To call attention to the consequences of the cuts to higher and further education funding that have been announced; and to move for Papers.

My Lords, this is the last occasion in this Parliament on which we will have an opportunity to call the Government to account for their policies in higher education, universities and FE colleges. We have just had a debate on scrutinising legislation and public policy—how the House of Lords can get better. It is a disgrace that the Secretary of State is not replying to this debate. He is the author of the policy and, if you are going to improve the ability of the House of Lords to scrutinise public policy, you should have the Cabinet Minister replying. It is very rare for this House to have a departmental Cabinet Minister in it. In the House of Commons there would be no question at all: the House would have insisted that the Secretary of State replied. In fact, the Secretary of State said earlier today that he had departmental business. I suspect he is trying to settle disputes between the Chancellor and the Prime Minister and other members of the Government. However, he has a duty to be here because the cuts he has introduced will have a substantial effect on the whole of the university and FE world.

There are 350 further education colleges in which 3 million people are trained every year. The cut in this sector is 16 per cent but, as it is focused on adult education, 147 colleges have said that they will have to cut their courses by 25 per cent. The head of Walsall College, Amrit Basi, said that this September he will probably have to cut by 25 per cent, which means 8,000 fewer adults in training. On Tuesday I went around an FE college in London and was surprised at the number of people in their twenties and thirties who were going through retraining; it was a very large number. I spoke to one young lady in her late twenties, I thought, who was training to be a mason; she was chiselling out a piece of Portland stone. I asked her what she had done previously and she said that she had been on the trading floor of an investment bank. So she was at least learning a craft that would be useful in her life. All around, there were other people like her doing various courses. These are the courses that are going to be cut.

On Teesside, for example, the House knows that the Corus plant has been closed, as have all the ancillary companies, and that this has devastated the area. There is massive unemployment, with people of all ages—twenties, thirties, forties, fifties—out of work. So what is happening to the colleges in that area? Middlesbrough got a big cut; the principal of Redcar said:

“These cuts will have an impact on adults and those who wish to develop their skills for working life”,

and there have been cuts in Stockton and Cleveland. So in the Teesside area you have the extraordinary anomaly of unemployment increasing dramatically and cuts in adult training. Is that joined-up government? No, it is disjointed, disorganised and disastrous government. It is extraordinary that the choice in Teesside is between training or the dole, and for a Labour Government to accept dole as the answer by cutting the training places in Teesside is absolutely disgraceful.

I turn now to universities. The cut this year is £449 million. The Minister will say that that is 5 per cent and the universities can accommodate that. However, it is much more than 5 per cent because it is in addition to the £600 million that has already been announced for the following years. The real cut, in fact, is £1 billion—that is what we are talking about—so beware the honeyed words that you might hear in the Minister’s reply.

This is the biggest cut for 30 years. Over the past 30 years we have had a magnificent record in developing higher and further education; it has been a golden period. However, before the Minister takes all the credit for the Labour Government doing this, let me remind him that the big increase in students took place in the Thatcher/Major years, when the figure doubled, from 500,000 to 1 million. In a speech I made in 1989 at Lancaster University I did not set a target but forecast that this would happen because of the natural ambition of young people wanting to go into higher education to improve their lot in life, to improve their education and to move on. It was going to happen; the circumstances were in place and there was rapid growth. In the Blair/Brown years there was an increase of 500,000 students—50 per cent, not 100 per cent—to about 1.5 million.

As a result, both Governments provided substantial money to this sector. We managed to retain certain world-leading universities, and we still have a clutch of universities and colleges in the top 20 in the world. The universities make an important contribution to the GDP of our country—nearly 2.5 per cent. In research, we box above our weight; we have 1 per cent of the world population and 12 per cent of the scientific citations. We should be immensely proud of this. Universities of such quality are a great asset to our country. America and Britain stand out in the world as having these quality institutions. However, they are always under threat through a lack of money. That is why the Government, quite correctly, introduced fees.

I was speaking yesterday to the noble Lord, Lord Rees, the Astronomer Royal and Master of Trinity College, Cambridge, another great gem in higher education. He said that some years ago we were able to attract some of the greatest scholars, researchers and teachers, but now it is much more difficult. This is because other countries—not America—are trying to catch up and are offering high salaries and attractive terms. All the time money has to be found for the university sector, not cuts. No Government, of any party, will ever provide universities with the sort of money that they need or deserve, so the damage to universities will be quite considerable.

The quality of speakers in this debate, including chancellors, vice-chancellors and heads of colleges, tells its own tale. Every university is going to be hit in one way or another—some very severely indeed. The sector has estimated that some 15,000 jobs are likely to be at risk. I do not think that it is shouting “Fire!” unnecessarily; it is already beginning to happen. King’s College has already announced a redundancy programme of 205 staff; Leeds is expected to make 700 redundant, Sheffield 340 and Hull 300. I was saddened to read in the evidence sent us by the British Medical Association that in the medical faculty at Imperial College, one of the spectacular great colleges of the world, 26 people have already been made redundant and there is a threat that another 50 may go. This, after 12 years of a Labour Government, is really a great sadness and a national disaster. It is reflected through the whole of our estates of our universities.

Teesside University has come together very well and won a prize last year for being one of the most successful universities. It had devised a plan this year for a scheme of £2 million to help poor students with bursaries and scholarships, but the university has had to scrap it. One perverse consequence of this programme of cuts is that the poorer students are the ones who are going to be hit. That is an extraordinary thing for a Labour Government to do. If you restrict universities on the numbers that they can take, they will raise their entrance standards; that is already happening across the board. Some universities are saying that they will require three A-levels of AAB rather than of ABB. Who benefits from that? It will be the beloved sectors that the Government want to promote—private education and grammar schools, along with some of the better comprehensives. So their policy is having the most extraordinary perverse effect on social inclusion. It is extraordinary that the Labour Government, who have made such a thing about social inclusion in higher education, are creating and implementing a policy that will make it less, not more.

As for the numbers of students likely to suffer as a result of this policy, there are various estimates by various vice-chancellors and the head of the Russell Group. Between 200,000 and 300,000 youngsters will not be able to get to university or college this year. That is denying a generation; it is a generation abandoned. I am sure that those who voted for new Labour in 1997 did not think that after 12 years they would abandon a generation of youngsters, who will not go to college this year. The numbers have been cut; the 10,000 that the noble Lord, Lord Mandelson, increased last year have been removed totally and all universities are beginning to say that they will recruit less. This is a tremendous sadness; it is not a policy that can be defended in common sense. What will we do with those 300,000 who cannot get into college? Some of them will go on to the dole queue. Again, it is the Teesside conundrum. It is very regrettable that this policy has actually occurred. Of course, if universities dare to increase their recruitment over the figures set by HEFCE, they will be fined £4,000, which is again an extraordinary policy to follow.

The last cut from which universities will suffer is capital, which will be cut by 15 per cent. I seem to remember hearing a speech by the Prime Minister about 18 months ago in which he said that one way in which to get out of this recession was through public investment in building projects of one sort and another—the Roosevelt pattern, the Keynesian solution. Well, that will not happen in the universities, where 15 per cent will be cut.

I had a letter from the noble Baroness, Lady Andrews, who was recently a member of the Government but is now head of English Heritage. If she was still a member of the Government, she would be making a speech similar to the one that the Minister will make today. She is very concerned, at English Heritage, that the £40 million that was given last year to the universities right across the board to restore their historic buildings is all going to be cancelled. They will not get a penny. This is capital building in a recession! These are a Government of adjectives, when they talk of policies. This is not a constructive policy at all, and the losses are enormous.

Oxford, whose chancellor is here, will lose £5 million, while Cambridge will lose £4.25 million. The vice-chancellor of Durham has 65 listed buildings in his estate, some dating from the 11th century; he will lose £700,000, which he says that he will have to spend on the buildings as they are actually crumbling. So it has to come out of the teaching grant.

The Government are following a crazy policy on all this. They are not giving enough money to increase training for the unemployed and they are cutting the capital costs which was supposed to help in employing the unemployed. I hope that the Minister is taking a little of this on board and will be able to answer some of it.

What should we do? First, I would recommend—and I hope that the next Conservative Government will do it—removing responsibility for universities and further education from the Department for Business, Innovation and Skills. In the old days, it was always called the Department of Trade and Industry, but again adjectives have won. The department run by the noble Lord, Lord Mandelson, should not be responsible for universities and FE; they should be returned to the education department. It is the natural continuum. If the education department had been responsible for universities and FE this year, I can assure the House that the cuts would not have been as severe. Having been responsible for the budget of that big department for more than four years, I know that it is always possible to find a little bit to cushion the blow. It would have been quite possible for the education department to have found some of that £449 million and given it to universities and FE colleges. That is one advantage.

I am glad to see that the Tory Party has said that it will increase the number of places this year by 10,000. David Willetts has made that commitment, and we must hold him to it after the election and ensure that it is somewhere in the manifesto. That will be paid for by an earlier payment of student loans to the student loan scheme—so it is costed.

Furthermore, there must be a fundamental look at the funding of universities. This is a spatchcock set of proposals, desperate because the Government are in a desperate position. Of course, the university world will have to make some cuts in this situation, and I am not saying that they should not have to take some. But these cuts are too savage and far too high, at 10 per cent for universities and 16 per cent for FE colleges. That means that we must put a lot of hope and expectation in the Browne committee, reporting later this year, which is looking at fees and bursaries. That must be the way forward.

We spend 0.9 per cent of our national wealth on universities, while the OECD spends 1.1 per cent, although those countries get worse value than we do because our universities are rather better than most universities in the OECD. We are quite good at getting value for money, but, frankly, we will have to spend more. In this knowledge-based economy into which we are moving, we must ensure that higher and further education are really pillars of growth and great attraction, which will make our economy and people much stronger and happier.

Before we hear from my noble friend Lord Parekh, I observe that we have no spare time whatever in this debate. If every speaker sticks to a limit of five minutes, we will finish exactly on time, but if speakers run over five minutes we will not. When five minutes show on the clock, it means that your time is up.

My Lords, I begin by thanking the noble Lord, Lord Baker of Dorking, for securing this debate and for introducing it with the eloquence and insight that we have come to expect from him.

The Government have announced cuts amounting to about £900 million out of a total budget of £12 billion over three years, which comes to something like 8 or 9 per cent of the universities’ state-funded budget. I realise that we are all passing through difficult times and that universities cannot be exempted from their share of painful cuts. At the same time, the Government need to realise that universities can go only so far and that once their international standing and their commitment to teaching and research are weakened, it will take years to rebuild them. What is therefore needed is a spirit of partnership between the Government on one hand and the universities on the other. I first want to emphasise that the universities need to do a little more than they have done and then I will concentrate on what the Government need to do in response.

Universities have already done much to diversify their sources of income. Their reliance on state funding is far less than it was about 15 years ago. They can go further, however. There could be greater involvement of the alumni, greater collaboration with our EU partners and the universities in EU member countries, and greater collaboration with universities in the United States and developing countries. The universities can also do much to rationalise their academic offerings and the way in which courses are delivered. Again, they have done much over the past 15 to 20 years, but there is still room for improvement. They can play to their strengths and specialise in certain areas rather than duplicate what neighbouring universities do. They can also put on flexible courses and offer work-based learning so that students do not have to travel to the campus. They can work closely with industry and business and share the costs of education with these institutions. In some cases, technology can be more widely used and we can save on academic labour power. Therefore, I think that there is room for improvement on the part of universities and it would be wrong for us academics to deny that universities, too, must accept their share of the burden.

The Government need to bear in mind three important principles. They must realise that, while it is right to encourage universities to find research money elsewhere, that is not possible in many areas, such as the arts, the humanities and some social sciences. There is therefore a danger that the universities might neglect these areas because money is not available and concentrate entirely on sciences and technology. I think that the Government are, wittingly or unwittingly, in danger of giving a technocratic bias to our university education, which would be disastrous. A university is not simply a place for science and technology; it is the custodian of our civilisation and the values that the country stands for and it cannot ignore its role in those areas. If we are not careful, we might end up in a funny kind of way reversing what Margaret Thatcher did. She turned polytechnics into universities and, if we are not careful, we might end up turning all or most of our universities into polytechnics, which would be just as great a mistake.

As the noble Lord, Lord Baker, pointed out, in a knowledge-based and highly competitive world the Government need to make sure that our institutions of higher education are among the best in the world. Our universities have a lot to be proud of. They are the second most popular destination for overseas students. They get the second highest number of Nobel prizes and other forms of international recognition. They contribute £33.4 billion to the economy, which is 2.3 per cent of GDP. However, other countries are beginning to catch up with us and are even overtaking us. France has decided to contribute €11 billion to higher education. Germany has decided to contribute €18 billion to world-class research institutions, alongside university education. President Obama has committed an additional sum of $20 billion for federal education spending. It is important to bear in mind the fact that the French and German money is not just going to science and technology; it is also going to centres of migration studies, cultural studies, studies of long-term economic and political trends and so on.

It is important that the Government should constantly monitor how we are competing with other countries and what they are doing that we are not doing. They should also bear in mind the fact that, beyond a certain point, university education should be a protected sphere in exactly the same way as the health service, schools and the police are. Unless we recognise that, we are in danger of destroying great institutions that we have taken hundreds of years to build.

I congratulate my noble friend on securing this debate on higher education. Like him, I find the absence of the Lord President lamentable. I declare an interest as chancellor of Oxford University.

The Prime Minister regularly refers to the importance of our world-class universities and regularly talks about ensuring that they remain at the top of the class. In a recent speech, he opined that over the next 20 years education is likely to be this country’s biggest export. However, there is a certain disjuncture between his remarks and what is happening on the ground. My noble friend pointed to the £1 billion in cuts that has been identified by Universities UK. The noble Lord, Lord Parekh, referred to what is happening in our competitor countries—in France, Germany and the United States. As we know, the Institute for Fiscal Studies has predicted that there could be another £1.6 billion in cuts if the Government are to secure their target for cutting the fiscal deficit while ring-fencing programmes such as health.

I have on previous occasions welcomed the increase in spending on higher education since 2005-06. The Lord President has been very happy to quote me saying that, so I hope that he will quote what I am going to say today, if he can find the time to read this debate. What we are seeing over the years until 2012-13 is the obliteration of the splurge of spending on higher education since 2005-06. In fact, it is worse than that. If you look at the Universities UK figures, you see that, even at the high point of this spending and even with three years of tuition fees, the unit of resource for every student is in real terms £7,500, which is £1,500 less than it was when my noble friend was the Secretary of State for Education. There is substantially less money behind every student today. I hope that the noble Lord, Lord Browne, and his review provide some of the answers that are required, but it will be difficult to expect him to go the whole way.

Let me describe briefly the situation at Oxford. It costs about £16,000 a year to teach a student there. Public funding plus tuition fees cover only about half of that, and the gap is steadily widening, not least as we have already had a cut of £11 million in our teaching grant and I doubt that that is the end of the road. One area that concerns me particularly is the impact on the humanities, which I referred to in a speech in this House before Christmas. In Oxford, we did very well out of the 2008 research assessment exercise. The research power index ranked Oxford as top nationally in French, German, Asian studies, English, history, classics, theology, philosophy and Middle Eastern and African studies. However, the Government, in order to accommodate an increase in spending on the so-called STEM subjects and to spread what is left over a rather wider area, have made substantial cuts in the QR funding for those top-of-the-league subjects at Oxford. We have seen a cut of over £600,000 for French, which is about 43 per cent, and a cut of over £500,000 for English, which is about 18 per cent, while the historians have taken a cut of well over £1 million, which is over 30 per cent. I warned before Christmas, as I say, about the problems that the humanities face. The Government sometimes give the impression that they do not much care what happens to the humanities because they are not, in their view, useful. I think that that is a particularly bleak view of the role of universities. If we are having those problems at Oxford, I hate to think what problems others are facing.

I just want to repeat one point that I made, again before Christmas. I do not think that, given the small proportion of GDP that we spend on higher education, we can go on giving young people what purports to be the same university experience in exactly the same institutions and at the same time defend a world-class research base. We simply are not spending enough money to do both. We will have to choose and we will have to reorganise the sector. It is not enough to fudge the figures, to deny that there is any pain and to pretend that all is for the best. Put very simply, it is not all for the best.

My Lords, this is the second time in eight years that the House has been indebted to the noble Lord, Lord Baker, for introducing a debate on this topic. The noble Lord, Lord Mandelson, has announced swingeing cuts in the financing of universities and added his name to those who call for a much more vocational, utilitarian and philistine approach to both teaching and research. In this, it is a re-echo of one of the main thrusts of the Dearing report in 1999 and will doubtless be rehearsed again when the noble Lord, Lord Browne of Madingley, completes the latest review of university financing. It is not new. The Edwardian period was characterised by The Quest for National Efficiency. Then, Governments of all hues were alarmed that the UK would lose out to the superior competitiveness of German and Japanese industry. Now we are told that the UK has to compete with the rising economic power of India and China.

The recurring themes of efficiency, modernisation, vocationalism and prosperity have resulted in different policy manifestations over the years. Many of them were in response to the clamour of industrialists. The problem is that to pursue such siren voices is to follow the lurchings of a drunk; industry always wants the opposite of what it is getting. It is like a perpetual five year-old’s birthday party: no present satisfies.

It is not entirely, or even partially, industry’s fault. Policy-makers, whether Ministers or civil servants, have never stood back long enough to produce a coherent system of higher education. It has all been, as the noble Lord, Lord Baker, said, too piecemeal and knee-jerk. As I have said before in your Lordships' House, UK tertiary education ought to be based on something akin to Clark Kerr’s comprehensive plan which revolutionised the situation in California.

Higher education needs to be regionalised. Its academic staff should teach on more than one campus; a peripatetic element would preserve a greater range of disciplines at a cheaper cost. Courses should be offered on a continuous basis so that students can take them over an intense period, à la the University of Buckingham, or over an extended one, à la the Open University. Such innovations would make higher education much more consumer-friendly and cost-effective.

I was a faculty dean at the time of the Thatcher cuts in 1981. Most universities adopted a rather desperate slash-and-burn approach. It will be much worse this time round, with compulsory redundancies being inevitable. I am glad that I am no longer a vice-chancellor.

In 1981, higher education funds were slashed throughout the developed world, with one exception. Lee Kuan Yew increased the budget in Singapore on the grounds that its best natural resource was the grey matter of its young people and that that had to be cultivated. The noble Lord, Lord Mandelson, should ponder that.

There is one final remark that I shall make—one that concerns intergenerational equality. As I wrote in a letter to the Guardian some months ago, it rather sticks in my craw that this generation of legislators is intent on placing a much greater share of the costs of third-level education on to the students. It is a generation that itself benefited from state scholarships and county awards that covered both fees and maintenance costs. The rate of return on a degree accrued significantly to the advantage of the individual. With a swingeing increase in fees, as the noble Lord, Lord Browne, is likely to recommend, the costs will be to the severe detriment of the graduate. There is a strong case for considering the imposition of a retrospective tax on those graduates who enjoyed the earlier regime that lasted for a half century. That would go some way to preserving equity between the generations.

My Lords, I declare an interest: I am chancellor of the University of Dundee, a leader in life sciences research, and I am also a member of the council of the Medical Research Council.

Discussion related to funding arrangements for universities has to be conducted in the context of potential changes in the research assessment exercise, the widening participation agenda and the application of market forces to university education. The current government approach to all this gives one a feeling that higher education is now being used instrumentally as a commodity and a low-grade instrument of the economy and the marketplace, rather than in its own right as something that enriches society through thought, research, education, analysis and contribution to knowledge and understanding.

Government interactions affect teaching, research and university planning and strategy. In teaching, academics are now rewarded or punished for meeting or failing to meet student recruitment targets. Students are seen in market terms, as purchasers of educational services, forcing redundancies of staff or forcing universities to increase the number of overseas students, selling places to the paying public.

In research, Alistair Darling, the Chancellor of the Exchequer, revealed in his Pre-Budget Report in December 2009 that there will be substantial reductions in higher education, science and research budgets between 2011 and 2013. Peter Agre, the 2003 Nobel laureate in chemistry, stated:

“The nations that fund science are investing in the future, but those that cut funding are hoping for the best”.

On 21 February 2010, Ralph Cicerone, president of the US National Academy of Sciences, said that the cuts in university and research budgets will force the most talented British scientists to find jobs in the US, Singapore and other countries that are continuing to invest in science throughout the global recession.

Yesterday, I heard our own 2009 Nobel laureate in chemistry, Professor Venki Ramakrishnan of the MRC laboratory of molecular biology in Cambridge, make a similar plea to parliamentarians. He said that he moved to the United Kingdom from the United States 10 years ago because the climate for basic science research in the UK was ideal at that time. His research already shows potential for developing new antibiotics. Although the research councils do fund blue-skies research, which is the basis of the renewal of knowledge and the development of new knowledge, there is increasingly a push towards more limited applied research.

Thus, government control of finance for universities which is tied to short-term economic returns extends beyond the direct funding that they provide for capitation. At a more macro level, the drive to treat research as an income-generating, cost-covering activity requires more staff to spend more time seeking outside funding, while those working in research units spend their time accounting for their time. Senior researchers spend more time on forward financial planning and answering questions from accountants about recovering 89 per cent of overheads than in doing actual research.

When it comes to planning and strategy, unstable government policy and the instrumental use of universities for political purposes, subject to the vagaries of the Treasury’s thinking, mean that universities themselves cannot think strategically. Government should think hard about the nature and benefit of universities. The research that they conduct, especially basic and speculative research, is the basis of future economic development. Scientific research is a strategic good and the basis of future income generation and inward investment. Tying research to the market and the economy is short-term, reactive panic-thinking that will disallow the development of a solid base and production of future generations of scientists.

Further cuts in funding, while continuing to put pressure on the universities to teach disproportionately high numbers of students—to generate income, to undertake short-term applied research, and to save money on staff and activities—will lead to our best academics leaving for universities that will use their research skills; to our teachers being burnt out and alienated from the market process; and to our students being offered an education that is not what university teachers would wish to offer nor what the students would wish to have.

We have already heard comments about how Obama, Sarkozy and Merkel have announced significant investment in universities since the global economic downturn, recognising the role that universities can play as an economic stimulus in long-term recovery. So my questions to the Minister are these. First, what do the Government understand the special purposes of universities to be? Secondly, in the face of significant investment in universities in other countries, when will the Government maintain the UK’s leadership in teaching and research by committing to long-term planning?

My Lords, I also am grateful to the noble Lord, Lord Baker, for his eloquent and effective introduction to this debate. In the diocese of Leicester we are delighted to work with three high-performing universities: Leicester, Loughborough and De Montfort. I declare an interest as a governor of De Montfort University and as chair of the governors of Westcott House theological college in Cambridge. It is from that direct personal experience that I want to say a word about higher education in general and about theological education in particular.

De Montfort University has performed outstandingly in widening participation in recent years. It has a growing reputation, a track record of strong student demand and excellent research records, yet it now finds itself facing an already announced 3 per cent reduction in recurrent grant, closing prematurely entry to a range of faculties—almost unheard of at this stage in the academic year—and rethinking its approach to widening access. Likewise, Leicester University has an exceptional recent record; it was named university of the year in 2009 by the Times Higher, and applications for undergraduate study have increased by over 75 per cent in four years.

What are those universities and others like them asking from the Government in the present uncertainties? I shall list four or five requests. First, implement the findings of the fees review swiftly and give higher education institutions more flexibility to generate their own income. Secondly, treat universities as trusted sponsors through the implementation of the points-based immigration system; do not tie universities in red tape that will threaten a valuable source of cultural diversity and income on campus. Thirdly, do not cut the sector twice. The cuts already announced are painful, as we know, but what is unannounced—and the fear that higher education may be disproportionately targeted—is probably more of a concern and a barrier to any medium to long-term planning. Finally, find some further limited expansion in the light of growing demand for places.

It is well understood that funds are limited and entry to university should be competitive, but the current economic circumstances are leading to unprecedented demand. Talented young people, as the noble Lord, Lord Baker, pointed out, are better off in higher education than on jobseeker’s allowance. Above all, we should help these institutions to remain internationally competitive. As has already been pointed out, the UK punches above its weight in academic citations—one reason why universities are able to generate billions for the economy through international student recruitment. Other Governments around the world are responding to the challenging economic climate by investing in their universities.

Perhaps I might also say a word about theological education. It is not just a minority interest for the church but a substantial interest for the building of social capital for the nation. As noble Lords will be aware, HEFCE was directed in 2007 to no longer fund students who are studying for an equivalent or lower-level qualification. That posed a significant if unintended risk to the church, as 75 per cent of ordinands in training already have a first degree. HEFCE has since been helpful in giving the church a two-year breather to explore exemptions to the rule offered, mainly through foundation degrees and employer co-funding. What is to happen next in that area?

If HEFCE funding is drastically reduced, we fear that the church will be able to afford far fewer people undertaking university degrees in our theological colleges, especially in Oxford, Cambridge, Durham and Leeds. That could easily have the effect of creating a generation of potential leaders who would not have had the opportunity to study to the highest possible level in a university department alongside people of no faith or of another faith. That is an important formational opportunity, not just for the church but for society as a whole. I hope that the Minister will be able to offer some comfort and reassurance to the church in its serious efforts to serve the needs of the whole nation, especially at a time of severe economic downturn.

My Lords, I, too, thank the noble Lord, Lord Baker of Dorking, for providing us with the opportunity to debate this important topic. I declare an interest as the principal of Jesus College, Oxford. We have heard many times, from politicians across the political spectrum, of the importance of the knowledge-based economy for our future. I find it very hard to reconcile that with the position of cutting funding for universities in England over the years ahead. As the noble Lord, Lord Patten of Barnes, has pointed out, it is not as though the university sector has been well funded in historical terms in recent years. Per capita funding now, before any of the cuts are introduced, is 17 per cent short of that of 20 years ago.

When David Lammy, the Higher Education Minister, said last September that:

“Universities have had it good for more than a decade”,

he had not looked far enough back in the record. Our investment in universities is not only low in the historical context but internationally. As others have pointed out, our competitors in other countries not only mouth the words about the knowledge economy: they put their money where their mouth is. The UK spends 1.3 per cent of GDP on higher education as a whole and the United States 2.9 per cent; the OECD average is 1.5 per cent. Does the Minister agree that our universities are underfunded both in historical and international contexts? As we have heard, the gap with other countries will widen in the years ahead. While we are cutting funding in higher education, others are increasing their expenditure.

The crucial question for the future is how the funding of universities can be put on a firm and sustainable footing. I have two points. First, the elephant in the room in any discussion of university funding is the binary divide. Until 1992, we had a funding system that encouraged diversity of mission among higher education institutions. Polytechnics focused on skills and training, often for local industries, while universities focused on education and research across the sciences, medicine, social sciences and humanities. That system emulated much that we admire in other countries such as the United States, where different higher education institutions fulfil different needs of society and of individuals. Since 1992, we have seen mission drift, with former polytechnics often aping the older universities—driven by the single ladder of reward up which all universities try to climb.

If there are to be cuts in funding, differences in mission should be rewarded by recognising the difference between research-intensive universities and institutions that provide training in skills and technical subjects. The latest RAE, however, led us in precisely the opposite direction, with the proportion of funding going to the Russell group of research-intensive universities declining by about 5 per cent. If we are to retain world-class universities, we need to distribute funding in a way that protects those intensive research institutions rather than spreading scarce resources thinly across the whole sector.

As others have already said, we are the only country outside the United States to have universities in the top 10 in the world. That is what enables us to attract the best students and academics in a highly competitive global market for talent. Other countries such as France, Germany and China are concentrating their resources in their leading universities. Does the Minister agree that our rivals in other countries will be absolutely delighted to see our pre-eminence destroyed by cuts in government funding?

My second point concerns student fees, currently under review by my noble friend Lord Browne of Madingley. The future of student fees and of university funding should, in my view, be linked to three basic principles. First, access to universities should be needs-blind. Secondly, universities need more income if they are to be sustainable and internationally competitive. Thirdly, not all universities should be charging the same fees. You do not buy a Rolls-Royce for the same price as a Ford Escort; students should not expect to pay the same for an education at all institutions.

In conclusion, our universities are one of the few enterprises in which the UK remains an undisputed world player. The then Poet Laureate, John Masefield, said on receiving his honorary degree from Sheffield University in 1946:

“There are few things more enduring than a University. Religions may split into sect or heresy; dynasties may perish or be supplanted, but the … University will continue … and the thinker and the seeker will be bound together in the undying cause of bringing thought into the world”.

Let us not destroy that ideal by ill thought-out cuts in funding in our world-class universities.

My Lords, I first declare an interest in terms of my employment at the Institute of Effective Education at the University of York, and as a member of the council at Goldsmiths College. I also welcome the debate. It is a timely opportunity to discuss a serious issue, which worries not only those working in universities but everyone who has a child who wishes to go to university, or has skills that they need to upgrade. I am not taking away from the dire situation that many institutions in both higher and further education will be in. I do not think the Minister will say that the cuts that will come will make no difference. To cope with that, we will certainly have to be far more radical in our thought than we have been over the last 10, 20 or 30 years.

I could also make a speech about the achievements of this Labour Government in their ideas and investment in further and higher education during their time in office. I know that the Minister will make that speech, so I will not use my far fewer minutes in doing so. However, the Government have a good record, and one to be proud of. That does not take away from the difficulty facing the sector now. There is no doubt that if there were no cuts, or more money could be invested in the sector, they would make good use of that.

Fundamentally, my point is that it is easy to have a debate and say that this round of cuts will damage our further and higher education sectors. Indeed, it might. However, the truth is that those sectors do not have an adequate way of financing themselves, even before this round of cuts. Unless we face up to that fundamental issue, we will just be talking about something that is the end of a long line of challenges that the sectors have faced. The main message of my contribution is that the Government’s agenda for higher education is right and should not change. However, the structure that is needed to deliver that agenda is not yet on the table, is not well worked out and is not one that faces us today. There has been a need radically to review the structure and financing of higher education. Maybe, from what is bad news in this round of cuts, we could get some good things if we put our minds together.

If you look elsewhere in the education system, be it at early years, schools or parts of further education, they have all had fundamentally to change how they do their jobs and how they get their money to meet the demands of the modern economy. I do not believe that universities have been through that process. They have not modernised and asked tough questions in the same way that many other parts of the education system have. I am not saying that change has not been made, but now the financing means that it is still a better deal for those students of traditional subjects on three-year courses straight from schools at research-intensive universities. Those universities that come out of it best are still those that are research-intensive and offer traditional subjects—not those that have excelled at the access agenda.

If we are to have radical thought, we must challenge some of the assumptions that we have veered away from. I very much agree with the previous speaker, who talked about mission drift. Let us have the mission drift that we have seen since the end of the polytechnics put at the top of the agenda. I also question the need for three-year courses. I welcome the announcement by the Secretary of State that we should be looking at two-year degrees. I question why we always assume that degrees follow A-levels and why they must take place at institutions called universities. I am not convinced that all lecturers need to carry out research, nor that all university departments should carry out research. I worry that teaching can be given over to postgraduate students, whereas top-line research would not be treated in that way. I do not know why we still run three 10-week terms and say that it is the format in which higher education should be delivered. I am also not sure why further education is seen as a separate sector, when more than 20 per cent of degree-level work is now offered at such institutions.

What we have going for us is progress over previous years, whereby people now accept that citizens have an entitlement to funding for their education beyond school; that they have a responsibility to contribute to that funding; that it is desirable for employers to play a part, too; that there is a willingness by alumni and entrepreneurs to give money and resources; and that universities have a growing ability to earn income. Somehow, within that combination of players in the field, we have a chance to create a new structure. Let us take this crisis as an opportunity to do that.

I congratulate the noble Lord, Lord Baker, on this extremely timely debate. As a neuroscientist at Oxford University and chancellor of Heriot-Watt University, I declare an interest, and share the concern of many colleagues involved in higher education and research. If, like everyone and everything else, we need to become as cost-effective as possible, let us focus on our product. One suggestion was the ring-fencing of some 25 per cent of funds for the type of scientific research that is closest to market, but science itself does not automatically nor immediately generate a product.

One example of a seemingly exotic and utterly impractical intellectual indulgence could be quantum theory, pioneered by the physicists Heisenberg and Schrödinger in the 1920s. Quantum theory challenges an apparently impregnable assumption that waves and particles are distinct, and suggests instead that they are inseparable. Abstract and baffling as this may sound, this highly academic research gave enormous insights into the basics of matter and energy. In turn, these insights were to have astounding implications for the more down-to-earth branches of science and, ultimately, technology and eventually everyday life. Advanced materials such as lasers and transistors, and thus finally computers, rely on the principles of quantum theory. Likewise in biology, the current emerging feats of the molecular biologist in genetic engineering have their provenance in the ability to manipulate atoms, in turn reliant on an understanding of molecular bonds and the technique of X-ray crystallography, all of which hark back to quantum theory. What kind of lives might we all now be living, I wonder, if Heisenberg and Schrödinger had been made redundant?

This question begs a still more fundamental one. What, after all, is the real product of a university? Is it truly marketable goods and services, or is it thoughtful individuals who can make the most effective possible contribution to an ever changing society? Whatever one’s answer, we should be mindful not just of the products but the by-products of the imminent loss of perhaps some 15,000 highly and expensively trained specialists. What provision is being made for this expertise to be channelled elsewhere, in either the public or the private sectors? What of the 200,000 new students whose aspirations and dreams may now be thwarted for ever through no fault of their own? What do they do now? How many will be absorbed by the job market? Will the cuts in funding be used simply to pay the increase needed in social security provision?

It would at least be helpful—even responsible—for the Government to implement in parallel some constructive ways in which the effects of dwindling income could be offset. For example, more practical help could be offered to universities to supplement income via philanthropy. Given the imminent introduction of a 50 per cent rate of tax for top earners, it is important that it should remain possible to claim gift aid in full on all donations. Why not allow the financial institutions, whose behaviour triggered the current crisis, to hand over those controversial bonuses, untaxed, to the universities their employees attended?

A second option could be to raise, or even remove, the current fee cap so that universities might be free to charge students the true cost of their tuition. Of course, the large government subsidy on the interest costs of student loans currently makes this strategy expensive for the Government. Perhaps the answer is to cap subsidised loans at their present level and to concentrate financial aid on the students who genuinely need it most.

A failure to adopt such policies could well hasten the rise of the private university, rather along the lines of the American Ivy League. The smaller the sum the best universities receive from government, the less they have to lose by rebelling and by setting their own tuition fees. If we were to adopt the Ivy League model, at the very least a socially sensitive fee structure might be a means of maximising the number of able but poorer students. Inevitably, however, such a delicate balancing act could never be without pain, be it in bureaucratic time taken, parental savings spent, or talent wasted.

The whole point is that universities are all about far-reaching activities, be it in innovative research or in teaching someone the intellectual skills that will enable them to adapt throughout their whole lives to a fast-paced and complex society. Imposing criteria of short-term demands must inevitably be in conflict with institutions whose entire leitmotiv is unambiguously long term.

Electioneering phrases such as “tightening one’s belt” and “fair share” may have a certain immediate appeal to some—that the unworldly pointy-heads have finally been given a taste of the real world—but surely that same electorate should be aware of the implications of what that world will be like if long-term needs are trumped by short-term expediency. I am not suggesting that we academics should be insulated—even if it were possible—from the real financial problems we face, but the answer cannot be in targeting higher education in such a drastic and unimaginative cutback. Let us think of longer-term solutions—solutions that could play to the real strengths of universities. After all, it was the closure of the School of Athens in 529 by the Emperor Justinian which played a major role in the shift of Greek learning to the east, while here in the West it arguably ushered in the Dark Ages.

My Lords, I, too, am grateful to the noble Lord, Lord Baker, for bringing this issue to the attention of the House. It is right that the House should draw attention to the distress caused by the Government’s proposed cuts to our excellent university system.

There is real anger in the academic world. Universities recognise the need to reduce spending in the public services. They are, however, dismayed that the cuts proposed go far beyond the public services’ average in this year's Budget, and that they were picked out as the first victims of the Government’s attempt to reduce the deficit which the Government's own policies have created.

Why do the Government not take a much more strategic stance towards deficit reduction? Why do they not cut in areas where, for the past decade: spending has been wasteful and non-productive; initiatives have petered out or produced nothing but more bureaucracy; consultants have been brought in at huge cost to tell government what well trained civil servants could have told them; there has been advertising to promote government policies, engaging celebrities with fat fees; and armies of well paid professional regulators have become present in every aspect of our national life, most of whom know nothing of the world they are regulating? While cutting in these areas, the strategy should preserve or increase spending where there is a bridge to national growth and prosperity.

Universities should be expanding to provide the engines of growth both in highly qualified people and in world-class research which generates innovation and invention. We will need both to weather the economic storms of the next decades.

We have a record number of 18 year-olds in the population. It is a matter for rejoicing that so many of them have stayed in education to the age of 18 and want to continue into higher education, but it is a matter of shame that hundreds of thousands of them will be denied their chance at higher education. How can any civilised country, not to mention a Government who claimed that education was their main priority, let down a generation of young people in such an arbitrary way? Of all the effects of the university cuts, this for me is the most shameful, and I find it hard to believe that many on the Benches opposite—although there are not many there today—do not share this view.

Furthermore, there is little doubt that the cut in funding for teaching constitutes a threat to the standard of student academic experience. The Secretary of State's astonishing observation that universities could reduce the time taken to reach graduate level to two years or even one literally takes my breath away. It shows an astonishing lack of understanding of what is involved in reaching first-degree level. A degree is not just about stuffing students with a range of facts and skills; it is a process of intellectual and practical maturity, a state of confidence and competence which will go through life with the graduate, empowering them not only to work but to continue learning and contributing to the quality of their own and the nation's life—and this takes time.

The Prime Minister told us that cutting too early would damage the economy, and said that he would not impose early cuts. Yet from this year, as we have heard, there is to be a swingeing cut of more than £400 million. That is an average of around £4 million for each university. But then adding to this in the Pre-Budget Report of last December, we were told there was to be another £600 million cut, starting in 2011-12. What is unforgivable is that the Government have not indicated where this huge cut will fall. Even Sir Alan Langlands, the chief executive of the Higher Education Funding Council for England, has not been told. He told a conference earlier this week:

“I spent a whole day trying to find out what it”—

the £600 million—

“means and I still don't know”.

This is no way for a responsible Government to relate to the university system.

British universities do not face these savage cuts with a cash cushion to help them. As others have pointed out, even with the addition of fee income, the unit of funding per student in real money terms remains substantially less than in 1989. The huge expansion of student numbers in the late 1980s and early 1990s was done with greatly increased funding overall, but with decreased funding per student. There was, arguably, some fat in the system when that expansion started, but there is no room for any further reduction without a real diminution of the quality of student experience. On top of that, this Government are proposing a fine of £3,500 per student on any university which recruits above its government-imposed quota.

The concerns of further education in the light of these higher education cuts must not be forgotten. Many establishments provide a valuable contribution to higher education through foundation degrees and other collaborative arrangements. History records that universities tend to find that it is too expensive to continue these external partnerships in hard financial times, so this crucial ladder of opportunity for older, local students may be lost. Other unforeseen consequences will no doubt emerge over the coming years if this Government are still in power. In the mean time, I ask only for a strategic approach, which sadly seems to be lacking in these unwelcome proposals.

My Lords, uncharacteristically, I am going to make a controversial speech, and I hope that this will not be regarded as ingratitude to the noble Lord, Lord Baker, who has given us the opportunity for this debate. I shall say the most controversial thing first. I agree with much of what the noble Lord, Lord Mandelson, has recently been saying. Writing in the Education Guardian, he said that,

“tighter budgets can be a spur to further diversifying the funding of British universities”.

As the noble Lord, Lord Krebs, has said, the sector is diverse. The noble Lord, Lord Mandelson, and the noble Baroness, Lady Morris, are surely right in saying that not all degree courses have to follow the same pattern. Some universities have already shown the way by offering degrees in traditional subjects which can be obtained in two years with, so far as I know, no degradation in quality.

As with the degrees that our universities offer, so it is with their funding. The universities differ hugely in their costs, their endowments, the value of their brands and their needs. Yet at present the fees regime treats them as though all were the same. I have long argued that our present arrangements offer perverse incentives to our universities. British universities can receive only little more than £3,000 a year from British and EU first-degree students, whereas they can receive from non-EU first-degree students and all postgraduate students the multiple of that figure which their tuition costs. If universities responded to these incentives, they would try to admit as few UK first-degree students as possible and replace them with those from outside the EU. It is a wonderful thing that British higher education has such an international appeal, but do we really want to encourage discrimination against our own nationals?

Secondly, it is absurd that universities should have to subsidise UK/EU undergraduates whose families do not need help in meeting the cost of their courses, when those resources could be used for students who need financial help. If it is necessary to save public expenditure—as it undoubtedly is—that is the place to start. To illustrate this absurdity, if someone were to suggest that the fees of private secondary schools—public schools—should be capped at one-sixth of their present level and five-sixths should be met by the taxpayer or from funds which could be used to subsidise poorer students, we would think that they were mad. Yet that is what our present system for higher education does.

What I hope that the review of the student fee regime by noble Lord, Lord Browne of Madingley, will recommend is the deregulation of fees, on condition that all universities will put in place bursary schemes whereby no able student will be prevented from entering higher education by lack of resource. The Government’s teaching grant should be frozen at its present level and the money which would have been used for future increases should be directed to those universities without sufficient endowment to afford such bursaries. I realise that in saying that I may not altogether please my old university—Oxford—but I am recommending not that the teaching grant should be removed, only that it should be frozen at its present level. The Russell group universities have a strong enough brand and endowment to support that; indeed, to a large extent, they are already doing so. This would be a far better way of saving public expenditure than reducing expenditure on research, which so many speakers in this debate have said would destroy the lifeblood of one of our greatest national assets.

My Lords, I congratulate the noble Lord, Lord Baker, on securing this debate and on the galaxy of talent that he has attracted. I always approach education debates in your Lordships' House with some temerity. In the past, I said that they should be divided in two: one half for oiks like me and the other for the vice-chancellors, chancellors and heads of colleges to make their speeches.

I was moved to enter the list today because I have never believed that more means worse. I have supported higher and further education expansion since the Robbins report in the 1960s. Until I see middle-class parents content to see their children leave school at 14 or 16, I will continue to believe in expansion. Secondly, ever since I have been involved in politics, I have heard successive Governments argue that Britain is undertrained and underskilled, and that to prosper we need a high-skill workforce.

I intervene today to make a plea for the further education sector, to which the noble Lord, Lord Baker, referred in his opening remarks. I have close links with two FE colleges: Oaklands College in St Albans, where I now live, and Blackpool and the Fylde College, located where I grew up and where many of my family still live. Both colleges are superbly led by principals with vision and dynamism: Mark Dawe at Oakland and Pauline Waterhouse at Blackpool and the Fylde. Both have established good and imaginative partnerships—to which the noble Baroness, Lady Perry, referred—with their local universities: Oaklands with the University of Hertfordshire, Blackpool and the Fylde with Lancaster. Both have seen their vision and dynamism kicked in the teeth by the mismanagement of the college capital programme by the Learning and Skills Council. My noble friend Lord Shutt told me a similar story about Calderdale College near Halifax.

I have seen with my own eyes the crucial work done by these two colleges. They are but two excellent examples in a sector that, as the noble Lord, Lord Baker, said, educates and trains 3 million people every year, of whom 750,000 are aged 16 to 18. The colleges provide 39 per cent of entrants to higher education. Often, these are the students whom the school system failed to motivate, but who were given a second chance by FE.

The cuts to funding will have serious consequences for the ability of colleges to respond to local demand, to offer high-quality courses and to contribute to the economic recovery. One suggestion made to me was that colleges should be given the ability to transfer funding within 19-plus funding streams, and from 16 to 19 funding pots, which would mitigate some of the effect of the cuts. However, unlike the university funding cuts currently under debate, which are prospective, these changes are happening now and will affect students trying to enrol this year.

Mine are the observations of a concerned outsider. Mark Dawe said:

“The underlying message from this is we are concerned that future Ministers … will focus the next round of cuts, which will inevitably come from the public sector, disproportionately on Colleges of Further Education”.

Pauline Waterhouse says that her college attracts,

“a greater diversity of students, more part-time study, more vocationally based foundation degrees, more work-based study and more study whilst living at home. The reductions in funding … will undermine the ability of colleges to respond to precisely this agenda which currently we are fulfilling, often in a unique way. However, it should be noted that the funding cuts planned for Further Education will hit our local communities even harder than those predicted for Higher Education as the people who will be worst affected are more vulnerable, with far greater social need”.

Those are voices from the front line of the battle to ensure that we emerge from this recession with a workforce that has the skills and training to underpin the high-skill, high-value-added, high-productivity, knowledge-based and innovative economy necessary for Britain to prosper in the 21st century. I look forward to the Minister's reply.

My Lords, like other noble Lords, I thank the noble Lord, Lord Baker of Dorking, for securing this debate and for the powerful speech with which he introduced it. I need to declare an interest both as a working professor in a Russell group university and as an honorary fellow of Pembroke College, Cambridge.

The vice-chancellors of the Russell group universities have already expressed their concern about what appears to be about £1 billion in cuts. Universities UK has also reacted by saying, “Well, if that’s it, then we needn’t turn a drama into a crisis”. However, I am afraid that my own view is more pessimistic; I do not think that that is it. I recall that in early 2008 the chairman of the strategy group for Universities UK, Professor Geoffrey Crossick, said that the golden period of higher education funding was over. That was long before the current international financial crisis hit this country. I think we must assume that economically the situation is going to get worse and that universities are going to have to play their part, as, after all, the poorest sectors of the community will do.

I think that a separate case is to be made for science, and it has been made very eloquently on these Benches. My noble friend Lady Greenfield is right. Schrödinger, along with one other person, was employed by de Valera during the war at the Institute for Advanced Studies in Dublin. Schrödinger was very unpopular in the pubs of Dublin. The other chap was an historian, and it was commented that this chap had proven that there were two St Patricks and Schrödinger had proven that there was no God. That was thought to be the only product of the Institute for Advanced Studies, but in fact we now know that the institute’s work was very fine and very important.

However, I am going to assume that things will get worse. In these circumstances, the crucial thing is mode of address to academics—something that we forget about in our society. I do not include only politicians here; there are also questions relating to practice in our universities. This week I was disturbed to read in the Financial Times that from 2003 to 2008-09, our universities employed three administrators for every one academic. There are reasons why that happened; none the less, I cannot be alone in regarding it as a disturbing figure. Especially when one is talking about the humanities, it is very important that, when we are going to be asking more from our academics, they are spoken to in a way that is not oppressive. Unfortunately, in recent years we have had Philistine remarks from government Ministers about those who work on the study of ancient civilisations. We also have a tendency to argue that elitist admission to our great universities is a function of the mentality of admissions tutors, when in fact it is much more profoundly rooted in the economic and social structures of our society. Anyone who knows anything about the instincts of fairness among academics who work in this field will know that it is not their fault that we still have such a regrettably inegalitarian pattern of admission to our great universities. It is also quite frequently said by politicians of both parties that, although Britain has a good reputation with regard to the drop-out rate, the increase in that drop-out rate must be a reflection of bad teaching. Any teacher will tell you that these days students are not turning up in the way that they used to. That is the fundamental reason for drop-out rates and, again, it relates much more profoundly to economic and social factors in our society.

One other crucial issue for academics is the impact assessment of the REF, which has replaced the RAE. The RAE has been vital in maintaining the international competitiveness of our universities and it must remain in place. However, whereas when it started out it was too idiosyncratic and eccentric, it is now arguably too bureaucratic and formal. Certainly academics, who cannot be expected to produce an easily accessible public impact assessment, should have some way of having their work properly recognised and not be penalised.

In conclusion, my argument is that in the difficult times that are coming, we are going to have to find a way of getting the best from our academics, and that will be determined to some degree by how our society talks to academics as a whole.

My Lords, I, too, congratulate the noble Lord, Lord Baker of Dorking, on securing this debate on what is a very important and urgent topic. When he addressed the All-Party Parliamentary University Group yesterday evening, the Minister opened his remarks by saying that he likes to think UK higher education bears comparison with the world's best. I like to think so too and would suggest that, at present, that claim can be justified. However, I am much less certain that that will be the case in five or 10 years' time. I say that because of the Government's announcement of a reduction in funding for universities for the coming year of just under 5 per cent and for 6 per cent in each of the next three financial years. I accept that these cuts are being made from a strong base, with the years since 1997 having seen a 25 per cent increase in real terms in higher education funding, the research base more than doubled and participation up to 43 per cent.

I also accept that the cuts are part of the Government's response to the effects of the global financial crisis. But one of those effects is that more people than ever are now applying for higher education places, especially those aged 25 and up, as a means of re-training to prepare for the job market once the economy picks up. Applications to UK universities this year have already increased by almost a fifth, meaning that anything up to 200,000 young people, as noble Lords have already said, are likely to be left without a place at universities and colleges. That is a matter of great sadness.

Like the UK, our major economic competitors are suffering the effects of the global economic crisis; so what is their response? Reference has been made to this already. Last December, President Sarkozy announced plans to increase spending by €35 billion to boost the nation's scientific and technological competitiveness, with €11 billion of that earmarked to boost the global competitiveness of French universities. What is telling is that to fund this France will add to its already sizeable national debt by raising €35 billion, some €22 billion through government borrowing plus €13 billion repaid by French banks which borrowed from the state during the financial crisis.

Earlier this month, President Obama, in his State of the Union speech, proposed a 6 per cent increase in post-school education spending for next year, aimed at combating unemployment and developing skills. His message was that, even as the US introduces a three-year freeze on general public spending to tackle the deficit, it must,

“invest in the skills and education of our people”.

Research funding is to receive a 6.4 per cent increase from last year, with universities to be the biggest beneficiaries from the increase.

Meanwhile, last year, the Deutsche Forschungsgemein- schaft, the foundation involving Germany's leading research universities, which is financed by the German states and the federal government, despite the economic climate, voted a further €2.7 billion to continue the excellence initiative, which promotes top-level research aimed at improving the quality of German universities and research institutions in general, thus making Germany a more attractive research location and making its economy more internationally competitive.

My question to the Minister is, why, when economies broadly similar to ours react to the global recession by investing more in ensuring that they are able to maximise their economic recovery, is the UK apparently moving in the opposite direction? I fear that some of the excellent educational and scientific advances achieved as a result of the increased resources to the higher education sector over the past 13 years stand to be lost because of the abrupt about-turn now being proposed.

Of course, this debate also concerns further education. It is often forgotten that colleges are a vital part of the higher education mix as well. In fact, colleges supply 40 per cent of higher education entrants, and higher education students in colleges often do not possess traditional academic qualifications and frequently come from families with no tradition of university study. They have a vital role in educating and training people of all ages—at present some 3 million a year—and in contributing to the country's economic recovery, but the potential of colleges stands to be unfulfilled because of public expenditure cuts which, for them, start this academic year.

The Association of Colleges is concerned that, when the economic restraints hit universities, they may find cutting their links with colleges a relatively straightforward means of saving money. That would be a heavy blow to colleges, which have been experiencing reduced funding in recent years. An Association of Colleges survey revealed that colleges have recently suffered an average 16 per cent cut in their funding for adult learning. It is important to say that, unlike the current debate about university funding cuts which are projected, these changes are happening now and they will hit students trying to enrol this year. The April 2009 Budget pencilled in £400 million of efficiency gains in 2010-11 for further and higher education, with 75 per cent of that falling in the further education sector, despite it being a smaller part of the sector.

One of the bases required for an expanding economy is a well-trained construction industry, yet, perversely, according to the Association of Colleges, cuts to college budgets will affect courses in areas such as bricklaying, joinery, electrical installation and other trades that are vital for equipping the next generation of skilled young people.

HEFCE is not due to announce its detailed funding allocations until next month, but I hope the Government will re-assess the effects of its proposals for funding higher and further education on this country's ability to emerge from the economic crisis in a fit state to ensure not simply that our economy is strong, but that it remains able to compete with other countries which appear to have recognised the importance of investing now in universities, colleges and training.

My Lords, about 20 months ago, I had the privilege of leading the House’s most recent debate on higher education, and I congratulate the noble Lord, Lord Baker, on finding time for this debate. I must agree with him that it is very regrettable that the Secretary of State has decided not to answer the debate. That is no reflection on the Minister who is answering the debate, but it shows a certain contempt for Parliament, and I very much regret it. Many of the issues that we discussed 20 months ago have featured again today, but the focus is sharper because of the economic crisis that we face and the funding cuts that we are debating.

The question that we must ask ourselves is: what lessons can we now learn to strengthen ourselves for the future? The first, in my view, is that our 160 or so universities must focus increasingly on their strengths and not try to do everything. They need to decide whether they are doing research or teaching, whether they are vocational or academic, and focus on their strengths. The standards of excellence of any institution can then be judged by its objectives and mission. There will be closures, there will be adjustments, there will be mergers—that is inevitable.

I now have something rather nicer to say about the Secretary of State, in that I am pleased that he focused on the value of the two-year degree. That is something that I have experienced as a former vice-chancellor of the University of Buckingham. The two-year degree was pioneered by a very distinguished academic, the late Lord Beloff, and it has proved to be a success. It is not for nothing that for the past three years, in the Times Higher Education Supplement, the student satisfaction level has been higher at Buckingham than at any other university. I hope that there will now be more focus on the value of that degree—although, for my part, I took a four-year degree.

Something that has not featured today, to my surprise, is that we must accept that the number of 18 year-old students is likely to climb in the next 10 years or so. That must be counterbalanced by what I think will be an increasing demand for part-time students. We must recognise that they are not well financed at all.

For a moment, I focus on the question of diversity of funding, because that is the best way to strengthen the autonomy of universities and their sources of income. It is up to the Government to create the climate for that. I know that, some years ago, they introduced matching funding, and that is certainly one way of creating a challenge for universities to raise private finance. Indeed, I suggest that, had there been less regulation on student fees, much of the demand in recent months for student places in universities could have been satisfied with extra money for universities—buttressed, of course, by support for the less well-off students.

Within that, research funds must be ruthlessly selective. In the United States, only a very few universities focus on research. In Europe, almost every university seems to focus on research. It is far more effective in terms of international competition if we focus on a few, carefully selected universities. Then we have to consider the types of funding. Imagination will have to be shown in the months and years head, but I want to focus on one type of funding: endowment funding. Nothing can be better for the stability of a university, for universities as a whole and for their independence than to have strong endowment funds. In the United States, more than 200 universities have funds of more than $100 million in endowment; there are only eight in this country. Princeton has $19 billion-worth; Cambridge has $8 billion-worth. That is an area where the Government can help other universities to build up endowment funds.

The last issue I will focus on, which has been mentioned today, is that of international students. It is a benchmark of our success that we are second in the world in numbers of overseas students. It is essential that we keep that up. Something near 12 per cent of our students are from overseas and they contribute nearly £6 billion to our economy. That link is invaluable for Britain. It brings in resources and focuses on post-graduate degrees. It is essential for the Government to show their support by making sure that we continue with government scholarship schemes. The reputation of our universities for excellence is at the heart of everything we are discussing today. It is essential that we maintain the quality of our institutions. For that, we have to be very imaginative. The next Government will have a very big challenge.

My Lords, I join noble Lords in congratulating my noble friend Lord Baker of Dorking on giving us this opportunity to take stock of the cuts and the uncertainty that they have caused among students, universities and colleges and to discuss their consequences. Much of what needs to be said has been said, but I believe it is important to repeat a number of the points raised.

No one has ever argued that people wishing to go on to higher or further education should not have the opportunity to do so, but to set arbitrary percentages and demand that universities and colleges respond without any long-term planning was not right. There is general consensus that previous levels of government spending cannot be sustained under current economic conditions, and the Minister now needs to say how much more his department is going to take away from higher and further education budgets and when universities and students will be told. Will he say how he expects FE colleges to make efficiency savings of up to £600 million by 2012 when rising adult unemployment will mean that more people will look to retrain and reskill?

We should be careful about trying to make a virtue of a regrettable necessity, as the Government have sometimes appeared to do. The Minister’s department has attempted to sell the cuts by emphasising the long-term benefits. We know that these cuts will lead to increased student-staff ratios, people losing their jobs and departments being closed. A promise by this Government to increase participation in higher and further education has been crushed by effectively refusing places to thousands of young people and penalising universities. Prospects and aspirations for economic mobility have been removed, especially for the groups that would have benefited the most. Moreover, it seems perverse to try to console academics who are being made to reapply for their jobs and whose departments are facing closure by making a case for the long-term benefits for those institutions. One way the Government could reassure universities and colleges is by saying definitely whether there are any more cuts in the pipeline. Will the Government take this opportunity to offer some consolation to universities and colleges and tell them truthfully whether the latest cuts will be the last? Can the Minister give assurances that there will not be any more surprises in the next funding letter?

Even before these cuts, the past year or so has revealed some worrying trends in some of our universities’ finances. I remind noble Lords that, last summer, the Department for Innovation, Universities and Skills, in response to a freedom of information request by Times Higher Education, released information on the Higher Education Funding Council’s secret list of bodies at higher risk of financial failure. I understand that seven institutions were judged to be at risk in June last year. It would be interesting to know whether the Government have made any predictions about the number of institutions whose finances might move into the red as a result of these cuts. How many more does the Minister estimate will be added to the list?

What concerns me most is the thought that these cuts will hit people from poorer backgrounds hardest. As I am sure noble Lords are aware, the Higher Education Funding Council last month published a report suggesting that, as a country, we are failing to tap higher education’s potential as a vehicle for social mobility. I fear that young people from poorer backgrounds will represent a disproportionate number of those students for whom universities can no longer find places. The Government have introduced a number of schemes to help widen access to such young people, through which universities engage with local schools. What is the future of these schemes?

We want a highly skilled, knowledge-based population in order to remain competitive in the global marketplace. We want our employers to have the best talents available to them. Yet as soon as the Government take us into an economic crisis of a size that we have never had to witness before, they shift their responsibility and place the burdens on employers, colleges and universities as if those institutions do not already have enough problems of their own. Perhaps that is why I have been frustrated by some recent articles and what has been said in the past few months in relation to the Government’s decision to make these cuts. The Government have fudged their real intent, which has been a failure to ensure that universities and colleges have the finances and funding that they require. I have one page left, but I have run out of time.

My Lords, I, too, thank the noble Lord, Lord Baker, for securing an, alas, too timely debate. I have some interests to declare as a life-long university teacher and a former president of the British Academy. We have no doubt that these are real and large cuts. My question is: how could we make them most intelligently with the least damage to what really matters? If we look back, I believe that there is a lesson to be learnt from the 1980s when the number of students was growing but the unit of resource was shrinking. Universities cut departments and units. With a nice rhetorical flourish, these were called efficiency gains. They were cuts. Unfortunately, they tended to impact certain areas in unco-ordinated decisions with disproportionate effect.

One might say that that was the inevitable cost of university autonomy. We will face unwanted cuts and unwanted patterns again, and we have begun to see that in another topic we have recently debated. The provision of language degrees has been cut here, there and yonder. But we need to think more strategically. For whose sake should the cuts be made? Do we want to protect universities, academics, students or regional employment and development? They are all important and one would like to protect them. But I believe that that is the wrong focus. We should aim to protect good research, good teaching and flourishing disciplines. We should not provoke crises in disciplines where suddenly we find that we need yet another initiative to rescue the teaching of strategic languages, such as Arabic, because we have just let it go.

There are difficult cases and we need to consider the incentive structures with which we are living. I believe that the present research assessment exercise—soon to be the REF—comes at a very high cost and that it creates incentives that go largely to universities, not to researchers. Of course, the universities press the researchers to conform to the requirements.

When we look at incentives for teaching, we discover that there are mainly sticks and rather few carrots around. As regards the incentives for protecting the strategic disciplines, we discover that dispersed decision-making makes it very hard to protect them. Do the Government have a comprehensive list of endangered disciplines? What action do they intend to take to ensure that that danger is not realised?

There is a suggestion that we would best alter the incentive by rewarding that research which has impact. For those with perfect foresight, it makes perfect sense. For the rest of us, it sounds a bit unlikely. One cannot identify which research will have impact antecedently. Research is done by individuals and by teams. They do not always need to be co-located. It does not have to be given to universities. We need to preserve the rewards for those who are doing good research, but we need not put them in one place. There are good examples of collaborative research across institutions, and I know of a number in Scotland.

We also need to recognise that good teaching can be done by small units, and we need to reward them for doing it well rather than telling them that, because they are not large enough to do the very best research, they cannot be maintained at a level to sustain the teaching. On the disciplines, we must not again disperse hard-won skills, particularly in the rarer languages and area studies.

Lastly, the impact is not good for any sort of institution. No one knows how to measure it. We do not know the causal pathways or the timeframe—I sit between colleagues who know far more than I do—in the STEM subjects. The research that feeds the creative industries is dispersed across a multiplicity of disciplines, including many in the humanities and social sciences, and so is the research that feeds effective public policy formation. When we think about impact, I remember the first time I heard the term, because it was a curious one. I was talking to conservation architects and through them met two church canons who were responsible for the fabric of Canterbury cathedral. They reported to two “canons” of the cathedral called Canon Impact and Canon Treasurer. I asked what Canon Impact did. “Canon Impact does pilgrimages” was the reply. When we think about impact, we must realise that it is a rather elastic term. In the mean time, we must be absolutely certain that we do not incentivise poor research in order to have a high impact.

My Lords, I will focus on one segment of higher education, that of the strong research universities, and I declare an interest as a Cambridge professor and college head. These “research universities” benefit us through direct knowledge transfer from university laboratories to industry, but their diffuse benefit is probably even more important in the form of the collective expertise of their faculty and the consequent quality of the graduates they feed into all walks of life. To retain their standing, such universities must sustain world-class faculty, and they will not do that unless they can provide comparable opportunities to those on offer in the US, Singapore and elsewhere. There is now an international market too for the very best students.

The present Government deserve credit for their commitment, sustained over a decade, to expand the university system, to strengthen its infrastructure and to support research. It would be a real own goal were this legacy to be put at risk by recent events. We should learn from history. The recent HEFCE cuts echo those of the 1980s which undermined university morale and pushed many scientists and scholars to go to the United States. But now the downside risk is greater because global competition is stronger. The Far East is striving for competitive excellence. Institutions on mainland Europe are competing for graduate students by offering instruction in English. Several countries such as Australia, Germany, South Korea and Canada have boosted their spend on science and innovation as part of a stimulus package. More important still, the Obama Administration have given America’s already world-leading scientific community a massive boost in both morale and substance. The US science budget rose by 5.7 per cent this year.

So, even to retain our competitiveness, we need to raise our game, but what is happening is the reverse. If the UK slides now, it will jeopardise our position at the forefront of global science, possibly for a generation. It is hard to recover lost ground. Earlier this week there were widely reported comments from three leading US scientists that the UK will suffer a brain drain, which will eventually act as a disincentive to young people entering science.

What can be done, given the realistic financial constraints? First, as many other noble Lords have said, we need urgently to expand other funding channels, especially student fees. Secondly, we need greater diversity in the sector. It is very different now that it is educating more than 40 per cent of each cohort rather than when it catered for less than 10 per cent. So we need not just one league table but many, measuring excellencies of different kinds, more varied courses and a credit system that offers a second chance to those who drop out.

There would be real benefit in more concentration in graduate education, especially at PhD level. It is good news that the RAE uncovered “islands of research excellence” in many departments across the university system. However, that does not require all universities to offer PhDs in all subjects. A student aspiring to a PhD needs more than just one good supervisor; he or she needs to be in a graduate school where courses are offered over a wider range. One should surely welcome the formation of groupings and clusters at universities and concentrate graduate education in a smaller number of centres. I differ from the noble Lord, Lord Krebs, only in preferring that the demarcation between research-intensive courses and others should be subject-dependent rather than a rigid reversion to a binary divide. It would be welcome if a former polytechnic were to establish a strong graduate school in a special area.

Why is all this so important? There is concern at the prospect of top talent in the finance sector leaving these shores, but the next phase of global economic growth will be associated with waves of new technologies; we must be equipped to ride these waves. So should there not be at least equal concern that dedicated academics spearheading frontier topics should not leave this country, or be discouraged from starting, for lack of support? It would surely be tragic if we squandered our current strengths.

My Lords, I, too, thank the noble Lord, Lord Baker, for introducing this timely debate at a time when the economic situation is extremely challenging to every aspect of the public sector; we all face difficult choices. It is clear that we will need to make better use of limited resources. At the same time, we need to protect quality and improve access. It is a difficult balancing act to pull off. It is also a time for serious innovation; a time to rethink the nature of higher education; a time to take very bold steps.

The Government’s strategy document, Higher Ambitions, called for greater diversity and choice in undergraduate provision. It wanted to see more part-time programmes, more foundation and fast-track degrees. In essence, it wanted to see real change. John Hayes said something similar when he spoke recently at Birkbeck. He said:

“We will not make progress towards socially mobile higher education until we recognise that rather than making people ‘fit’ University life, we must enable more Universities to ‘fit’ the circumstances of many more potential learners”.

I reinforce that plea. I would argue for innovation in higher education; for an engagement with information and communication technologies as a means of transforming what we now do; and that refocusing existing resources in new teaching methods and in ICT will help to bring the greater efficiency and the improved cost-effectiveness that we will undoubtedly be required to find.

I declare a number of interests as chancellor of the Open University and as a non-executive director of an educational technology company.

With public sector budgets under pressure, it is critical that we focus investment where it can have the greatest impact. There can be no doubt that, properly managed, ICT can make a major contribution to UK higher education. Indeed, the central question is not how HE can adopt and use ICT but, rather, how HE can find a new role for itself in a world that has literally been transformed by ICT.

This year is the 40th anniversary of the Open University—effectively the last serious innovation in the delivery of graduate-level education. The OU finds itself enjoying record admissions—well over 200,000 students from the UK alone. But if we are honest in the way that the noble Lords, Lord Butler and Lord Krebs, and my noble friend Lady Morris have been, then we have to concede that the higher education sector is not one that responds well to the type of challenge that this debate highlights. If you doubt what I am saying, read, I beg you, the debates that surrounded the introduction of the OU 40 years ago, when it was then called the University of the Air. It was not just the sector that took against the OU; neither House of Parliament comes out well in those debates.

The noble Baroness, Lady Morris, is right: this is a massive challenge. But in combination with the forthcoming report from the noble Lord, Lord Browne of Madingley, this is also a moment of extraordinary opportunity. The future will not be the same as the past—it will not even be the same as the present. Some 12 per cent of all this year’s cohort of 18 year-olds will not find a place at university, irrespective of their exam results. That is a tragedy and the type of crisis that no Government can possibly ignore. It certainly will not be solved by an attitude of “business as usual”. This is the time for a very fundamental rethink by whoever finds themselves in government of exactly what we want our higher education to deliver and what kind of future we need as a nation.

My Lords, I join other noble Lords in congratulating the noble Lord, Lord Baker of Dorking, on initiating this important debate. I am conscious of all the wisdom and experience that has gone into other contributions, but make no apologies for concentrating on an issue that has not so far been raised—namely, the impact of the cuts in higher and further education on offenders, both in prison and in the community. I admit to being seriously alarmed by a sentence in a letter dated 23 February from the Secretary of State to the noble Lord, Lord Baker, and those of us who added our names to a letter from him:

“There will be reductions therefore in the number of some adult course places next year as a result of efficiency savings, and reprioritisation of funding for apprenticeships and other work based learning”.

The Government pride themselves on the aim that they have given to the criminal justice system in this country—namely to protect the public by preventing reoffending. It is well known that the single most effective contributor to that process is education. I have not time to go into statistics, but remind the House that 65 per cent of adult prisoners have a reading age of less than eight, which suggests that educational underachievement is a problem of major proportions facing both the prison and probation services. Yet, despite all the increase in resources, of which the Government are so fond of telling us, only 36 per cent of prisoners currently have access to education. I suggest, therefore, that any reduction in that figure, which is bound to impact on the protection of the public, can hardly be described as an efficiency measure. This is compounded by the fact that, from April, instead of all prison education being funded by regional learning and skills councils, that responsibility is to be devolved to a number of different agencies, each responsible for making cuts. Who will be responsible for looking at the accumulated effect of all these different cuts on offender learning and skills training? That question applies to all levels but, because it is the subject of today's debate, I shall focus on further and higher education. Here, I declare an interest as a patron of the Prisoners’ Education Trust.

Bearing in mind the vast number of educational underachievers in the system, it is hardly surprising that most available resources are devoted to levels 1 and 2. As a result, there is virtually nothing for those capable of reaching level 3 and above, which gap is almost entirely filled by the Prisoners’ Education Trust. Last year, it funded over 2,200 prisoners to take distance learning courses, around 820 of whom began Open University study, for which the BIS helped with funding, as it, and LSCs, did for a further 220 distance learning courses. The trust also spent £480,000 on over 1,000 grants for courses at level 3 and above, many of which were specifically vocational, such as horticulture and plumbing, aimed at employment on release, for which it raised voluntary funding. Very sadly, a further 991 applications had to be refused for lack of funds. Applications this year are already up by 9 per cent, but the trust is having to discourage others because of uncertainty over funding.

Along with many education providers, the trust has two deep concerns about the future, following the cuts and the demise of the LSC. First, there is the impact on prison education of the 250 to 300 staff redundancies that have been announced by Manchester College, which is contracted to provide education in over 50 per cent of prisons. The second concern is that a number of prisons are already reporting that their capacity to support and co-ordinate distance learning has been reduced, no doubt due to the reprioritisation of funding of work-based learning announced by the Secretary of State.

There is one ray of hope in this unrelieved tale of gloom, which is the proposal, from a number of experienced people who are fed up with the inconsistency and lack of clear direction that characterise the current situation, to set up a national centre for offender education based at the University of London’s Institute of Education, which will focus on research, evaluation of good practice and the production of evidence-based syllabi. It is a sad reflection on the present position that frustrated practitioners should have had to come together to do what the Government should have done years ago. Would that the results of their proposed work had been available to the Secretaries of State for BIS and Justice before the meeting that they no doubt had, to confirm that the cuts that are the subject of today’s debate apply also to the protection of the public.

My Lords, I, too, am grateful to the noble Lord, Lord Baker of Dorking, for initiating this highly relevant debate, which would have been pertinent even if we were not in such a severe public spending environment. Before I commence, I should declare that I am chancellor of the University of Northampton and that I have affiliations with the universities of Birmingham and Oxford. As a member of the B team which seems to be present on all the Front Benches today, I apologise for my noble friend Lady Garden of Frognal, who is unable to be here due to a prior commitment.

I do not want to single out noble Lords who have spoken because, as my noble friend Lord McNally pointed out, there are those who are from the ivory towers and there are the rest of us—I will not use his language—who are the plebs. I defer to the wide expertise that we have heard in this debate, although I will single out one noble Lord by congratulating the noble Lord, Lord Puttnam, on a significant birthday today. I note that he has spoken in both debates and I am not sure that my dedication to the cause on a significant birthday could equal that.

I highlight at the outset the fact that we are in agreement with all noble Lords who have spoken about the need for UK universities to maintain their pre-eminent status in the international league tables. We, like other noble Lords, regret that the mismanagement of the national economy has left us with some unpalatable decisions. However, higher education will, like other sectors, have to adjust to prevailing conditions. In the time available, I will limit my remarks to the problems that exist in the current funding regime and propose one or two points as to where the debate should now go.

We are clear that higher education, in addition to benefiting the individual, benefits society overall, both in the more immediate benefit of productivity gains and in the higher taxation that is paid throughout a graduate’s career. However, until this last year, all the government pressure had been to lift participation to an arbitrary 50 per cent target, which was plucked out of the air by another Prime Minister preparing for a conference speech. We would have gone for a more targeted approach to widening participation and would have especially concentrated on the proportion of young people coming from lower socio-economic groups. The figures between 2002 and 2009 are not encouraging. For all their efforts, the Government have succeeded in raising the participation of the lowest socio-economic group from 17 per cent to only 19 per cent. However, it is not enough to focus on socio-economic groups. We also need to focus on technological training, HND-type qualifications and foundation degrees, which are rated at level 4.

For the moment, let me stay with socio-economics. What holds people back from going into higher education? Some fairly uncontroversial research shows that it is the combination of a lack of prior attainment, constraints on information and aspirations, and the credit constraint. I will briefly touch on each of these. Current policies concentrate too narrowly on the transition at age 18. Earlier interventions start with the availability of nursery education, actions to improve primary and secondary education outcomes and policies to encourage staying on at age 16. That is one reason why this party has been one of the first to embrace the idea of the pupil premium, meaning that the level of central government funding to schools is defined by individual pupils’ characteristics rather than geographical characteristics. Hence, the pockets of deprivation where children have low attainment will no longer lose out. The funding is tagged to the pupil and follows them as they move, so it goes through their educational cycle at school. GCSE attainment—which, in turn, results in improved A-level scores—and subsequent higher education outcomes are affected by that measure.

In a climate of cuts to funding, it becomes all the more important to improve information and raise aspiration among those who decide early on that further and higher education are not for them. It is evident that those young people whose parents are graduates are more likely to be better informed about higher education and to aspire to becoming graduates themselves. When investment is scarce, therefore, there has to be a level of information and encouragement from universities into schools in order to demystify higher education. Improving that also involves the information that a young person needs about financial planning and the architecture of the student loan system. There is little knowledge at school level about the possibilities of obtaining grant funding, bursaries, education maintenance allowances or other encouragements to stay on at age 16.

On the issue of a credit constraint preventing access to higher education, it is often argued that people from poorer backgrounds are debt-averse and hence unwilling to borrow, thereby impeding their access. Professor Nicholas Barr argues that it is a mistake to see it as a blanket phenomenon of debt aversion, and points to the fact that credit cards and mortgages are well taken up in that group. He argues that students from poorer backgrounds are less likely to go to university because of a lack of information and a fear of the unknown. When added to the lack of understanding of a degree’s benefits, including its employment outcomes, that becomes unsurprising.

The current method of financing student loans is based on a zero real rate of interest and, unsurprisingly, benefits the middle class most. That subsidy is justified on the basis that it will widen participation. The reason that it does not work is that those are not conventional loans but income-contingent repayments. A subsidised low interest rate does not reduce the loan or impact on monthly repayments; instead, it only serves to shorten the repayment period. Moreover, the subsidy is extremely expensive. The combined cost of the zero real rate and the 25-year write-off for fees and maintenance loans was about £1 billion in 2007-08, or 26 per cent of total lending to students in England.

Instead of spending billions annually, mostly to help the better-off, the resources should be used to promote access through better targeted activities and to raise quality. However, we may need to keep the interest subsidy for people on low current incomes, to make it more responsive to changes in earnings over a lifespan—so that it could be reinstituted, for example, when a woman graduate takes time off to bring up her family.

A further problem with the current loan structure is that it excludes other groups, including those in further and part-time education and postgraduate students. We argue that if you must work with the current structure, it is preferable to see a move towards loans being structured on the basis of real government borrowing costs, but to add in the principle that the subsidy must be available to those whose income drops off at a certain point. Other countries which appear to do that without affecting take-up are the Netherlands, Norway and Sweden, where a positive real interest rate is taken for granted.

In conclusion, I agree with other noble Lords who have argued that we will have to diversify the courses offered, the methods of delivery and, indeed, the teaching and research balance offered to staff. One size should not fit all. All aspects of the sector will need to think creatively if we are to deliver high-quality higher education to the many rather than the few. That intergenerational compact is at stake here, and it behoves us to bear it in mind more now than ever before.

My Lords, I join in thanking my noble friend Lord Baker of Dorking for initiating this important debate, and congratulate him on it. As we have heard from around the Chamber, universities and colleges face very tough times. The Association of Colleges says, and my noble friend Lord Baker reiterated, that the further education sector has recently suffered an average 16 per cent cut in the funding for adult learning—cuts which are affecting the sector right now. By my reckoning—and, again, I am grateful to my noble friend for confirming this—we are talking about cuts of £1 billion to higher education in the last year.

However, it is a question not just of the amount, but of how the cuts have been trotted out. In May last year it was announced that £180 million would be taken back to pay for student support reforms which the Prime Minister had announced in his first few days in office, but the costs of which he had not fully taken into account. Later that month a further £83 million was cut. Then the Pre-Budget Report took £600 million from the higher education, science and research budgets, just before a further £135 million of cuts was announced. This month we see a further cut of £51 million. Not only is the £1 billion terrifyingly large but coming as it has, in dribs and drabs, it sounds like death by a thousand cuts. The constantly changing figures reflect damaging and confusing policy indecision.

This confusion is not new. The FE capital spending fiasco last year showed the danger of broken promises. The student loans debacle left thousands of students without adequate funding because of huge backlogs in the student loan system. The confusion continues. On the one hand, as my noble friend Lady Perry said, the Prime Minister tells us that we must ensure that the recovery is securely embedded before any funding is cut. In this vein, in October even the noble Lord, Lord Mandelson, said in a speech to the CBI that in,

“equipping the UK for a post-recession global economy, higher education and adult skills will be not just important but decisive”.

On the other hand, here he now goes making dramatic cuts in funding. Again, on one hand Ed Balls promises that spending will rise, but on the other the noble Lord, Lord Mandelson, now tells us, by both his actions and words, that we are talking about “reduction” and “tighter budgets”. Indeed, cut after cut has been announced in accordance with that policy.

However, in other public sector departments, as my noble friend Lady Perry said, the clear public impression at least is of considerably less real cutting—certainly so far. Can the Minister put me right and detail some of the corresponding cuts that have been made in other public sector departments; or does this apparently disjointed policy, as I suspect, translate to universities and colleges suffering deep cuts while other departments are yet to have any serious reductions defined at all?

Continuing the theme of confusing signals, on one hand the Government have for years imposed targets to increase student numbers but, on the other, universities have now been threatened, as my noble friend Lord Baker said, with fines for overrecruiting. On 21 January, the noble Lord, Lord Mandelson, suggested in this Chamber that there could be beneficial consequences to tighter budgets, such as being able to,

“focus minds on teaching and research excellence”,

and finding,

“new ways of delivering higher education”.—[Official Report, 21/1/10; col. 1101.]

Like my noble friend Lady Verma, I rather hope that the noble Lord, Lord Young, will enlighten us as to what he meant. Can he tell us what the new ways that will cost so much less money are? Can he confirm that “focus” does not just mean “narrow”? The Universities and Colleges Union said:

“You cannot make savage funding cuts without serious consequences, despite Lord Mandelson’s insulting efforts to sell the cuts as an opportunity”.

The approach the Government have taken, however, does not adopt this ethos of opportunity.

The shortfall in university places is but one of the consequences of the Government’s confused approach and mismanagement of higher and further education. The resulting damage will be that, at a time of great economic strife, young people lose out on the education they need and—as several noble Lords have said—that we need them to have. A shortage of university places due to rising demand and demographic changes was entirely predictable, but the Government failed to head off the crisis. Nearly 23 per cent more people have already applied to go to university this year than at the same point last year. This, coupled with the cuts in funding, could result—as my noble friend Lord Baker said—in more than 200,000 applicants failing to find a place in 2010. We have already seen 110,000 lose out in 2008 and 140,000 in 2009. The figure for this year looks set to dwarf both of these. We simply cannot go on like this.

A further area of grave concern is the extent to which the cuts to the higher education budget themselves have a direct effect on the further education sector. I wonder whether the Minister could update your Lordships on authoritative concerns voiced to us that cuts in funding have seen universities taking back from FE colleges places which they had originally awarded to them. I hope that he will also be able to say whether HEFCE will be able to fund, directly, higher education modules in FE colleges.

We on these Benches think it is important to acknowledge that, while there is a need for cuts, there is still room to improve and innovate. Several outstanding contributions from noble Lords on the Cross Benches who are directly involved in academia showed us clearly that they are committed to this and have clear thoughts on how to do it. We have more than a million young people in this country not in any kind of work, education or training. Rather than allowing confusion about funding policy and cuts to allow fewer opportunities to be provided, we must instead create more options. As my noble friend Lord Baker said, that is why we have pledged to provide an extra 10,000 university places, funded by early repayment of student loans incentivised by discount, as well as an extra 100,000 apprenticeships and other training places. We have also pledged to provide 100,000 extra FE places over two years by allocating our NEET fund to increase FE college and other training places for those who have been on jobseeker’s allowance for six months.

We are very grateful indeed to my noble friend Lord Baker for the work he and his colleagues have put into reviving the concept of the technical college. We intend to embrace this idea with enthusiasm. To make sure that vocational and technical education meet the needs of modern business, we will set up technical academies across the country, starting in at least the 12 biggest cities, and we will free schools from regulatory restrictions so that they can offer workplace training that engages young people who currently drift away from formal education.

I am afraid that to answer my noble friend’s question about removing higher and further education from the business department is well above my pay grade, but I will enthusiastically take it back to my senior colleagues. I very much hope that the debate today will draw attention to the true facts. It is only by admitting that changes need to be made that we can hope to lessen the appalling consequences of these cuts. This is why we have long called for an independent review of higher education funding and student finance, so we look forward to the results of the review to which my noble friend Lord Patten, the right reverend Prelate the Bishop of Leicester, the noble Lord, Lord Krebs, and others have referred and which is now under way.

Universities and colleges are facing an undeniably tough financial situation, so it is vital that the Government rise to the occasion. We need not more confused messages but clear and definite policy.

My Lords, I, too, thank the noble Lord, Lord Baker, for giving us the opportunity to debate this vital issue. I cannot help feeling a little bit like the noble Lord, Lord McNally, engaging in this debate among these education titans. I do not describe myself as an oik, but having left school at 15 with only a few City and Guilds I suppose that I am probably in that category. However, I will do my best. I also feel as if everybody here has turned up for a really good show and the understudy is performing. I declare a deep, long-lasting and passionate interest in education throughout my life.

The noble Lord, Lord Baker, realises from his own years as Secretary of State for Education and Science that questions around funding often generate more heat than light. The past few weeks have certainly borne that out, especially since my right honourable friend published his grant letter to the Higher Education Funding Council for England.

I indeed recognise that there are concerns within the further and higher education sectors at present, and I welcome this chance, if not to allay them, then at least to place them in their proper context. That context is, of course, the tough decisions that have been forced on this country by the global recession, which were acknowledged by some noble Lords, but not all.

Let me first remind your Lordships of this Government’s record on student numbers, on increasing participation and on improving the skills base of this country. The achievements of the past 13 years are substantial. I do not accept that it was a joint achievement. I shall focus on where we picked up from the previous Administration. The salient details on investment in FE and HE since 1997 are as follows. We have increased public spending on HE in England by 25 per cent in real terms. That represents a real commitment to higher education. On the watch of the noble Lord, Lord Baker, and those of his successors, public spending per student actually fell by no less than 35 per cent. That is a little statistic that somehow seems to be affected by collective amnesia on the part of the Opposition.

Likewise, since 1997 more than £6 billion in capital funding has rectified the poor state of many university buildings, including laboratories and other facilities essential to maintaining our research base. These are now state of the art, and their scientific output is world class. We took a tough decision on introducing variable tuition fees because we wanted to put in extra money and not to have an arbitrary target. We wanted to extend the opportunity of higher education to many more young people than previously. We are putting an extra £1.3 billion each year into universities’ coffers, and I remind your Lordships that this money is fully additional. It has not been matched by reductions in public funding elsewhere.

Meanwhile, government investment in colleges for post-16 learners, including capital investment, rose by 57 per cent, again in real terms, between 1997 and 2009. Despite the problems in the FE capital programme—and I acknowledge that there were problems—the £3.4 billion that we have committed since 2001 has redeveloped more than half the country’s college estate. That contrasts starkly with the reality before 1997. That is another statistic that the noble Lord, Lord Baker, conveniently glides over. There was no capital budget for FE colleges at all. Back then, the National Audit Office, not the Government, found a crumbling infrastructure no longer fit for modern educational purposes. That was the legacy which we inherited from the previous Government.

Funding for apprenticeships is at its highest-ever level and stands at more than £1 billion this year for people aged 16 and over. There were barely 65,000 apprentices left when we came to power. Since then, more than 2 million people have begun apprenticeships, more than a quarter of a million are now in apprenticeships and there is a completion rate of something like 71 per cent. We have invested more than £5 billion in Skills for Life since 2001, which has gone a long way towards eradicating the national scandal whereby adults without basic literacy or numeracy skills were left to sink or swim.

The impact to date of these unprecedented settlements is clear. There are 2 million students participating in higher education in England this year, including more students from state schools than at any time in our history. There are more students from black and minority ethnic backgrounds, more from low-participation neighbourhoods, and thousands more who are able to say with pride, “I was the first person in my family to go to university.” I experience that when I visit universities. That represents real social mobility and real achievement by this Government. Somehow, again, there is collective amnesia and no real acknowledgment of that. Similarly, there are more part-time and mature students than ever before, and more students studying maths, engineering and science—the very people we need in order to remain competitive in the global economy.

Apprenticeships have taken their rightful place at the heart of our vocational training system. Since 2006, almost 1 million qualifications have been gained in the workplace through Train to Gain. I remind your Lordships that the honourable friend of the noble Lord, Lord Baker, the Member who represents Havant in another place, has said that his party would abolish Train to Gain. What a lost opportunity for ordinary working people that would be. I am proud of the way in which we have broadened the social make-up of the student body, of how we have made it easier for people to go on to university from their local college, and of how millions more people have the skills necessary to enjoy rewarding careers.

I will not detain your Lordships with a prolonged explanation of why we are not proposing overall funding increases for HE and FE next year. Like other countries, we have come through difficult times. It has cost an enormous amount of money to shore up our economy and protect our people against the worst effects of the deepest recession in my and other noble Lords' lifetimes. FE and HE institutions have played a prominent part in bringing us through the recession, and it is right that we acknowledge that today. However, we must stabilise public finances. This will be a salient feature of spending settlements for some time to come. It is right that HE and FE should be asked to shoulder their fair share of the burden of reducing the public debt. I stress “fair share”, as did my right honourable friend when he spoke on this subject a few weeks ago.

I will put this in context. In relation to FE, for the 2010-11 financial year, £3.5 billion will be allocated by the Skills Funding Agency for FE colleges and training organisations to deliver high-quality and relevant FE and skills training to an estimated 3.4 million adults. I remind noble Lords that this is an increase of 2.9 per cent on last year. We will focus on improving value for money by purchasing only high-quality training and by maximising the contribution towards training from businesses and individuals where they see the highest private returns. Government investment in colleges for post-16 learning, including capital, increased in real terms by 57 per cent from 1997 to 2008-09. This covers all funding to colleges, including capital investment.

The noble Lord, Lord Patten, talked about funding per student. Somewhere else, he said, “We doubled the number by halving the investment”. Perhaps I may remind him of that. Funding per student has been maintained in real terms, while student numbers have increased by 250,000—24 per cent—since 1997. We have introduced more funding streams for universities: not just fees, but voluntary giving and endowments, which were suggested by one or two other noble Lords.

The view was expressed that we are biased towards STEM. We do not dictate to universities what courses they put on: it is up to them to play to their strengths. We have some of the best arts institutions in the world, and that will continue. However, this year HEFCE decided to set aside £10 million for allocation in 2010-11 to support STEM subjects.

We are not cutting numbers with these efficiency savings. I remind noble Lords that the Government have provided extra money to finance a growth in student numbers. We have allocated an extra 40,000 student places for the three years between 2008-09 and 2010-11. Numbers are still rising. However, we must get this in perspective. We have never had a situation where everybody can get into university: it has always been a competitive scenario.

I apologise at this stage for the fact that I will not be able to address every point made by noble Lords in what I thought was a stunning debate. I will address one key point that emerged in the course of the debate. My noble friend Lord Mandelson, the First Secretary of State, talked about seeing this not just as a challenge but also as an opportunity. There has been a dichotomy here, with one group of noble Lords saying that the cuts put at risk the whole of higher and further education, and others saying, somewhat more candidly, that we have the opportunity to modernise and could offer more flexible approaches in higher education. We may be talking about two-year degrees or other more flexible approaches. I was grateful to my noble friend Lord Puttnam for reminding us of the reaction to the original proposals for the Open University: “Heaven forfend; it is the end of proper higher education as we know it”. Of course, it was not: it was an outstanding success. No one should tell us that higher education institutions do not have a propensity to offer a more varied and flexible agenda. We know that it is being offered by some institutions. Others should look at them and try to adopt best practice.

I am conscious of the time, so I will do my best to limit my remarks but at the same time pick up on more points. As I said, despite the savings of £340 million, total investment in training places for adults will increase by 2.9 per cent—a figure that I have already given—reaching a total of £3.5 billion.

I also remind the House that business spending on adult skills has always dwarfed public spending. It is right that we continue to encourage employers to make that investment and to reap the benefits in terms of the profitability that we know it brings. The skills strategy that we published at the end of last year highlights the greater emphasis that we are placing on skills in emerging sectors, such as low carbon.

On the HE side, finances are again in a much better place than they once were. In addition to the figures that I cited earlier, universities are now considerably better at generating their own income. In fact, total university income in 2007-08 was around £23 billion—some 39 per cent higher than five years earlier.

We would describe these savings of about 5 per cent for 2010-11 as modest efficiency savings, and we believe that universities or higher education institutions can rise to this challenge. HEFCE has already taken the decision to try to ensure that, when it comes to front-line teaching and so on, the cuts will amount to only 1.6 per cent. I think that I have already covered the situation in relation to student places and the fact that their number will grow again in 2010-11.

I take the opportunity to reassure the noble Lord, Lord Ramsbotham, that in fact we are going to spend £3 million extra on education in offender institutions. Therefore, we have increased the budget there. I do not necessarily say that that satisfies all his aspirations, but it is moving in the right direction.

Comments to the effect that these savings will cause the ruination of the sector are inaccurate. Or they should be, so long as universities continue to manage their finances prudently, to diversify their sources of income, as we have consistently encouraged them to do, and to seek efficiencies where they do not affect an institution’s core business. In any event, they must be seen in the context of that 39 per cent rise in university income.

A number of noble Lords expressed concern about research funding, and I want to give some reassurance on that. There are two relevant ring-fenced budgets for science and research: the science and research budget of £4 billion and HE research funding of £1.9 billion. Total investment in research funding will rise to a record level of £6 billion by 2010-11. As I said, that is made up partly by the science research budget and the HEFCE QR budget. The science research budget will have more than doubled in real terms by the end of the CSR7 period compared with 1997. We still have a world-class research base, second only in the world to the US for research quality, and we lead the G8 for research on productivity papers and citations per pound of public funding.

I understand the concerns expressed by noble Lords about the number of student places. As I said, the 2009 admissions round was tough for everyone concerned—for applicants and their families, for universities and for UCAS. This year, too, there may be significant numbers of qualified young people leaving school or college at the age of 18 who cannot get a place at university. However, it is far too early to say for certain what the situation will be. In most years, the proportion of applicants who gain a full-time undergraduate place is around 80 per cent. Not everyone gets the right grades and some will choose other options. I also point out that students expect a good-quality experience at university and, looking at the measures in the National Student Survey, we can see that we are fairly steady at about 80 or 81 per cent. Unsustainable growth is in no one's interest. Over time, it would undermine the quality and the high international standing of our system.

The future funding of universities is clearly a significant issue, which is why we have asked the noble Lord, Lord Browne, to consider all aspects of university funding in his independent review of student finance—he will report on his findings in the autumn—and that is why we are asking HE institutions to consider diversification and different forms of provision. Employers are telling us that further expansion of campus-based, full-time, three-year degree courses are not necessarily the answer. Clearly, that traditional model has served and continues to serve us well; it is popular with students and parents alike. However, we have to explore other options such as part-time, two-year foundation degree courses and three-year honours courses which are delivered intensively over two years or which can expand. I was grateful for the contribution from the noble Lord, Lord Butler, and his analysis of the need for change. Employers are looking for flexible options which are manageable in and around working hours and many potential students want the same.

On further education and what we have described as Backing Young Britain, I shall direct your Lordships to the broader effort which the Government are putting in to help young people through the recession, funding extra advanced apprenticeships for 19 to 30 year-olds up to 35,000 over the next two years. We need a modern technician class working in the space sector, in renewable energies, in nanotechnologies, deploying around £100 million to support around 160,000 training places in those areas.

Unfortunately, I do not have time to answer all the questions which were raised in what I thought was a very diverse, interesting and important debate. I thank all noble Lords who participated. Those questions which I have not been able to answer here I shall answer in writing.

My Lords, I thank all Peers who have spoken in a debate of outstanding quality. A debate of such quality is almost a justification for this House. Had it taken place in the House of Commons it would not have been of this quality.

Certain things have come out of the debate, such as diversity of provision, the humanities at Oxford, religious studies from the right reverend Prelate, philosophy and social sciences, alongside great pleas for development of the STEM subjects. There is also diversity of funding. The next Government will have to devise totally new funding for universities. The Browne review is only half the answer. If it comes up with uncapped fees and need-blind and so on, that will not be enough because, with the way that we fund student loans, that will mean a direct increase in the PSBR and no Government will accept that. I am glad to say that our shadow Ministers are thinking about all sorts of other schemes to do that. The best advice for all universities is: put not your trust in Governments for funding; they always let you down; they will never give you enough, not even a Conservative Government.

I was delighted to learn from my noble friend Lord Patten that, when I was Secretary of State, the unit fund per student was £1,500 more than it is today. I did not know I was so good. I am very pleased to note that figure, but we did rather better than the Minister has made out. Universities must be supported and protected and that has to come from funding. I thank everyone who spoke in the debate.