It is a pleasure to appear under your care and control this morning, Mr. Olner, and to have the company of such a star-studded cast of Members of Parliament, in particular my hon. Friend the Minister for Higher Education and Lifelong Learning, with whom I had the pleasure of working for a considerable period. We still speak intimately as well as publicly.

I am delighted to have the opportunity to speak on the important issue of funding systems for higher education in the United Kingdom, an issue that has been neglected somewhat since our intensive discussions on the subject during the passage of the Higher Education Act 2004. The area that particularly concerns me and which I want to explore is the existence of different funding systems in the UK. I proceed from the premise that education should always broaden the mind, and that individuals from the different member countries of the UK should be encouraged to go to university in other member countries of the UK. The present system is making that more and more difficult.

I am reaching the time of life when my own children are considering going to university. That pleases me greatly but the situation brings pressures and concerns. I recently picked up a rather good edition of The Guardian that included a helpful university guide. An interesting article headed, “Want to study in a different part of the UK? What you need to know” contained 16 paragraphs setting out the different arrangements that exist for individuals who want to apply to go to universities in different parts of the UK, depending on where they live and where they want to study. That is a real concern for the student. I have a simple approach: I believe that students should apply to study on the course that suits them best as an individual and that will take them the furthest academically and in terms of their future career. At present, financial factors differ depending on where they are from and where they go to university, and that is unfortunate.

I have a strong constituency interest in the matter because I represent a border constituency; Wrexham constituency is on the border with Cheshire. I represent an area of the country, north-east Wales, that has been extremely successful economically in recent years. Indeed, the area that includes west Cheshire and north-east Wales has been one of the most successful in the UK. Recent studies have shown that that geographical area, which is known as the Deeside hub, is one of the areas of the UK with the most intensive economic growth.

There are many multinational companies in the area, including, most famously perhaps, Airbus in Flintshire, General Motors, Sharp UK and JCB, all of which are large multinationals. It is interesting that, until very recently, that area did not have within it a university. I am pleased to say that a couple of years ago university status was secured for what is now the university of Chester, and, at present, the North East Wales Institute of Higher Education in my constituency of Wrexham is going through the arduous process of securing degree-awarding powers.

Yesterday, I attended the launch of NEWI’s annual review. I have nothing but praise for the work that is being done by the institute’s staff, particularly the principal, Professor Michael Scott, who has taken the institute forward enormously. We hope that there will indeed be a university based in Wrexham within the next year.

NEWI is a particular type of higher education institution. It is entitled to boast that 67 per cent. of its graduates come from households earning less than £17,000 per annum. That is an extremely impressive statistic, and even more impressive is the fact that 91 per cent. of its students are in work within 12 months of graduation.

The institute works hard to engage with powerful companies in the economic area. Along with a further education college, Deeside college in the constituency of my hon. Friend the Member for Alyn and Deeside (Mark Tami), it has developed a foundation degree with Airbus, which is the type of degree that I understand is on the Government’s agenda and what we want for delivering higher education throughout life.

The institute takes individuals from non-traditional university backgrounds through education, and provides the education and skills that we all want for our children—and, indeed, for adults. Many of the students at NEWI are part-time students who secure entry to university, often through their employers and often through an aggressive marketing campaign that the institute runs in the area, which convinces people from non-university backgrounds that university is for them and that it will take them forward.

A problem for the geographical area known as the Deeside hub, which is an integrated area, is that it spans both sides of the England-Wales border. The financial regime for students from Wrexham is completely different from the one for students from, for example, Cheshire, which is literally across a brook some 5 yd wide. That creates enormous complications for the institutions that have to deal with the process. As I said, The Guardian set out in 16 paragraphs the process for any student who wants to attend university in the UK. I believe that there are actually seven different funding systems for UK students.

I have always been concerned about the issue. Indeed, that concern was one of the major reasons why I voted against implementation of the 2004 Act. One of the most unfortunate aspects of the Act, as far as I am concerned, is that it has created a situation in which it is cheaper for Welsh students to attend university in Wales than in England. As a Unionist—I do not hesitate to use the term—I think that that is extremely unfortunate. I would like a situation where that is not an issue for someone from my constituency who chooses to go to university. The key consideration should be whether the course is right for them academically, not whether it is cheaper to attend a university closer to home.

There are different conditions in England and Wales. There is also the situation of someone from Wales who wishes to study veterinary science but cannot attend a university in Wales because the course is not available in any of the higher education institutions. They would have to go across the border into England, and in that case the funding system for them would be the same as for a student from England.

The complexities of the present system in the UK are legion, but we are not having any real discussion about them. We have had recent elections in Wales and Scotland, and Governments are yet to be formed in those constituent parts of the United Kingdom. Therefore, it is an appropriate time for us to step back and to examine the overall higher education system and the way in which students choose to go to university in the United Kingdom. The constituent parts of the United Kingdom should begin to talk to each other to a greater extent about how the higher education system should progress.

There is a common agenda for UK higher education and we all recognise that the sector is a competitive environment. We all know of universities that are competing hard for international business and trade. The difficulties of the different funding systems do not just affect students; they also affect higher education institutions. When I secured this debate late last week, I quickly found out that there is an active higher education system in operation for briefing MPs. I am grateful to those bodies that forwarded interesting information to me about their particular areas of interest.

It is clear that there is real concern about the future of university funding and the different sources of funding that exist. I have always accepted that, at a time when, on leaving school, 43 per cent. of individuals go into higher education, it is appropriate for students to make a contribution to their higher education. However, I favour a graduate tax, rather than the variable fees introduced by the Government in 2004.

The hon. Gentleman makes an interesting case against the disparity between charging systems in England and Wales. Does he wish to roll back the devolutionary settlement whereby Wales can have separate arrangements for university finance?

I do not want to roll back the devolutionary settlement, although I am certain that some of my colleagues will be surprised at my gentle approach to that matter. I would like to facilitate much closer dialogue between the constituent parts of the UK, and between Ministers in the devolved bodies and the UK Government. We should not simply go back to the system that existed before the Higher Education Act 2004 because there are benefits from having closer links between universities and the local community as a result of a devolved system. However, there must be better recognition that we are operating in a competitive world market and not simply a UK market.

I am sorry that I missed the start of my hon. Friend’s speech. He speaks with feeling about the complexities affecting students, particularly in his own area. On the funding of higher education as a whole, does he agree that there is a strength in diversifying sources of funding and that, as well as a contribution from the taxpayer and students, there is an increasing role for endowments and other sources of funding? That would allow us to strengthen the independence and long-term stability of our universities and colleges in what is, as he said, a competitive global situation.

That is certainly the case. It is extremely important that we diversify the sources of funding in higher education. There are difficulties in the approach to endowments recently announced by the Prime Minister because the scheme tends to benefit those universities with a more traditional background, more alumni and more affluent alumni; smaller and newer universities do not have that same support. We must look for new sources of funding by developing links with previous students and with industry. The most competitive economies in the world have extremely high levels of contribution from the private sector. For example, in the higher education sector in the United States, levels of private sector funding are higher than we currently have. That is something that we need to develop. The foundation degree scheme that I mentioned in relation to Airbus in my own area must be extended in order for universities to progress.

There are concerns about the disparity of funding in the UK, which was recently expressed in evidence that was given by the Higher Education Funding Council for Wales to the inquiry on globalisation by the Select Committee on Welsh Affairs. Even now, under devolution, there is a dual-support system for higher education in Wales. The Welsh Assembly Government provide funding through the Higher Education Funding Council for Wales and funding is also provided by the Department of Trade and Industry and UK research councils to important universities in Wales, such as Cardiff and Bangor. Therefore, even under the devolved system, contributions are made by the UK Government.

The higher education sector in Wales has expressed concerns that it is not adequately funded by the Welsh Assembly Government. When a Government have been formed, I will ask them to look at that issue. The Higher Education Funding Council for Wales observed in its evidence to the Welsh Affairs Committee:

“Levels of overall public investment in HE in Wales lag well behind England, Scotland and some of our key international competitors. HEFCW estimates a £41 m funding gap exists between the HE sectors of Wales and England.”

Anecdotally, vice-chancellors in Wales have told me that that is their perception of the issue. I am not sure whether the Minister should take that as a pat on the back from England or not, but I am sure that he will take it that way if he can.

Welsh institutions are in a small higher education environment and must compete with higher education institutions in England. It is increasingly difficult for Welsh institutions to secure the appropriate level of investment to finance high-quality higher education for students. In the modern economy that we are developing, which is supported by universities, it is important that progress is made on that issue. I want to see a university in Wrexham, in my own constituency, that works closely with the successful private industry in north-east Wales and provides support for the research that companies undertake. I have met companies in my constituency that have told me about their research and that they use universities from across the United Kingdom and, in certain cases, from other parts of the world. There is a gap in the market and a missed opportunity for the local education sector as it could provide companies with the support that they need to progress.

The link between industry and universities must be taken forward and competitive universities should be able to offer the appropriate support to business. However, that is complicated by the current arrangements and the disparity in funding regimes for students and institutions in the UK. This matter has not been on the political agenda for a long time, which may be because of the elections to the Welsh Assembly and Scottish Parliament. The issue presents some political difficulty and should be discussed not just within one political party, but among all parties. We all agree that we need a competitive and high-quality higher education sector, which at the present time is very complex. We had a full debate about different funding systems for students at the time of the 2004 Act, but things have moved on since then. We are beginning to see evidence of changes in student behaviour, and that evidence will, of course, increase as time passes.

This is the appropriate time for the UK Government to engage closely with the devolved Governments and institutions to discuss how we can codify and bring together the funding systems within the United Kingdom. It is also time that we had detailed proposals from all political parties, not only from the Conservatives and Liberal Democrats in the House of Commons, but from nationalist parties in Wales and Scotland, so that we can hear what they have to say on the subject and how they believe that higher education can be taken forward.

Make no mistake: the higher education sector is vital to the continued success of the UK economy and to the UK as a cultural centre that other countries respect. We have built that up over many years, and further in recent years, and I am pleased to see the increased number of students accessing higher education through different means—not just through school, but through the workplace, institutions such as the North East Wales Institute and other non-traditional means. It is important that we make the system work as well as possible. In order to improve the current position, we need much greater dialogue between the UK Government and the devolved institutions.

I congratulate the hon. Member for Wrexham (Ian Lucas) on securing this debate. He is quite right to say that this issue needs more discussion. The level of public debate seems to have gone down since the one on the Higher Education Act 2004. I add also that, as a parent, I appear to be in a similar position to him. My other interest, perhaps formal, is that I am a university academic, and I shall come back to a point arising from that in a moment.

The hon. Gentleman raised an important point about differences between funding opportunities for students across the boundaries between Scotland and England, and Wales and England. However, in many ways, that comes back to the fundamental point made by the hon. Member for Henley (Mr. Johnson), that this flows from the very idea of devolution and of devolving student support as part of the devolutional settlement. That relates also, as he said, to the devolution of some parts of university funding. What he said about one part of university funding—the research councils—remaining on a UK basis is true.

There is an interesting question about whether that should be devolved further to Scotland and Wales, or whether there is an important benefit from maintaining a UK basis for research council funding. The amount of money available to universities from the research councils might be stabilised, because the complication of devolution makes it more difficult for the Government to shift resources about. I gather that there is a question about whether the research councils will continue to come under the auspices of the DTI, which may not be long for this world. If that is the case, the question arises of where the research council funding should go. Should it go to education or perhaps to the Cabinet Office? That is a difficult decision, but academics can take some comfort from one thing at least: because of the complications of devolution, the Government’s possibilities for raiding the research councils’ overall budget might be less in mainly England Departments than in United Kingdom ones.

On fairness and the opportunities for students on different sides of the boundaries, it strikes me that this is very similar to what used to happen when county councils and local education authorities could give discretionary grants for particular postgraduate courses, for example. Funding depended on where a person lived, but that was a political decision by that local authority, just as it is a political decision by the Scottish Parliament to spend the money available to it on effectively paying the fees of Scottish students in Scottish universities. It seems to me that if devolution means anything at all, it means allowing different layers of government to make different political decisions about spending priorities. That is the Scottish Parliament’s decision, and we have to respect it.

The second point from the hon. Member for Wrexham that I want to comment on was about the breadth of sources of funding in higher education. He is quite right that we should be looking for a broad range of funding sources. During our discussions on education funding at the end of the last decade and the start of this one—with the Dearing report and so on—a number of ideas arose that have not been taken forward. Most obviously, the point was made that students, the economy, employers and the Government all benefit from higher education, but in the debate since then, we have concentrated exclusively on the balance between the individual student and their family on the one side, and the taxpayer on the other. The one source of funding originally mooted, but no longer in the debate—it ought to be brought back—is employers. What place should they have in the funding of higher education? I would be interested to hear the Minister’s views on that.

Does the hon. Gentleman accept that one way in which employers could help would be to assist those they recruit with meeting their outstanding student debts? He might care to elaborate on that. Does he accept also that it is not quite true to say that other sources of funding have disappeared from the picture? Does he welcome the £200 million announced by the Government earlier this year as match funding for universities and colleges able to raise money from other sources, thereby expanding the endowment foundation, which, as I said earlier, has an important role to play in offering stability, security and independence for universities?

Yes, on those two points, certainly I welcome the money offered by the Government to universities to encourage fundraising. There are limitations on it and difficulties with the amount offered, but the principle is none the less a good one: higher education institutions should be looking for as much independence as possible, and financial independence is one of the foundations of academic freedom. It is often said that the older institutions have more opportunity to fundraise on that basis than new ones, but experience in the United States, to which the hon. Member for Wrexham referred, shows that even quite new state universities can raise a lot of money from the private sector in that way.

On the other point that the right hon. Member for Oxford, East (Mr. Smith) mentioned about employers effectively paying off the debts of those they recruit, that is one way in which employers can contribute, but of course it is voluntary: some do it, but others do not. There is a problem with free-riding by some employers. Furthermore, in America—part of my education was at a law school in the United States—I noticed that that was one of the ways in which the very well-off commercial law firms in New York and Wall street attracted bright students to their firms, as opposed to their going into perhaps more socially useful areas of the law. The number of my contemporaries who went into New York legal aid was, I think, one, and the number of my contemporaries who went into very large commercial firms in New York was very large. That is part of the problem with doing things in that way.

My main reason for speaking today, though, is to put a particular point to the Minister, to which I hope he will respond. Much of the debate on fees has been about the financial attractions or otherwise of taking a university course. As an academic, my point of view is probably slightly different from that of most people, in that for me, the most important thing about university is the content of the course and the effects of higher education more broadly on our culture. There is evidence, for example, that people who go through university courses tend to be more tolerant and liberal in their outlook, which I think is a very important aspect of our education.

Nevertheless, the question of the financial return to the student from taking a higher education course is important. I want to bring the Minister back to his comment in a debate in the main Chamber not so long ago that, on average, the financial benefit for students of taking a degree, over and above what they would obtain on the basis of A-levels, was about £100,000. Does that figure take into account taxation and the amount of income forgone by a full-time student on a three-year course? I ask that because those amounts can be quite considerable.

There are estimates that the amount of tax that someone would pay on an extra lifetime income of £100,000 would be about £42,000. Turning to the income forgone, let us say that someone worked for, say, 30 weeks a year extra by not taking a course and they worked full-time at about minimum wage level. On those figures, a student would lose, over the period of a three-year degree, some £20,000. Obviously, that figure would be much higher if the alternative employment was more lucrative, as it probably would be.

Let us consider how much per year a student will gain over a 40-year working lifetime and how much they lose by not working for the three years of the course—they never get that back, and in effect they lose the interest that they could have earned by putting the money in the bank. If we also take into account the tax, the overall calculation as to whether it is worth while, purely in financial terms—for me, that would not be the most important factor—for a student to take on a university course turns out to be very close. Indeed, it is so close that the question whether there are fees, and especially whether there are £3,000 fees, would make a difference to a large number of students.

I ask the Minister to consider that, because if the calculation is correct, we will see a shift in the student population away from students who are from what one might call risk-averse backgrounds. People who are not sure what the rewards will be may be less confident than others that those rewards will come their way, which will discourage them from going into higher education. Perhaps just as important, there will be a shifting of students on to courses on which they think they will get a higher financial return than the present average.

That might be part of what the Government intend to achieve through their higher education policy, but we need to consider whether it is right to encourage students to think about lucrative careers—in the City, perhaps—and to think less about less lucrative careers, which might be highly socially useful, such as careers in social work or in teaching. For me, the crux of the argument about fees is what we are trying to get students to do and whether we think that the only plausible incentive to give people who go into higher education is financial. If it is financial, will it work and what effects will it have?

My final point about the fees system applies also to the proposal made by the hon. Member for Wrexham when he talked about a graduate tax; it is a problem with that system as well. If it is true, which I think it is, that higher education is desirable for the whole of society—it is something that we want to see more of—does it make sense to tax it? Increasingly in the debate about green taxes or environmental taxes, for example, it is accepted broadly across the political spectrum that taxation should be used as far as possible to discourage activity or behaviour that we disapprove of and to encourage behaviour that we do approve of. If that applies to higher education, what we are doing now is completely wrong.

I was not expecting to speak so soon: I thought that the right hon. Member for Oxford, East (Mr. Smith) might be about to speak, so that we would have an Oxbridge contribution across the Floor of the Chamber.

I congratulate the hon. Member for Wrexham (Ian Lucas) on securing the debate. I listened with interest to his description of North East Wales institute of higher education. He may not know that I come from south-east Wales originally. I am sure that he has followed the fortunes of what was in my day Caerleon institute of higher education, which has become the university of Wales, Newport. Newport has become a city; perhaps Wrexham will go along the same path in the near future.

I also had some empathy with what the hon. Gentleman said about Airbus. From the point of view of my own constituency across the border in Bristol, Airbus is crucial to the west country economy as well as to the economy of north-east Wales and Cheshire, and co-operation between higher education institutions and industry is vital in that area.

Going back 20 years, I was a cross-border student myself, but it was a rather simple thing for me to decide to go from a south Wales valleys comprehensive school to an English university. There was no difference at all for me between doing that, going to Scotland or going to Cardiff or Swansea, which were my two nearest home institutions. Now, of course, students face a considerably more complicated application procedure and have financial choices to weigh up. The Campaign for Mainstream Universities has sent through a most useful briefing, to which I think the hon. Member for Wrexham would also have had access, which says that there are seven scenarios as to whether someone is an English, Welsh, Scottish or Northern Ireland student, depending on where they apply. Universities UK has also sent a very useful summary, which sets out the financial difference that students now face.

Let us take the example of students who originate from Wales or are going to study in Wales. A Welsh-domiciled student studying in Wales will receive from the Welsh Assembly Government £1,845 towards their £3,000 tuition fee, whereas someone going from Wales to study in an English university, as I did 20 years ago, will not receive that support: they will have to pay the full £3,000, albeit on a deferred basis under the new arrangement. A Welsh student from my background will now have to weigh that up.

An English student studying in Wales is subject to exactly the same regime as if they were studying in an English university. Someone who is from Wales but studying in Scotland has a completely different arrangement, and a Scottish student studying in Wales has a completely different arrangement as well. I will not go into the arrangements in Northern Ireland, because that would complicate things even further.

As someone who believes profoundly in devolution, I suspect from what the hon. Member for Wrexham said that I have rather more enthusiasm for it than he has. Indeed, my first political act as a schoolboy in the late 1970s was to deliver leaflets for the yes campaign in the dying days of the Callaghan Labour Government, so I have a long-term interest in devolution, and some of the things that he described and that I am summarising are an inevitable consequence of the devolved arrangements. I am sure that those complexities will evolve even more. If we believe in devolution, we cannot complain too much about that, because just as is the case for different health treatments on different sides of the English and Welsh border, or for bus travel and all the other anomalies that have sprung up since devolution, it is a natural consequence. For a 17 or 18-year-old in school who is contemplating where to study, the state none the less has a role in ensuring that they have access to the best advice and information, so that they can make an informed choice.

The hon. Member for Wrexham alluded to the funding gap between Welsh and English universities as institutions. Again, I can express concern about that as my party’s spokesman on higher education in England, but it is for the Welsh Assembly Government to decide how to spend the block grant that it receives from the UK Treasury, and the choices that it makes in the Cardiff Welsh Assembly are fundamentally a matter for politicians there. Perhaps the hon. Gentleman should influence his Labour colleagues in Wales—if they are still in government—to invest rather more in higher education than they have over the past eight years of devolution.

At many events in this place, I have anecdotal conversations with Welsh vice-chancellors and principals, and many of them have told me that the Welsh Assembly Government are not giving higher education in Wales due attention. Historically speaking, that is rather peculiar, because investment and belief in education have always been fundamental in Wales, and there has always been enthusiasm for investment in education. I did a history degree at Bristol university, and my dissertation was partly about the foundation of the university of Wales and the Welsh people’s huge enthusiasm for providing the initial funds to set up Aberystwyth, Bangor and Cardiff. It is a pity that that enthusiasm is perhaps no longer felt with enough fervour by politicians in Cardiff.

The investment is happening in higher education in Wales, but as the hon. Gentleman said, the Welsh Assembly Government have chosen to invest in providing support for the student fee contribution—the £1,800 that he mentioned. Welsh institutions are spending the money, but money cannot be spent twice—there is not a bottomless pit. That might be why the funding that the Government give directly to higher education institutions in Wales is lower. The difficulty for the Liberal Democrats is that, yet again, we have no suggestion of where the money they talk about will come from.

I thank the hon. Gentleman for his intervention, but this is not the time for me, an MP who represents an English seat, to reopen the issue of the Welsh general election that has just taken place and—

Order. I can assure the hon. Gentleman that he will not be doing that.

I am happy to be bound by your ruling, Mr. Olner, and I have no intention of going down that road anyway.

Of course, students, whatever their nationality, face further complexities, and bursaries are a good example. The financial section at the back of different universities’ prospectuses now needs to be ever larger. There are complex tables about what sort of bursary students might expect to receive, covering funding from the university’s own endowment-giving or alumni sources, which is fine, and the £300 minimum bursary that all universities must now offer as a result of the Higher Education Act 2004. Following that Act, it was expected that a market would eventually develop in fees, but that has not happened, because most institutions, with the exception of one or two, such as Leeds Metropolitan, have charged right up to the cap. However, a market has developed in bursaries, and it is now hideously complicated for a student to weigh up what subject they might do at what institution and what support they might get from that institution.

The situation is also not very egalitarian around the country. One reason why institutions such as Oxford and Cambridge, where my hon. Friend the Member for Cambridge (David Howarth) and I spent most of yesterday, can award generous bursaries to students from disadvantaged backgrounds is that relatively few apply and are accepted for places. However, a post-1992 university, which might take in a lot of students from its locality, which has done a great deal of work in widening participation and which draws in many students from poorer social and economic backgrounds, will have the same pot of money available to it and will therefore be unable to offer such a generous bursary, even though its students will clearly have the same need as those at other universities. I therefore wonder whether the bursary market that has developed is delivering equity for students from different family backgrounds at different institutions.

My hon. Friend the Member for Cambridge rightly mentioned the role of employers in university funding. It is now 10 years since the Dearing report, which recommended a tripartite approach to university funding. Lord Dearing recommended that money come from the state, and that funding has continued. He also recommended that the student or graduate should contribute, and that contribution has increased over the eight years since tuition fees were introduced. Finally, he recommended that employers step up to the plate and make a contribution, but that part of the report has not received sufficient policy attention from the Government. I therefore invite the Minister to expand on the Secretary of State’s comments in his funding letter of 11 January 2007 to the Higher Education Funding Council, which is reproduced as a final appendix on page 41 of the Library debate pack. In paragraph six of his letter, the Secretary of State invites HEFC

“to develop a new model for funding higher education that is co-financed with Employers”

and

“achieves sustained growth in employer based student places”.

Will the Minister expand on what the Government are alluding to? Are we really starting to ask employers to make a greater contribution to higher education?

My hon. Friend the Member for Cambridge rightly said that the undoubted salary benefit to graduates of accessing education is now more in the balance given that the debt that they will incur is now augmented by increased fees. The Government’s evidence for drawing firm conclusions about the policies that they have implemented and those that they might be contemplating is still rather flimsy. We do not yet know for certain which of the shifts in behaviour that my hon. Friend mentioned might be taking place. We do not know whether students are deciding to do business studies rather than classics because they think that such courses will be more commercial and more attractive to employers when they graduate. I saw the hon. Member for Henley (Mr. Johnson) rushing to meet the Roman soldiers who were outside Parliament yesterday to stand up for ancient history, and I agree with him that it is important to preserve such things. Merchant banks and firms of chartered accountants, such as the one that I worked for, want to employ people with trained minds who can think critically for themselves and argue a case, and students are better able to get those skills from a history, classics or law degree. However, students are now thinking about the commercial viability of their courses and might take courses that they might not otherwise have taken because of the financial arrangements.

The hon. Gentleman makes a good point about the necessity to make it clear to students that the humanities also offer lucrative prospects. However, is it not also our duty to make it clear to students that science—the numbers have gone down in the past, although the Minister will no doubt correct me and say that they are booming—is also a lucrative path for them to take?

Absolutely. My hon. Friend the Member for Cambridge and I heard anecdotally from an admissions tutor at Cambridge about a conversation with a parent who wondered whether their daughter should take physics or business studies. She was scheduled to get four As, including physics, and was an ideal candidate for a physics degree, but she thought that business studies might be more appropriate because of the debt and everything else.

Shifts are therefore taking place in subject choices, which is bad enough, but there are also likely to be shifts in location. It is a question not only of the cross-border issues at the heart of this debate but of whether the pattern of access to higher education, from which all of us here probably benefited—with people going away to study—will become completely different.

I went to Bristol from south Wales. It was a completely different environment from that of the mining village in which I grew up, and my life is completely different now. I have even largely lost my Welsh accent. Will students from more disadvantaged backgrounds now study closer to home, because that will reduce their subsequent debt? Increased fees, which augment the debt, might lead to that shift in behaviour.

Looking to the future, I am sure that the Minister hears from many vice-chancellors of their desire for the cap on the £3,000 fees to be lifted. I know that the Government will hold a full review in 2009. Of course, if the cap is lifted in England, the chances are that there will be even greater financial pressures affecting the ability of the Welsh Assembly Government and the Scottish Executive to maintain the differential, and that investment in those universities will change as a consequence.

My hon. Friend the Member for Cambridge also mentioned research. Of course, the Department of Trade and Industry made an extremely short-sighted decision to lop £68 million from the research councils’ budgeted income—income for which they had already budgeted, which they had allocated to research projects, and which they will now have to claw back. That decision cuts investment in tomorrow to finance the industrial mistakes of the past. At present we have a UK-based research funding council system, which is, at least, able to invest in Scottish and Welsh universities. I hope that that will continue.

I thank the hon. Member for Wrexham for introducing the debate. He rightly said that not enough attention has been given to the anomalies that are now arising between the three nations and one Province of the United Kingdom. Those issues need to be teased out much more in the future.

I, too, congratulate the hon. Member for Wrexham (Ian Lucas) on calling the debate and on putting his finger on a difficult political problem, which will not get easier, and which will start to come up the political agenda as we move towards a further reform of higher education finance, for reasons that I shall go into in a minute. He has only scratched the surface of the problem, but he is right to draw attention, first and foremost, to the need for strong and stable public finance for higher education. That is certainly something to which my party is firmly committed. Higher education is good for the country. Universities UK says that it generates £45 billion a year, and I do not quibble with that. It is a wonderful thing. It is a great motor of social mobility and, as the hon. Members for Cambridge (David Howarth) and for Bristol, West (Stephen Williams) both said, it is a great thing in itself. We thoroughly support the expansion of higher education and we want to ensure that it is funded properly.

Higher education is not, however, being funded properly at present, in the sense that the unit of resource has gone down considerably. As the Minister will confirm, anyone who goes to universities and talks to students about what kind of deal they are getting will sometimes encounter a good satisfaction rating—the students are happy—but will often meet students who say they are not getting a fair suck of the sauce bottle: they do not get enough teaching, class sizes are too big, and the student learning experience is not what they have come to expect. Particularly now that we are asking students to pay their fees, they are becoming more and more consumerist, and they deserve a better deal.

We need to think creatively. I welcome the cross-party note that the hon. Member for Wrexham struck. He is right, because the issue is so sensitive politically that there is a risk that it can become acrimonious. We all need to think creatively about ways of getting more money into higher education. The right hon. Member for Oxford, East (Mr. Smith) is of course right to say that endowments offer great hope. I welcome the recent proposals by the outgoing Prime Minister; I hope that the incoming Prime Minister will develop them. The Minister nods, which is all to the good, and we should support that idea.

I do not necessarily agree with the slightly defeatist note that is sometimes struck, although it is a valid point that some universities do not have the alumni base that others do, and therefore find it difficult to raise funds in the same way. That does not mean that we should discourage that route. Let us remember what American universities have achieved in a short space of time. They have fantastically increased the amount of money that they pull in, and we should think—in a revenue-neutral way, as I am not allowed to make any spending commitments—about the possibilities. For example, it might be possible to adjust the gift aid arrangements to make them more like the American system, where the giver has more of a direct sensation of giving. In America people can write out a cheque with more noughts on it than they can using the British system. It is a cosmetic change, admittedly, but I wonder whether it has a role in the psychology of giving that seems to be so prevalent in America.

I wonder, also—and I know that the Minister has thought about this and that the Higher Education Funding Council is already working on it—whether it is possible to be more relaxed with universities about how they spend the money that they get. Might it be helpful in some cases to break down some of the barriers between the various budget lines that HEFC sets out? Is it possible to smash some of the jam jars so that vice-chancellors just get more of their money in a single wodge, rather than having to bid constantly for this or that penny packet of money? There are arguments both ways, and different vice-chancellors would give different answers about it, but that seems superficially an attractive way to go, because it would involve trusting universities more and allowing them to get on with developing their operations as they see fit.

We should also, of course, develop funding for part-time students. If we could get the holy grail of some kind of income-contingent, revenue-neutral system of funding part-time students, which did not discourage business from contributing, we should go that way. We also need to think—as we are doing—about getting money from the beneficiaries of higher education. That was the importance of the 2004 reform, against which the hon. Member for Wrexham voted; and we should look honestly at the results of the reform. I do not think that the gloomsters have been proved right. It is perfectly obvious that numbers going into higher education—certainly in England—have gone up. I know that the Liberal Democrats sometimes dispute that, but the figures are 7.2 per cent. up this year in England. I think that I am right in saying that that effect is happening in the lower socio-economic groups.

I am sure that the Minister will be pleased at the hon. Gentleman’s helpful points, but does he acknowledge that the largest group of applicants to the Universities and Colleges Admissions Service is those defined as unknown? That group is growing, because students do not say what background they come from. The evidence that the number of students from lower socio-economic groups is growing is flimsy.

I would say that I am grateful for the intervention, but I am not really. The hon. Gentleman is clutching at straws to vindicate a point that was convincingly demolished by the increase—surge—in applications this year. He should execute a complete U-turn and drop his opposition.

To come directly to the point, the position in England is not replicated in Scotland, where, admittedly from a higher base, the number of applications has gone down by 1.2 per cent.

Would not it be fairer to look at figures across two or three years, since in England there was a great decline in applications and then a great increase? There were two factors: the introduction of a new system, which always causes uncertainty, and underlying demographic changes. People’s chances of becoming a student are still pretty much what they were before the change happened.

One could not call the 2006 figures a sharp decline, as they were substantially up on the 2004 figures. The Liberal Democrats must move on from this point. They have lost the rubber; they should give up the argument, move across and start supporting a constructive, creative and socially progressive way of getting more money into universities.

This issue is particularly relevant in Scotland, where numbers have gone down. The Scottish did not go for the English solution and they have something approaching a crisis in their university system. There is a brain drain of academics going down to England, and there are considerable redundancies in the faculties of Scottish universities—I hope that we are allowed to talk about Scotland even though it is a devolved Administration. Dundee has had to lay off 100 lecturers, Strathclyde is laying off 250 and Glasgow 230.

If one reads the Scottish papers, as I do, one will know that Scottish academics are looking longingly at the alternative English system that was created as a result of the devolution arrangements. They are urging Scottish politicians to go down the English route, and are becoming more and more vociferous in saying that their competitive position is not sustainable and that they want to replicate the situation here. Unfortunately, something terrible has happened in Scotland: they voted for the hon. Member for Banff and Buchan (Mr. Salmond), who takes an even more regressive position than that which was taken by the previous Administration. He says that he will get rid of all kinds of repayment and will reinstitute the grant, which will further increase the disparity between the English and Scottish systems.

Does the hon. Gentleman agree that one advantage of devolution is that it enables us to compare different systems and see which works best? We can look at the evidence and then follow a particular route as a consequence. It will be to the advantage of the devolved Administrations to work towards a single UK model by consensus.

One might just as easily gain the same advantage by looking at many different countries. However, I see the hon. Gentleman’s point. This is a difficult problem and it is going to get sharply worse. Some time this summer, the Government will appoint a commission. The word on the street is that the person who will run it has already been designated by the Minister. I do not know whether that is true; there is a studied blankness on the Labour Benches. One way or another, a commission will be appointed this summer to look forward to 2009 and to begin work on a review of higher education financing in England.

I do not want to prejudge the review in any way, but I will say that we all want an equitable system that allows universities as much freedom as is compatible with widening access and ensuring that people from poorer, non-traditional backgrounds are not deterred from going to university. We want progressive reform that gives universities more freedom to make their own financial arrangements, within reason, if that is possible. One imagines that at some stage in the next Parliament, a Bill will come before Parliament, as it did in 2004, setting out the arrangements by which that might happen in England. The background to such a Bill will be very different from that in 2004, because by then the disparity between the funding arrangements in England and Scotland will be even worse, and Scottish academics will be looking with ever more longing eyes at the English system and worrying that their competitive position is being further eroded.

I cannot let the hon. Gentleman move on without putting to him the obvious, Scottish academic, point of view. Funding for research in Scotland is considerably more generous than it is on this side of the border, so the academics who are looking longingly across the border might be looking the other way.

The hon. Gentleman makes a fine point about research, but if he were to read the Scottish papers and look at the redundancies in Scottish faculties, he would not speak quite so glibly.

Given the widening competitiveness gap between Scottish and English universities, one has to wonder whether the 59 Scottish MPs should be allowed to vote on these issues in this Parliament. English MPs have no corresponding say over those questions in Scotland, and the motives of those Scottish MPs will be mixed, to say the least. Will they vote for a system that allows English universities to have a yet greater competitive advantage and so disadvantage universities in their own constituencies? Should we allow a Bill to be drawn up that will take account of those Scottish motives, when it will affect only English universities in English constituencies. I do not think so.

It is all very well to have two or three different systems of university funding in this country, but it is not right to have one group voting on another group’s system if the other group is not allowed to vote on the first group’s system. That fundamental injustice is going to move up the political agenda, and it will be extremely difficult to solve unless the Government move towards the system that the Opposition advocate, of having English votes for English laws. Under no circumstances would a Scottish Conservative MP vote on a higher education funding Bill that did not affect his constituents. The most elegant, logical and natural solution is for the Minister to pledge now that no Scottish MPs shall vote on the future financing arrangements of English universities.

The problem is not insoluble, and the hon. Member for Wrexham was right to raise this issue. His comments are timely and prescient, and he is right to point out the difficulties of having several university finance systems in a united kingdom. I look forward to joining his cross-party effort to sort the problem out.

It is a pleasure to respond to my hon. Friend the Member for Wrexham (Ian Lucas), whom I congratulate on securing the debate. It is not often that a Minister has the opportunity publicly to thank his former Parliamentary Private Secretary for his work. My hon. Friend worked very well on my and the Government’s behalf, and he knows that I was disappointed when he left that position. I thank him for his excellent work.

I have some personal understanding of this important and interesting issue, as I went to university in Cardiff, and I well understand that there will inevitably be a flow of students across borders. I recognise my hon. Friend’s concerns about the different higher education funding systems in each of the devolved Administrations, particularly the different systems of financial support for students. There is no point in denying that the nature of those differences can cause complexity, but while I recognise the strength of his views on the merits of giving responsibility for higher education to the devolved Administrations, I must tell him that there is no prospect of turning the clock back in terms of the devolved settlement.

Fundamentally we must recognise that the differences arise from different, but legitimate, democratic decisions: those of people in Scotland and Wales to support devolution, and those on student finance and universities taken by elected Ministers. Sometimes the exercise of that democratic choice gives rise to complications and rough edges. The task for all of us, whether in Westminster, Cardiff, Edinburgh or, indeed, Belfast is to do what we can to make sense of the complexities. We neither can nor should wish away the democratic process that has led to them. This is not something dramatically new, because there have always been differences in the education systems in the different parts of the United Kingdom. Devolution naturally empowers each country to do things differently for its people when compared with the prevailing systems elsewhere in the UK.

It is important to make it clear that each Administration carried out a thorough review of their own higher education systems before implementing the current systems of student financial support. Each system has helped, importantly, to maintain the upward trend in higher education application figures. The systems, in effect, provide different ways of achieving important and common objectives: they encourage all students to participate, and they support those from lower-income backgrounds, who would not be able to access higher education without additional support.

The other feature that the systems all share, which I want to emphasise, is that nobody affected by the new arrangements should, or does, pay up-front tuition fees anywhere in the United Kingdom. We have rightly recognised that it was a mistake in 1998 to introduce the concept of the up-front payment of tuition fees, and the new system across the UK rectifies it.

I can also reassure my hon. Friend that we are actively monitoring what is happening in each part of the UK. My officials from the Department for Education and Skills talk regularly to their colleagues at the Scottish Executive, the Department for Education, Lifelong Learning and Skills in Wales and the Department for Employment and Learning in Northern Ireland, to encourage the effective and efficient delivery of student finance across the UK and to sort out any cross-border issues. That is overseen by regular contact at ministerial level.

We are not going back to a one-size-fits-all model, but we all accept that students need proper information and advice on the choices that they face. Such information is put out for students and parents, and on the web, setting out clearly the full details of the student financial package in England as well as information on what students can expect should they choose to study at a university in Scotland, Wales or Northern Ireland. We make it clear what applies to England, and a section directs people from Wales, Scotland and Northern Ireland to the appropriate information sources in the devolved Administrations.

In all this debate, we should not forget that the benefit of this apparent complexity is that much more money is now available in higher education than was the case under the previous Government and that the systems are better and fairer. They are helping more students to participate in higher education, which is good both for them personally and for the country.

It is worth underlining the scale of the change that has taken place. Let us consider the situation just 10 years ago. Between 1989 and 1997, funding per student fell by 36 per cent., and that at a time of great expansion in higher education, as our economy changed from mass production to high skills. The result of that funding squeeze was that universities were seriously underfunded in comparison with their international competitors.

In contrast, since 1997, this Government have invested heavily in higher education. Our spending has increased by 23 per cent. in real terms since we took office, and we now spend more than £10 billion a year on higher education, with more to come in real terms in each of the next three years.

It is important to point out—this is an issue to which I shall return—that increasingly the responsibility for the future funding of higher education needs to be shared between the Government, the individual and employers. The changes that we have made, certainly those in England to the student finance system and the fees system, are proving beneficial. Not only are they bringing in additional money, but the most recent set of university application figures—those for courses next year—are a strong pointer in the right direction. Applications have increased by about 6 per cent. and the proportion from lower socio-economic backgrounds has increased too.

We have made progressive changes to the system of student financial support: we introduced the return of non-repayable grants; we provided for additional bursaries from universities; and we raised the threshold for loan repayments from £10,000 to £15,000. All of that has been positive. We have also had to focus on communicating those messages effectively to students and potential students. I pay tribute to the work that the Government have done with Universities UK, the National Union of Students, the Student Loans Company and the Universities and Colleges Admissions Service—UCAS—to name but four, to ensure that students can access the information that they need.

I should like to respond directly to a number of the points that have been made.

Before the Minister does so, will he say whether he is in any way disappointed that the present system contains so few variable fees and that the market in courses that was envisaged at the time that the legislation was implemented has not developed?

That is an interesting question. Although there has not generally been a market in fees, there has—this is where I agree with the hon. Member for Bristol, West (Stephen Williams)—been a market in bursaries. In that sense, a competitive situation exists in which universities rightly have to examine not only their student financial support package, but the quality of delivery. Let us consider the new mechanisms to ensure positive performance, for example the national student survey. Universities rightly will increasingly have to justify the work that they do and the service that they provide to students.

Does the Minister agree that as we approach the review of the fee cap, it is crucial that a good, thorough, comprehensive and trusted evidence base exists about the impact of the fees, the bursary arrangements and so on, both in overall terms and in terms of the performance of each individual institution? We need to have an informed debate at that stage, and the empirical evidence that underpins the debate will be crucial.

My right hon. Friend is right, and I shall return to the point. To all the people who say that we should pre-empt the decisions of the independent commission in 2009, I must say that it is right that we see the proper, full evidence from the first three years’ full operation of the new system and that we, the Office for Fair Access, UCAS and others work together to ensure that as much information as possible is available to inform whatever judgment is made after 2009.

To return to some of the points that my right hon. Friend raised, I agree that one of the strengths of our university system is the diversity of funding streams. He is right to focus on our recent announcement of the £200 million to incentivise the giving of endowments to universities. The way in which we have structured the initiative means that it moves significantly beyond the top five or 10 universities in terms of research income; we envisage that about 75 institutions will be able to benefit from that matched funding scheme. We also need a greater contribution from employers, and I shall return to that.

This week, we are hosting a major international conference in London—the Bologna conference—on comparability and the mobility of students across the broader European higher education area. As I talk to my counterparts, I find, privately at least, that a number of them are envious of the broader funding streams that we have in our higher education system.

The hon. Member for Cambridge (David Howarth) talked about raiding the research budget. This Government and I will take many criticisms, but if he were to look in detail at this Government’s commitment to, and record of, financial support for research over the past 10 years, he would see that it is one of the most positive in generations. There has been a 70 per cent. increase since 1997. We are talking about more than £2 billion a year, combining the DFES and Department of Trade and Industry contributions.

The hon. Gentleman raised the issue of employer contributions. As I have said many times in the past couple of years, the big future expansion in higher education will be in the field of employment-based higher education. Part of the way that that needs to go forward involves developing a co-financing model, whereby employers contribute to the costs of driving up the skills base and the qualifications of their employees.

The hon. Gentleman also raised some questions about the financial return to students. I want to make it clear to him that the figure that I am quoting, which is based on detailed research, is an average net £100,000 graduate earnings premium of a student over the course of their working life, compared with someone who has just two A-levels. That is on top of tax and on top of forgone income during students’ three years of study. Indeed, the financial returns for graduates in the UK are among the highest in the world.

I must say gently and charitably that I take some the Liberal Democrats’ concerns with a pinch of salt. People ultimately judge politicians not on what they say at the hustings or in opposition, but on what they do when they have their hands on the lever of power. The Liberal Democrats, in coalition in Scotland, have supported a system of postgraduate repayment, which is no different in principle from the variable fee system that we have in England. It is important to register that point.

The basis of this debate, called by the hon. Member for Wrexham, is that the systems are different. The system in Scotland is plainly different from that in England, because the first principle of the Scottish system is that the Scottish Executive pay Scottish students’ fees.

Yes, and the hon. Gentleman will be aware that although there is less to pay in fees, the student must find more for living costs. In England, low-income students have much more support per year for living costs. Better-off Scottish students also have the fees advantage, but receive significantly less maintenance support because income thresholds are lower and the non-means-tested part of the loan is much smaller than the 75 per cent. in England.

Let us have a proper debate on the facts, and let us stop sloganising about higher education. When people look long and hard at what the Liberal Democrats have done when in power, it is very different from what they say in speeches on university campuses throughout the country.

The hon. Member for Bristol, West (Stephen Williams), who leads for the Liberal Democrats on this issue, chided my hon. Friend the Member for Wrexham to encourage the Welsh Assembly to invest more in higher education. Again, the Liberal Democrats have not been part of the Assembly’s government. If he is handing out advice, he can give it to my colleagues in the Welsh Assembly, but he must also give it to his own colleagues.

The hon. Gentleman said that we are not doing enough to encourage employers to contribute to the cost of higher education. That is not true. For example, the Government have developed foundation degrees, co-designed with employers. At the moment, there are around 61,000 foundation degrees throughout the country, and we are moving towards 100,000. The hon. Gentleman referred to the Secretary of State’s letter to the Higher Education Funding Council. We have told the Higher Education Funding Council in England to provide at least 5,000 co-funded places a year, working with universities that are keen to expand this area. We have initiated three regional pilot schemes under the training-to-gain banner, to add a higher education dimension to that programme of encouraging and helping employers to move their employees up to the highest level.

The hon. Gentleman also asked about the cap. Let me make it clear that the Government have said all along that we need an independent commission in 2009. I believe it would be premature to pre-empt its deliberations and decisions, and I say that to some vice-chancellors who urge me to lift the cap now, and to the National Union of Students which urges me to scrap tuition fees. I also said it recently to the Liberal Democrats’ think tank, which urged me to lift the cap now to £5,000 a year. Across the board, it is important to await the full three years’ figures, and then make the judgments.

The hon. Member for Henley (Mr. Johnson), who leads for the Conservatives on these issues, raised some important points. He started by questioning what was happening to the number of science applications in our universities. I dispute his accusation, which he and I have discussed on a number of occasions. There has been a three-year trend of a turnaround in applications for STEM subjects—science, technology, engineering and mathematics. The application figures for the coming autumn show significant advances of 10 per cent. plus for physics, chemistry, maths and engineering. One reason is that we are now more successful in convincing students of the additional graduate earnings premium for STEM subjects, which is about a third more than for students of non-STEM subjects. Indeed, I shall make a major speech and an announcement tomorrow on what more we must do to get the facts across to young people about the benefits of studying science at university in this country.

The hon. Gentleman then went on to decry the fact that the unit of resource had fallen considerably in our universities. That was certainly the case under the Conservative Government, and between 1989 and 1997 it fell by around 36 per cent. However, during the current three-year comprehensive spending review we have, for the first time in a generation, maintained the unit of resource. In the Budget announcement this year, we made it clear that for the next three-year period we will again maintain the unit of resource, so for six years in a row, after a generation of moves in the opposite direction, we are maintaining that unit of resource in higher education.

On top of that, we have additional fee income, the endowment initiative, and the extra research funding commitment to universities. As I go round the country talking to academics, university staff and vice-chancellors, although there are, rightly, questions and challenges, they acknowledge, virtually universally, the real step change in support and funding that we have delivered to our higher education institutions during the past 10 years.

The hon. Gentleman also asked about part-time students. It is to the credit of this Government—I would say so, wouldn’t I?—that we are the first ever to have introduced a part-time student grant. Not only that, last year we increased it by some 27 per cent. We have also increased the access to learning fund from £3 million to £12 million across the country.

I make no apology for saying—I think the hon. Gentleman and I agree on this—that it would be wrong to replicate the full-time student support package for part-timers because the evidence shows that around 41 per cent. of part-timers have their costs met by their employers. Given that we must collectively incentivise more employers to make a greater contribution, I would not want to do something that simply substitutes state funding for employer contributions. Our changes have been beneficial. We must monitor the impact on part-time students, but we should not do things that might have an unwelcome consequence.

The hon. Member for Bristol, West intervened on the hon. Member for Henley and made an accusation that it was difficult to claim that the proportion of students from lower socio-economic groups was being maintained and increased, given that an increasing number of students do not designate their social class identification in the UCAS application process. It is certainly true that there has been a reduction in the number who do that, but the hon. Member for Bristol, West has no basis in fact for suggesting that that would disproportionately impact on students from lower socio-economic groups.

I say this charitably, but there is a need for real care in this debate. I respect the fact that the Liberal Democrats claim to have a different position on student finance, but there is a slippery slope from that position of integrity and moving to misrepresentation and scaremongering, which will put off the very students from the poorest backgrounds for whom the system of student financial support is immensely better than in the past.

In the final minute of his speech, will the Minister address my central question: does he think it right, with the current university financial crisis in Scotland, that Scottish MPs should be able to vote on further reform of university finance in England?

People have voted for a devolved settlement, and it is right and proper that that is taken forward. It enables people throughout the United Kingdom to exercise their choice and judgment.

In conclusion, we have had an extensive debate. I congratulate my hon. Friend the Member for Wrexham on raising the issues, and pointing to some of the important work that local institutions near his constituency are undertaking, which he and I have talked about. They are doing absolutely the right thing, particularly in respect of foundation degrees.