I welcome the opportunity to draw to the attention of the House an issue that effects my constituency and highlights one of the Government's most striking successes: the increase in participation rates in higher education. I welcome my two colleagues, my hon. Friends the Members for Luton, North (Mr. Carlisle) and for Bedfordshire, South-West (Sir D. Madel), who support the case that I shall put.
Recognising the importance of ensuring that the people of Britain are equipped with the highest level of education necessary to meet the challenges of the future, the Government made a manifesto commitment in 1992 to have one in three young people in higher education by the year 2000. To put that target in perspective, it should be remembered that, in 1979, the figure was only one in eight. In order to assist in achieving that target, huge sums of money were allocated to both revenue and capital funding for higher education establishments.
I am sure that the House will welcome the fact that the success of the Government's policy was such that the target levels of participation in higher education were achieved much sooner than originally envisaged, in 1993—seven years ahead of target. One third of young people now enter higher education and the participation rate for mature students has risen by 50 per cent. since 1979. We have the second highest graduation rate in the European Union, and our universities are internationally highly respected.
The achievement of the Government's aims ahead of target was possible only through the commitment of our universities which, as well as increasing student numbers, have also increased efficiency so that costs per student have substantially reduced. All universities have played their part in the success and all must be congratulated. However, as the hon. Member for Luton, South, I must say that some universities have played a greater part than others.
That is particularly true of the new universities, a group to which the university of Luton is the most recent English member, having been granted university status in 1993. Luton increased its full-time student numbers from 1,000 to 8,000 in four years, and has about 9,000 this year. Full-time students represent 65 per cent. of the total, and 28 per cent. of the total is made up of part-time higher education students. A further 7 per cent. are in-company or short-course students.
The strategic importance of Luton within the south-east cannot seriously be questioned. It was therefore right for the former Luton college of higher education fully to take on board Government policies and expand in order to reach university status.
Not only did the university of Luton increase the total number of full-time students, it expanded most in the subject areas that are job orientated—the so-called band 2 or workshop-based subjects. The band 1 to band 2 ratio at Luton is 49.8:50.2 per cent.—much lower than other higher education institutions. That means that Luton is educating more people in the subjects directly related to jobs than any other university. That is of particular importance when one considers that the unemployment rate in Luton is nearly 10 per cent. and, although decreasing, is still higher than the average in the south-east.
The university of Luton is also a teaching-oriented institution and believes that its expertise in the development of teaching skills, and a variety of teaching environments should be valued as such. In time, it will develop a research base, but its mission involves a strong commitment to creating opportunities for access to higher education for under-represented groups such as women and for those who do not have the traditional entry requirements for higher education.
Some 55.6 per cent. of the university of Luton's students are over the age of 21, and female students outnumber male students. That is perhaps not surprising when it is noted that 40 per cent. of the total are local students; many young mothers take the opportunity to educate themselves at the university while bringing up a family. The student profile at the university of Luton accords exactly with the groups of people to which the Government's policy to expand participation in higher education was, and continues to be, targeted.
The university of Luton's unique role in educating people to a high level for work is also recognised by the many world-class companies that operate from Luton. The university receives industrial support from, among others, Vauxhall Motors, Whitbread, Willmott Dixon, Barclays bank and National Westminster bank. Paid work placements are provided by 125 companies, and more than 100 companies support the university through the advisory, validation and quality assurance committees. Those companies would only part with their hard-earned cash and expertise to support an institution that was providing what they needed to help their businesses succeed.
On the basis of all that information, I contend that the university of Luton has more than played its part in ensuring the success of Government policy. Unfortunately, Luton, along with many of the so-called new universities—those that have come into existence in the past two years—are victims of their own success. I hasten to add that I do not believe that to be a result of Government policy, but because of the detailed workings of that policy that are dealt with outside the political arena.
As I am sure we are all aware, English universities receive funding from two main sources: course fees, and grants from the Higher Education Funding Council for England, the HEFCE. Course fees are administered by local education authorities and are the same for different types of courses, regardless of where they are studied. A band 2 student brings with him or her the same amount of funding whichever university he or she attends.
Until 1993, the fee income per student was high, and there was no capping limit. It was mainly through that mechanism that the increase in student numbers was achieved, because universities and colleges of higher education could afford to grow by taking on students on a fees-only basis. Luton college of higher education took full advantage of that opportunity and, by growing, was able to attain university status. When the Government's targets had been reached, the fees per student were reduced by more than a half, which had the effect of consolidating student numbers and increasing the importance of HEFCE funding.
Funding is allocated separately for research and teaching. There was much publicity not long ago when several well-known, traditionally research-based universities won their case to maintain their element of research funding. It is claimed that research funding and teaching funding are mutually exclusive. That contention should be challenged as, especially with band 2 subjects, there is no doubt that some so-called research facilities are used by both undergraduate and postgraduate students. I will not say more about that subject, as I wish to concentrate on the teaching element of HEFCE funding.
The funding for teaching is allocated according to a formula which should be fair and transparent—unfortunately, it is neither. Comparative analysis of HEFCE funding for teaching from one university to another is not easy, because different types of courses are funded differently, with band 1, humanities, funded at the lowest level and band 3, medical studies, funded at the highest level, with band 2 in between.
The use of the raw data of average unit council funding—where the total allocation for teaching is divided by the total number of students—is indicative of inequity in the system, and shows that something is not right. For example, in 1994, the amount of HEFCE funding allocated for teaching per full-time equivalent student in Luton was £1,532, compared with £2,336 for the university of Hertfordshire, and £2,850 for the university of York.
I am sure that the Minister will note that I have deliberately not included universities with medical schools in my figures in an attempt to compare like with like. In light of those figures, the question must be asked: why are students at the university of Luton each allocated £800 less than those at the university of Hertfordshire, which is located in the neighbouring county, and more than £1,300 less than in York, where costs are much lower?
As I have said, I accept that analysis of the raw data has its limitations, because of the differences in course mix from university to university. Therefore, I shall cite some figures calculated by Dr. Peter Knight, vice-chancellor of the university of Central England, which were published in The Times Higher Educational Supplement in January this year. Dr. Knight's figures take into account different course types by comparing the allocations over all subjects in all universities and analysing the funding for each subject at each university compared with the average.
Two features of Dr. Knight's analysis are particularly striking. First, the new universities that have rapidly increased their student numbers in recent years—such as Luton, Bournemouth, Anglia, Humberside and Derby—have exceptionally low allocations of HEFCE funding for teaching compared with other universities. Secondly, the new universities fare worse than the old universities in funding terms.
I could make conjecture about why that is the case; suffice it to say that a formula that can lead to Imperial college receiving £998 more per student than the university of Luton, even after allowing for subject mix, when the average funding for full-time students is £1,600, represents a huge variation. If the allocation for research is added to that for teaching, the variation becomes almost obscene. I believe that those variations are indefensible. They are a strong indication that the formula for allocating money to universities needs to be reviewed, with special reference to the proportion of the total funding allocated according to student numbers.
It is a credit to the new universities, such as Luton, that they are able to reach the required quality standards despite their relative underfunding, but that could lead to problems in the longer term. It will certainly not allow on-going investment in and further development of the new universities. In that context, it must be remembered that the new universities to which I am principally referring were colleges of higher education until very recently, and, as such, have historically been the poor relations of higher education compared with the old universities and with those colleges that became polytechnics in the 1970s.
Therefore, they start off at a low base with regard to equipment, facilities and spare cash for investment. They are, quite correctly, putting all their resources into maintaining the quality of their teaching and the teaching environment. However, it is essential that they receive a fairer slice of the cake if they are to maintain and develop their standards.
The HEFCE recognises that there are inequities in the formula, by applying harsher efficiency gains to the more generously funded universities. However, it is estimated that that method will take between 15 and 20 years to narrow the current range of funding for teaching to within 5 per cent. of the average. As an aside, I add that it is just as well the new universities did not take 15 to 20 years to respond to the Government's initiatives to increase student numbers, or we would still be a long way short of our target.
To add insult to injury, the recent allocations to universities incorporated a sum of £26.6 million across the whole higher education sector, under the heading "Non-Consolidated Core Funding". Those funds were originally allocated to fund growth, but as student numbers are now consolidating rather than expanding, the HEFCE decided to distribute the sum pro rata to core funds for teaching.
Therefore, there was money in the budget to allow the HEFCE to address the current inequity of funding, but it chose instead to reinforce that inequity. I simply cannot believe that that was in any way an informed decision, especially when one considers that the money was originally allocated for growth. Surely it would have been fairer to allocate the extra funds according to past growth, as the high-growth universities are the ones currently adversely affected by the funding formula.
The HEFCE was set up as an independent body to allocate funds to universities, and it is right that the Minister should be legally precluded from interfering in HEFCE allocations to individual universities. However, I believe that it is the Government's duty to ensure that all their policies are fair. Therefore, they would be within their rights to question the formula used by the HEFCE to allocate teaching funds, which obviously does not give enough weight to student numbers.
Modifying the formula for teaching in higher education to ensure that it is driven by student numbers would be entirely consistent with the Government's policies in other areas. The local management of schools formula for allocating budgets to schools must, by law, be at least 80 per cent. based on pupil numbers—and quite rightly so. The amount of money that a school requires is dependent mainly on the number of pupils who attend that school.
The health reforms have also ensured that money follows the patient, and thus have led to major improvements in the health care offered in areas such as Bedfordshire. It is simply wrong that the same principle does not apply to allocating teaching funds in the higher education sector, as the costs for teaching relate mainly to the number of students.
The Minister has already announced that he intends to review the HEFCE formula this summer in order to ensure that it is appropriate for the current period of consolidation. I trust that he will ensure that the review removes the current inequities in teaching funding—especially to those new universities which have more than played their part in increasing student numbers to the level required by the Government.
In conclusion, the expansion of participation rates in higher education must be considered one of the Government's greatest successes and a great achievement of which we should all be proud. Having increased student numbers to such unprecedented levels, we are now in a period of consolidation. I urge the Minister to take the opportunity presented by the review of the HEFCE formula to ensure that we have a formula that is fair, transparent and student driven and which thus allows all our universities—particularly the university of Luton—to go from strength to strength in the future.
I am grateful to my hon. Friend the Member for Luton, South (Sir G. Bright) for securing this opportunity to draw attention to the achievements of the university of Luton. I know that he and other hon. Members from Bedfordshire have taken a keen personal interest in the university's development.
I had the honour of speaking at the lunch to celebrate its inauguration as England's newest university in November 1993. I was pleased then, as I am now, to congratulate Luton on its remarkable progress from college to university in a relatively short period. I know that it is the result of a great deal of hard work. I recognise the university's academic achievements and its success in providing greater access to higher education along the lines mentioned by my hon. Friend.
He raises important questions about funding for the university of Luton and for universities and colleges in general. He correctly acknowledges that they are also connected to wider questions about the nature of the relationships between Ministers, the Higher Education Funding Council for England and the universities and colleges. I shall refer to those relationships before talking about funding specifically.
At the heart of the relationship between Ministers, the funding council and the universities and colleges are the principles of institutional independence and academic freedom. University autonomy is a central feature of our higher education system. It is protected in law. Ministers are barred by statute from interfering in funding allocations to individual institutions and from setting criteria for the admission of students, the selection of staff or the content of courses.
The Government set the overall level of public funding for higher education in light of what the country can afford, the higher education funding councils throughout the United Kingdom distribute grants to institutions within the context of Government policy, and the institutions decide how those funds should be spent according to their own priorities. The system protects the independence of universities and colleges. It gives them the freedom to experiment and innovate, and to gear their provision to changing needs.
Therefore, the Government do not direct the higher education system; they provide a framework within which the providers of higher education can respond to the needs of users, and they also ensure that the sector receives a fair share of public funds, as my hon. Friend graciously acknowledged.
I am also grateful to him for highlighting the success of our higher education system and acknowledging the part played by public funds in helping to secure it. Higher education has been one of the fastest growing public expenditure programmes in recent years. Nearly £5 billion will be available to English universities and colleges in 1995–96 through funding council grant and tuition fees. Student support will add another £1.5 billion. That follows successive real-terms increases in funding.
The spending growth in public funds has been accompanied by rapid expansion in student numbers. As my hon. Friend said, participation of young people in higher education now stands at a record level of more than 30 per cent. and the number of mature students has risen dramatically. It is a remarkable achievement. That it has been accomplished with significant real improvements in productivity, while maintaining quality is a testament to the resourcefulness of our universities and colleges.
However, expansion has imposed significant demands on the taxpayer. It is now widely recognised that there is a limit to the amount which the taxpayer can be expected to pay for higher education. Against that background, we announced in the 1992 autumn statement a period of consolidation in student numbers.
Our current expenditure plans assume an increase of 22,000 full-time equivalent student numbers between 1994–95 and 1995–96 and provide for participation in higher education to be maintained at around 30 per cent. up to 1997–98. We have asked the HEFCE to ensure that those numbers are not exceeded, and it has decided to achieve that by setting maximum numbers of award holders for each institution.
Our expenditure plans for 1996–97 and beyond will be announced later this year in the 1995 Budget. For the longer term, my right hon. Friend the Secretary of State for Education has set in train a review of higher education which is considering issues relating to the purpose of higher education and its future size and shape. We have had more than 100 responses from different organisations to our consultation exercise earlier this year, and we are carefully analysing them all.
Within the overall funding provided by the Government, the HEFCE is responsible for distributing grant funds to different institutions. My right hon. Friend the former Secretary of State for Education, the Member for Oxford, West and Abingdon (Mr. Patten), set out broad guidance to the HEFCE in 1992, when it was established. The guidance concentrated on the key aims which its funding methods should meet and the particular issues to take into account.
In short, those are to secure greater efficiency, to relate funding to quality, to maintain the diversity of missions of institutions and to secure stability of funding. Further guidance is given each year in an annual grant letter announcing the outcome of the public expenditure survey.
As my hon. Friend pointed out, however, Ministers do not seek to influence the detail of the funding council's funding methods or its allocations. Under the terms of the Further and Higher Education Act 1992, while the Secretary of State for Education may attach terms and conditions to her grant to the HEFCE, they may not relate to the funding allocations to individual institutions.
The HEFCE has taken on responsibility for an enlarged higher education sector with a diverse range of institutions. It has worked hard, in consultation with universities and colleges, to develop funding mechanisms that reward efficiency, but secure as much stability as possible in funding year to year.
It is a measure of the HEFCE's success that those mechanisms have enabled the sector to adjust to the transition from expansion to consolidation without undue turbulence. That is particularly important in the current climate, as we are asking institutions to make continuing efficiency gains within tight budgets.
The HEFCE's funding method is applied to all institutions according to the same general principles, although individual institutions will, of course, have different allocations. Grant funding is mostly for research and teaching, although there is some non-formula funding for expenditure which cannot fit easily into a general funding formula. There is also capital funding. Nearly all the research funding is allocated by a formula which reflects quality ratings measured in periodic research assessment exercises.
The majority of the HEFCE's funds for teaching is allocated to a core which guarantees institutions a high percentage of the previous year's funding, provided that they recruit agreed student numbers. The average unit of council funding is calculated by reference to the previous core funding provided by the council and the number of students recruited by an institution. It is determined separately for each academic subject category, level of study and mode of attendance.
Institutions that have higher average units of funding will have higher annual efficiency gains applied to their core funding than those with lower average units of funding. The remainder of the funding council's funds for teaching is allocated to the margin, which is targeted on specific activities. Institutions which have lower efficiency gains will receive a proportionately larger share of formula-based allocations of marginal funding.
I believe that Dr. Peter Knight, in the article to which my hon. Friend referred, acknowledged the HEFCE's funding method for teaching to be even-handed between long-established institutions and new universities, and it noted that the level of grant funding for teaching that an institution receives from the HEFCE is related largely to its own decisions on student recruitment. I understand that the HEFCE has replied to Dr. Knight's article, pointing out that, in respect of the variations between institutions in the average units of council funding for the same subject, the option of providing the same funding for each subject to all institutions was rejected, following consultation with the institutions themselves.
Those, such as Luton, that have chosen to increase student numbers significantly in recent years will have lower average units of council funding but higher total levels of teaching funding, taking into account funding council grants and tuition fees, than would otherwise have been the case.
It is worth stressing that the funding council does not decide how universities and college run their own affairs. Institutions decide how to deploy their total public and private resources, in the light of their individual missions and their particular development plans. Whatever their decisions, all institutions must manage within the resources available to them.
In the current period of consolidation, the HEFCE is setting maximum numbers of awards for each institution in order to ensure that the sector does not exceed the student numbers for which we have provided in our expenditure plans. In setting maximum numbers, the funding council has taken account of the rate of in-built growth in student numbers within each institution. I accept that that will inevitably mean that some institutions will not be able to continue to expand as they may have wished, but I am sure that the House will appreciate the reasons for the decisions on public expenditure that underlie our current policy.
Equally, I appreciate the university of Luton's desire to secure the level of funding it believes it needs to pursue its plans, but, as I have explained, funding allocations to individual institutions are the responsibility of the HEFCE, not Ministers. It would not, therefore, be right for me to offer a view about the funding allocation to Luton or any other university or college. If any institution is unhappy with the funding it receives from the HEFCE, it should discuss the matter with the funding council.
I believe that the HEFCE's chief executive has met the vice-chancellor of Luton university and his colleagues on a number of occasions. The university will therefore have been able to make its case directly to the funding council. That is clearly the way forward, but I shall be happy to pass on the concerns expressed by my hon. Friend today to the council.
I should clarify that the council, not Ministers, is currently reviewing its funding methodology, and will be consulting institutions about its plans. The review is instigated and managed by the funding council itself. Naturally, institutions which favour particular changes of any kind will be able to express their views as part of the consultation process, and I hope that they will.
I hope that I have made clear that the financial position of each institution depends largely on its own decisions on recruitment and management, which is as it should be. Although I acknowledge my hon. Friend's interest in and enthusiasm for the university of Luton, Ministers have properly set the funding framework, but are not and should not be in the business of instructing the funding council, or of telling individual institutions how to run their affairs in their own circumstances, using the resources available to them.