that these bursaries, as they have been called thus far, should be related to academic interest, academic application, and a suitability and enthusiasm for the course.

I believe that we should be able to give scholarships of varying degrees of monetary value to nearly half our students. Here, I would deploy the figure of 50 per cent because we must not forget that it is not only the poor about whom we are talking; we are also talking about middle-class people who have several children, as I believe the noble Lord, Lord Butler, has already said. To have as many as three children all at university at the same time, which is perfectly common among the professional classes, is an enormous financial burden.

Therefore, I am afraid that I believe in means-testing; I believe in bursaries being given according to aptitude; and I even believe in aptitude tests on the American model for admission to university. It must be our hope that in that way we do not make it impossible for children of less affluent parents—even of really poor parents—to work their way up through secondary schools into universities, where, through their wits and interest, they really will belong.

5.55 p.m.

Lord Morgan

My Lords, like other noble Lords, I cordially thank the noble Lord, Lord Baker, for introducing this Motion on what is clearly a very grave crisis affecting our education system.

I approach this matter from three different perspectives. I do so first, like, I believe, two previous speakers, as one who was once one of the "thin red line" of vice-chancellors. Ten years ago, one was well aware that there was a crisis. The unit of resource was falling and the investment was inadequate. That was covered up by expansion—it is a good thing to have expansion—hut it meant that the fundamental finance was unsound in universities. It was covered up by cheap money in that way. Our accounts were all basically bogus because they did not take account, for example, of the fact that our buildings were falling down and that dilapidation was a major problem. In many ways, matters have worsened since then—in particular, the mounting tide of student indebtedness, which is now a great social scandal.

Secondly, I approach the subject as one who has been, throughout almost my whole career, a university teacher. I taught in universities for 31 years—nearly all of them in Oxford. I was fortunate in that I began when the Robbins report was just coming into play. It was the only time in our history that we took higher education seriously. It was a good time to begin. Since then, things have declined. In particular, the conditions and payment of university teachers have manifestly declined. Would that university teachers were paid as much as the firemen who are currently on strike.

Would I be a university teacher now if I were 23 or 24 years old? Frankly, I do not think so. I believe that the condition of the profession has declined, and many young people are taking the same view because graduate students—the new blood, or renewal, of our profession—are falling away in many subjects.

I also approach this matter as a member of the Labour Party. This is not a political debate, but I have been a continuous member of the Labour Party since 1955. The Labour Party revered education: it considered education and higher education to be a public good. It honoured the great teachers, Tawney and Laski.

When my noble friend comes to reply I hope that she will bear in mind the very deep resistance in the Labour movement to many of the proposals that are offered—particularly top-up fees. That proposal has produced great resistance, including, I am delighted to say, within the Cabinet. The Government will no doubt bear in mind that Sir Keith Joseph retreated from the idea in 1983 in the face of very proper opposition from Conservative Members at that time. It would be the converse of social inclusion and the converse of access. It would also be the converse of the great speech, which many of us remember, by Neil Kinnock on how he was the first in his generation to attend university.

The nature of the problem is well known and other noble Lords have outlined it—that is, the continuing and deepening structural deficit in the university system. I welcome the fact that, in spite of the delay in the spending announcement. the Government show openness. I take some encouragement from Charles Clarke's statement. For years, universities have been insulted. They were insulted by the Thatcherites for not being wealth-creators, and they are insulted by new Labour for not being elitist. It is difficult to know which is the more absurd of those two charges. There is a more hopeful and open impression given by what Charles Clarke said, from which I take encouragement.

In my remaining time, I should like briefly to make four points. First, on university governance. there are alarming signs that, whatever is the new financial settlement, the Treasury may use the opportunity to impose yet more controls on universities as inefficient managers. University teachers have been assessed, audited and nagged to death. As my noble friend Lord Prys-Davies will know, in Wales we had four auditors coming round in a year—the hills were alive to the sound of auditors in Wales—and we suffered from it. I hope that we shall have no more of that. Universities have been remarkably efficient in managing their resources. The Dearing report said that they needed a three-year planning horizon. In my experience, they were lucky to have three months.

Secondly, other noble Lords have spoken about targets. The Government are admirably committed to access to universities. A previous debate on the subject was launched by my noble friend Lady Warwick. Universities have responded with enthusiasm, which will not be helped by a target of 50 per cent a year. That will mean either fudged accounting or money spent in the wrong way, with the whole system being diluted in quality and a further depression in the international comparative quality of our universities.

Thirdly. funding philosophy should change. In his statement, Charles Clarke said that we should note and "celebrate" diversity. So we should. Universities have different missions and different roles to play in our society. The system does not acknowledge that. That problem goes back at least 10 years since the binary line disappeared: the system has promoted uniformity and claimed that we are all the same, all doing the same thing. We are not.

The effect of that has been to impose impossible terms on some of the newer universities, many of which do the most praiseworthy work in disadvantaged parts of the country—inner London and so on—to promote access and cater for ethnic and other minority groups. At the same time, that takes funding away from Oxford, Cambridge, London and many other stronger universities. No one is served by a system that promotes uniformity in the name of diversity.

Finally, we must find a solution that promotes access and social mobility. There are admirable private initiatives. I am a graduate of Oriel College, Oxford, and respond to what the noble Lord, Lord Watson, said. Indeed, I have been involved in some such schemes myself. Much the fairest scheme would be a graduate tax. I am sure of that. It is related to the capacity to pay. It does not immediately deter or impose a psychological barrier. It is less onerous than an enhanced loan system, which would merely accentuate the burden of debt that students face at present.

There are many technicalities—the noble Lord, Lord Baker, mentioned them—but it is possible to deal with women being married or unmarried and the different demands of different courses. It would take time for a graduate tax to be fully operational, but the Treasury apparently supports it and the Treasury supports access, so the conclusion must be that the Treasury is prepared to make transitional arrangements.

With all respect to the distinguished speakers whom we have heard, top-up fees would be a great deterrent to poorer and middle-income students, a blow to newer universities and not supported by many of the Russell Group. Cambridge has spoken against them; the Scottish universities—in that admirable country, Scotland, cradle of' the intellect and democracy—have also spoken against it. They would be the converse of access and social inclusion.

We have heard some rather blithe and bien pensant talk about bursaries. No one has tried to quantify them. if Oxford charges £10,000 a year, given what the university and rich colleges such as mine in Oxford can offer, the figures are extraordinary. The idea that we could avoid problems for poorer students with bursaries is not sound. That could pose problems for many subjects. I have received a letter from the British Medical Association—other noble Lords may also have received it—which tells of the appalling burden that top-up fees would place on medical students, bearing in mind the great range of other demands made on them.

That would be a negation of what Labour intends to do, so I hope that a policy opposed by Clare Short, David Blunkett, Estelle Morris, Gordon Brown, Neil Kinnock—and, apparently, by Charles Clarke, who is in charge of educational policy—will he rejected; and that we shall have a graduate tax or variant of it and a new deal that will be equitable and financially robust. Otherwise, one of the glories of this country for hundreds of years—our higher education system—will simply collapse.

6.5 p.m.

Baroness Perry of Southwark

My Lords, I thank my noble friend Lord Baker for giving us an opportunity yet again to debate higher education. I make no apology for having been a vice-chancellor of one of those new universities—former polytechnics—that did an important job of increasing access to the disadvantaged people of south London, provided them with vocational education and thereby equipped them to go out into productive and useful jobs in the community. As a passionate believer in diversity, like the noble Lord, Lord Morgan, I then went to be head of a college in Cambridge, so I perhaps represent diversity in my career.

None of us involved in higher education need the Minister for Higher Education and Lifelong Learning to tell us that university funding is in crisis. Many noble Lords have already gone into the detail of what that crisis means. The present funding system is bad for students, bad for staff and bad for universities. It is especially bad for universities because it comes. with a nightmare web of regulation, assessment, competition and all the things that are contrary to the fundamental nature of what a university is really about.

Most of us in universities are weary of the system by which we are assessed in order to be funded. In the early 1980s, the Conservative government introduced the assessment exercise as a tool to ensure that quality research was properly funded and that money was not given to departments in which no research of quality—indeed, in some cases, no research at all—was carried out. I defend the system as it was introduced. However, new Labour has taken that tool and turned it into a weapon—a nightmare of criteria on which research and teaching are assessed that have little to do with the real and unpredictable outcomes that are the result of exciting teaching and research.

For universities, assessment is now the stuff of survival. By its results are universities judged and classified in published league tables that affect student recruitment, reputation at home and overseas, and finance for research and training. When those criteria are externally and often politically determined, universities have genuinely lost their historic role as arbiters of their own mission, critics of society and challengers of received wisdom.

The pressure to conform mentioned by the noble Lord, Lord Morgan, arises powerfully from the current funding mechanism, which depends on rigid assessment criteria and the multiplicity of special programmes and initiatives that convey extra funding, for which everyone therefore feels that they must bid. We seem to be locked into a status race in which all universities are expected to climb the same ladder, regardless of their different natures and missions. ft is sad that there seems to be so little understanding of the many different roles that the universities must play if all the needs of students and society are to be met. A single set of criteria by which we are judged is helpful neither to universities nor society.

I turn for a moment to the funding of research. Of course, as the noble Baroness, Lady Warwick, said, the Government will always play a part in the funding of universities and, in particular, of research. We are grateful to the Government for having increased funding for scientific research. I suspect that, at least in its present form, the research assessment exercise has probably had its day. But I believe that the Government could be thinking seriously about ways of stimulating better links between industry and higher education in the field of research, which would bring industry into a much closer partnership.

The vice-chancellor of Surrey University—I declare an interest as its pro-chancellor—spoke recently to the Parliamentary Universities Group about ways of encouraging UK industry to utilise top quality, multidisciplinary university R&D to enhance industry's competitive edge. He suggested that the changes now under way in universities and industry may mean that the time has come for a new initiative with that objective in mind. He spoke of a model at Surrey University, known as the Mobile Virtual Centre of Excellence in Telecommunications, which is working well. It originated from one of the early foresight panels. That organisation brings together industry and universities and addresses mutually agreed relevant issues, but with the ability to move quickly and flexibly as opportunities appear.

The organisational model of the centre is that it is a not-for-profit company, with leading industrial players and university departments as shareholders. It has a chief executive and two other employees. The research steering group of the company is charged with formulating strategic research programmes. There is also provision for bilateral work. Crucially, funding comes primarily from the companies, although the HEFCE support costs are included and there is also support from EPSRC. The research work is performed mainly by postgraduate students and postdoctoral fellows in the universities, and industry provides steering and monitoring groups. The arrangement works well, and I commend it as a possible model that the Government may encourage.

I turn to student funding. If the Government have decided that flexible fees is the name of the game, so be it. They will have to decide whether to make that political decision. It undoubtedly will have some benefits to offset the many concerns that have been expressed; it will end the myth of uniformity; and it will bring private money into what is a creaking and exhausted system. However. my plea to the Government is that if we are to have expensive fees—not top-up but flexible fees—there must be adequate funding and adequate single system arrangements for those who cannot pay.

Others have offered their pet solutions. Let me offer mine—to offer a "Treasury level" scholarship funding per place. That would get round the problem of those universities charging £10,000, £15,000 or however many thousand pounds per year. The students who could not pay would enter the universities funded at the "Treasury level", and the universities would have to live with whatever that was.

The great advantage to the Treasury would be that it would know in advance exactly to how much it was committed. That is because the universities would have to bid in advance for a number of places, in a way similar to the system operated by the schools assisted places scheme, though on a much bigger scale, and the Treasury would fund them at £5,000, £6,000 or whatever amount per year. It would end the ridiculous dual stream from LEA and HEFCE funding for students. It would also give students from poorer backgrounds the ability to attend universities that would themselves be free to accept students on the basis of their ability to succeed academically rather than on their ability to pay. I suspect that some of the new universities might bid for 80 to 90 per cent of their places at the "Treasury level". Others might decide to hid for only 30 per cent, with the remaining students paying fees comparable to the high levels of our international competitors, such as Harvard and MIT.

Secondly, I would ask the Government, in any new system of funding, to get off the universities' backs. Can we have a system of funding that leaves the universities free? It seems to me ridiculous that the Government have successively moved the ratchet tighter and tighter, to the extent of—I hesitate to use the hackneyed phrase—killing the goose that lays the golden egg. Despite all their problems, the universities of the UK are a great success story, which can continue only if the dual benefit of adequate finance and adequate freedom is granted to them.

6.15 p.m.

Lord Wallace of Saltaire

My Lords, it is a great pleasure to follow the noble Baroness, Lady Perry, who has done much very useful work with the Parliamentary Universities Group. I, like many others, must declare an interest. I am a university teacher and the parent of two children who came through the state school system and have gone to Cambridge.

I strongly agree with the noble Lord, Lord Baker, that salaries are a disgrace. As I look across the Chamber, as a professor of international relations at the London School of Economics, I sometimes suspect that the London School of Economics pays its economics professors a great deal more than it pays its international relations professors.

We all agree on the situation. Twenty-five years ago university salaries were equivalent to those in the Civil Service, at roughly principal and assistant secretary level. They are now 25 per cent below. Overall funding has fallen very badly; controls are absurdly tight: the state now tries to micromanage universities. As those of my generation who joined universities in the 1960s retire, the problem of staff replacement will become very acute.

The first question that I should like to ask concerns the "world-class" issue. It is highly undesirable—I speak as a student of international politics—that the dominant universities of the world should all he in the United States. We need alternative centres of intellectual excellence. Otherwise. the intellectual agenda of economics, social policy, political philosophy and public policy will be set within the United States; and places such as the IMF and the World Bank will have a Washington consensus set only by people with PhDs from MIT, Harvard and Princeton. In Europe we need alternative sources of excellence. What we see on the Continent at present is a general deterioration in the quality of almost all European universities. In that regard, the United Kingdom could and should ensure that it continues to provide alternative centres of world-class excellence.

Secondly, internationalisation makes for many complications in this debate. It is no longer possible to have a purely domestic higher education policy. It is, of course, highly desirable to have the widest possible exchange of students, teachers and researchers. We know that student flows are very important to British universities. There are now many more students coming into Britain than going out. That creates a number of anomalies, particularly in the light of several judgments of the European Court of Justice, which have forced the British Government to charge the same fees to students from other EU countries as to those in Britain. We have already experienced the same anomaly in relation to Scotland. I urge the Minister to consider very seriously whether or not it is time for the British Government to challenge that succession of ECJ judgments. I have read the reports of the several cases that came before it, in which the definition of "training" in the Treaty of Rome was stretched far beyond its original intention.

We are stuck with the situation that in the federal United States the state of California charges out-of-state students more than it charges Californian students; but, in the much less federal European Union, the state of the United Kingdom is not able to charge Belgian, German or Italian students more than it charges the students of this country. We must consider that issue during this debate. I hope that the Box will be able to help Minister on this important point. Some of us have previously urged it on the Department of Education, which in the past has always flunked it.

There is a real problem with staff recruitment. My strong impression is that, as in many other areas of professional expertise, Britain at present loses bright people to the United States and, instead, recruits people from the continent and from South Asia. In other words, we take from poorer countries and lose to richer countries. The attraction to UK universities of people from the Continent depends on the lower quality of universities on the Continent. We should recognise that that is what is happening, and I hope that it will not continue for much longer.

My third point concerns access. The Government have bullied universities on the question of access. They say that the problem of access lies in inadequate action by the universities themselves. As several speakers in this debate have already said, we can all agree that the problem of access lies in the schools much more than in the universities, especially in state schools in towns and cities. We may not agree so easily among ourselves that higher spending on state primary and secondary schools should be a greater priority than more funds for universities. But we cannot ignore the major role of private schooling in the access debate. As someone who talks to undergraduate open days at the LSE, I am conscious of how difficult an issue it is. Students from private schools challenge any suggestion that my institution and others should weight applicants slightly in favour of those from state schools, whose results are not perhaps as good as those from private schools.

Public schools enable parents to buy better access to better universities. Parents spend between £50,000 and £150,000 on the education of their children between the ages of five and 18 and then want them to go to university at almost nothing. I have a vivid memory of an occasion when I had written a letter to the Financial Times on this subject. I received a letter from a mother which stated, "I have just worked out that I've spent £90,000 on my son to the age of 18 and he's not very grateful. I resent any suggestion that I should have to go on paying for him after the age of 18". Nt the same time, a former Conservative Cabinet Minister of my acquaintance told me he had just calculated that he had spent half a million pounds on the education of his children. It is absurd that we do not put such spending into the discussion about the future of higher education funding.

At Oxford and Cambridge half the students of many colleges come from private schools. In many instances, their parents have been paying £20,000 a year up to the age of 18. The suggestion that Oxford and Cambridge cannot therefore charge fees seems to be indefensible. There is a massive issue of inequality in the British education system which we cannot ignore.

My final point relates to diversity, about which the noble Baroness, Lady Perry, rightly said that there is a status race among British universities. There are all kinds of problems about who is better than whom and there is a myth of uniformity and equality that gets in the way of intelligent discussion. Several speakers have already said that we should not talk about a two-tier system, but that we should talk about a diverse multi-tier system of higher education. Within that system, what the University of East London does extremely well is to capture children whose parents had not been to university and who had not themselves thought of going to university. That is different from what my institution or others are doing, and these different roles are equally valuable in a different way.

We need to consider a more comprehensive approach to higher education. I am interested in the Bradford University discussions with Bradford College, which suggest a broader spread of' higher education. The American university which I attended as a graduate student had a faculty of home economics, a faculty of hotel administration, a physics department with a Nobel prize winner and a whole range of top quality departments. It did not see, as has occasionally been suggested, that courses in beer drinking and meat cutting are not proper to be taught in universities. There is nothing wrong with a full spread of comprehensive higher education.

Higher education is a mixed public and private good. It therefore needs strong continued public funding. I hope that we can also agree that it needs greater private funding. That has to include telling the English middle classes that they should be giving more to the universities from which they graduated. I have been asked to speak at the LSC presentation ceremony for our graduating students the week after next and one thing I shall be saying most firmly to them is, "As you pass £40,000 a year in three years' time, please think that that is the point at which you start giving as an alumnus, so that those who succeed you can begin to benefit as well".

6.24 p.m.

Lord Moser

My Lords, I must begin with an apology. I have a long-standing engagement this evening and I apologise especially to the closing speakers that I cannot stay to the end of the debate. I must also declare an interest: my continued involvement in the university sector, especially Oxford, LSE and Keele.

I thank the noble Lord, Lord Baker, for initiating the debate. To call it timely would be an understatement—this is the biggest crisis in my time in the sector. It is a profound crisis which is the result of decades of under-investment, coupled with excessive central government intervention.

My main reason for speaking is that my mind goes back to the Robbins report, which I had the honour to help to write. That was published 40 years ago and it reminds one of a different time. At that time, 5 per cent of the age group went to university and it seemed quite daring to us to recommend a considerable increase to of the order of 12 or 15 per cent—nothing like the present figure of close to 40 per cent. That was in 1963. It is interesting to remember that the figure remained at around 15 per cent until the late 1980s when the massive expansion took place. In my view, with great respect to all those involved, those expansion steps were both less firmly based than the Robbins expansion, which was based on a careful pool of ability analysis, and were also less firmly translated into funding requirements. That is the heart of where we are today.

I had intended to speak about the nature of the crisis, the type of decline we are witnessing and the size of the funding gap, but all of that has been addressed by noble Lords. I can therefore save several minutes. But it is a crisis and it threatens to get worse. So what do I expect, or rather hope for, from the White Paper?

Being in the hands of those clever people in the Treasury. it will undoubtedly be full of many options—probably too many—combining central funding, a graduate tax, top-up fees, grants, subsidies and so forth. My hope is that the part of the White Paper which deals with such funding options will he almost the least interesting part. I look to the White Paper—it is meant to be a strategy—as focusing on three or four key points. All of them have been stressed by your Lordships.

The first is the quality of the sector. That issue must be first because there is no point in talking about access to something that is falling in quality and likely to fall further. So, central must be a commitment to what the Government believe, with whatever consultation now follows, is essential to the quality of a great university. After all, for many years we have had, and still have, some great universities.

The funding gap must be agreed. It is good news that the Government have agreed that there is a funding gap, but the size has not been agreed. I do not feel totally convinced that the Government understand fully what the nature of the slide of standard means in terms of losing good people, in terms of poorer research and, above all, in terms of the current ludicrous academic salaries. All that has to be understood and accepted as crisis facts in the White Paper. The funding agreement must be there.

Secondly, as has been said by a number of your Lordships, the support needed to achieve quality must. must, must apply to all universities. Of course we all know that some universities are better than others, but we are talking about a whole system containing immense variety and diversity, all of which is a good thing. I recognise that the top research universities, members of the Russell Group, need funding to ensure that they can attract and retain the highest quality of research and teaching personnel. But, as has been said most adequately by others, we must avoid a two-tier system. I like the concept of a multi-tier system. That is what we have and I believe that any proposed financial solutions must apply to every tier. recognising variety. respective functions and responsibilities.

A sentence in the Robbins report—which contains, incidentally, probably the best discussion of what diversity in the system means—states: There should be no freezing of universities into established hierarchies—the organisation must allow for free development of institutions at all times". Free development—changing roles, changing functions—is one of the joys and challenges of being in a university. The freezing to which the Russell Group refers worries me. I should like to live long enough to see the Russell Group—perhaps it should move to a different hotel—interesting itself in the remainder of the university system.

I have nothing to add to what has been said about funding. Higher education is a public good and. therefore, public funding has an essential role. I wish that I could follow the noble Lord. Lord Renfrew—he is so right that the ideal solution is central funding all round—but every time I read a new paper on the graduate tax or top-up fees I change my mind. They all have disadvantages; they are all divisive; none of them promises the universities what they really need. I shall say no more except that we shall all have to read the White Paper. I hope that it will be possible under the procedures of the House to establish some kind of an informal—or perhaps formal—group and to use the expertise here to discuss these various options.

I end by saying that I shall not approach the White Paper with the greatest interest in graduate tax versus top-up fees and the mix of bursaries, grants and so on that are on offer; I shall approach it on the following criteria. First, as the noble Baroness, Lady Warnock. said, do the Government now accept that the universities are part of the seamless web that is the education system and cannot be separated from it? Secondly, do the Government now accept that it is time to treat universities as less of a nationalised industry, with central planning confined to a benign relationship between HEFCE and the universities?

Thirdly, do the Government accept that it might be better to drop the 50 per cent target and to replace it with a specific target for the working-class population, of which at present only 14 per cent enter university? Let the target be not 50 per cent overall but, say, 30 per cent for the two lowest social groups. Fourthly, and finally, do the Government accept the need for the various funding arrangements that ensure quality? We want more in the White Paper than merely clever options on inadequate funding schemes.

6.33 p.m.

Lord Alexander of Weedon

My Lords, A is a privilege to follow the noble Lord, Lord Moser, who continues to make such an outstanding contribution to education. I, too, apologise to the noble Lord, Lord Baker, and to the closing speakers—particularly to the Minister—that, because of a speaking engagement, I shall unavoidably have to leave before the end of the debate.

I declare an interest as Chancellor of Exeter University, a university the finances of which are tight but which, within current restraints, are in good order. We are making a conspicuous contribution to the economic and social life of the South West with the new Peninsula Medical School, the Combined Universities in Cornwall and contributions to innovation in business. We also are enhancing international disciplines, particularly important Arabic and Islamic studies.

We are popular with students—this year alone there has been a 25 per cent increase in applications; our record for employability of graduates is high; and our campus is one of the most attractive in the country. But, for all I hat, the availability of increased funding will be, for us as for others, absolutely key if we are to deliver excellence and international competitiveness.

I share the view of other noble Lords that the treatment of our very fine academics is shameful. As the noble Lord, Lord Desai, pointed out, given that they are asked to teach ever more students for an ever diminishing salary, is it not remarkable that that has not caused a great diminution in the quality of research? But, even though it has not happened yet, it remains a very real danger of the present pressure we put on academics.

Several noble Lords commented on the pressures imposed on funding by the target placed by successive governments to get 50 per cent of school leavers into higher education. I suspect, as do others, that the target is too high. I am sure that the resulting under-funding of universities as a whole is undoubtedly far too high a price to pay. To support the higher education of extra students, we are in real danger of creating a spiral downwards into mediocrity.

I hope that it is not old-fashioned or unacceptably elitist to say that society must above all in higher education be alert to encourage its most promising talents. In saying that, I declare unequivocally my support for equality of access. My own parents—retired tradesmen—could not have paid for me to go to university. The very thought of top-up fees would have made that quite impossible. I was fortunate that I was eligible for a full state grant in those roseate, halcyon days when I. went to university.

I do not believe that the Government's dash for growth in absolute numbers is equalising access. Indeed, the evidence is the other way. In 1994, 77 per cent of children from the highest social class went to university and, as the noble Lord, Lord Moser, said, only 14 per cent of those from the lowest social class. In spite of the absolute growth in numbers, those figures are unchanged today.

Against that background, I believe that it is fundamental that as a society we should not contemplate any deterrent at all to bright youngsters going to university. Students are graduating already with debts of up to 15,000. I know from our own guild of students that some robustly shrug this off as a problem they will handle when they get a job; others try to minimise the debts by paid work in term time and on vacation. But some are simply frightened by the risk of debt, and students in our guild undoubtedly believe that top-up fees will be a deterrent.

As has been pointed out, they will be a deterrent to those who are sometimes called "middle classes.' when in fact we are talking about people in middle income groups—groups on which there are considerable pressures if they have a number of children; groups who are fearful about the current state of pension uncertainty and whether they will be able to find fees for their children out of taxed income. The Government have said that they will not increase the headline tax on income, but the ability of these groups to find these fees is very questionable.

I recognise that the funds have to be found from somewhere. I do not have a perfect suggestion but in Australia. as I understand it. there is a state-run loans scheme which can cover much of the cost of a degree. The graduates pay their loans back only if they have reasonably high incomes when in employment. So the students need not be put off by fears that their chosen job may be less well paid. Incidentally, as I understand it, there is no evidence from the Australian scheme that the social make-up of students has changed for the worse.

So, a sensitive scheme—a properly phased scheme for repayments—might be acceptable. But we have to be very careful to avoid the deterrence and the perception of a deterrent, as has been mentioned, by simply imposing straight top-up fees without the most sensitive ways of providing that those who have to take out loans to pay them need only repay those loans—whether from some form of graduate tax or otherwise—when they are in employment.

In a recent, typically trenchant editorial, the Economist stated: Britain's universities, the nurseries of the next generation's brains, are being ruined, and the government is doing nothing to stop it". At this point, enter Mr Charles Clarke. I welcome his arrival as Secretary of State. He is someone of fine educational values and courage. I hope that he will devise a solution that is consistent with the values that he cherishes and that he will use his courage to take on the Treasury.

6.41 p.m.

Lord Livsey of Talgarth

My Lords, I bring a rather different perspective to the debate. I have admired the contributions made. My mother was widowed when I was aged three. For the rest of her career, she financed—jointly with the state—my education.

I want specifically to discuss the situation in Wales, and also the macro-problem of funding all universities. Being analytical, there are two major points to be made. First, are we sure that current output targets for the numbers of students to graduate are realistic? That point has been made by many speakers. Secondly, are we boxed in by artificial restrictions, imposed by taxation limits, which have reduced resources for education? I am sure that that is the case.

Clearly, a reduction in the numbers of students targeted for graduation would lower the overall cost of university education and a modest increase in taxation, say, of 1p or 2p in the pound, would create more resources. Both, acting together, could help to solve the funding problem in the university sector.

The 50 per cent target in terms of numbers of those of university age is unrealistic. For a start, the results of a recent survey demonstrate that only half of those in this age group know what 50 per cent actually is! Of the 50 per cent who do know, not all are university material. At least 15 per cent are better suited to technological, two-year, sandwich-type courses with hands-on practical work experience which would enable them to earn good money while they were studying instead of moonlighting, as happens at present, to pay off their student debt. A two-year course is less expensive and could in time be transferred to a full degree during a lifetime of learning if such is required later in their careers.

I have been involved in multinational industry, in managing estates and in further and higher education. I have been fortunate to have such a varied career. The courses that I taught as a senior lecturer were the two-year style courses that I mentioned. The students had no difficulty as regards employability. They have done very well on the whole.

At present, the University of Wales still has a federal structure. There are four university colleges, plus a new one, plus the University of Glamorgan—six in all. The principle of my party, the Liberal Party in the 19th century and the Liberal Democrats now, is equality of opportunity. In Wales, we have a tradition of creating our own universities. Collecting moneys from the pennies of the people to found the universities meant a much more egalitarian education system. Access for students, many from poor backgrounds, in the 20th century—by means of publicly funded grant aid—made university education affordable and accessible to many people in Wales. Our universities have achieved world-wide renown.

Responsibility for education funding in Wales was transferred from the Department of Education to the Welsh Higher Education Funding Council and is now with the National Assembly for Wales. The National Assembly government are keen to promote continuing affordable and accessible university education. They reject top-up fees outright, first, because they narrow participation, and, secondly, because up-front student fees deter both those who can pay and those who cannot. They deter both groups and create disincentives in the process.

The Welsh Assembly government, in which my party is a partner, believe that we now need Assembly learning grants. These have been created to provide incentives for students. The Rees committee was set up, and it too recommended the creation of learner maintenance grants. These will ultimately enable the abolition of student tuition fees in Wales. Indeed, aspects of means testing are presently being considered.

It is interesting to note that in 1997–98 in Wales expenditure per student was £4,586; in England it was £4,577 per head. By 1999–2000 it had risen in Wales to £4,728 and in England to £4,866. After three years of Assembly government, in 2001–02, expenditure per student in Wales was £5,253; in England it was £5,257—identical; we had managed to bring the figure up to that level. In Scotland, expenditure per student is £6,361–21 per cent higher than in Wales. We believe that more expenditure on research in Wales is necessary. We shall certainly have a deficit in the funding of resources for research at the present time.

In relation to the whole of the United Kingdom, I want to make two important points. The first is the position of students. Most students these days are poor. Most are in debt after taking out student loans. What a legacy from a generation who were educated for free, by means of grants, to impose on the next generation! Students are skipping lectures—many are often too tired to attend because they have been working overnight. There are ever larger lecture groups, but at the same time students are dropping out.

The staff of universities and higher education establishments are the subject of a 2.3 per cent pay increase. As many speakers have said, academic staff receive very poor pay. Before I entered the House of Commons I was a senior lecturer with a Master of Science degree and was paid only the same as a police constable. I note that the situation is precisely the same now for lecturers. They are on the kind of pay scales that I was on before entering Parliament 16 years ago. Forty-five per cent of all staff are on short-term contracts—just think of that. What does that do for their morale? At present there is little job security for them. They need a pay review urgently and a better structure in their chosen career, which is vital in ensuring that the next generation is properly educated.

To sum up, my party and I reject top-up fees. They will reduce participation. They will create disincentives and deterrents for poorer families' children to go to university and will create a two-tier education system for universities. A Cubie-style Scots system of graduate tax would ensure the abolition of tuition fees and more participation by a more mixed, diverse student population. The funding gap, which is the big problem, can be closed through higher taxation, revision of university target numbers, the introduction of technological degrees and HNDs and work experience. The impact of student loans must be examined. Such a programme would give quality and affordability and ensure a fair system for students.

6.51 p.m.

Lord Charley

M y Lords, I intend to restrict my comments to the single issue of pay levels, which was referred to by the previous speaker and many others, including the noble Lord, Lord Baker of Dorking, in his outstanding opening speech. My starting point is the observation made by the noble Lords, Lord Livsey and Lord Renfrew, that the top level of pay for a university lecturer is now the same as that for a Tube driver. A lecturer's starting level, perhaps six years earlier, would have been around £20,000. Before that, he would have been carrying out a postgraduate PhD or other studies, trying to eke out an existence on a grant of around £8,000 a year.

I asked an academic to whom I talked about the situation of a lecturer who has taken out a loan as a student. The answer was simple: he would not have to repay the loan because his pay level is below the minimum threshold. There he would be, in his thirties, on a terribly low salary, with a loan around his neck—it is not forgiven. How would he ever get into the housing market to secure a mortgage for his family? What a way to incentivise some of our country's best brains.

The problem with academic pay levels has a very long history of deterioration, which has been accelerating. In 1905, a professor was in the top half per cent of the population in salary terms. By about 1950, a junior professor's salary was in the top 2 per cent. In the past 10 years, professors have been in only the top quintile. It was pointed out earlier that in the 1980s academics have averaged a less than 10 per cent pay increase in real terms compared with 35 per cent for NHS doctors and teachers, for example. The Dearing report recognises the problem of decline in academic salaries. The subsequent Bett report in 1999, which has not been mentioned, covered the subject in much greater detail. It confirmed the trend and noted that pay levels of HE staff were significantly below market levels for equivalent employment in other sectors.

Comparisons are only one measure. We need to look for other indicators, even though they are often difficult to handle; for example, recruitment and retention. A report commissioned by HEFCE and Universities UK and published last May notes that recruitment and retention difficulties for both academic and support staff have continued to worsen year on year since 1988. The report quotes quantified figures as supporting evidence.

A separate report a year ago on London higher education institutions by the London Higher Education Consortium confirms this and highlights the serious problem in London. Academic wastage has averaged 16.3 per cent over the past five years. That would surely be considered a rather high figure for middle and senior management in industry. The really serious difficulty is recruiting in the fields of computing, IT, accountancy, finance, marketing and law. Predictably, London housing costs are a, huge difficulty for younger staff and a deterrent to otherwise well qualified staff outside London". I am told that the poor career prospects for academics is reducing the number of good PhD candidates. Nor is the prevalence of short-term contracts for researchers and junior staff a satisfactory working arrangement for tenured senior staff. Life is becoming hand to mouth.

These reports must be set against an AUT estimate that the HE sector will need an extra 40,000 staff over the next eight years. The figure has been mentioned before, and I suspect that it is generally agreed. That is to meet the normal retirement wastage and to provide the teachers to meet the Government's 50 per cent target, about which we have heard so much. One wonders at what stage the Government will sit up and take notice. It seems that we have got things the wrong way round. We have chased a policy goal of student numbers—almost every other speaker made this point—and we are still chasing it, with, incidentally, little, if any, economic rationale. As a result, we have hugely damaged the institutions on which this burden has fallen. To quote the Economist: Since 1989, funding per student has fallen by 37% in real terms, while student numbers have increased by 90%". I note, en passant, that, if the fashionable argument for pay increases, the only argument acknowledged by the Treasury—namely, productivity improvements—were to be advanced, the dons would have a good case. On these figures, their productivity has been prodigious since 1989. If a widget company were to achieve such figures, it would be the darling of the Stock Exchange. Noble Lords may detect a touch of sarcasm in my voice.

What is to be done? Sometimes I wonder whether there should be a pay review body for HEIs. After all, doctors and dentists, nurses and the Armed Forces have one. But the Bett report did the job anyway. Incidentally, it had many useful things to say about human resource management in universities. After all, Sir Michael Bett was the chairman of the Nurses Pay Review Body. But, I am told, very little of it has been implemented. In the 1980s, I was a member of the Top Salaries Review Body. It was a profoundly unsatisfactory experience. I was far too close to the irrational and dead hand of the Treasury, which is today far worse than it was 15 years ago. It now has an extraordinary obsession for micro-management, as the noble Lord, Lord Moser, who is not in his place, also mentioned. The closer one gets to it, the more dangerous the pay review body will be.

If we are to have decent universities, let alone world-class ones, we need either to have fewer students or to find much more money by whatever route. Having listened to this debate, my inclination would be towards top-up fees plus bursaries. I do not mind about means testing. It is not just about academic salaries; adequate human and physical infrastructure support is needed. The incomes per student at Harvard and Yale are, respectively, 4.5 times and 3.2 times that of Oxford. Those are huge differences. Surely we must aspire to that if we are to have world-class universities.

I end by reminding myself of the old saying, "If you pay peanuts, you are likely to get monkeys". I hope the Government take note and I look forward to a White Paper that will deliver funding.

7 p.m.

Baroness Carnegy of Lour

My Lords, I rise with diffidence; my only interest being that I have the privilege of honorary degrees from three universities, in which I take a specific interest.

Now that the funding of Scottish universities is the responsibility of the Scots Parliament, it might appear to be a separate consideration with no place in this debate. On the contrary, I do not think that I am alone in Scotland in believing that Scotland's problems cannot be separated from those south of the Border. I shall explain why and suggest that there is one feature of universities in Scotland that might be further extended south of the Border with advantage. I do not know what noble Lords will think about that.

The noble Baroness, Lady Warwick, pointed out that the hole in university finance stretches across the United Kingdom. That of course is true, but otherwise the situation in Scotland is somewhat different, as many noble Lords know. I am sure that the noble Lord, Lord Sutherland, who knows much more about the situation than I do, will address that later.

The Government's aspiration of 50 per cent already more or less exists in Scotland, for good or ill. To see the effect, noble Lords should look to Scotland to decide whether they think it is a good plan. Fees are deferred and paid after one leaves university. Some 90 per cent of Scots students go to Scots universities and only 10 per cent go south. There are more higher education institutions per head of the population than in England and more higher education courses in further education colleges. More students live at home and travel daily. The Scottish Higher Education Funding Council funds the whole of higher education, not just universities.

The black hole in finance apart, the differences in Scotland are considerable. Probably wisely, no Scots higher education institution, as far as I know, has come out publicly in favour of any particular way of raising extra non-government finance for higher education. There is, after all. a Scots Parliament election next May.

Only the Deputy First Minister, Mr Jim Wallace. on behalf of the Scottish Liberal Democrats, has said, as the noble Lord, Lord Livsey, has just said, that they will totally reject top-up fees. However, should greatly increased funding begin to flow into universities in England and Wales and not into Scotland, by way of top-up fees or any other scheme, freedom to set higher salaries south of the Border to employ more high quality academics might well start a serious academic flight southwards, at any rate from universities such as Edinburgh, Glasgow, St Andrews, Aberdeen and Dundee, and would make it even more difficult for those universities to compete for academics from abroad. Much depends for them on being able to do that. More Scots students attracted to better-off universities south of the Border would much resent it if they did not qualify for the higher level of loans that might be available in England because of, say, a top-up fees system. Conversely, students from south of the Border might be less willing than now to apply to universities in Scotland that would be less well equipped. That would be a tragedy for Scotland. Incoming students, many of whom stay on with us or return to work in Scotland, are hugely important to the economy and culture north of the Border.

Higher education arrangements across the United Kingdom are clearly closely interlinked. Surely the funding systems must reflect that. I want to ask the Minister a question about the vital point in a moment.

A feature of higher education in Scotland that might with advantage be given greater emphasis in England is the ease with which students can progress from further education to higher education. For the less academically able, to go to university straight from school, or indeed some years after leaving school, can be difficult. That is where a lot of the drop-out comes about. To begin with a sound further education qualification and then proceed to a degree is a much easier transition for many. The dovetailing of further education and higher education courses and the way a further education certificate or diploma can take a person into, say, the second year of a related degree course is particularly well developed in Scotland.

The Open University illustrates that. In Scotland in 2000–01, 23 per cent of all undergraduates enrolling for Open University degree courses had as their highest previous educational qualification a further education HNC or HND. Interestingly. in the United Kingdom as a whole, the figure at the Open University was only 11 per cent—less than half. The Open University in Scotland, finding the further education route such a useful way to degree study, has just produced a detailed publication showing precisely how a person's particular further education qualification can provide a head start to an Open University degree while he or she continues in work. As a cost-effective way to widen participation, reducing the numbers who drop out and increasing the numbers who do well, such further education routes surely need further development across universities in general. They would also help to solve the problem of too many graduates having difficulty finding work and, as happens in Scotland, too few really well educated people who are, say, plumbers or joiners.

I come back to my question for the Minister. Do the Government accept that, despite devolution, any decision on how to bring in increased funding in England and Wales will inevitably have massive implications for Scottish higher education? Before their proposals are published, will the Government therefore consult the Scottish Executive? It would seem extremely unfair on Scotland if the Government made devolution an excuse to pay no attention to what the Scottish Executive is thinking.

7.8 p.m.

Lord Hannay of Chiswick

My Lords, the debate is timely, if not overdue. I thank the noble Lord, Lord Baker of Dorking, for the initiative that he has taken. There is now a much wider understanding than there was some months ago, when the noble Lord, Lord Dearing, initiated a similar debate. As a number of us in the House with connections with higher education—O declare an interest as Pro-Chancellor of the University of Birmingham—have been saying, all is far from well with Britain's universities, and in particular with the lack of financial resources available to them.

I shall not try to drown the House in statistics. The universities say that if they are to play their part in the Government's agenda of widening participation, of moving to 50 per cent of the population in higher education and of maintaining world-class universities, as they would wish to do, they need £9.94 billion of additional resources in the years ahead. It is important to understand that that figure has not simply been plucked out of the sky, nor is it a compilation or padded wish list of the universities' own making. It is a figure costed with the Government's own methodology and designed to meet the Government's own targets. I should be grateful if the Minister would confirm that point when she replies to the debate.

The hard fact is that this country currently spends a fraction over 1 per cent of its gross domestic product on tertiary education, while many of our main competitors spend far more—in the case of the United States and Canada, more than twice as much. In a fiercely competitive market, where our priceless asset of the English language gives us a head start, that is no way to ensure that we continue to have world-class universities.

A fierce debate has broken out—indeed, it has surfaced a good deal in this House and during today's debate—as to how any substantial increase in resources for higher education is to be funded. Is it to be funded out of general taxation, as is the case with the health service and primary and secondary education? Alternatively, is it to be funded by top-up fees, and, if so, how does one avoid damaging the objective of widening participation? Is it to be funded by taxing graduates when their earnings begin to reflect the undoubted benefits that they derive from a university degree?

This is an uncomfortable debate for the universities, although I note that not everyone feels uncomfortable about it. But it is uncomfortable because it causes tensions in their relationship with their students and also in their relationship with their students' parents, without whose backing many will either not go to university in the first place or will not last the course. In a sense, in any case, it is not the universities' call. It is not they who have imposed constraints on the fees that can be charged. It is not they who can loosen those constraints. It is not they who can decide the level of taxation and of public spending on higher education. These are matters for the elected representatives of the people in Parliament to decide. I will not, therefore, go any further into that aspect other than to say than: I find it hard to believe that any one of the funding options for additional resources will provide a full, effective and equitable solution. I suspect that there will in fact need to be a judicious combination of several of these different elements.

However, I should like to make one or two other points about finance and the universities. First, we need to recognise that any radical shift will not only be contentious but it will also take time, perhaps quite a long time, to bed down after it has been introduced. During that interim period, which could be several years, the universities must not just be left to their own devices, saddled with demanding targets that they do not have the resources to achieve. There must be bridging resources to ensure that the universities, to which any new system will apply, are not bled white in the meanwhile. Perhaps the Minister can say whether the Government accept that need for a bridge to get to wherever they are going to lead us.

Secondly, we need to ensure that the widening participation agenda is not damaged by arty changes, indeed that, if possible, it is strengthened. For all the efforts in this respect so far, the results are still rather meagre. The last thing we want is for a kind of planning blight to descend on the widening participation agenda. Thirdly, we need to ensure that the burden of student debt does not become greater. The strains imposed by such debts already weigh heavily on many. Getting some work experience while a student is a laudable objective: but it must not become a primary consideration for students at the expense of their studies. Fourthly, the universities must be helped to pay their staff a fairer wage. If they do not do so, the haemorrhage as people go off to greener pastures will continue, and the universities will lose their most vital capital asset—their academics.

There is one other measure that the Government could take to help universities during this difficult period: they could reduce the burden of bureaucracy imposed upon them. When I first entered this sector, it was truly horrifying to me to find just how much highly-skilled labour—I almost said "highly paid", but that would be an oxymoron in the university field—has to be put into meeting the demands of red tape. The Research Assessment Exercise, which was completed last year, was a case in point. It took an enormous effort in order to achieve a financial benefit that left most universities precisely where they were before they started. Running hard in order to stand still did not make a lot of sense to Alice, and it does not make a lot of sense to universities.

So far, the Government's response to the problems of the universities has been, I have to say—I get no pleasure from this—dilatory and inadequate. We were first told to wait for the outcome of the Comprehensive Spending Review in July. When it carne, there was some good news for scientific research but not much else. We were then told that we should have to wait until the autumn, which the noble Baroness who is to respond to the debate defined, perhaps a little generously, as "late November". Now we are told that the 10-year strategy White Paper will be unveiled in January. Well, it may be worth waiting for if the new Secretary of State really has used the intervening time to bring his undoubted intellectual and political skills to bear on a part of his empire that has hitherto been somewhat neglected. But it will only be so if he also uses that intervening period to consult the universities on the way ahead. So far, such consultation has been more notable by its absence. But I was glad to hear the noble Baroness, Lady Warwick, say that that was now being remedied to some extent.

The Government and the universities are ineluctably locked into a public/private partnership, in which neither can succeed without the wholehearted co-operation of the other. It would be good if 2003 could see us both getting onto a new footing and working together for our shared objectives. But that cannot be achieved unless the universities are given access to increased financial resources.

7.16 p.m.

Lord Lucas

My Lords, I believe I am the first speaker who has no connection whatever with a university other than having attended one. Therefore, I approach this producer-dominated lecture that we have received today with great cynicism. The university sector is one with which I have a number of long-standing quarrels. Universities are totally inadequate in what they do to encourage participation from the lower social classes. Indeed, that was well illustrated today by the noble Lord, Lord Watson, who talked about the German course at Oxford. How many young people brought up in the back streets of Manchester want to learn about the origins of German? If they want to learn German, they want a practical course—something that is concentrated upon enabling them to understand Germany today.

If you want to study architecture at Cambridge, you have to read a huge pile of books on the subject before being accepted. You must have an enthusiasm for architecture. That is not required if you are studying physics: you are just asked to pass the exams. Again, that is another barrier placed in the way of young people who do not come from the sort of background from which both Oxford and Cambridge are accustomed to getting their students. There is a great deal more that can be done in that respect.

I am also extremely cynical about this wish of the universities to be freed of any kind of tie in terms of their funding. They want to be funded by the Government, but without any responsibilities to government or to the public. To my mind, universities have been very slow and extremely inadequate as regards the sort of information they supply to prospective students on what they might expect to receive in later life as a result of the degree course for which they are now being asked to pay very substantial sums of money.

I do not approach this debate as a natural friend of the universities. However, judging by what I know and what has been said today, I am totally convinced of the case that has been made for more money. It is clear that we have let university funding deteriorate over the past 20 years to the point where we are seriously threatening the quality of our universities and the education they provide. It does no good for the Minister, Margaret Hodge, to say that there is no danger. That is what the Government said a year ago about A-levels; and now that storm has broken. We are not far away from the storm breaking point in terms of university education, especially if we are to impose additional financial burdens on students.

It is ridiculous to quote a figure of about £440,000 in relation to what a university student gains from attending university. If that was ever true, it was so when 10 per cent of us went to university. It cannot possibly be true when 50 per cent of us attend university, and when so many profitable trades are ones that can be reached without a university education. It is a false prospectus, and one for which the Minister would be strung up in front of the authorities if it were a financial rather than an educational prospectus.

Now, when there is a great deal of ferment about what should be done and when there appears to be a good deal of chaos within government about the way forward, we need to take action. To my mind, this is a time of great opportunity. We can now settle upon something that will set universities on the right path. There is a chance for all sides in this debate to think both radically and differently. We can come to a conclusion that will suit us all and leave us in a position that I believe every speaker in this debate has wished to achieve—one where our best universities are on a par with those in the United States and where our more run-of-the-mill universities, if I may so describe them, are providing excellent education to the young people whom they are educating through the kind of courses that they require and at prices that arc not the same as those that apply to someone attending Oxford and who will subsequently gain employment as a merchant hanker or as an economist at the LSE.

Why should someone ending up as a perfectly good social worker from a very good course in social work at one of our universities have to face the same burden as someone going on to a much more highly remunerated career? That just does not seem fair. I think that we can achieve a system in which there is fairness, quality and vitality and in which the universities are much more answerable to their customers and pupils.

If we are thinking that 50 per cent of students should go to university, we are not so far away from the idea that we can provide everyone with an entitlement to a state-funded education beyond school. They could take that entitlement whenever they wanted. It would he a fund into which a 30 year-old, for example, could dip in order to climb a rung or two in plumbing or in any other profession. The facility could be provided to everyone and there would be no rush to take it at 18. It could be used at any stage in one's career. ILAs were a step in the right direction, although the programme was mismanaged. We could continue in that direction if that programme were re-established.

We can address the issue of equality by offering the same thing to everyone at a basic level. Clearly, education is a public good at a certain level. However, it is not at all clear that educating a merchant banker is more of a public good than educating a plumber. Indeed, I have rather more use for plumbers than for merchant bankers—an occupation in which I spent a good deal of my life. It is time to embrace the need to educate everyone and to produce an education system that is basically equal. That is the function of government grants, and that is the function of access funds and of supporting those who need funding while they are being educated. Everyone should have access to that.

Beyond that, I favour a graduate tax. A graduate tax and a graduate loan are different in only one respect. One can contrive a graduate tax that looks like a graduate loan in every respect but one—the absence of debt. Although I know that I shall be paying a substantial amount of tax over the next few years, I do not think of that as a debt. If I had the same debt and had to repay it over the next three years, it would weigh much more heavily on me. That is the only natural difference between a graduate tax and a graduate loan. It is much better and much less frightening for a student to be faced with the idea that they may have to pay a little extra tax when they are doing well than to face a debt on leaving university of £10,000, £15,000 or £30,000, as they do now. I know how heavily such debt would weigh on kids struggling to get by in London on £20,000 to £25,000 while working their way up through a relatively poorly paid profession. They need to be free of this debt. None of us minds the idea of paying a hit of tax. We can cap a tax or start it at a particular level. We could make the repayment profile exactly the same as that for a loan but without the debt. That is why I like the idea of a tax.

Specifically, I would make the tax a right of the university, with the Government there merely to collect the tax. The university would be entitled to the tax only when it was collected. A university would therefore receive only its entitlement to the graduate tax based on the quality of education it had provided. The universities would, with certain restrictions, also set the terms. So an Oxford graduate tax could start from a higher level and be greater than the tax for a degree in social work from the University of Bradford. Students would see the tax as part of the overall package. I could go to Bradford and pay a 2 per cent graduate tax commencing when I was earning 14,000 annually, or I could go to Oxford and pay a 5 per cent tax commencing when I earned £30,000. The tax could be set by the university, and the university would be entitled to the money when it was collected.

As no university would want to wait all those years, universities could first ask pupils on graduating whether they wanted to buy themselves out of the tax. They might say, "We will not charge you this tax if you pay this sum now", but the graduates would still have the option to let the tax continue. Oxford could even say to investors, "Will you buy an Oxford graduate tax bond, fund us now, and receive money from the tax in future?" It would be a jolly good investment.

That would apply to certain universities and to certain courses—as it would to some courses at the University of Hull, for example. Hull has some wonderful courses, and it has some courses which I might not rate so highly. However, pupils would clearly be willing to pay highly for its politics and drama courses. It could charge a heavy tax for those and expect to do well, whereas it might not do so well in other courses. The position could shift and change over the years. The universities could set the tax, which would he much more responsive to the market.

7.25 p.m.

The Earl of Mar and Kellie

My Lords, I am most pleased to follow the noble Baroness, Lady Carnegy of Lour, who has so admirably set the Scottish scene and thereby relieved me of the need to do so. I am intrigued by the title of the debate, on British universities, for I am also under the apprehension that universities in Scotland—like research councils in Scotland, as a footnote—are a devolved matter. However, as this is a debate and not legislation, there is probably no harm done.

Scottish university funding is influenced by a hypothecated sum in the Scottish block grant. As that is a reserved matter, the United Kingdom Government can be held to account for it. Noble Lords will be aware of the Scottish variation in the approach to student care, about which I shall say a little more later.

Scottish universities have always been different. They are retained pre-Union institutions specifically excluded from the Act of Union. More recently, at the end of the 19th century, the financing of Scottish secondary education caused the establishment of the Goschen formula. The above-average and enthusiastic take-up of secondary education by the Scots had already manifested itself in Scotland's supply of technologists to the British empire and to the world. That must have had a knock-on effect on the take-up of university places.

By the 1960s, higher education was surprisingly well supported by the state. I was a college of education student from 1968 to 1971, albeit on a social work course, receiving the minimum grant of £50. I recall paying a total of £73 a year as annual fees. I also recall that most young people did not attend higher education, with only 10 per cent, I believe, doing so. The number attending higher education has more than quadrupled since the 1960s. As has been widely remarked, the UK Government now seek to increase the number to 50 per cent. I have no objection to that goal provided that the students have the necessary ability.

It is long established in Scotland that ability and talent should be developed wherever they manifest themselves. So we have the tradition of the "lad of parts"—a youngster of humble origin with talent. Local landowners would club together to enable the education and development of the local population. So, in Alloa, for example, in the mid-18th century, Abercrombie of Tullibody, Lord Cathcart and John Francis Erskine—the restored Earl of Mar— clubbed together to sponsor David Allen, the portrait and landscape painter nicknamed the Scottish Hogarth and one of the sons of the harbourmaster in Alloa. They sponsored him to go to college in Italy to develop his skill and ability as a painter, benefiting not only David Allen but the whole of cultural Scotland.

Albeit limited, that was a 19th century solution. In the 21st century, we must ensure that all talent is developed in whatever home it evolves. Such an objective will always be in the interests of the individual, the family and the economy, and it will always enhance the well-being of the locality, the nation and perhaps the world. As one trying to be a Scottish internationalist, I must believe that the Scottish Enlightenment—that great legacy of the 1706 treaty, and a product of permanent peace with England—did not end in the 18th century, but must be encouraged to continue.

I have little resistance to the idea that government financial support for higher education should increase. Trying to live up to being a social democrat causes me to believe that we all benefit collectively from human individual success and thus we should not be shy of contributing towards the launch of that success, and nor should our governments.

I read the article by the noble Lord, Lord Baker, in the Daily Telegraph this morning and noticed a parent's letter below it complaining about a son who received only five hours of lectures per week and was thus left to educate himself. I think it is worth reflecting on the fact that merit, an identifiable commodity, is the marriage of intelligence and personal effort.

Finally, in Scotland we have gone our own way, as is our ongoing destiny and right. My honourable Scottish friend, Nicol Stephen, as junior Minister for higher education, has ended tuition fees for Scottish students and has brought in a graduate endowment tax. Maintenance grants in the context of hardship have also been introduced. I always preferred that Scottish approach because it views the student as an adult rather than as a dependant. The graduate endowment of £2,500 is collected as the individual begins to earn, irrespective of the financial circumstances of his or her parents. The availability of maintenance grants in the context of hardship is a recognition of an unfortunate reality but does not compromise the treatment of the student as an independent adult. The graduate endowment tax is subsequently collected and, of course, is used to make the funding of maintenance grants self-sustaining.

The most urgent issue in Scottish education is, in my view, not the take-up of further and higher education—there is a strong tradition in many families—but the attitude of other families to education, in particular to the education of boys. There is little demand for "braw laddies" and there will be even less so in the future. All families must come to see the need for their children, particularly their sons, to embrace education and training.

A worrying symptom of this is the collapse of the school board at Clackmannan primary school, a school with 350 pupils. No parent is currently prepared to be on the school board and so the board has had to be suspended. I am somewhat aggrieved as I was a co-opted member of that board. This need for a new attitude to education among some families is not something that government can put right themselves but governments can help with change in social attitudes. This is always a slow process but, in the context of education and training for the less than brilliant, myself included, it is the most urgent of tasks. The desired knock-on effect will, of course, be greater demand for further and higher education places.

7.33 p.m.

Baroness O'Neill of Bengarve

My Lords, I, too, thank the noble Lord, Lord Baker of Dorking, for initiating this debate in every sense of the word.

I have several interests to declare. My first interest is that for the past 25 years I have taught in the British university system. On hearing the comments of several noble Lords I am not sure how much of an interest that is. I am also Principal of Newnham College, Cambridge. More relevantly in the context of this debate, I am a trustee of the Isaac Newton Trust which I believe has constructed the most extensive system of undergraduate bursaries for students with less affluent parents at any British university. We give students at present up to £1,070 a year—coincidentally, it is the same as the tuition contribution—if their parents are exempt from the tuition contribution.

In consequence of that experience I may bring to the debate a little realism with regard to the modish phrase "top-up fee" which I believe is a great obstacle to clear understanding. There was a time—I am sorry to say that it was during the Thatcher years—when universities were supposed to achieve something called "efficiency gains". At first we believed that such a thing was possible. Then it became rather bad manners in most universities not to refer to efficiency gains by their proper name, which is, of course, cuts.

Now we talk about top-up fees. I believe that most noble Lords have referred to them. It is a term of art which means a top-up from an arbitrarily set level of tuition contribution, introduced during the first term of the present Labour Government. That arbitrarily set level implied that those students who paid the top-up fee would be in receipt of a large subsidy towards the costs of their university course. Means testing conducted by local authorities decided who paid and who did not. On the basis of some revisions of the means testing, a measure that came into effect about 14 months ago, those with family incomes—that is, parental income—below £20,000 are totally exempt from making any tuition contribution. There is then a sliding scale and the full contribution—I believe that it is now about £1,070—becomes due only when parental income reaches about £28,000. Our present situation is that no fees are paid in England by those families where the parents earn less, and that very small fees are paid by families where parents earn more.

I do not believe that anyone has produced an argument why starting from this curious and arbitrary base level should be called a "top-up fee" or should he associated with any particular sort of iniquity. The real iniquity in my view and the aspect that damaged poorer students—several noble Lords have mentioned this—was the abolition of the grant. The difference in the monetary sums involved is the crucial issue. For a three-year degree course those families who pay the full tuition contribution will contribute the sum of £3,300—or a little less. It is a very small fraction of the costs. They will also have to provide—or else their children will take out loans, which I shall come to—around £12,000 or perhaps more in maintenance costs. But those from poorer families will still have to provide £12,000 or more in maintenance costs, and both sorts of families have access to loans which are given on concessionary terms.

So the curious result of these reforms is that better-off families receive concessionary loans for maintenance. When I put my two sons through university on a university salary we did not get a maintenance grant—we were just outside that band—and there were no concessionary loans. So what has happened in the past five years has been to the benefit of better-off families as regards maintenance costs although it has required them to make the small tuition contribution. What case can there be for not having a unitary view of the costs of tuition and the costs of maintenance and for not means testing all the way through? Why are we providing loans on concessionary terms to the best-off families?

The one phrase that I have not heard in the debate yet, which I think is a crucial one, is "means blind admissions". That is the term used in the top United States universities which we should like to follow in certain respects. That does not mean that the student and the student's family make no contribution, but that a scheme is in place that enables everyone, regardless of family background, to undertake a course given willingness and effort—indeed, effort by the family as well. I believe that that would be a reasonable objective for us whatever mixture of loans or graduate tax or up-front payments by families we look to. What matters is not in some way to hamstring universities by the false assumption that it is reasonable to provide the same fractional costs for each student, and then top up with a fee grant that is a crude measure of the relative costs of courses; we need to look at means testing the whole lot.

What would that involve? We should remember several points in this regard, which will differentiate students of equal parental income. We should remember that some courses are much longer than others. which greatly alters tuition and maintenance costs. We should also remember that some very long courses lead into low-paid careers. I refer in particular to people going into the sciences—not all of them become enormously successful biotech industrialists with many patents to their name—the academic world and, more generally, the lower paid professions. Those courses take many years and students cannot be expected to shell out for each of them. We should means test for the whole cost.

Finally, we should do some serious means testing. At the moment, local authorities do the means testing and my impression is that that is quite patchy. I believe that I can make that judgment: out of home student numbers of fewer than 400 in my college, I have more than 100 students who are in receipt of bursaries. All of those students are from families in which means testing of the parents has indicated that there is either no tuition contribution or only a slight tuition contribution.

It has been very hard to make these points without using the fashionable but deeply misleading term "top-up fee". I hope that that term will be consigned to the same bucket to which we have consigned the term "efficiency gain". That is not what the debate is about. It has, I am sorry to say, interested certain groups to pretend that the issues about fees and about maintenance costs are one and the same; they are not. The issue about maintenance costs has been of deep concern to poorer students. The issue about the tuition contribution has been of concern only to students from better-off backgrounds. I am afraid that they have wished to wrap themselves in the mantle of poverty as they argued against the tuition contribution. In those matters, I agree wholly with the noble Lord, Lord Desai.

7.42 p.m.

Lord Patel

My Lords, I, too, thank the noble Lord, Lord Baker, for initiating this debate. I am pleased, like many other noble Lords, that there is now an acceptance by the Government that universities are in a funding crisis. I declare an interest: I hold the professorship in obstetrics at the University of Dundee and I have allegiances to several other universities.

Much has already been said, and I shall try not to repeat points. I want to highlight the problem facing medical schools and clinical academics in particular as a consequence of the general underfunding of universities. As a direct consequence of the pressures on clinical academics, which are related to their other commitments—teaching, research and clinical care—the recruitment to clinical academic positions is a serious problem. Data collected earlier this year showed that there were 79 vacant chairs, which is one-quarter of all those funded by HEFCE, and they are mostly in key specialties. Also, 145 senior lecturer positions and 177 lecturer positions are unfilled. That occurs at a time when the Government have asked for an increase of nearly 44 per cent in the number of medical students. The new medical schools have difficulties attracting good quality academics to teach and carry out research. New schools have not attracted the funding that they need to develop infrastructures for teaching and research.

I say to the noble Lord, Lord Hunt of Kings Heath, that the review of education, training and research in the NHS is welcome but I hope that any recommendations that are directed at universities will be adequately funded. The universities will also be looking for greater alignment between the approaches of the Department of Health and the funding council in relation to activities involving clinical and basic medical research.

The noble Lord, Lord Baker, commented on the strength of our research. Currently in clinical medicine and in the biomedical sciences, we have a very strong base. The fact that the Nobel Prize for Medicine this year and last year was won by scientists from Great Britain is not a surprise.

Much clinical research and an increasing amount of basic medical research is also funded by medical charities, which do not contribute to overheads. Means have to be found to top up those costs; in my view, those top-up costs should be funded by the Government.

Salaries is not an issue for clinical medical academics but it is for other academics, particularly those in nursing, and to other health-related academics, whose salaries are much lower than those that could be attracted outside academic institutions. Several medical schools are having to look at significant numbers of compulsory redundancies, which will have further detrimental effects on the quality of teaching. That will have an obvious impact on the Government's human resources priorities in the NHS Plan.

I turn to the use of students fees to increase university finances. Already, students are in considerable debt when they leave university. Medical students, because of their longer training period and higher costs, have fewer opportunities to undertake paid work; on average, they have debts of between £15,000 and £20,000, as has already been said. Any proposals that would further add to that burden would detract from the numbers of students applying to medical schools.

I should personally prefer students not to have to contribute to the cost of their education but I realise that increased taxation to fund a university education is unlikely. The alternative is therefore to find some way of increasing the fees income to universities. The options have already been mentioned: top-up fees, a graduate tax or loans that will be paid back. I have personal experience of the latter. Circumstances necessitated that I obtain financial assistance to go through medical school. A loan to be paid back, rather like an endowment mortgage, was the option that I took. I should therefore favour fees being paid by all, but also being the same at all universities, and for students to have to pay them back once they have graduated.

Many noble Lords have mentioned the situation in the United States. I currently have a son at Stanford University who will pay back the tuition and maintenance costs for his studies. I agree with the noble Lord, Lord Baker. For the reasons that he stated a graduate tax is not an option that I support. Furthermore, I am concerned that once the principle of hypothecated tax is introduced, it might be used in other areas.

In conclusion, we need to address the issue of the overhead costs of research, which are considerable, if we are to continue with high quality research. I also favour the introduction of university fees to be paid back as a loan.

7.48 p.m.

Lord Norton of Louth

My Lords, I, too, very much welcome this debate and I congratulate my noble friend Lord Baker on introducing it. I also declare an interest as an academic, who spends a good deal of time trying to draw into universities students from the backgrounds to which my noble friend Lord Lucas referred.

In the few minutes available, I would like to put university finance in its broader context, as other noble Lords have done. There are several problems facing higher education. Funding is a crucial one but not the only one. Without adequate funding, universities cannot continue to provide either high-quality teaching or high-quality research. Funding is necessary but not sufficient. As has already been mentioned, it is difficult to provide high-quality research and teaching if you do not have the staff or the resources necessary to provide it. As the noble Lord, Lord Patel, has just illustrated, attracting and retaining qualified academic staff is proving increasingly difficult. It is not simply an issue of money. As I have argued before in your Lordships' House, academics are underpaid and underresourced. However, they are also undervalued and overburdened. The situation is getting worse.

The universities are carrying a growing burden without the financial resources necessary to shoulder that burden. As the noble Lord, Lord Chorley, emphasised, the unit of resource is already inadequate. Even with a small increase, it will be inadequate in future years. It is important to stress that the changes taking place in the admissions to universities are not just quantitative but also qualitative. Taking on more part-time students, mature students with family commitments and disabled students has obvious resource implications. It is not that universities are unwilling to widen participation—far from it—but rather that they are not being provided with the resources necessary to keep pace with the growing and changing nature of the demands made of them.

Furthermore, not only are universities expected to do more—much more—with less in per capita terms, they are also expected to do so against a background of excessive regulation. The noble Lord, Lord Hannay, referred to that. In a debate I initiated in your Lordships' House in March last year, I drew attention to the burden of bureaucracy on universities. About one-third of the time of academics is spent on administration and paperwork. Much of that is unproductive paperwork, not least that generated by the accountability regime that now exists. And, as I argued then, any indirect marginal benefit is far outweighed by the costs of the exercise. One study found that the accountability arrangements introduced in universities had cost about £250 million and concluded that the accountability regime represented, poor value for money for stakeholders and for institutions". One of the costs identified by the report was what it termed behavioural costs. Those included staff stress. Academics are finding the bureaucratic regime stifling and it is taking its toll. It is doing so against a background of inadequate resources and increasing demands. It is no wonder that academics feel undervalued and insecure. I notice that according to research by the A UT, casual bar staff feel more secure in their jobs than academics. Higher education staff, apparently, are twice as likely to switch jobs as bar staff. Various speakers have referred to the fact that someone starting in the academic world would probably be paid less than someone who becomes a fireman. I would note also that firemen probably have more time to undertake research.

The accountability regime does not deliver any notable benefits. The quality of teaching has not increased significantly in recent years as a result of that regime. If anything, the accountability regime is contributing to a decline rather than an improvement. The opportunity cost of complying with the accountability regime is significant in terms of teaching and research. It takes academics away from the job they do best and which we expect them to do. One does not increase the capacity of universities to widen participation and to offer a high-quality education to the new entrants by requiring staff to complete a mass of paperwork.

When I made the case last year for a light touch in terms of bureaucracy, I drew the distinction between a light touch and a lighter touch, which the Government had promised. A lighter touch can simply mean that the regime is slightly less burdensome than before. The Minister, the noble Lord, Lord Davies of Oldham, thought that I was engaging in metaphysics in drawing the distinction. To academics it is anything but metaphysical. The bureaucratic regime is onerous and is one of the contributory factors to highly qualified academics leaving the education sector.

It is, though, but one of the contributory factors. If academics are to be retained, and if highly qualified people are to be brought into the university sector, we have to create the conditions which will allow them to do that which they do best and which they want to do: that is, to teach and to research. The motivation is there. What is lacking are the tools to do the job effectively. Salaries, to which there have been several references, are only part of the problem, albeit an important part. What academics need, like most professionals, is a working environment that enables them to do their job effectively. That is being denied them. So long as that situation persists, our universities face a critical situation. We already know the amount that Universities UK estimates is necessary to sustain the university sector.

What that means is that it is not sufficient to look at university finance in terms of the amount that can be extracted from those who take up a university education. Nor is it remotely acceptable for the Government to come out with some of the unsustainable claims that have been made about student finance. As my noble friend Lord Lucas stated, we are told that graduates earn £400,000 more over their lifetime than those without degrees. That is used to justify students having to contribute more to study at universities and thus fund an expansion in student numbers. However, one does not have to be dreadfully bright to realise that with the expansion in numbers, the prospect of earning £400,000 more over one's lifetime diminishes significantly.

As my noble friend pointed out, with expansion that claim can no longer be made. The more university numbers expand, the greater society itself benefits because one has a more educated workforce, but the less the individual student benefits financially because more people in the workforce have degrees. That is a fairly obvious point but one that needs emphasising in the context of today's debate. An equally obvious point is that if graduates earn much higher salaries, they already pay a higher rate of tax.

I come back to my basic point. We have to look much more broadly at the problems facing our universities. If the Government continue to pursue the mantra of 50 per cent of the 18 to 21 age cohort going to university without addressing the consequences of that and the problems already facing our universities, then, as has been mentioned in today's debate, the situation is likely to become dire. It is no use the Government telling the universities what to do and that existing resources are adequate. Quite simply and demonstrably, they are not.

In the debate in May on widening participation in universities initiated by the noble Baroness, Lady Warwick, I put two questions to the Minister, the noble Lord, Lord Davies of Oldham. He avoided answering either. I shall therefore put them again to the noble Baroness. First, what does the Minister think should be the basis on which more students are admitted to university? Should it be the achievement of a certain minimum qualification or should it be on the basis of the benefit the student will derive from higher education? It is a fundamental question and I shall listen very carefully to the Minister's answer.

Secondly, what are the Government doing to look holistically at the problems facing our universities? It is not sufficient to treat the difficulties facing universities as discrete problems, nor for Government to shuffle off responsibility to the universities and expect them to deal with the burden and the problems. The Government have to address the problems in the round and, as various noble Lords have mentioned, they must do so as a matter of urgency.

7.57 p.m.

Lord Davies of Coity

My Lords, too, thank the noble Lord, Lord Baker of Dorking, for initiating this debate. I also wish to express my appreciation to my noble friend Lord Morgan for his contribution. I. too, believe that the funding of universities is a political issue and my stance in respect of it is wholly political.

This debate is about the financial situation of our universities. But it could easily be about the financial situation of the manufacturing industry; of the insurance and pensions industry; of the investment industry or the housing market. I say that not to exaggerate the financial problems being faced by the British people, but to emphasise the financial difficulties students leaving university will in any event have to confront.

Having said that I want to make plain that I support the Government in the way unemployment has been reduced; the way inflation has been kept low and, perhaps more importantly, the way the Government have kept this country the most stable in the face of a global economic downturn, a position reinforced by the Chancellor's Statement today.

The Government can rely on my support in the measures they take to maintain that position. However, I also want to make abundantly clear that I do not believe that the financial problems of our universities should be solved by way of top-up fees. When I came to your Lordships' House in 1997, one of the issues being debated was the question of university tuition fees. Not wanting to vote against the Government I was inclined to abstain, but was, in the end, persuaded by my noble friend Lord Richard, then Leader of the House, to go through the Government Lobby—an act I have since regretted.

I am as conscious as anyone that new Labour came to power in 1997 after 18 years in the wilderness because it shed many of the old Labour doctrines; doctrines which produced policies that failed to attract the support of the British people; and policies, which in many respects, belonged to a different time and a different people.

Throughout those 18 years I like to think that I played a part in assisting Labour's change; in helping to remove the millstone of "militant'. from Labour's ranks; in helping to make the party more democratic by the introduction of "one member, one vote"; and in supporting the changes to Clause IV of the constitution so that wholesale nationalisation was no longer Labour's goal.

In terms of economic activity, and in particular wealth creation, I have been new Labour for so long that it has sometimes been suggested that I was new Labour before the phrase was coined. But when it comes to social justice and the way that the wealth is used—in this case the funding of education—I am passionately old Labour; for which I make no apology.

My clear understanding of the distinction between new Labour and old Labour is the recognition that capitalism—the free market economy—is the most effective way of creating wealth. I have supported that for a very long time. But, equally, my understanding of the compatibility of new and old Labour is the need to maintain and advance our old Labour values in the field of social justice and social service. I firmly place education in that area.

To move away from the clear provision of education, based on ability and need and not on the ability to pay would be, as stated by my right honourable friend David Blunkett, a betrayal of Labour's legacy. Never must a price tag be the factor that determines who does and who does not go to university, and it must not determine which university anyone goes to.

I have often been impressed by the way that my right honourable friend the Prime Minister has spoken frequently so passionately about education. I have always believed that to mean education at all levels. An education system funded by the people, all the people, for the people. That is what I believe the Government was elected to do and what they should do.

I believe that if top-up fees are introduced, it will effectively extend the element of private education. Top-up fees will create a two-tier system, with those having the greatest ability to pay going to the best universities. It will be, in my view, unjust and unfair.

Today, we have a National Health Service that the Government are striving to improve, where patients make no payment for receiving minor treatment or major surgery. Our children go to primary and secondary schools and they make no payment. So why should we then introduce further charges for the provision of higher education? That will undoubtedly be divisive and a retrograde step. It seems to me that the introduction of top-up fees would guarantee that many would-be students would be deterred from going to university. A two-tier system of education would develop whereby those with the greatest ability to pay, not necessarily the greatest ability, would go to the best universities. That must be alien to a Labour Government.

The adverse financial situation in our universities should not be solved by the students and their families, but by the nation as a whole through the Government. Students will have more than enough to worry about with their studies, without having the burden of worrying about top-up fees.

University students, when they qualify, will be an asset to the nation, either by contributing to further wealth creation or by providing greater service to the nation. If the Government want to make sure of that, I would not be averse to giving consideration to each student giving a commitment to remain in the country for a period of time after qualifying, but certainly not being made to pay top-up fees.

I believe that the answer to any adverse financial difficulties in our universities should be met by public funding by general taxation. I also believe that most people in this country share that view.

8.4 p.m.

Lord Sutherland of Houndwood

My Lords, I also congratulate the noble Lord, Lord Baker, on introducing the debate. It is, as he implied in his excellent speech, a continuation of the discussion he initiated in 1988. As he suggested, it is unfinished business. We might have had the opportunity to finish or at least move on in 1997 when the Dearing committee reported. Unfortunately, its recommendations on funding were cut off in peremptory and almost brutal form in the heady days of June 1997. That was a pity because we have had five years of slip and slide since then.

I must declare an interest. Over the past 17 years I have been head of three different institutions, King's College London, the University of London and the University of Edinburgh. But my real direct interest is in the health of the pension fund to which they all contribute and to which they will do healthily, I hope, for many years in the future.

Many of the points that I might have wanted to make have been made. I shall simply underline one or two before moving on. It is good that at last there is recognition of a financial problem. I have had 17 years of dealing with that. The problem is that successive governments, certainly this one, have helped create a system which is larger than what we are prepared to pay for. That is the reality. Mr Micawber eventually learned about that; we have not. Yet the suggestion is that we deal with this by further expansion. Is it a real debate, a real proposal, that is being put forward, or simply a soundbite?

I draw your Lordships' attention to what is happening elsewhere. I was commissioned by the Hong Kong Government to carry out a mini-Dearing report on higher education in Hong Kong. As I went around taking evidence, I asked systematically the students, the staff, the employers and government officials: "Do you want to expand?" They said: "Yes, but the first question is to maintain quality. if we can do that, then perhaps we can begin to expand". That has to be the due order. Unfortunately, it has not been the reality for us.

The second point I would underline—finely made by the noble Baroness, Lady Carnegy—is that this is a UK-wide problem. Much has been said about Scotland. By the way, the belief that the teaching fund formula in Scotland is more generous than in England is, I think, due for a fall. There is interesting research being carried out, but I shall not anticipate it.

I realise too that if I were to raise further questions properly directed to Scottish Ministers, they really ought to be answered there in what I take it is a "macother place". I do not know what the term of art is for the Scottish Parliament, but that is where those questions should lie.

The trouble is that instead of being given our head we have been terribly constrained. When given their head, universities have been inventive. We need only think of the money coming into the country, as well as the universities, through overseas fees. We should think of the ways in which universities have managed to begin to create scholarships designed to get the best students from overseas. They do not want to fill up their ranks simply with students who have cheques in their pockets; they are looking for the best students. Sometimes the best students are found in the countries least able to pay, but universities are finding ways of dealing with that. Given their head, universities will be innovative. Yet we have been kept on a short lead.

The noble Lord, Lord Baker of Dorking, spoke of the universities being treated like nationalised institutions. I can tell your Lordships from within that the iron grip of the Treasury is like a one-size-fits-all corset: it is not beautiful to observe, nor comfortable to wear, nor healthy to endure for any but a short time.

There is a danger in the debate—not in this House but more broadly—of different issues being confused. There is the clear issue of funding for universities. I am passionately committed to the proper funding of universities. There is also the proximate but separate issue of how we ensure equality of opportunity and access. Each issue must he dealt with in its own terms. It will not do to say that a funding solution will not work because, somehow, it will limit access. We would then have to find a means of dealing with the access and opportunity problem, independently of funding. If it is to be flexible fees—I am grateful that the expression has been introduced—there must he scholarships also. If there is to be a graduate tax, we must find ways of ameliorating its influence. My own—not so young, now—children are trying to move in the London housing market. They are all graduates, and, if they were paying extra tax for the privilege of being graduates, they would be in even greater difficulty. We must not confuse the issues. We should deal with them one at a time, and today's debate is on the funding of higher education.

What to do? The Dearing report laid out the likely sources, if we were to identify them properly, for teaching—the public purse, students and their parents, employers and, in the end, alumni and other donors. They will all be necessary. Public funding must continue, given the public benefit derived from the system. We simply could not afford the kind of teaching and research needed in highly technical subjects if we were to rely on private sources only. We would need 100 years of the endowment of Harvard, and we cannot wait that long. The system must be more sophisticated.

Would the Minister he prepared to suggest that, if there is to be growing regionalisation in England, one of the sources of funding for universities might be based on the contribution that they make to regions? Streams of funding could be found for that contribution. That is a specific suggestion.

"Top-up fees" is a difficult and dangerous expression; "flexible fees" is much better, much healthier. Fees, for some, will be eminently affordable. In the university of which I was head most recently, students from certain backgrounds find that their parents can buy them flats in fashionable areas of Edinburgh while funding their higher education. They could perfectly well make a contribution. Not all can—clearly not. If that is the prescribed direction, there must be an adequate means-blind—to quote the noble Baroness—admissions system with proper and appropriate bursaries.

Are employers likely to help? Some do. They walked quickly off the stage when the Dearing report came out and did not contribute to that debate, but some do help. In the University of Edinburgh, the electronics department has raised £2 million in scholarship funds from major electronics companies who see the benefit of helping students through. That is just one example; it cannot apply to all. I confess to the noble Lord, Lord Baker of Dorking, that I am a philosopher. I do not think that many employers would have provided such a scholarship to fund my education. Perhaps my education cost less. To the noble Lord's list, I would add a waste-paper basket, as well as a rubber.

Alumni donations will grow and are growing. They will come into their own in due course, but we cannot change a culture overnight. Universities should be given every encouragement, and I welcome the changes in charitable taxation laws that went through last year. Perhaps there will be more such changes.

It is said in some dark corners, often to journalists, by "sources close to Ministers" that there is, perhaps, a reluctance in the Treasury to allow universities to move towards top-up fees because they do not have the management skills to deal with them properly. Goodness knows, we might even pay our staff. That is another unreal comment. Perhaps, the record shows otherwise. We have doubled the throughput and halved the unit cost. Any company would be proud of that, and, if it could be done in the National Health Service, the Treasury would be whooping and reeling off to the bank. Will the Minister ask the Treasury to deny those rumours, if they are untrue? If they are true, it might be willing to say where the inadequacies lie, so that we can debate them publicly.

8.13 p.m.

The Lord Bishop of Portsmouth

My Lords, the House is indebted to the noble Lord, Lord Baker, for yet again providing the opportunity to debate the issue of the proper funding of our universities. It has been a pleasure to be part of this extended seminar of noble Lords who are running, or have run. universities. I have never heard quite so many implicit declarations of interest. I tease your Lordships. For my part, I am a university governor in Portsmouth and a former chaplain and lecturer at Manchester University.

Many points have been made in the debate with which I agree wholeheartedly—not least with the noble Baroness, Lady Warwick, especially when she gently pointed out that there are, in fact, more than two universities in the country. I have no axe to grind there. If I examine a higher degree in Oxford, I have to dress up, or they dress up, and I have to go to Oxford. If it takes place in Cambridge, they have the sense to let me examine in London. There we are!

Universities are diverse. That is an important point. I want to register a slight caution. I believe that the expression "centres of excellence" is a necessary nuisance—we need to use it. But it can be used rather too much in a rather exclusive way. I am pleased that the noble Lords, Lord Wallace and Lord Moser, drew attention to the multi-tiered system that we should have.

However, it seems to me that we cannot escape the fact that the huge increase in access to further as well as higher education has not been matched uniformly by funding to support that growth. The funding needs of the institutions are broad-based and well researched. They include: renovation of teaching and research infrastructure; supporting wider access to, and participation in, higher education; and the retention and rewarding of university staff. The price tag of all that stands at a staggering £9.94 billion, as the noble Lord, Lord Hannay, pointed out. One cannot see that that will be immediately forthcoming from the Chancellor's purse.

Those observations are well known. But surely the point needs to be made that the one thing that we cannot do is to retain the status quo. Here, I refer again to a point raised by the noble Baroness, Lady Warwick. Only this morning I attended the Audit and Quality Committee of Portsmouth University and saw some figures: income average in HEFCE terms and funding council grants is just over 39 per cent; tuition fees are just over 24 per cent; and expenditure and staff costs are an average of 58 per cent—slightly more.

It does not take a prophet to say that those figures cannot carry on in the indefinite future. The under-funding which has been evident for two decades has not left us in a position to mark time and live off other resources. The present situation cannot be placed firmly at this Government's door. The desire to broaden access to university education, which I wholly support. the need to strengthen teaching and research, and the necessity to retain the excellent staff in universities are, I am afraid, mutually exclusive aims unless additional funding is to be found or unless we decide and face the fact that we are trying to get too many people into university.

I strongly urge this House to consider the link with an earlier phase of education—that of those between the ages of 13 and 19. At present, many of them leave education without the benefits of two, three or four additional years at university. It is often their taxes which, in part, go to fund their peers who attend university. As is widely known, on the whole, they are less likely to go on to lucrative employment.

I draw noble Lords' attention to that situation because it seems to me that we need to keep in perspective and in proportion the relative nature of the tax burden and economic hardship. We may well he concerned with the financial burden laid upon graduates, but I believe that a degree of sensitivity is needed when comparing their lifestyle and prospects with those of their peers who left school or education at an earlier age.

From a broad perspective, it would seem that if the status quo is to change, then the Government will either need to increase general taxation accordingly or top-up fees will have to be introduced where the fees charged are currently an unrealistic reflection of the true cost of university education; otherwise, a graduate tax would have to be charged until the fees were repaid. I am very glad that the noble Baroness, Lady Carnegy, spoke about the Scottish system from which I benefited as an undergraduate.

I believe that the championing by the noble Lord, Lord Baker, of top-up fees will perhaps be less persuasive than he would like. I want to set my face resolutely against that course because I cannot believe that it would not be both divisive and discriminatory against those with little or no economic support. Whatever schemes or clever plans we devise to spread resources, I believe that it is almost inevitable that those from lower socio-economic groups will be deterred from pursuing their desired course because of the need to find additional resources, because they are being landed with even greater student loans or even because of the sheer difficulty of gaining access to bursaries. I have yet to be convinced that the rhetoric of bursaries will benefit people from that area of society. We must find another means to address the situation, and I shall probably fall in behind those advocating a graduate tax as the most equitable means—with or without some kind of judicious means testing.

What, then, of the future? I return to the strategic question posed by the noble Lord, Lord Hannay: how do we get from where we are now to where we hope to be in "n" years' time? A bit less paperwork and, to use some naval jargon, less "long screwdrivering", would help, but that is true of many walks of life—especially surrounded, as we are, by a culture of mistrust. I hope that the Government will resist the temptation, however attractive, to impose random cuts accompanied by a retreat from innovation to the nursery slopes of the familiar.

Perhaps a theological ending is not inappropriate from this Bench. It concerns the doctrine of original sin which, secularly understood—and, perhaps rather experientially watered down—is about how to face up to when things go wrong and making the best sense of the situation. Much is good about university life today. I experience that regularly whenever I have to examine or meet students, in governing Portsmouth University, or whatever. Friends and contacts also say that. But there is also much that is clearly amiss. More important than what we do is why and how we do it. The difficulties that we face, which include international economics and national demography, are not the Government's fault. None the less, a fair, just and sustainable way forward must be found.

8.21 p.m.

Lord Brooke of Sutton Mandeville

My Lords, like other noble Lords, I declare an interest—in my case, as deputy chairman and chairman elect of the Council of the University of London, although I speak entirely for myself. It is also a coincidental pleasure to follow the right reverend Prelate the Bishop of Portsmouth, so that I can do public penance for deserting him on Third Reading of the Nationality, Immigration and Asylum Act 2002 on the educational segregation of children of asylum-seekers in accommodation.

The Lord Bishop of Portsmouth

My Lords, the noble Lord is absolved.

Lord Brooke of Sutton Mandeville

My Lords, I was going to say that I genuinely thought—it is better for me to establish some credit with those on the Government Front Bench—that by that stage we had pressured the Government into finally producing a persuasive case. I am also happy to be following at one remove a former, distinguished vice-chancellor of London University in the noble Lord, Lord Sutherland, who made an enchanting speech.

I strongly support the comprehensive enthusiasm of my noble friend Lord Baker for untrammelli rig the universities and restoring their freedom. People behave in the way in which they are treated. If we manage them in a way that suggests that we do not trust them, they are less likely to be trustworthy. But if we confer on them the ability to manage themselves, they are likely to react responsibly. The noble Lord, Lord Sutherland, made the same point. I agree with the noble Lord and my noble friend Lord Baker about overseas student fees, and thus, on a fortiori grounds, with the noble Lords, Lord Desai and Lord Wallace of Saltaire, about European Union student fees.

I was the British Minister at the first Commonwealth conference of education ministers after the policy announcement that full fees would be charged. That was essentially a rerun of Rorkes Drift but, being within the Commonwealth, was all extremely affable. My principal assailant was the Zimbabwean Minister. Outside the plenary sessions, we were inseparably good-humoured—I must say, other times other manners—but the scars and wounds of that event were well worth wearing and winning because of the return.

I suspect that where I part company with my noble friend Lord Baker is over the consecration and elevation of polytechnics—not least because, disastrously, it enabled the Treasury to cut the unit of resource for prior universities to the level of that of the new polytechnic universities on the ground that, if they were now universities, their unit of resource was appropriate across the whole system.

The phrase, "a two-tier system", used by the noble Baroness, Lady Warwick, is dangerous because it can be ambiguous and even derogatory, but the regional groupings, of which the noble Lord, Lord Smith of Clifton, spoke, I find both attractive and with the grain of the wood, not least because even our greatest universities cannot do everything at the highest level.

Lord Baker of Dorking

My Lords—

Lord Brooke of Sutton Mandeville

My Lords, I hope that my noble friend will not take up too much of my time.

Lord Baker of Dorking

My Lords, I thank my noble friend for giving way. I would like to preserve what remnants I have of my reputation as regards the polytechnics. I was the last Secretary of State to defend the binary line because I believed that there was a distinction between such universities. My successors, who happened to be Conservative, were not as strong willed.

Lord Brooke of Sutton Mandeville

My Lords, I am not in the least surprised by my noble friend's intervention.

I do not intend to rehearse all our present ills. They would gain nothing by repetition, and the debate is already a comprehensive quarry of them. But, as other noble Lords have said, the Government's 50 per cent target has probably made them worse. I wonder whether in the late 1980s and the early 1990s the Government considered the detailed HEFCE charts, the accelerated take-up then and where the accelerators came from, before they conceived their 50 per cent aspiration. Those charts were eloquent about the difficulties of the next stage of the advance. If the Government did look at them, how did they envisage that their target would be realised? If they did not, do they appreciate that they have probably made a bad higher education position even worse? In that regard, I share the views of my noble friend Lord Alexander.

Everything else that could be said has been said. I conclude as I began, with another declaration of interest, both personal and hereditary. Several noble Lords have spoken of the Robbins report and of what the universities were like in those days. Ironically, in terms of government, they were then run by the Treasury. My late noble kinsman, who, for extraneous reasons, had a decade earlier declined his first ministerial position from Churchill as the one junior Minister in the old Ministry of Education, was in 1961 the first Chief Secretary to the Treasury and in that capacity took and announced the decisions on student finance recommended by the Anderson Committee. The second Permanent Secretary to the Treasury then responsible for public expenditure was the present Secretary of State's father.

The debate in your Lordship's House on those developments was, I think, the one in which the noble Lord, Lord Longford, who had been a contemporary colleague of my late noble kinsman in the Conservative Research Department, said of my late noble kinsman that he had the disadvantage of having almost too much moral fibre.

Unlike my late noble kinsman, I accepted as my first departmental posting a junior office under the late, great Sir Keith Joseph—later Lord Joseph—at the DES, with responsibility for higher education. My opposite number at the AUT was the noble Baroness, Lady Warwick. As she knows, my respect for the AUT's research capability was diminished by it not digging out a speech that I had made in the other place in 1978 about the poor levels of academic salaries; and at least I have been consistent on that subject over the last quarter of a century.

I mention that role because the noble Lord, Lord Butler, with whose measured speech I broadly agree, said that the government of my party had not introduced tuition fees and the noble Lord, Lord Morgan, then effectively corrected him by reminding us that in 1984 Sir Keith had in fact tried but failed.

It is worth briefly outlining the background, because history may have been different if we had then succeeded. A year earlier, I had recommended to Sir Keith that we eliminate half the minimum grant. which, regardless of their income, all students had in those days, which seemed to me unjustified at the higher levels of income. In the following year, I recommended to him that we eliminate the second half of the minimum grant and, further, that if that went as well as could reasonably be expected, we should return the following year to consider whether we could then put our toe into the Rubicon and test the reaction to a modest tuition charge that could later be raised. That would have avoided the problem to which the noble Baroness, Lady O'Neill, referred in her speech.

However, Sir Keith was also being persuaded by the late, also great, Sir David Phillips—later Lord Phillips of Ellesmere—that the research councils must receive a financial transfusion. However, Sir Keith, who certainly suffered from an excess of moral fibre, was determined not to go back to the Treasury but, instead, to find the money from within the department. The only solution that he could find was to eliminate the final minimum grant and consider the introduction of the first tuition fee in the same year, with no opportunity for rolling the wicket—Sir Keith was a fine cricketer—before the latter step. It was, I think, the shock to the parents of the simultaneous double move—the elimination of the remaining grant and the creation of the tuition fees—which provoked the seismic reaction to which the noble Lord, Lord Morgan, referred.

After Milton Shulman had exploded as a parent in his wayside pulpit in the Evening Standard, he also came on the line when I was doing a 'phone-in programme, although I cannot recall whether he was disguised as Milton of Chelsea or Milton of Fulham. We cannot tell now whether a slower approach would have been more successful, but in the long run, the scars and wounds from this were worth wearing, too. And, on the principle that it is an ill wind, the Treasury did give us the money for the research councils.

The number of the Economist to which my noble friend Lord Alexander referred also described Adam Smith finding that teachers who were paid by their students themselves taught better. I can illustrate the logic of that from my experience in the private sector where I gave charities a 90 per cent discount from our usual fees, but also spelt that discount out on the invoice. It made them more responsible clients, but they also owned what we did for them in a way they would not have done had our services been free.

If my noble friend Lord Baker had not intervened, I should have made one final comment, but I shall take it to my grave.

8.31 p.m.

Baroness Howe of Idlicote

My Lords, I shall have to follow the noble Lord to his grave to hear what it was. I join in the congratulations that have been heaped on the head of the noble Lord, Lord Baker, for this more than timely and extremely fascinating debate. My somewhat modest qualifications for joining so many experts is also that for which I should declare an interest. I am the current vice-chairman of the Open University and a governor of the LSE.

Perhaps I have one other qualification. Although visibly among the older age cohort of your Lordships' House. I suspect I took my undergraduate degree somewhat later than most as a mature—indeed, some might think positively overripe—graduate of the LSE's class of 1985. So perhaps I am a little nearer to the consumer coalface in that respect.

I turn directly to the key subjects of the debate: the huge and growing gap between our objectives and the resources, or lack of them, that we are prepared to find for them. The Government's repeated delays in producing their plans all underline not one but two crucial points: first, the scale of the funding deficit; and, secondly, the difficulty of the decisions we must all take.

As others have mentioned, it is important to realise how long the problem has been building up. The noble Lord, Lord Moser, mentioned the Robbins report, which he helped write. I wish that I had been involved at that time. However, the Government's response to that report—the White Paper of November 1963—was equally interesting and I shall cite three passages from it. First, the Government's acceptance that, courses of higher education should be available for all those who are qualified by ability and attainment to pursue them and who wish to do so". Secondly, the Government acceptance of the commission's 10-year programme of additional expenditure of £3.5 billion, which would more than double the cost of higher education in 10 years. Finally, and most importantly, Plans are being put in hand and resources will be provided accordingly". That is the pledge that has been more and more seriously disregarded. It underlines the point that others have made that it is not just this Government who can be blamed for the critical situation that we are in.

However, the huge funding deficit is only one aspect of the problem. Above all, perhaps, universities seem increasingly in danger of losing their independence if this goes on. Many would say that they have begun to lose it already. That, too, was foreseen even before the Robbins report. Some noble Lords may recall the Anderson committee on student grants which reported in 1958. But perhaps not many will recall the warning contained in the Report of the Minority, who, incidentally, were against the abolition of parental contributions. They feared, real dangers to university independence", of a kind which, would … lead to centralised bureaucratic control". They feared a, public pressure on university authorities to provide a convincing explanation of the reason for rejection of every unsuccessful student". How right they were. For have we not recently observed the fulfilment of that prediction in the conflict between the president of Magdalen College Oxford and the Chancellor of the Exchequer himself, and, more recently, rather ominous rumblings about universities not meeting targets of entrants from deprived backgrounds? I must admit that when I read something like that I feel a profound unease.

I hope that I am second to none in being hugely enthusiastic about the attempts that the Government are making to include all those in society who have been left behind and whose talents we have not tapped before, but surely the time when we should be doing the most that we possibly can to bring those from deprived backgrounds into the system is very early on in a child's development—and certainly within the school system. We can and must do that far more effectively.

If we are to succeed we must clearly acquire enough money to eliminate the huge deficit and set the pattern for the future—enough to pay all the academic and other staff at universities what they deserve and their market value. We also need to provide a system of per student funding as similar as possible to that in the United States.

I do not believe that we have much choice between the various proposals under consideration. We need to adopt most of them in one form or another. Higher fees for some universities and for some courses, yes; and with them, it is to be hoped, freedom from price control; a variety of repayable loan systems; extended tax relief for charitable endowments—I rather like the idea of the noble Lord, Lord Baker, of 100 per cent relief for a short period—some contribution from local as well as central government; and certainly help from businesses with scholarships and, indeed, support and time off for employees who wish—or need—to work and take a degree at the same time.

Of course there will be difficulties with all this. There is a real risk of drop-out by students reluctant or unable to take on further debt. Alas, those most likely to fall into this category will be from less affluent and deprived backgrounds.

Perhaps I may suggest one very well established way of tackling the 50 per cent target, if that is what is wanted for that particular age group. Other noble Lords have queried whether or not that is a sensible target and I shall not enter into that argument. The Open University, that brilliant sixties concept of combining quality distance learning with the communications expertise of the BBC, is one shining example of an alternative method of doing so, a point referred to by the noble Baroness, Lady Carnegy.

We should remember the considerable role played by the Open University in opening up opportunities for a large "excluded" group—that is, women at home bringing up children. It is not only women who have benefited. Many who could not afford not to enter paid employment took advantage of this new opportunity to study on their own, to the country's as well as to their own advantage.

Today, of course, on-line opportunities for gaining academic and other qualifications are expanding very rapidly indeed. I shall not go into the details because of time, but I have in mind schemes such as the pilot "e-skills4industry" which is underway in three Tower Hamlets schools. Some of the students targeted as potential drop-outs are continuing their A-level studies and the prospects, in one way or another, for the remaining 23 look promising. Although such schemes were originally geared to helping students in further, as opposed to higher, education, they will open up one further means whereby at a later stage students can join in.

There remains the question of how best to channel into the university system the equivalent of the present level of central government funding, or a more generous amount. I should like to see that done through some kind of voucher system: a basic state grant for everyone who qualifies for higher education, to be taken—I agree 100 per cent with the noble Lord, Lord Lucas—at any stage in their life, and payable direct to the institution of their choice. A voucher system could also be favourably adjusted for disadvantaged students, for courses where there was a shortage and for courses that cost more.

Coupled with an income-contingent loan scheme, or schemes, to cover all fees and maintenance, this, it is to be hoped, would also permit the abolition of the present centralising funding councils and help to restore independence, innovation and much greater freedom to university and student alike.

Such an approach would surely be more sensitive and less authoritarian than a graduate tax. With luck, it would end the prospect of Ministers criticising universities for having made the "wrong" judgment about individual would-be students.

8.41 p.m.

Baroness Sharp of Guildford

My Lords, I join other speakers in thanking the noble Lord, Lord Baker, for initiating what has been an excellent debate. We have ranged over many topics but have returned constantly to the central theme; namely, the future financing of universities.

I declare an interest, having been an academic for much of my life. I am currently a visiting fellow at the Science Policy Research Unit at the University of Sussex. In that capacity, in the 1980s, I was a member of the executive committee of an organisation called Save British Science. We paid visits to Ministers—including, I believe, the noble Lord, Lord Baker—and were generally regarded as Jeremiahs, even by some academics, who felt that we did the universities a disservice by pointing out that science was fundamental to Britain's competitive future and that if we went on squeezing the science budget and paying miserable salaries to scientists, both as academic lecturers and as post-doctorates, we should go down a slippery slope and no longer be able to claim the high quality science that we had. Today, many of the arguments that we were using then are now being regularly bandied about. Indeed, they are part of the stuff of this debate.

I believe that the argument on the science budget was recognised by the Labour Government when they came to power. Thanks partly to the prompting of the Wellcome Foundation in 1998–99, we have seen a considerable amount put into the science budget, largely for infrastructure and capital and equipment spending.

The Minister will, I suspect, quote the large sums that have been spent—£1.4 billion here and £1.7 billion there. Most of that money has gone into the science budget for equipment and new buildings—which are very necessary to upgrade our science potential. But they have not gone into the regular teaching budget of universities. Today, the real argument is about the funding of teaching and the expansion of student numbers.

That argument is compounded by the objective to expand the universities to a 50 per cent participation rate of the 19 to 30 age range. Where this objective came from is not clear. It first emerged at the 1999 Labour Party conference when the Prime Minister needed a nice headline-grabbing "social inclusion thing" to announce. So it was announced—but in my view it was done without any proper thinking and certainly without any proper costing. The Labour Party has probably lived to rue the day it did so.

We Liberal Democrats have always supported the expansion of higher education. In the 1980s, when only 14 per cent of the relevant age group was participating, we argued that, given the competitive pressure upon the country, it was vital for us to expand the university population. But we have always said that it must be properly costed, properly funded and run in conjunction with further education; otherwise it would be absurd to expand higher education. We have probably a much more chronic shortage of skilled craftsmen at technician level than at graduate level. It is absurd that further education has been left out of the picture.

Many of us will have reminiscences of that era. I was amused to read George Walden's autobiography recently. I will quote what he said about the era of expansion at the end of the 1980s: Our policy seemed to be to replace a selective by a mass system—the opposite in many ways to what we were trying to do in the schools. And of course it was mass cultivation on the cheap. Ever more students herded into ever expanding institutions to graze, untutored, on ever thinner pastures". That has been very much the case, has it not?

The consequence of doubling student numbers with remarkably little increase in real funding for teaching was that the unit of resource dropped from £8,000 to £7,400 by 1997. It has not been increased since then. The crisis in funding was recognised at the time of the last general election, but both major political parties chose to kick the issue into touch via the Dearing inquiry. The Labour Party was able to go into the election pledging no tuition fees and to square its conscience afterwards by arguing that fees were the only way that universities could get the resources they needed.

Far from implementing the Dearing report, the Government reneged on two commitments. First, Dearing recommended that maintenance grants be kept for students from low-income backgrounds because he feared that the loan regime would intimidate precisely those students. Instead, the Government went ahead and implemented an all-loan regime, which. rather than the £1,000 fee, has been the central issue of student discontent. I agree wholly with the noble Baroness, Lady O'Neill, that loans to cover residential costs are the big problem for many students from poor backgrounds, not fees, which most of them do not pay. As noble Lords may remember, it was after meeting students during the 2001 general election campaign that. Tony Blair declared that another way must be found.

Secondly, reneging on Dearing, far from giving universities the fee income for extra resources, the Treasury has neatly squeezed the HEFCE grant so that, de facto, the unit of resource remains static even though, if the student fee contribution was excluded, it continued to fall. The Government then had the gall to take credit for the fact that the total figure—fees plus the HEFCE grant—was no longer falling.

The current situation is that the unit of resource—around £4,800 per student—does not cover costs. Even for post-1992 universities the average cost per student is about £5,000. It is considerably higher in pre-1992 universities, especially those with medical schools. The entire university sector is now, by UUK figures, running at a deficit of around £50 million a year, as the noble Baroness, Lady Warwick, mentioned. It is being bailed out by overseas students. But is it right that some of our best universities restrict places to British students to keep themselves afloat? Is teaching also cross-subsidised by research in these institutions? Research income is an important constituent of income in our leading universities. It enables many universities to pay salaries that are well over the odds of the agreed pay scales for some members of staff.

A recent report suggested that overheads were not being properly covered. The Times Higher Education Supplement headline says it all: £2 billion is owed to the universities where research overheads are not being properly funded.

Exactly how much is the deficit? The noble Baroness, Lady Warwick, mentioned £10 billion. That figure has been bandied about. However, of that £10 billion £6.5 billion is capital expenditure. In these days of resource accounting, are we looking to capital expenditure as current expenditure? I hope not. The current expenditure requirement is £4.5 billion, spread over three years. We are looking at about £1.5 billion a year in recurrent costs. The key element in that, to which we shall come back time and again, is salaries. We need somewhere in the region of £1 billion a year extra to cover the extra salary costs. A number of people have mentioned the Bett report, which came after the Dearing report. Two factors came up in Bett. One was the institutionalised discrimination against women and ethnic minorities, which the universities have gone some way to answering but by no means the whole way. The second issue was the employment conditions of contract researchers. Fortunately, thanks to EU legislation, those shocking conditions have had to be reversed.

The conclusion is that we are looking for somewhere in the region of £1 billion to £1.5 billion a year in recurrent costs to keep the universities afloat. Much of today's discussion has been about how on earth one finds that. The DfES underspend last year was in the region of £1.7 billion. The Government's total capital underspend was £8.8 billion. There is a lot of money floating around in the system that might be harnessed to be put into the universities.

The Liberal Democrats were opposed to tuition fees and we continue to oppose flexible fees of any sort. We do so partly because we feel that it is unfair to charge the student up front. We know from experience that many parents did not pay what they were expected to pay. Our favoured solution is the Scottish solution—what might be called the Cubie solution—under which students are effectively asked to pay back something afterwards either as a lump sum or by adding the money to their loan. That is fairer in the sense that he who benefits should pay. The student benefits and should pay something back. I am uncertain how far we can go along that route in terms of keeping extra costs onto this endowment, but if one is looking at some increase in fees, the system has worked very well in Scotland and could be extended. We would like an experiment with that before we move in other directions.

To finish, I shall try to go a little beyond the narrow question of financing. It is necessary to look at these things more holistically. In many ways we live in very exciting times. We have witnessed an explosion in knowledge and in the knowledge-based economy. We know that in this highly competitive world we must live by our wits and by nourishing and nurturing them. We must also recognise that these advances are affecting the education system. The noble Baroness, Lady Howe, mentioned the Open University, the Internet and distance learning. We must recognise that these are coming together with campus-based learning. We must also recognise that many of our students who are supposedly full time are working 20 hours a week. Finally, we must recognise that 11 per cent of degrees come in the further education sector. We need a system that will bring those three things together. I very much go along with the ideas mooted by the noble Lord, Lord Baker, and the noble Baroness, Lady Howe, on an entitlement that the student carries forward. We should use the diversity of our system—the multi-university system that the noble Lord, Lord Moser, mentioned—to facilitate that. We should move towards the American system of horses for courses, with some colleges where you do a two-year degree, some where you do three years and some where you do more and the student can choose whether they wish to be full time or part time. That is a much more flexible system that would meet our needs for diversity and our need to look forward and provide a more flexible system for the future.

8.55 p.m.

Baroness Blatch

My Lords, I wish to associate myself with all noble Lords who have thanked my noble friend Lord Baker of Dorking for initiating this excellent debate. Not for the first time, my noble friend has brought the issue of higher education to our notice; and, not for the first time, his passion and enthusiastic support for higher education have shone through in a characteristically robust speech, for which we thank him most warmly.

We are certainly living in interesting times. One can hardly pick up a newspaper or listen to comment on television or radio programmes without noticing a reference to "higher education". Ministers, including spin-masters from the Prime Minister's Office, are hyperactive in feeding the media with lines and counter-lines on the future of higher education to the point where the only enlightenment for those of us who are interested in the outcome of the review is confusion. There is a lack of urgency, and there is very real sense of frustration.

In preparation for this debate, I went back to five specific debates on the subject that took place between June 2000 and May of this year. The Government cannot say that they have not been warned. Member after Member on all Benches in each of those debates, and again today, talked of the crisis in higher education. On each occasion came a complacent response from the Government claiming that funding for higher education had been increased and that, come what may, the target of 50 per cent would remain, irrespective of funding.

My noble friend Lady Carnegy of Lour reminded the House that the Scottish anomaly remains a live issue. I hope that the Minister will comment on the points raised. We welcome the points made by the noble Lord, Lord Sutherland, in what I believe to be a most marvellous speech; namely, that there is more to be heard about the Scottish experience.

Many noble Lords expressed their concern about the 50 per cent target, not just in relation to the cost but also in relation to other access issues—for example, social engineering through postcode only entry into university, which is very patronising. There is also concern about the quality and standards of university courses and, ultimately, the standard and quality of a university education; the detection of a seeming bias against students from private schools; the Government's increasing tendency to earmark moneys with their own priorities rather than those of the university—something which seriously intrudes upon the academic freedom of our universities; and the Government's use of excess pressure to shoehorn too many young people with questionable qualifications into university, especially those students who would benefit more from the choice of high quality, vocational education—preferably closer to home—through a further education college.

I agree with all those who have said, not just today but in each of our previous debates, that the Government should not have introduced the 50 percent target without thinking through the consequences. On 22nd October—over three years after the Government came to office—the then Secretary of State for Education and Skills, Miss Estelle Morris, said: Over the last ten to twenty years, the higher education system has seen a huge shift from being an elite to a mass system, but without anyone necessarily thinking strategically about what we want universities to be achieving. As we expand further we need to give this more thought". Apart from this astonishing statement coming over three years into the first term of the Government, it is not true to say that the issue had not been thought about strategically during the previous 10 years.

As I have readily admitted on a number of occasions in our debates—in fact, as recently as 18th November in response to the gracious Speech—under the Conservative government the number of students rose from one-in-eight students entering university to one-in-three. During that expansion, it is true to say that the unit of funding was reduced. That is why the noble Lord, Lord Dearing, who we miss from our debates, was invited in 1996 to review higher education—a review that could have been the basis for a wider public debate and which, at that time, had all-party support. The review was published in 1997, and was available to the incoming government.

Higher education students have good reason to remember 1st May 1997. They believed the Prime Minister who had pledged that "tuition fees" would not be introduced. However, not only were tuition fees introduced within months of the Government coming to office, but all maintenance grants were abolished. That was the real rub for many of our students. It resulted in students from low-income families leaving university with greater debt than students from higher-income families—a point which was very well made by the noble Baroness, Lady O'Neill of Bengarve.

It is therefore not surprising that there is an air of scepticism about the forthcoming review. On 25th October 2001, answering a point made by my noble friend Lord Griffiths of Fforestfach in a debate on student finance, the noble Lord, Lord Davies of Oldham, replying for the Government, said: the noble Lord … may have identified the strategy about which the Government arc unconvinced. I refer to what is vulgarly called top-up fees, although the noble Lord used more delicate terms … The Government are not persuaded by that argument".—[Official Report, 25/10/01.] I wonder whether the noble Lord has shared a free lunch with the Minister for Higher Education, Margaret Hodge, who appears to have a very different view. Indeed, in the Financial Times of 16th February 2000, Mr David Blunkett said: There will not be top-up fees while I am Secretary of State. But then I won't be Secretary of State forever". One argument used to support the introduction of top-up fees is that, over a lifetime, graduates earn about £400,000 more than a non-graduate. There are weaknesses in that argument. First, graduates spend at least three or four years, if not more, not earning when their non-graduate friends are in work. Secondly, many graduates working in, for example, acacleme, nursing, pathology, speech and occupational therapies and other services in the National Health Service do not earn very high salaries. Thirdly, many non-graduates earn substantially more than graduates, particularly in the media and—dare I say it—as Members of Parliament. Fourthly, as the numbers in higher education increase, and as the quality of some degrees leaves much to be desired, the number of graduates having to take jobs for which a degree is not essential is also increasing.

Like my noble friend Lord Baker, the noble Lord, Lord Patel, and others, I have very serious reservations about a graduate tax. Despite what Ministers have said time and again about higher education funding, the Government are not spending as much either in real terms or as a percentage of GDP as the previous Conservative government. That information is there for all to see in issue 6/02 of the National Statistics Bulletin, published in September 2002.

We all have to agree that there are undoubtedly problems in the funding of higher education. That was so when the Dearing report was published, and it remains the case almost six years later. Now, however, the problem is considerably more serious, and much of it is of the Government's own making. One example is the introduction of the 50 per cent target without considering the resource implications. That real policy gap has not been dealt with—to provide a wider range of high-quality vocational education at all levels which is closer to home, and especially to combat the problem of the 25 per cent of young people leaving school without adequate vocational or academic qualifications. Then, of course, there is the serious issue of higher education salaries which was addressed by the Betts report, of which the Government seem to have washed their hands.

There is much confusion at the heart of government on the issue of student finance, and the level of uncertainty is putting in doubt the futures of too many young people. It is particularly putting in doubt the future of our universities, which have to manage.

There are cogent arguments both for and against top-up fees and about by whom they should be paid. Many of those arguments were played out today. However, my plea is that a number of related issues must be settled first. The Government should abandon the 50 per cent target. In The Times of 3rd January 2001, Professor Zellick, of London University, said: The current pressures on universities to distort their recruitment and admissions processes are, in my view, grossly improper. It is an abuse of Government power". In referring to the waste of money, he went on to say: You've got people of moderate ability doing questionable academic courses culminating in degrees, leaving university as they arrive, with inadequate literacy and numeracy". I might add that they are also leaving in debt.

Professor Alan Smithers agreed with Professor Zellick by saying: Professor Zellick has hit the nail on the head. Higher Education has been expanded as a superior form of youth training to keep down unemployment. There are a lot of courses which do not lead to a good understanding of the world or equip students for a job". Government must stop patronising young people by social engineering; for example, allowing postcode entry into higher education.

Government must increase the quality and range of vocational education and training, especially close to home—as I said previously—to meet the real shortage in key skills. Government must cease offering financial incentives for universities to take pupils with poor A-levels but should encourage entry on merit by improving education in schools, especially in the inner cities. Government must stop passing moneys to higher education with strings attached; it only distorts priorities and interferes with academic freedom.

I have one final but crucial point. When the Government finally determine a funding system for higher education, income, if it is to come from top-up fees, must be truly additional and not simply benefit the Treasury by displacing government's contribution. I say that because the Government's record since the introduction of tuition fees, as the noble Baroness, Lady Sharp, has just said, is not good in this respect.

The aim for education is to provide what is appropriate for all abilities and aptitudes at further education and higher education levels and to free up the institutions and professionals to provide education without government interference.

My noble friend Lord Baker of Dorking can be well pleased with today's debate. Although many views have been expressed about a way forward, there has been no disagreement about the nature of the crisis and the sense of urgency that is required to see it resolved, upon which the economic and cultural well-being of our country depends. I thank my noble friend most warmly.

9.6 p.m.

The Parliamentary Under-Secretary of State, Department for Education and Skills (Baroness Ashton of Upholland)

My Lords, I, too, am grateful to the noble Lord, Lord Baker, for securing this debate. I agree entirely with the noble Baroness, Lady Blatch, that it could not be more timely. It has stimulated important and valuable contributions from all sides of your Lordships' House. It will be some time before I forget the corsets mentioned by the noble Lord, Lord Sutherland.

It is important to recognise the debate that is taking place outside your Lordships' House to which the noble Lord, Lord Baker, referred. It is important that we view today's debate in the context of that broader and wider debate. I wish to start by outlining the key principles behind the review that is currently taking place. None of us is in any doubt that the funding of higher education is an important, if not crucial, issue. It is one that presents the Government and all of us with significant challenges.

The principles behind the review are: to find means of helping institutions obtain more funding to remain internationally competitive and prevent a decline in higher education standards; and that that funding should come from some combination of those who benefit from higher education; that is, the state, students, their families and, as the noble Lord, Lord Watson, said, business and employers. I say to the noble Baroness, Lady O'Neill of Bengarve, to whom I pay tribute for the tremendous work that she does, that we should bear in mind that over half of students currently make no contribution to tuition fees.

At this stage it is right to say that nothing is ruled in and nothing is ruled out. I want to focus on what it is that I believe we are all agreed on. Good government is about more than taking steps to solve yesterday's problems. Our responsibility must be to anticipate the challenges that are to come. It is not enough to see that this sector survives. We have to look forward over the next decade and beyond and make sure that our universities and higher education colleges can flourish as strong, independent and autonomous institutions. We need them to ensure that not only our economy but also our society can continue to flourish. The noble Lord, Lord Hannay, talked of a bridge that we need to get our universities from where they are now to the 10-year strategy and vision.

It is because we start from that principle that we are working on a wide-ranging strategy for higher education that will be published in January. It is not easy. I do not believe that there is anyone in your Lordships' House who does not recognise that. If you want to reflect on a set of difficult issues, think about higher education. We cannot allow this sector to drift into complacency and mediocrity. Our international competitors are not doing that; nor can we. I confirm to my noble friend Lady Warwick and agree with the noble Lord, Lord Butler of Brockwell, that the review is for all universities. I say to the noble Lord, Lord Smith of Clifton, that it will recognise business schools.

I say to the noble Lord, Lord Norton, that we need an holistic approach to what we are trying to do. I was very pleased that the noble Lord, Lord Sutherland, raised the whole question of the role of the regions and the relationship between universities and the regions.

There were champions for each type of approach. With apologies to the noble Baroness, Lady O'Neill, we had, from the noble Lord, Lord Baker, the question of top-up fees; from my noble friend Lord Morgan we had a graduate tax; from the noble Lord, Lord Renfrew, we had direct taxation; from the noble Baroness, Lady Perry, we had differential fees; from my noble friend Lord Desai we had the jobseeker's allowance; from the noble Lord, Lord Wallace of Saltaire, we had the American state system versus the European system, which I know well because my nephew and niece are educated in the US; from the noble Lord, Lord Alexander, we had the Australian loan system; from the noble Baroness, Lady Howe, we had some form of voucher system; from the noble Baroness, Lady Sharp, we had the Scottish system; and—perhaps my favourite—from the noble Lord, Lord Hannay, we had the judicious combination.

Within your Lordships' House we have the full breadth of experience and knowledge; we recognise that there are many different approaches. Each has its pros and cons and each has its champions in your Lordships' House and well beyond. For that reason, last week my right honourable friend the Secretary of State published a set of issue papers, which are available on our website. They set out the challenges facing higher education today. I hope that those noble Lords who have seen them will recognise the questions and challenges that they raise. He did so in order to stimulate this wider debate, which is very important.

I say to the noble Lord, Lord Renfrew, that I personally applaud the Secretary of State's decision to wait until January; he felt the need to get on top of all of these issues. That has helped the debate in your Lordships' House and beyond.

The first of the challenges is that of enabling our universities to secure the funding they need to provide high-quality teaching and research and allow the best universities to continue to hold their own. The second challenge is to enable more able students from poorer backgrounds to go to university. That, as the noble Lord, Lord Butler, said, should be based on merit. The noble Lord, Lord Baker, talked about the role of parental payments within that system. As noble Lords will be aware, we have been looking at the question of what one is at 18; is one an adult or a dependant? The noble Baroness, Lady Sharp, has on many occasions raised the perception of debt; the issue has also been discussed by other noble Lords on the Liberal Democrat Benches in particular. Thirdly, there is the issue of the economic challenge in a globally competitive world. How do we ensure that our universities are able to cope?

No one doubts that the funding of higher education is the important issue that presents the challenges. The noble Baroness, Lady Blatch, said that the amount of funding for full-time equivalent students fell between 1989 and 1997. As the noble Lord, Lord Butler of Brockwell, said, we asked the beneficiaries of higher education—the students—to pay a contribution. We believe that we were able to secure the steady reversal of the decline in funding and that we have turned the corner. By 2003–04, publicly planned spending on higher education will have risen by 15.6 per cent after inflation, compared with the figures for 1997.

The noble Lord, Lord Hannay, directly asked: what is the backlog? We can point to a £4.7 billion teaching infrastructure backlog. If we add to that figure the research infrastructure backlog, we get closer to £7 billion. To those who asked about the £9.9 billion raised by Universities UK, the figure is based on its assumptions about where it is and where it wishes to be. I would not wish to argue with it about that. We start from a different premise. We have a good dialogue in relation to the figures. The noble Baroness, Lady Sharp, gave us some very important figures about the ongoing needs of universities. To use the vernacular, we are in the same ballpark, but we are considering how to develop the system so that we can continue to maintain the world-class universities that we currently have.

We have invested in research. I shall not quote the large figures that the noble Baroness, Lady Sharp, said I might. Noble Lords have pointed to our investment in science in particular. We have £500 million specifically in research to get rid of the backlog in relation to poor maintenance and refurbishment.

We believe it is important that we have invested in research and continue to do so. I shall, indeed, pass on the concerns raised by the noble Baroness, Lady Warwick, about Northern Ireland. Research funding in Northern Ireland is provided by the Department for Employment and Learning and the research element of that grant comes to £27.7 million this year.

I am pleased that the noble Baroness, Lady Perry, raised the question of the increase in funding for science research. I agree that business has an enormous role to play within that. That is a matter to which we should return. I recognise what was said by my noble friend Lord Desai on social research and the importance of looking in a broader context. I dug out what he said at the end of his speech on 11th December 1997. He stated: In 2002 we should have another hard look at how far we have improved the funding of higher education".—[Official Report, 11/12/97: col. 294.] We have a prophet in our midst, for here we are doing so.

Some noble Lords raised the question of the letter from the Higher Education Funding Council and its delay. We are in constant contact with the council; we are in dialogue. We are delaying the letter, but the letter and strategy document are produced together because in a sense they are linked. However, we would not want in particular the noble Baroness, Lady Warwick and the noble Lord, Lord Baker, to feel that we are leaving them in the dark because that would not be appropriate.

The noble Baroness, Lady Blatch, spoke of the national statistics bulletin. Indeed, she is right in what she says. In GDP terms that is correct, but that is because GDP is so much better. The 2000 spending review meant that publicly planned spending on higher education rose by 18 per cent in real terms between 1997 and 2003.

Baroness Blatch

My Lords, I am grateful to the noble Baroness for giving way. I referred to funding per student. That has not gone up and is not likely to go up by 18 per cent in real terms.

Baroness Ashton of Upholland

My Lords, I shall happily come back to the noble Baroness with any further figures which we can debate.

The funding gap has been raised. As the noble Lord, Lord Baker, said, that is important. We know that US universities find it easier to pay their academic staff attractive salaries. A professor at the top of an American university can expect to earn 150.000 dollars per year; up to twice the salary of his or her British counterpart. Despite the report by the Office for National Statistics which shows that more scientific professionals entered the UK in 2000 than left the country, a brain gain of 4,700, there is evidence to suggest—noble Lords will not be surprised at this—that that masks a brain drain at the top end. Universities, above everything, are the people they employ. If we want our universities to be first class and world class, they must be able to attract and keep the best minds.

We need to be prepared to look hard at the balance between the taxpayer and the graduate. If we do riot, our only choice will be to accept that the funding gap is too large for us to close. In the short term we might say we would not notice; there will not be a cliff edge. But in the long term, as noble Lords would rise as one to say, that would mean that our universities began a slow slide towards mediocrity. This Government are not prepared to accept a second-rate university sector; it is too important both for our economy and our society.

All that means that we cannot afford to close off radical options because we are afraid of what people might say when we examine them. Noble Lords will know from the press and from our debate tonight that the options we are considering are controversial. I make no apology for that.

I shall spend a moment or two on the issue raised in particular by the noble Lords, Lord Chorley, Lord Livsey and Lord Baker on pay, recruitment and retention. We recognise the achievement of higher education staff in upholding the high quality of teaching and research in our universities. We acknowledge that there is a real problem with recruitment and retention of staff. We believe we have made a start on helping higher education institutions to address those issues in the last spending review. However, we acknowledge that more needs to be done. We shall be looking to do so in the plans we announce for higher education in the new year. Those will include further resources for pay increases targeted on the recruitment and retention of staff in higher education where there is the greatest competition.

The Government have already announced that in this spending review further resources will be allocated to pay increases targeted on the recruitment and retention of staff in higher education where there is the greatest competition.

The noble Lord, Lord Watson, asked why do we not drop the target for access and expansion within universities. A number of noble Lords have queried that, and I shall make a few points on the issue. The forecast for employment over the coming decade predicts that there will be a need for more people with higher level skills. If we are to have the talented people to meet that need, we will need to offer the opportunity of higher education to people from all parts of society, whatever their background. At present 41.5 per cent of people enter higher education. But we are not succeeding in what we want to achieve. The gap between richer and poorer students in terms of access to higher education remains significant.

I accept what the noble Lord, Lord Wallace of Saltaire, and the noble Baroness, Lady Howe, said about the prior retainment of these young people and the issues for our school systems. Indeed, that is partly why the 14 to 19 strategy was so important. It is also why it is so important to get the Sure Start and the Early Years agenda fully working and integrated. It is also about working alongside the institutions in order to raise aspirations and to show young people from all backgrounds that higher education could be for them. I was pleased to hear the right reverend Prelate offer his support for widening access.

The Institute for Employment Research has forecast that 1.73 million new jobs requiring high-level skills between 1999 and 2010 are needed. That will represent 8 per cent of new jobs created over the period. At present 19 per cent of the UK's population is educated to degree level compared to 30 per cent in the US.

Perhaps I may humbly correct my noble friend Lord Morgan. Mr Kinnock actually said that he was the only person in a thousand generations that had gone to university.

Lord Morgan

My Lords, I was being polite to Mr Kinnock.

Baroness Ashton of Upholland

My Lords, the noble Baroness, Lady Sharp, hit on a very important point. She talked about diversity, as did the noble Lord, Lord Livsey, within higher education. That is not just about three-year degrees of the traditional kind, which perhaps many noble Lords remember and I certainly do, but also about foundation degrees. I was fortunate to go recently to Hemel Hempstead to launch the Early Years Foundation Degree. I saw a number of people. largely middle-aged women—I hope they will not mind my saying that—who were studying for that foundation degree. They talked about the fact that they had never considered higher education. I had a letter from them this morning, which said that I should shout about its success from the rooftops—I hope noble Lords will not mind if I do precisely that. But that applies also to HNDs and other courses.

The noble Baroness, Lady Howe, talked about Open University issues and so on. The challenge is about using different ideas and a diversity of approach. I absolutely accept the point made by the noble Baroness, Lady Carnegy, about the links between further and higher education. The noble Lord, Lord Watson, raised the question of languages. It is interesting that he focused on German, which I understand from the work that I have done this week is the language most sought after by business in this country. Inclusion has been the agenda of the noble Baroness, Lady Howe, for many years. I agree with her about the need to think of early years development.

The noble Lord, Lord Norton of Louth. asked who benefits from higher education. Both students and society benefit. We know that the private rate of return is 17 per cent for students, which is higher than in any other OECD country. One study estimated that every pound spent on research and development is worth £1.80 to the economy. But I recognise that there are different rates of return for different students—higher for men than for women for some courses and so on.

I say to the noble Lord that we are thinking very carefully about those issues as part of the review. There is graduate premium: will more graduates mean a lower premium'? The reality is that the premium has held up, despite expansion. Therefore, at the moment we can say that most graduates will indeed bring benefits to the economy and will indeed benefit from them.

The noble Baroness, Lady Carnegy, the noble Earl, Lord Mar and Kellie, and the noble Lord, Lord Sutherland, raised the question of Scotland. I say specifically to the noble Baroness, Lady Carnegy, that we will of course consult colleagues in all the devolved administrations before publishing any strategy document. My officials are already holding informal discussions. Indeed, a senior official from the department was in Scotland last week. We will therefore ensure that we have those conversations. I take on board the points made by the noble Baroness.

I am with the noble Lord, Lord Baker, in spirit in thinking that we have to look at this matter in a slightly uncomfortable way—a point also made by the noble Lord, Lord Hannay. We believe that we have to look at the balance between the taxpayer, the graduate—the contributions that each make—and to recognise that we might be looking at a cultural shift, a shift that might be uncomfortable. But if they are the right things to do and they bring benefits to society and secure the future of higher education, then we must not let a little discomfort stand in our way. As every noble Lord will agree, we must plan for the long term, so we are taking stock.

Many of the points made in your Lordships' House will inform our thinking and will help us to develop a strategy. I am extremely grateful. However, as I said, the questions are difficult. We agree that students and institutions need certainty about their future more than anything, so it is right that we should work towards a firm government position in January. We hope that our strategy will be a clear blueprint for the future of the sector, so that we can make progress towards realising our shared ambition for a stronger, better funded higher education sector.

Lord Norton of Louth

My Lords, I am grateful to the Minister for answering a question that I did not ask. Will she answer the one that I did ask?

Baroness Ashton of Upholland

My Lords, I hope that the noble Lord will forgive me; I thought that I had answered his question. If not, I must answer it outside the Chamber. Perhaps he can ask it as a PQ or as a Starred Question. I will answer it properly then. I apologise.

The noble Lord, Lord Lucas, talked about fairness, quality and vitality. The right reverend Prelate the Bishop of Portsmouth spoke about a fair, just and sustainable system. I agree with both of those aims. I shall end with a quotation from a speech given by the noble Lord, Lord Baker of Dorking, to the University of Nottingham in November 2001. In his final words, he quoted someone else, and I agree with him. The noble Lord said: I would therefore urge those who want our universities to remain pre-eminent to follow Milton's advice: 'Strike high and adventure dangerously'". I agree.

9.26 p.m.

Lord Baker of Dorking

My Lords, I thank the Minister for her generous and very good reply. It was an excellent reply to the debate. I thank all Members who have participated in what has been a debate of high excellence that could not be matched in the House of Commons.

I ask the Minister to take three short messages to Mr Clarke tomorrow. First, there is an overwhelming desire that the Government should abandon the 50 per cent target. It was expressed by the noble Lords, Lord Butler of Brockwell, Lord Watson of Richmond, Lord Desai, Lord Morgan, Lord Moser, Lord Alexander of Weedon, Lord Livsey of Talgarth, Lord Chorley, Lord Sutherland of Houndwood and Lord Brooke of Sutton Mandeville, and the noble Baroness, Lady Warnock. It is a difficult thing to abandon, but the way to do it is to announce a lower target for the two lowest socio-economic groups.

The second message is about graduate tax. Only the noble Lord, Lord Morgan, spoke for that. When he spoke, I realised how it could be killed. I was a Minister in a government who devised a very good system of local government taxation called the "community charge". Unfortunately, when it was announced, it was dubbed the "poll tax": it was dead in the water. The graduate tax is a poll tax on clever people. From now on, I shall call it the "graduate poll tax", to speed it on its way.

The third message is about public and private money. The public money people were the noble Lords. Lord Renfrew of Kaimsthorn, Lord Morgan, Lord Moser and Lord Davies of Coity. Mr Clarke will not provide the £2.5 billion extra that the noble Baroness, Lady Warnock, wants. I am afraid that it is not there. It will have to be private money—flexible fees with means tests, scholarships and bursaries, as suggested by the noble Lords, Lord Butler of Brockwell, Lord Wallace of Saltaire, Lord Sutherland of Houndwood, Lord Patel, Lord Alexander of Weedon and Lord Chorley, and by the noble Baronesses, Lady Warnock, Lady Perry of Southwark and Lady O'Neill of Bengarve. That is the message. I say to the right reverend Prelate the Bishop of Portsmouth that those fees will not deter people from lower pay backgrounds. We should consider America, where blue-collar participation is so much higher.

The Lord Bishop of Portsmouth

My Lords, with respect, I must tell the noble Lord that I have taught in America. Perhaps, we can have a conversation outside the Chamber.

Lord Baker of Dorking

My Lords, I look forward to that conversation with the right reverend Prelate.

Finally, I make a plea, but I must also blame myself as well. We interfered too much in the universities—mea culpa, mea culpa—but what we started the Government have perfected. Please let the universities run their own affairs. My old department cannot run the universities better than they can themselves. I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.