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Higher Education and the Economy

– in the House of Lords at 2:05 pm on 19th April 2007.

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Photo of Baroness Warwick of Undercliffe Baroness Warwick of Undercliffe Labour 2:05 pm, 19th April 2007

rose to call attention to the economic impact of higher education institutions; and to move for Papers.

My Lords, it is a great pleasure to open this debate on the economic impact of higher education institutions. It is very good to see so many Members of this House connected with universities here today and prepared to speak this afternoon. I know that other noble Lords would very much have liked to be here. I am particularly pleased that the noble Lord, Lord Dearing, who is celebrating the 10th anniversary of his famous report, is here. As many noble Lords will know, universities have changed dramatically over the past 10 or 20 years. From being seen as ivory towers for the few, they are now perceived as engines of change in the economy and the means of effecting real social change. Who, 10 or 20 years ago, would have thought of our universities in hard-nosed commercial terms? Yet now, higher education is recognised as a substantial industry in its own right with a significant impact on the UK economy.

According to a recent study by Universities UK on the economic impact of higher education institutions, in 2003-04, higher education had a total output of just over £45 billion. Education and education-related services are our fastest-growing export earner and have already eclipsed food, tobacco, drink, insurance, ships and aircraft. Giving these figures, I should declare my interest as chief executive of Universities UK.

Clearly, higher education exists for many purposes. Its prime purpose is the sharing of knowledge and the development of minds. Today, however, I want to celebrate this new and very successful dimension of economic impact. It is worth pointing out that higher education institutions are also employers in their own right. Many institutions are the major employers within their localities and the wider region. For example, more than 280,000 full-time equivalent jobs are provided by institutions themselves, which amounts to just over 1 per cent of the whole workforce. Noble Lords will also be interested to know that a further 300,000 jobs across the whole of the UK are created through connections with higher education institutions.

International students bring in £3.6 billion, of which £2 billion is from fees. UK universities are able to attract large numbers of students from overseas because of the continuing international demand for education in English and, of course, the reputation of UK universities in research and teaching. We must not forget that our international students also provide a valuable cultural mix on our university campuses and in many cases, on return to their home country, act as excellent ambassadors for the UK.

Much of that is well understood by Members of this House, but the contribution of our universities goes beyond those very direct impacts. The UK's higher education institutions are vital to addressing many of our country's long-term challenges. I want to link the diversity of our sector with the five major strategic challenges identified by the Treasury as the context for the current Comprehensive Spending Review. I shall list them in no particular order—namely, an increase in an ageing population, cross-border competition and increasing globalisation, increasing levels of information and technology and a more knowledge-intensive-based economy of goods and services, global conflict and international terrorism, and increased pressure on natural resources and the threat of climate change.

Universities have a role in meeting every one of those challenges. In relation to an ageing population, higher education will help to equip the UK workforce to be more productive for longer. Our universities are already catering for an increasingly diverse population. Currently, 30 per cent of full-time undergraduate students are mature. Some 39 per cent of all students study part time, and 90 per cent of part-time undergraduate students are over 21, with around 20 per cent in their forties and 15 per cent now aged over 50. Many of these students are undertaking study while in full-time work through continuing professional development, and indeed through work-based learning. I think the House will agree that these figures show how far higher education entry has now moved away from the traditional 18 to 21 year-old student studying for a three-year undergraduate degree away from home.

On the second challenge, increasing levels of cross-border competition and globalisation, the Chancellor of the Exchequer acknowledged the increasing importance of higher education as an export in his speech at the Academy of Social Sciences in Beijing, China. He said:

"In just five years the value of British education as an export has almost doubled, from £6.5 billion to £10.3 billion ... Indeed, I believe that if we continue to make the right decisions, by 2020 education exports could contribute over £20 billion a year to the UK economy".

I think that many Members of the House would agree with him.

On the third challenge, could any noble Lord not be aware of the rapidly expanding markets in China and India, which between them produce 4 million graduates a year? Universities are key to staying ahead of these markets by invention and innovation and by ensuring that we equip our population to work smarter. That means that we need to expand higher education, and we need to provide public investment to ensure that expansion is of high quality. The expansion of higher education will help to plug the growing skills gap and, as the noble Lord, Lord Leitch, stated in his recent report, the UK should be looking at increasing skills in the workforce. He recommended that 40 per cent of the workforce should be qualified to level 4 and above. That must be broadly the right ambition, extending as it does the current government target that focuses on 18 to 30 year-olds.

I also know that Her Majesty's Opposition have similar views on this, as the shadow higher education Minister in another place, Boris Johnson, has also said that the UK should be looking at a participation rate higher than 50 per cent. Collaboration with further education is essential in this regard, and while I may have had my differences with the Minister on the Further Education and Training Bill, which is currently passing through another place, retaining those progression links from further education to higher education is essential if we are to ensure that we have the right high-level skills to cope with the demands of employers and the workplace in the 21st century.

I turn now to the challenge of global conflict and terrorism, the fourth of the Treasury's priorities. Universities have a particular role in addressing this problem. World-class research departments in both the social sciences and the sciences are essential to combating and understanding that threat. Much of their work influences thinking in the police, the security services and the Armed Forces.

The fifth and final Treasury priority will resonate with many across the House. It is climate change and the threat to natural resources. In my view, the only way to address the enormous challenge of climate change is through rapidly developing technologies that allow us to use fewer natural resources more efficiently and increase the amount of energy from renewable sources. Universities are already at the forefront of this agenda by providing some of the solutions through research and innovation, and many university campuses themselves are going green by introducing environmental targets to reduce emissions, using more energy-efficient lighting, reducing paper use and so on.

Our universities make a substantial contribution to the UK economy and to our ability to meet the major strategic challenges of the future, but it cannot be taken for granted. In order to deliver on that potential, we need the right level of continued investment, as so many of the contributions to this spending review make clear. I believe that the higher education sector is great value for money and certainly punches above its weight, but in order to continue to do that it needs continued investment. There is no doubt that higher education finances have improved since the turn of the century and have improved further with the advent of variable fees. However, to build on this position, we need in particular three main things, and I should like to draw them to the Minister's attention.

The first is to maintain the unit of funding for teaching. We need a continuation of the guarantee that there will be no reduction in funding. This will ensure that the extra money available from variable fees will enable a higher quality learning experience and better sustainability. I hope that the Minister will be able to give me a guarantee that the Government are committed to this. The second issue is more money for teaching infrastructure, by which I mean buildings and equipment. There is a £5 billion backlog of infrastructure maintenance—which in itself is a great improvement since 2000, as a result of the Government's commitment to increased capital allocations. Universities need to be able to invest further in state-of-the-art teaching infrastructure to support pedagogy and to ensure that graduates are taught to the highest standards.

Thirdly, there must be further investment in knowledge transfer, business links and other forms of employer engagement, which I know the Government are committed to. The Higher Education Innovation Fund, known as HEIF, has been extremely successful in stimulating this engagement. It has also enabled better engagement between universities and the community. I hope that the Minister will be able to reassure me that the Government will continue to demonstrate their support with sufficient funding and resource.

I do not want to appear complacent; there is so much more that could and will be done. But the universities themselves are strongly committed to this agenda and I am delighted that this House has the opportunity today to celebrate one of the UK's great successes—its university sector. I look forward enormously to the contributions of the many distinguished Members of this House who I know feel as passionately as I do about the sector's continued success. I beg to move for Papers.

Photo of Lord Norton of Louth Lord Norton of Louth Conservative 2:17 pm, 19th April 2007

My Lords, I warmly congratulate the noble Baroness, Lady Warwick, on securing this debate. I declare an interest as professor of government at the University of Hull, and I am delighted to see that two Hull graduates, the noble Lords, Lord Giddens and Lord Dearing, are taking part, along with the chancellor of the university, my noble friend Lady Bottomley.

As we have heard—I do not propose to repeat the figures—the contribution of higher education to the UK economy is substantial. It is essential to the health of our economy that we maintain a vibrant culture of research and of teaching in our universities.

Applied research is fundamental to our economic future. Theoretical research is fundamental, and so too is teaching. Research and teaching are complementary pursuits: each benefits from the other. It is the quality of teaching that is essential to producing those who are wealth creators, who serve increasingly to generate a successful economy. Our economy benefits from and is dependent on the generation of well qualified and highly motivated graduates. Research contributes to the quality of teaching. Teaching generates fresh ideas and ensures that researchers can locate the relevance of their research in their discipline. Because each benefits from the other, it is possible to thrive in both. I head a politics department that is rated as a 5A department in the research assessment exercise and that came top in last year's national survey of student satisfaction. Pursuing both is demanding, but it is highly rewarding.

I take one example of the economic effect. The combination of research and teaching explains the capacity of our universities to attract so many overseas students in a highly competitive market. Overseas student numbers are increasing, and off-campus spending by international students exceeds £1 billion a year. Students are attracted by the prospect of being taught by leading figures in their field. That alone illustrates the need to maintain world-class research and teaching. To do that, and here I reiterate what the noble Baroness has said, we need not only greater investment, but also to reduce burdens and provide greater certainty. As the noble Baroness said, we need to invest in order to maintain the quality of the teaching provision. It is not just a case of maintaining the unit of resource. We are teaching not only more students but, as she said, a more diverse range of students. We are expanding beyond the traditional intake of the 18 year-old A-level student. That imposes greater demands than before.

We need to reduce the burden of bureaucracy. I welcome the fact that in many areas we are moving towards a lighter touch in regulation—but, as I pointed out in a previous debate, a lighter touch is not the same thing as a light touch. The regulatory regime may be effective, but it is inefficient and saps morale.

We also need more certainty. It is difficult to plan ahead if one does not know what the goal is and what resources one has to ensure its fulfilment. The RAE is a case in point. We are unsure what will happen post-RAE 2008; indeed, we are not sure what will happen in the RAE itself, given the new mode of assessment, or what the financial implications will be. The uncertainty after RAE 2008, given the likely use of metrics, is pronounced in the humanities and the social sciences, for reasons we have previously discussed. Does the Minister therefore agree that maintaining high-quality research and teaching is essential to the health of our economy, and that that entails maintaining or improving the unit of resource, reducing bureaucracy and ensuring greater certainty? If not, why not?

Photo of Baroness Cox Baroness Cox Crossbench 2:21 pm, 19th April 2007

My Lords, I thank the noble Baroness for this important debate. I declare an interest as a founder chancellor of two of Britain's newest universities: previously Bournemouth, and currently Liverpool Hope.

I shall focus on the link between the economic impact of higher education with diversity of provision and access for students. As already noted, the Government have declared their intention to create a diverse higher education sector, with at least 50 per cent of 18 to 30 year-olds entering higher education. The first objective is to increase choice and enhance opportunities for lifelong learning, helping to promote an educated, skilled and competitive economy.

The second objective is to increase access by reducing historical disadvantages and encouraging all British citizens, irrespective of social background, to achieve their potential as appropriate. These proposals for expansion have been criticised, because of concerns—which I respect—about the possibility of lowering standards and the maintenance of quality. I believe that those concerns can be addressed, and that the underlying objective of encouraging access to higher education by overcoming social and cultural barriers is to be welcomed. The heritage of class difference is still strong in this country. There are still large sectors of the population with low educational aspirations, in marked contrast to many developing countries, where even the very poor have high educational aspirations. If Britain is to remain economically competitive, it is crucial that historical disadvantages and their long-term socio-psychological impact are remedied.

I draw briefly on the experience of Liverpool Hope University's historic and current role in expanding access to higher education by overcoming barriers of gender and class and enhancing diversity of provision through its ecumenical Christian foundation. In the 19th century, Hope's foundation colleges created the first opportunities in the region for women to receive higher education, long before they were eventually admitted to universities. Over subsequent years, in co-operation with the local university, Catholic and Anglican church foundations provided opportunities for higher education in diverse colleges, until the recent legislation enabled them to attain "university" status. Now Liverpool Hope University has achieved the distinction of becoming the only ecumenical Christian university in Europe, and there are at least 14 other faith-based higher education institutions.

Those institutions enhance choice and access, with their ethos of a long tradition of social inclusion. For example, Liverpool Hope is attracting students in a region where many communities have traditionally not been encouraged to benefit from a university education—some of the poorest and most disadvantaged communities in the country. This is making an important contribution to the local and national economy by enabling more students to realise their potential. The university is also stimulating urban regeneration and community involvement in many economic and cultural initiatives. Moreover, as an ecumenical Christian university—and this might be a counterpoint to the earlier debate—Liverpool Hope is encouraging access for students from different ethnic and religious backgrounds; not only Christian students but also those of other faiths seek and value the opportunity to study in a university that respects and enshrines the spiritual dimension of life, where sectarianism is transcended and there is a commitment to holistic education of body, mind and spirit. In such ways it is achieving the goal of social inclusion and reducing the risks of personal marginalisation.

In order to maintain such diversity, however, the new universities require appropriate support. With the present funding policy, a smaller group of large universities gets the lion's share of teaching and research resources. The perpetuation of a hierarchy of funding of universities does not support the Government's publicised intention to offer high-quality higher education to all students who can benefit.

In conclusion, the challenge must be to ensure the continuation of diversity, with universities enabled to make their own distinctive contributions, without having to mimic each other to survive. I hope the Minister will give an assurance that the Government's funding policy will ensure adequate resources to enable all universities to thrive; the new ones, alongside their well established counterparts.

Photo of Lord Giddens Lord Giddens Labour 2:26 pm, 19th April 2007

My Lords, I, too, congratulate my noble friend Lady Warwick on having initiated this debate. I fear she has been too successful for her own good; we only get four minutes each to speak, and most people here are used to speaking for an hour, not less. I suppose I have to declare a cluster of interests: not only am I a proud graduate of the University of Hull but I am also an ex-director of the London School of Economics and currently a life fellow of King's College, Cambridge.

We should give not three but four cheers for universities—if that concept exists, anyway—because universities are among the greatest unsung achievements of our society and our economy. If you look at the rankings of universities across the world, you can see we have two or sometimes three universities in the top 10, we have a number in the top 50 and even more in the top 100. Only the United States has more universities in those categories. We are a long way ahead of our continental competitors in France, Germany, Italy or elsewhere.

Universities in this country are certainly a success story. The importance of this debate is that it demonstrates that universities are not just a cost to the Exchequer but actually generate enormous revenue for the country. In a knowledge-based economy, you absolutely have to have large numbers of people in higher education because of that sheer economic output of skilled labour power. We know the other narrow but important economic impacts universities have, which have been mentioned: knowledge transfer and inward investment. I am an ex-head of the LSE, which was a highly internationalised institution. I am pleased to say that it has the highest application rate of overseas students, both for undergraduate and graduate courses. The result of those economic impacts is what some students in the US have identified as a multiplier effect. It is not just that universities bring students into their local community; the money spent in the community is calculated in some American studies to be worth £3 for every £1 that is brought into the area.

I shall finish my short discourse by entering two pleas to the Government and the Minister. First, we must give due attention in this country to resisting the creeping commercialisation of universities, especially our top-end universities. We often look to the US to see what is best, but there is a gigantic debate going on there about the corruption of universities by commercial interests, led by the ex-president of Harvard, Derek Bok. People have written books like The University in Ruins. It is a very serious issue there. We must have clear boundaries to protect academic autonomy. If you do not do that, you undermine some of the most important benefits of universities.

My second plea is not to limit the understanding of those economic benefits simply to those narrow ones I have just identified, and which were in my noble friend Lady Warwick's speech. The more important economic benefits of universities are much more diffuse. I offer as an example the career of Tim Berners-Lee, who graduated from Oxford, worked on the margins of universities and industries and worked in CERN in Geneva and MIT. He is the inventor of the world wide web. He did not know what he was inventing, but it has had an absolutely tremendous and worldwide economic impact. For me, the top universities depend on creativity, adaptivity, and insulation from too many commercial pressures if their longer term economic interests are to be realised.

I now move from a genius to a child in the classroom. A teacher asks Tommy, "How old were you last birthday?", and Tommy says, "Seven". The teacher asks, "How old will you be next birthday?", and Tommy says, "Nine". The teacher says, "That's impossible!" Tommy says, "No it isn't, because today is my eighth birthday". That is what I mean by lateral thinking and creativity—the basis of the impact that the universities have not only on society but on the wider economy.

Photo of Baroness Rawlings Baroness Rawlings Shadow Minister, Foreign Affairs, Shadow Minister, International Development 2:30 pm, 19th April 2007

My Lords, I, too, would like to thank the noble Baroness, Lady Warwick of Undercliffe, chief executive of Universities UK, for securing this important debate. Yesterday, when I looked at the very distinguished list of speakers for this debate, including a former principal of King's College, London, the noble Lord, Lord Sutherland, I could not imagine which would be a more daunting task—to either follow the eloquence of the noble Lord, Lord Giddens, or to be placed before the noble Lord, Lord Dearing, one of the most respected figures in higher education. Alas, I see that the House has managed to sandwich me between both the former and the latter.

There can be no doubt that Britain's universities make major contributions to the economy and the society of the country. I would like to use King's as an example of the major positive impact made by the higher education institutions of the UK. In doing so, I declare an interest as Chairman of Council of King's College, London.

The contribution made by King's to the economy is substantial. It is a major university institution in the heart of London with a turnover of more than £387 million in 2005-06. It employs more than 5,000 staff. The positive economic impact of such substantial employment speaks for itself. We have nearly 20,000 students in a wide range of fields stretching from humanities, law and the social and physical sciences to virtually every kind of health discipline. More than a fifth of these students are from other countries. The presence of so many home and overseas students contributes economically, socially and culturally, not only to this capital city, but also to the country more generally. Those of our graduates who make their careers in the UK will be, through their qualifications and achievements, our important wealth creators for the economy; those who choose to work overseas will be major customers for Britain due to their persisting positive ties to this country.

The intellectual capital generated by universities also benefits our society. Much of this benefit derives from wealth creation. During the academic year which ended last July, King's College, London, generated research income in excess of £110 million—the sixth largest in England. King's is within the forefront of income generation too, through knowledge transfer, spin-out companies, consultancy and partnerships in areas such as biotechnology and the creative and cultural industries. For example, early in the academic session 2005-06, King's won the national award for Business Initiative of the Year for its spin-out company, Proximagen, which supplies therapeutic products based on first-rate academic research into Parkinson's disease.

As well as the financial impact of a large, multi-faculty university located on several sites north and south of the River Thames, the traditional artery of the capital city, there is the cultural impact. King's has highly productive associations with many of our major arts institutions in London, all of which contribute greatly to income from visitors and tourists.

In these various ways, King's and other universities are major engines of dynamic economic growth and cultural and social benefit. Especially in the age of the knowledge economy, this is a major rationale for adequate public funding for our higher education institutions. Such funding provides the base on which all these achievements rests.

Photo of Lord Dearing Lord Dearing Crossbench 2:35 pm, 19th April 2007

My Lords, it may be no surprise to the Minister or the noble Baroness, Lady Warwick of Undercliffe, whom I congratulate on securing this well timed debate, that, in the light of the report I recently contributed to on languages, I should want to use this debate as an opportunity to urge that we realise that English as a language is no longer enough. We need to address that problem. In that context, I want to urge the Government to ally themselves with the universities to secure a major shift in our understanding of the importance of language capability.

It has long been recognised that the lack of languages is a non-tariff barrier to trade. Our trading partners have long recognised that and have committed themselves formidably to learning English. They have thereby gained access to our markets. We have failed adequately to perceive that if we want to reciprocate and get equal access to their markets, we must do as they have done. That applies not only to the economy but to individuals. Learning a language is enfranchising: it opens doors to our young graduates. As they mature and aspire to higher posts, it is also relevant to them.

Our problem is illustrated in a lack of take-up of places on the ERASMUS programme. We manage around 7,000 a year. France, Germany and Spain manage three times that. I congratulate the British Council on aspiring to modify that several times, but how can it do so unless we change our perception of the importance of languages?

I have another illustration of our problem—the lack of English-speaking translators and interpreters. The United Nations and the European Commission have expressed serious concerns about the way that the lack of such qualified English speakers has inhibited and impeded the conduct of business. The Government could help by providing funding for more postgraduate scholarships and studentships through the Arts and Humanities Research Council to promote translators and interpreters.

In last month's report on languages, to which I referred, we urged that the Government should commit themselves to a substantial programme, in partnership with others, to get across to our people and our companies the importance to them both of capability in languages. I hope that the Government will accept that as one of our major recommendations and that they will note a particular recommendation—the appointment of a careers and languages director to get across the fact that we need these people at the highest level.

We recommended a doubling of funding available through the funding council to enable our universities to go into our schools to get across to young people the value of languages. That was another major recommendation. We urge the Secretary of State in his guidance to the Learning and Skills Council to make languages one of our priorities for funding. I commend all those recommendations to the Government.

Turning specifically to the universities, they have high-level language facilities and have begun making those available to the wider community. That is a very cost-effective and well equipped capability. It is highly desirable that the Government should be prepared to fund pilot projects to enable us to establish a long-lasting use of that capability for the whole community.

For part-time students, the present high level of fees, which universities are required to charge to cover their costs, is an impediment to take-up. I hope that the Government will seriously consider how they can build in additional funding to provision of their courses.

The greatest dangers in life are those that are not perceived. A lack of language skills is dangerous because we do not perceive how serious it is. I urge the Government to enter into this partnership with universities to address that problem.

Photo of Lord Bhattacharyya Lord Bhattacharyya Labour 2:40 pm, 19th April 2007

My Lords, I thank my noble friend Lady Warwick for securing this important debate. I declare an interest as the director of Warwick Manufacturing Group at Warwick University.

In the Budget, the Chancellor announced that the Government will spend £6.3 billion on science by 2011 and that we aim to spend 2.5 per cent of our GDP on research and development. This funding is vital because universities provide the framework for economic growth, both from building the skills base and through research. Since 1997, increased funding and the extra income from tuition fees mean that our universities are prospering after years of neglect. Alan Johnson and his predecessors deserve great credit for their achievements.

Now we need to ensure that our universities drive economic growth. The excellent 1993 White Paper from the noble Lord, Lord Waldegrave, entitled Realising our Potential, linked science, engineering and technology with national wealth creation and quality of life. The problem was that there was very little investment to go with the vision. Today, funding has increased, but the words "engineering" and "technology" seem to have disappeared from our official vocabulary. I hope that we do not also lose the words "wealth creation" because to reach the 2.5 per cent GDP target, we need to attract R&D funding from the private sector to universities.

I remember asking the research councils to provide funding for postgraduate training on the basis of how much investment could be levered from industry for high-quality courses. The Engineering and Physical Sciences Research Council took my advice, and its system now provides incentives for academics and increased engagement with industry, and is hugely successful. That would not have happened if we had not understood the priorities of industry. Attracting private R&D funding can also create enormous wealth. I go to Boston quite often, where the number of businesses and spin-offs on Route 128 near Harvard, MIT and other universities is simply staggering.

Here in the UK our research and teaching is of excellent quality and extremely good value for money but, sadly, our business creation performance—other than in a few universities—is very patchy, even though venture capitalists are desperate to fund new ideas in engineering research and with private sector partnerships. I remember the late Lord Butterworth, when I started at Warwick and there were huge cuts in the university sector, giving me a chair and saying, "Get on with it". I was lucky enough to find a vice-chancellor who gave me the freedom to do that. He said, "I will not interfere—get on with it. If it fails, it's your fault, and if you succeed it's our success". I did not mind because I cherished the freedom he gave me. Because of that freedom, we have attracted hundreds of millions of pounds in private funding and produced highly rated research and excellent teaching. All my equipment came from the private sector and I suspect that in my area it is the best in the world.

I fear that the freedom I found at Warwick is still a rarity. Universities also have to deal with too much external bureaucracy when seeking state funding. The blunt truth is that universities are prepared to put up with months of revising bid forms in order to gain state funding but commercial partners are not. Speed of reaction and delivery is paramount when dealing with the private sector. We have to take risks. At Warwick, we recently decided that cyber-security will be vital to the nation. Because of our flexibility we have already been able to invest in e-security as part of our plan to build a new £50 million digital laboratory. We were able to move very fast, recruiting the best people and starting the programme within eight weeks. If we had been slower, we would have lost our edge to institutions overseas.

I understand that if the Government are to invest in innovation, they must have some way of knowing that the funding is actually going to related projects. We should lighten bureaucracy by trusting those institutions that deliver on priorities. The principle should be that if you deliver, you receive funding, which would have the benefit of giving academic entrepreneurs the incentive to innovate and make a difference.

Over the past 10 years the Government have delivered on the mantra of "education, education, education", at least with regard to higher education. I am sure that the Chancellor, in whatever role he takes on next, will continue to invest in such a vital part of the nation's economy.

Photo of Baroness Bottomley of Nettlestone Baroness Bottomley of Nettlestone Conservative 2:45 pm, 19th April 2007

My Lords, I, too, give great credit to the noble Baroness, Lady Warwick, for initiating this debate in which there is such competition to speak. Like the noble Lord, Lord Giddens, I declare a cluster of interests. My great-grandfather was one of the original applicants to the Department of Trade for the incorporation of the LSE in 1901. For 25 years I was a Member of Parliament in the constituency including the University of Surrey and I was a governor at London University of the Arts for a long time. Above all, I am privileged to be the chancellor of the University of Hull—and I dare say a great number of speakers in today's debate will be able to claim a link with the Hull mafia.

The 2003 White Paper said:

"To improve, institutions should be embedded in their regional economies".

I believe that today's debate is a most remarkable example of the degree to which universities in the United Kingdom understand their role, fundamentally as centres of learning, teaching and research—and any of my comments should not in any sense be seen as diminishing that role. But universities also have the opportunity to act as a catalyst for their local economy. What distinguishes the University of Hull from those other institutions from which I have been associated is the contribution of the university within our region as a particularly important economic catalyst.

Richard Lambert's 2004 Review of Business-University Collaboration said that businesses should look to collaborate with universities for research and development programmes. Universities must identify their areas of research strength and actively push for links with business. Lambert pointed out that in almost every case a business working with a university improves its performance, develops its products better, works smarter and sees an improvement in staff skills. We at the University of Hull take that message to heart, and I should like to demonstrate how Hull could almost be regarded as a case study of this strategy.

A successful and thriving city needs a successful and thriving university—and vice versa. That is why the university plays an active role in regional regeneration. Its reported interaction with the region's business and community was worth more than £14 million last year, which includes a substantial contribution to the cultural life and community through music, drama, university art collections and lectures on top of the core research and teaching activity that you would expect from an established university with such an excellent national and international reputation, which the noble Lord, Lord Norton, has already spelt out. It is said that the mere presence of a university in Hull is worth more than £200 million to the local economy.

More fundamentally, the university has been involved in helping to shape the regional economic development strategy, ensuring that the strength of its academic expertise is brought to bear, especially in identified areas of economic importance which are appropriate to the region. Those include added value manufacturing and logistics, biomedical healthcare and renewable energies. Money from the European regional development fund, not something that was available in the county of Surrey, and the regional development agency and the university itself secured an investment of £9 million in a dedicated logistics institute, one of only five of its type in the world which, through high-level educational programmes and consultancy, can have a major impact on business supply chains. A further £9 million investment established state-of-the-art facilities for Hull's growing business school and a new enterprise and innovation centre, hosting pre-incubation facilities for student and graduate businesses, will open next year. It will also provide a high profile base for the university's business and community knowledge exchange, which was established specifically to ensure that the wealth of university expertise has an economic impact on the region it serves. One splendid example is Bankside Patterson. This small manufacturing company providing chassis for the caravan industry wanted a lighter but stronger design to provide a flexible product for a sophisticated market. The university's knowledge transfer partnerships programme came up with a solution that dramatically increased its turnover, profit and staffing. The university very much hopes that the Foreign Secretary will open its new facilities.

The message of the higher education strategy and of the Lambert review has given us all a sense of optimism, pragmatism and principle, which we see very well demonstrated at Hull.

Photo of Lord Hannay of Chiswick Lord Hannay of Chiswick Crossbench 2:50 pm, 19th April 2007

My Lords, one of the most striking manifestations of globalisation so far has been the emergence of a global market among higher education institutions. Of course, students and professors travelled outside their geographical or national boundaries from the Middle Ages onwards, but they did so in small numbers and those attending higher education institutions remained for many centuries a limited elite. In recent decades we have seen a massive worldwide expansion in the numbers of those benefiting from tertiary education and a smaller, but proportionately just as large, expansion in those continuing into postgraduate studies. This expansion in higher education has come when the ease and speed of travel have encouraged many to look abroad for their higher education, and when the spread of English as the world's main working language has put those with higher education institutions which teach in that language at a major comparative advantage. These developments are having a significant and potentially highly beneficial economic impact in this country so it is right that, thanks to the initiative of the noble Baroness, Lady Warwick of Undercliffe, we should be considering them.

In the eight years I spent, up to last summer, as part of the governance of one of Britain's large universities, I was struck by the fecklessness with which Governments of both main parties piled burdens on to the backs of the universities without providing them with the resources to carry those burdens. Year after year numbers increased and more efficiency savings were demanded, so investment was skimped, maintenance went by the board and quality was put at risk. Academic salaries lagged far behind those of other parts of the economy and even further behind those of some of our main overseas competitors. These trends could not have continued much longer without inflicting the serious damage that we have seen occur in a large number of continental European universities. Luckily, the lifting of the cap on tuition fees and an increase in government spending has provided a breathing space, but no more than that. It is time we looked ahead and considered how this vital sector of our future knowledge-based economy is to compete successfully in the global marketplace for higher education. Here are one or two suggestions.

First, we surely need to find some way to remove from the realm of party politics the provision of more financial resources for the higher education sector. At the previous general election, two of the three main parties campaigned on policies which would have inflicted serious damage on Britain's universities if they had ever been implemented. The hard fact is that the universities will not be able to look to the sort of increases in public spending they have received in the past few years, so the £3,000 ceiling will have to be looked at. Why not seek an impartial analysis of the options by an independent commission, thus removing the issue from becoming a political football at the next general election?

Secondly, we surely need to make further progress in encouraging philanthropic giving and business investment in the university sector. At the moment this remains pathetically small. Partly this is a task for universities, but the Government too should be looking at imaginative ways of making such giving and investment more tax effective. Further steps in matching financing will need to follow the first modest one just announced.

Thirdly, the whole issue of the international dimension of Britain's higher education needs more careful and systematic treatment than it has received hitherto. Universities need to be helped to devise and implement international strategies which maximise their chances of competing in the global marketplace. International students and researchers must be treated not just as cash cows to compensate for the shortfall in funding from domestic and EU students, but as an integral part of the university with their own specific needs and sensitivities. Government should be looking for ways of waiving visa fees and lightening entry procedures, not increasing them.

Fourthly, we should be giving a lead in Europe on this sector where we have real comparative advantages. We need to boost the research budget, and strengthen the activities of the European Research Council while avoiding costly white elephants like the proposed European Institute of Technology. We should be increasing academic and student exchanges.

This debate demonstrates beyond reasonable doubt the greatly enhanced place of higher education institutions in the economic life of this country. In purely material and utilitarian terms universities represent national assets which we need to develop and strengthen, but they are much more than that. They are centres of intellectual excellence and independent thought which are an essential part of our national life. The challenge for us is to maximise the beneficial economic impacts of the sector while not jeopardising the intangible intellectual values which the whole concept of higher education exists to propagate. That should not be beyond our reach.

Photo of Baroness Blackstone Baroness Blackstone Labour 2:55 pm, 19th April 2007

My Lords, I too declare an interest, as the vice-chancellor of the University of Greenwich. Some speakers have emphasised the vital role of universities in research, knowledge transfer, spin-out companies and innovation, all of which are spurs to economic growth in a knowledge economy, and I endorse that. But I want to draw attention to two other important economic roles of UK universities: regeneration and international economic development.

If our economy and our society are to flourish, it is vital that some areas are not left behind with low growth, unemployment, poverty and social disadvantage. The creation of the RDAs is a recognition by the Government that regeneration in our regions is of great importance. Many universities are located in the poorer areas of our big cities. This is especially true of the former polytechnics. Those post-1992 universities are most likely to recruit students who live in those areas, giving them life chances that their parents' generation did not have.

Some universities, such as my own, have developed new campuses in areas needing regeneration. These are not just situated in our inner cities in the north. The Medway towns went into serious decline once the Navy left. They are now being regenerated by the development of a big, multi-university campus, a partnership between Greenwich and Kent Universities and Canterbury Christ Church University. Two-thirds of our students who come from the Medway area stay in it when they graduate and therefore provide this run-down area with the advanced skills that it needs. For every job on such a campus, another is created in this regeneration area.

The presence of universities in these run-down communities also leads to better public services, which are essential to create the conditions for private sector investment. For example, in the University of Greenwich 56 per cent of nursing students come from the Thames Gateway and 66 per cent go on to work in the area. Forty-nine per cent of teacher training students come from the Thames Gateway and 45 per cent of teaching graduates go on to work there. University research expertise will also attract more business into regeneration areas.

I want to explore universities' international role. We have heard about the enormous contribution that universities are making to our own economy through the export of higher education all over the world. We are competing successfully in a tough global market. Many students are coming here from countries such as India and China but we must not forget Africa in any discussion about the international and economic roles of universities. It needs economic growth and development too. Without it, it will suffer from poverty, war and the ensuing famine and high levels of mortality. That in turn will lead to long-term dependence on development aid. Universities in the United Kingdom are contributing to economic growth in Africa in various ways. I give just two examples from my own university. Our Natural Resources Institute provides programmes for graduate students from developing countries and does research and consultancy working with African institutions to improve agricultural productivity, crop development, and food marketing to create the agricultural surpluses which allow African countries to acquire the goods and services that they need to compete in the global market.

The second project is an EU-funded project with some UK government support that is being undertaken by my university with Coventry. We are working with universities in South Africa and Ghana to support new small and medium-sized enterprises in poor townships. This is another form of regeneration in an international context. I hope that the Minister will agree that we need to continue to fund universities to regenerate our poorer areas and to support their activities in helping the economies of developing countries, especially in Africa.

Photo of Lord Geddes Lord Geddes Conservative 3:00 pm, 19th April 2007

My Lords, I join other noble Lords in congratulating the noble Baroness, Lady Warwick, on her success in the ballot for this debate. I hope that I may be allowed to concentrate on the narrower focus of the specialist arts institutions. I declare an interest as a non-remunerated director of Trinity Laban, a conjunction of Trinity College of Music and the Laban Dance Centre. It is with pride that I say that over 90 per cent of recent alumni from Trinity Laban are in employment.

It may be obvious that the idea of a distinction between a knowledge economy and a culture economy is not yet common currency, but I believe strongly that that lies at the heart of the case for the specialist arts institutions in higher education. At our leading universities, the value of higher education is, dare I say it, obvious; what is often neglected is the value of the smaller, specialist higher education institutions. The overwhelming majority of the United Kingdom's orchestral players, opera, theatre and dance company members and successful freelance practitioners are conservatoire trained. Any erosion of the sector's funding base would lead to a sharp decline in the number of British performers in our orchestras and performing arts companies, as well as a break in the supply chain of artists to support the wider cultural infrastructure, including arts education and particularly participation for schools and communities.

The cultural sector also produces significant and growing economic benefit in areas such as tourism and neighbourhood regeneration, as pointed out by the noble Baroness, Lady Blackstone. Any assessment of tourism income will feature our cultural life. This country is the capital of live theatre, much of it music theatre, which generates huge net contributions to the United Kingdom economy. The public investment in performing arts conservatoires is extremely modest, at less than 1 per cent of the total HEFCE recurrent funding for higher education institutions in 2007-08, but it delivers huge returns. If the standards of cultural performance were to drop, there is no doubt that a significant part of the £75 billion income generated by tourism and the 2.1 million jobs that go with it would drop also.

We all know of the continuing high street battle between the supermarket and the bespoke retailer. Is it stretching credibility too far to equate our excellent universities with the supermarkets and the specialist arts institutions with the bespoke retailers? Just as in the high street, we need them both. We also need to encourage and continue with the Arts and Humanities Research Council. With the proven economic advantages to the country of the arts, a developmental base is vital. We cannot afford to sit on our artistic haunches; we must keep our edge.

The conservatoire sector is not an expensive luxury but a gem in the higher education firmament, which needs to be encouraged as a leader of the culture economy, now over 7 per cent of the national economy and growing fast, in which Europe and the United Kingdom have a natural advantage. The very small investment that we make in specialist higher education institutions is more than justified by the income that it generates, and it must be sustained or increased in the face of any economic pressure to restrict it.

Photo of Lord Carey of Clifton Lord Carey of Clifton Crossbench 3:04 pm, 19th April 2007

My Lords, I join other noble Lords in thanking the noble Baroness, Lady Warwick, for introducing this debate. We have heard from her of the outstanding contribution that universities and colleges make to the economy of our country, to say nothing of their major influence on shaping knowledge, art and culture. Britain has much to celebrate in the success of our places of higher education. Although in numerical terms a small nation, we punch above our weight and have an enviable reputation for producing scholars and scientists of extraordinary stature.

However, we cannot be complacent, as we have heard. To stay ahead in a world where knowledge rules demands investment at every level. I declare an interest as chancellor of the University of Gloucestershire, one of the youngest of the universities created since 1992, although with roots that go back to the 1830s. I am proud of what our university is achieving under the effective leadership of Professor Patricia Broadfoot. As with other newer universities, our regional links are extensive and we make a substantial contribution to the regional economy. Our university was among the first to recognise the importance of learning, living and leading in areas pertaining to environment and ecology. There is much more that I could say about our university in the West Country; we have a dedicated and able teaching staff and well motivated students. We are confident, although not complacent, about our future.

Much could be said, in a similar fashion, about other universities up and down the country. There is no need to plead the case for recognising the significant and unique role of our places of higher learning. Everyone knows that if a knowledge deficit opens up between ourselves and the powerful economies of China and India, we shall one day rue the consequences. I am sure that the Minister will assure us of the continuing and unwavering commitment of the Government to higher education, but there are two questions that I want to press. First, echoing the noble Baroness, Lady Cox, are the Government committed to sustaining the role and the future of newer universities as well as older places of learning? There is a tendency these days for some to speak of "leading" universities, by which is meant Oxbridge and research-intensive universities. Without undermining the needs of such universities, it is crucial to recognise the work of other places where the same commitment to learning goes on and where research is also maintained. One of the strengths of UK universities is their diversity, and newer universities are well known for the development of student potential as well as innovation in new subjects of study.

Secondly, the issue of funding research in newer universities has been mentioned by several noble Lords and demands re-examination. The Government's policy of concentrating the increased research funding through the science and innovation budget in a smaller number of universities has resulted in many institutions struggling to keep research going. The Minister will be aware of the Arthur D. Little report of June 2006, The Social and Economic Impact of Publicly Funded Research. It concludes with the very firm view that the research resources of our newer universities,

"constitute a national asset of enormous significance".

Can the Government assure the House that newer universities, such as Gloucestershire and Liverpool Hope, will be adequately funded to ensure that they retain and develop the research capacity that befits a higher education institution?

Photo of Lord Morris of Handsworth Lord Morris of Handsworth Labour 3:09 pm, 19th April 2007

My Lords, like other Members, I begin by declaring an interest. I am chancellor of Staffordshire University and a recently retired member of the board of London South Bank University. Although it is not relevant to this debate, I am also the chancellor of the University of Technology in Jamaica.

This debate provides the opportunity for your Lordships' House to consider the new and changing role of higher education institutions. In addition to its traditional role of knowledge transfer, today the sector is very much engaged in regeneration, as the noble Baroness, Lady Blackstone, reminded us. It is also building social capital while rolling back the frontiers of knowledge in new fields, including climate change.

In the changing world of work and society, the values of higher education institutions are firmly grounded in their communities, training students to be work-ready, while building economic and social partnerships. I offer two brief examples. At Staffordshire University, we are housed on three campuses, one of which is in Stoke-on-Trent. Once an important industrial and creative centre, the town now struggles to create jobs. Although it is not in the premier league of innovative investment, the university, in collaboration with Stoke-on-Trent College and the sixth-form college, is building a university quarter that will see the regeneration of a large part of Stoke around the once-thriving potteries industry. That project is not being undertaken in a vacuum, but in full partnership with the community, which is consulted at every step. The project is a good example of public and private sectors working in partnership to build social capital.

London South Bank University has established the London Knowledge Innovation Centre, a joint venture with the business enterprise agency for Southwark. The centre provides incubation space, business advice and support to assist aspiring entrepreneurs to turn their innovative ideas into thriving businesses. As we have heard today, many more exciting projects are being undertaken by the higher education institutions sector, contributing billions to the UK economy.

Those are only a few of many common examples of economic impact. I support the call for investment and the call from the noble Lord, Lord Norton of Louth, for a lighter touch. I hope that the Minister can assure us that bureaucracy will not strangle the creativity and innovation spoken of in today's debate. Our higher education institutions recognise that their community is now worldwide. They are reaching out to build relationships throughout the world through positive recruitment. Many higher education institutions have adopted Gandhi's philosophy of thinking globally but acting locally. They are also building social capital.

Photo of Lord Sutherland of Houndwood Lord Sutherland of Houndwood Crossbench 3:14 pm, 19th April 2007

My Lords, in my youth an Australian comedian called Bill Kerr used to open his radio routines by saying in droll tones, "I'm only here for four minutes". I now know how he felt. I want to use my four minutes to take noble Lords through two examples of lateral and innovative thinking in the university sector that boosts UK plc and contributes significantly to our economy.

On the first example, I had thought that I might be the first to mention in this debate the place of music and music colleges. I am delighted that the noble Lord, Lord Geddes, has been there, and I follow him enthusiastically. The Associated Board of the Royal Schools of Music is a charitable company established for the benefit of music education by the four UK royal schools of music: the Royal Academy of Music, the Royal College of Music, the Royal Northern College of Music and the Royal Scottish Academy of Music and Drama. I declare an interest: it is my privilege to chair that board.

You might not think that this charitable company was a natural clone of the spin-out companies that we have seen elsewhere. It is not, but 600,000 candidates are examined annually by that board in the furtherance of musical education. The revenue coming into this country from overseas constitutes over half the board's earnings; roughly £25 million is earned from examining, roughly half of which comes from the 90 different countries in which the board moves and examines. Those 90 countries boost the numbers of candidates each year—by 4.3 per cent last year.

The same board is involved in not only musical examination but taking the business of music education further in innovative ways. It has been nominated by Webby, which the techies among noble Lords will recognise as the organisation that internationally gives awards for the best websites in the world. The board has been nominated as one of five finalists internationally in the category of education for its website SoundJunction, which combines high technology and music. It is a classic example of niche institutions not simply staying in their small corners but expanding their range of capacity and interest in ways that benefit them and the cause of music education in this country—with all the consequences to which the noble Lord, Lord Geddes, pointed—and creates income for Great Britain plc.

My other example is that of a different form of innovation and involves my old stamping ground, King's College—I was delighted to hear such a positive story about the college from the noble Baroness, Lady Rawlings. I declare an interest as an educational adviser to the Malaysian company YTL, one of the major companies in that country's stock exchange. The company was exploring ways of benefiting education in Malaysia. Conversation focused on improvement of schools through the devolution of increased autonomy, a theme to which the Minister might warm. The outcome was that three weeks ago I was in Kuala Lumpur at a ceremony hosted by the Malaysian Minister of Education, where representatives of King's College, London, signed an agreement to provide training for future headteachers in Malaysia—initially up to 150 over the next three years. The impact of that in terms of Britain's influence is significant. The earnings come back to this country, and a great deal of the training will take place in this country, although clearly some of it will be based in Malaysia.

Different factors came together: the wish of YTL to enhance Malaysian school education; the Malaysian department's recognition of what was happening in this country in terms of pushing out the boat of education autonomy; and the reputation and excellence of King's College, London, in the joint fields of education and professional leadership training. Without that excellence, the other bits of the jigsaw would not have fitted together. It is a marvellous story and a niche story, and I simply hope that, as the Government and the funding councils consider the impact of universities and colleges, they allow for such lateral practice and thinking to have a very high impact.

Photo of Lord Bragg Lord Bragg Labour 3:18 pm, 19th April 2007

My Lords, I, too, begin by congratulating my noble friend Lady Warwick on securing this important subject for debate. I intend to concentrate on the economic impact emanating from Leeds University, of which I am chancellor. Like others in your Lordships' House, I think that the detail will provide a useful and encouraging microcosm of the range and intensity that a university can bring to both the local and national economies.

Leeds has a £340 million income, which generates a total of £870 million as an output. It creates 7,500 direct jobs and a total of 15,000 in local economies, and houses 4,000 international students, who generate £20 million a year. We have more than 30,000 students in the city, who help to keep buoyant the local economy and the city's culture.

Leeds University is the third largest employer in the city after the NHS and the city council. The knock-on impact of employment in universities is about 200 per cent greater than that of a similar volume of employment in the financial and legal sectors. Leeds currently has 44 active spin-out companies, three of which have been floated on the Alternative Investment Market. The university runs a graduate start-up programme that has created 70 companies since 2002—for example, the GETECH Group, which provides gravity and magnetics services to the international oil and mining industry. It was floated on the AIM last year, raising £3.2 million. Arts-stra, created three years ago by a former arts student, is now a successful arts consultancy with clients including the BBC and Channel 4.

Leeds supports private and public sector businesses to innovate and remain competitive and effective through product and process development and work-related learning. In 2005-06, there was £27.5 million-worth of user-driven research and 350 to 400 companies were assisted per annum. One final cluster of facts is that the university runs six centres of industrial collaboration for supporting regional industrial clusters, provides an innovation hub for the bioscience/health sectors, and is developing lifelong learning programmes for disadvantaged groups. It is a great success story. Leeds University is primarily a centre for scholarship; it is also, increasingly, an initiator of valuable ideas for the development of the economy.

There is also the immeasurable and vital law of unexpected consequences at any university. I suppose that Isaac Newton is the key example in our academic galaxy. In the 17th century, as your Lordships are aware, Newton, at Cambridge University, wrote a book in Latin using Greek geometry to invent modern physics, and today it is still literally making the working world go round. Examples can be multiplied a thousandfold. In the sciences—even in some of the humanities—there is rarely such a thing as pure research. Everything which uncovers new ideas about our lives, the planet and the universe can become a driver of future prosperity in scholarship, commerce, technology and social organisation.

Finally, in my opinion, universities contribute vastly to civilising the mind and estate of the country in which we live in unprecedented numbers. They are educating thoughtful, rounded young people, whose well trained intelligence is far and away the best hope that this country has for a secure and prosperous future.

Photo of Baroness Deech Baroness Deech Crossbench 3:22 pm, 19th April 2007

My Lords, I start, like many others, by thanking the noble Baroness, Lady Warwick, for giving us the opportunity to discuss this important subject. I declare my interest as the Independent Adjudicator for Higher Education, a new post replacing the old jurisdiction of the visitor. My office has so far issued more than 1,000 decisions on student complaints and has handled many more inquiries and applications. Therefore, in my job I see the seamy underside of student life.

Universities are coping extremely well and I am second to no one in taking pride in their economic impact, but it comes at a cost. The economic impact is on society as a whole, rather than as a benefit to individuals, which is why the resources of universities are a proper claim on the state. To prove my point, I commend to your Lordships the annual Sunday Times rich list. I am sorry to say that you have to go a very long way down it before you come across anyone who has made their money from education. The people at the top of it have married wealth, divorced it and inherited it, so to go into higher education for personal gain is not a sensible ambition.

Consumerism has no place in higher education. One should go for the love of study, out of a willingness to make a contribution to the well-being of others, for scientific curiosity, and to grow up. The Government's policy of increased participation, which is wonderful, means increased costs to the individual and a greater personal and family financial investment, and therefore greater disappointment if there is failure. The cost of failure or underachievement is much higher in a competitive jobs market. The blame for underperformance is more likely to be attributed to the university's failings.

There is, of course, a growing legalism and rights culture. The QAA and my own office give quality assurance. I have to report with some interest that the complaints that we receive from overseas students—in particular, non-EU students—are higher than their proportion in the universities warrant. The complaints that we receive from students studying subjects allied to medicine—not medicine itself—are considerable, followed by business and law. The least complaining are those doing agriculture and veterinary science. But I am concerned about the happiness and welfare of the foreign students who play such a large part in the economic impact of our universities. We must be sure to give them an experience that they have come for; they appreciate quality. It is important to welcome them and make sure that we give them an attractive experience, bearing in mind the cultural differences.

Mobility is not as easy as it seems. Moreover, we have a very high dependence, as your Lordships know, on our foreign students. Some universities' economies would be severely hit were the numbers of overseas students to drop. We have to attract and support them. We need special training for lecturers to deal with foreign students. We need integration with the host community, accommodation and marketing.

That brings me back to my opening theme that the commercial value of the universities lies not in revenue streams over the centuries, nor in individual wealth, but in the education of an ambitious, articulate new generation with intelligence and intelligibility, citizenship values, a sense of place in the world and, if we are fortunate, the scientific skills to advance the welfare of all mankind, whether through medicine, technology or environmental sustainability.

Photo of Lord Paul Lord Paul Labour 3:27 pm, 19th April 2007

My Lords, I, too, am grateful to my noble friend Baroness Warwick for raising this important debate, and I congratulate her on the good work she does to promote higher education as chief executive of Universities UK.

The issue of the economic impact of higher education will always require constant monitoring as this must be one of its main aims and will also influence how much money is spent on our universities. I declare an interest as chancellor of two universities—Westminster and Wolverhampton, and I shall summarise briefly what we in these universities have accomplished to date, since both are substantial businesses in their own right.

The University of Wolverhampton, based in the West Midlands, had total revenue of £129 million last year. The university itself spent £126 million and attracted 3,385 non-UK students, who spent a further £16 million off campus. It provided 2,319 full-time equivalent jobs across a range of occupations. Overall, its activities generated £324 million of output in the UK—about £220 million in the region, and £103 million in the rest of the UK. Its overseas revenue of £7.56 million, plus off-campus expenditure of overseas students and visitors, generated £24 million of export earnings.

Meanwhile, the University of Westminster, which has 24,000 students in London, and employs 2,000 staff, has annual expenditure of £140 million. Its estimated contribution to the national economy is between £500 million to £800 million through expenditure on salaries, services, research and knowledge transfer.

Both universities have strong records of widening participation and of producing economically active graduates. At Westminster, 44 per cent of first degree students come from lower socio-economic groups, while at Wolverhampton the figure is 50 per cent. The University of Westminster is a major provider of part-time education with 10,000 part-time students, 40 per cent of whom are postgraduates.

It helps more than 1,000 small and medium-sized companies through the WestFocus Knowledge Exchange giving support in such growth areas as creative industries, information technology, materials and health.

Wolverhampton also has more than 10,000 part-time students. Over the past six years it has delivered business support services to more than 5,000 businesses and 13,000 employees. Therefore, these two universities, strongly embedded in their regional communities and with international activity, are between them making a contribution of some £l billion to their regional, national and international economies. Universities must be constantly aware that they must respond to the needs of the economy and the demands of the students for modern and relevant programmes which will equip them for employment and the challenges of the new globalised world and economy.

On a different note, I congratulate the Government on their newest initiative, allowing international students to stay in the UK for a year after graduating to gain work experience. That will be of great help to international students and their families. It will also benefit the universities, as it will attract more students from overseas. It will particularly help universities such as Westminster, which is making great efforts to be a global institution.

Photo of Lord Butler of Brockwell Lord Butler of Brockwell Crossbench 3:31 pm, 19th April 2007

My Lords, I congratulate the noble Baroness, Lady Warwick, on obtaining this debate. I declare an interest as master of University College, Oxford.

The noble Baroness spoke eloquently, as have other noble Lords, of the wide contribution that higher education makes to employment, exports and our culture. I shall concentrate these few remarks on research. There can have been few periods in history when opportunities have been greater for advances through intellectual effort and applied research. Research attracts money, not only from research councils in the UK, but from sponsors of all sorts. It is important for current economic activity but, of course, its significance spreads far more widely than that. It supports advances which address both the world's needs and—as the noble and right reverend Lord, Lord Carey, has said—give our country a competitive edge against the lower labour costs of the Far East.

To their credit, the Government have recognised the importance of this national asset. Their support for research, through the Science Research Investment Fund and in other ways, has been strong and commendable. Coming from Oxford, I pay particular tribute to the Government for their staunch support for the construction of Oxford's biomedical research facility against the obstruction of animal rights protestors.

I make two points about the future. I read a press report last week saying that a number of universities are offering incentives to obtain the best researchers, in the expectation that cutbacks in the Comprehensive Spending Review will reduce the overall supply. I make no complaint about the competition for research funds being tough. While the UK's share of the most highly cited research papers is second only to the United States', we also have more than our fair share of the least cited papers. This suggests that it would be a mistake to spread the available resources more thinly at the expense of supporting the best.

Lest the noble and right reverend Lord, Lord Carey, should think that I wish to deny funds to the newer universities, my second point is that the cap on tuition fees means that money that could be spent on research has to be diverted to subsidising teaching. The fact that HEFCE's teaching grant plus tuition fees is less than the cost of teaching undergraduates means that the deficit has to be made good from elsewhere. It is a tax on the research so crucial to the UK's economic future.

The irony is that this can be put right without cost to the taxpayer. Recent surveys show that students are prepared to pay a higher tuition fee than the current limit of £3,000 for high-quality higher education. It is to be hoped that, when the Government review the tuition fee in 2009, they will raise the threshold to a level that more accurately reflects the cost of undergraduate teaching and thus release funds for research, which is the life blood of our national economic strength in the future.

Photo of Baroness Lockwood Baroness Lockwood Labour 3:35 pm, 19th April 2007

My Lords, I will illustrate the tremendous change, almost a revolution, that has taken place in higher education. I do so in the context of Yorkshire Forward, with its 10 universities and four HEIs, and Bradford University in particular, with which I have been closely associated since 1981.

At that time, Bradford was exceptional in its work with industry, largely national and international—there was little at the local or regional level. The university was badly affected by the 1981 cuts. The picture is vastly different today. According to Phil Coates, pro-vice-chancellor for research and knowledge transfer at Bradford, Bradford's supply chain stretches from the personal to the local, to the regional and through to national and international levels. Its profile is one of being on top for graduate employment, widening participation and knowledge transfer, and it is also at the leading edge of science, including that of polymers and micro-technology and nanotechnology. It is also a driving force in the city of Bradford's regeneration process. It works closely with Yorkshire Forward, which quickly recognised the contribution that the sector could bring to the regional economy.

The 14 higher education institutions have a combined turnover of £1 billion per annum. As a percentage of the region's gross domestic product, it is estimated that, directly and indirectly, the sector generates £3 billion of output and that, by 2010, nearly 10,000 new jobs will have been created, about half of which will be in the universities. As a percentage of the region's GDP, Yorkshire and Humber is recognised as the largest sector outside London.

Co-operative working by Yorkshire universities in all its guises has changed enormously. I will give a few examples. First, on graduate retention, the Yorkshire scheme is recognised nationally as one of the best examples of collaboration. Secondly, the graduate enterprise scheme works on linked activities promoting enterprise and entrepreneurialism among students. Thirdly, Knowledge Rich brings together all universities with Yorkshire Forward in facilitating appropriate expertise for use in business and in developing clusters. Fourthly, Yorkshire Forward was the first regional development agency to set up the secondment of a senior academic to act as a translator between the RDA and higher education institutions and to have regular officer and vice-chancellor meetings.

Those examples do not just happen. Increased funding has facilitated the change and needs to increase even further, but there is a new enterprise culture that has replaced the ivory tower image and which provides a real buzz in our universities today.

Photo of Baroness Valentine Baroness Valentine Crossbench 3:40 pm, 19th April 2007

My Lords, I join previous contributors in thanking the noble Baroness for securing this important debate. What can be more important to the future success of our country, economically and otherwise, than a thriving and responsive university sector where young people and others can explore their potential alongside the best students from around the world and where pioneering research takes place, with resultant opportunities for business and benefits for us all?

I declare an interest because London First, of which I am chief executive, counts many higher education institutions among its members, alongside some 300 of London's leading businesses.

London is a centre of excellence in higher education in both UK and world terms. Some 41 of the UK's 160 universities and HE colleges are in the capital. They attract £90 million of foreign investment in research and 83,000 foreign students. So the economic impact in London alone is substantial and positive, but it could be bigger and better. There is untapped potential which requires stronger partnerships between higher education and business.

I know that some educationalists think that universities need business like fish need bicycles and that private sector leadership and entrepreneurship might somehow wash away the high educational ideals upon which colleges and universities were founded. But that shows a lack of self-confidence. Business values the intellectual leadership presented in higher education. Intellectual leadership and knowledge transfer are the vital ingredients for an economy based on knowledge and high added-value business services. For the UK to retain a competitive edge over international rivals, we have to stay ahead intellectually and in pursuing and applying cutting-edge research.

"Knowledge is power" is the cliché. The real truth is that applied knowledge strengthens economic power. For UK plc to stay ahead of international competitors, we have to take advances quickly from the cerebral to the experimental, from research to development and from there to application. Some might say that it is time that we "sweated" our academic assets more. It is an ugly expression, but it is used in the commercial world to describe getting better value from underused premises, equipment or other resources. In the case of our universities and HE colleges, the assets to be sweated are mainly intellectual rather than physical. They represent the key to our future competitiveness.

How can we release all this potential, apply our knowledge and strengthen our economic power? We can do so by building much better practical working relationships at all levels between academia and industry. Both the HE sector and business need to be more open to each other. Those in higher education have to recognise that business must make profits and that it is not somehow dirty to do so. Our university sector must sell its intellectual assets, be it research, training services or graduates, in a competitive and globalised world. If they fail to be competitive, they will discover that UK businesses will not feel bound by patriotic loyalty but will buy elsewhere.

Business should in turn recognise the strength of the HEIs' offerings that are often literally on their doorstep. Engaging with an American or Japanese university may seem more glamorous, but the knowledge and expertise that UK companies seek is very likely sitting in a UK university. Perhaps I may put in a word for some of the new universities. Some of Britain's best graduates—those who have often triumphed over less than privileged backgrounds—emerge from modern HE institutions to find themselves unfairly discriminated against by employers.

Fruitful partnerships between UK business and higher education are already there, waiting to be developed, imitated or multiplied. Let me mention just one. The Praxis programme, founded out of the Cambridge-MIT Institute, brings together advisers from HE and industry to deliver thorough professional training in technology and knowledge transfer. It is creating a well-skilled interface to enhance business sector access to HE-generated knowledge and technology in the UK.

As in so many walks of life, if academia and industry do not work harder at hanging together, I am sure that our international competitors would be delighted to see them, and the UK economy, hang separately.

Photo of Lord Wilson of Tillyorn Lord Wilson of Tillyorn Crossbench 3:45 pm, 19th April 2007

My Lords, I should first declare an interest as master of a Cambridge college and as chancellor of the University of Aberdeen.

What does one say towards the end of a debate such as this one when there have been so many cogent and powerful contributions? Perhaps I could concentrate on two things. The first is what can be achieved by a major centre of research excellence such as Cambridge—not because Cambridge is unique in this, but just as an example. The second is the value of what one might call the community of scholars. Last year, a consultancy did a study called The Impact of the University of Cambridge on the UK Economy and Society. It is a mine of information on precisely what this debate is about. It would be quite wrong, and I think tedious, to quote extensively from that study, but I should like to pick out one or two points.

First, there is the astonishing fact that the University of Cambridge has been the home of 81 Nobel Prize winners. That is more than the number for any other country—country, not university—in the world except for the United States and, of course, the UK itself. Incidentally, four of those Nobel Prize winners came from my own Cambridge college albeit it is the smallest one, so size is not the only thing that matters.

Another point arising from Cambridge is the great story of the unravelling of the structure of DNA by Crick and Watson. The study which I quoted reckons that, worldwide, that has produced more than $100 billion of investment in biotechnology. That is some economic achievement. Then more recently, in February this year, there was the opening of the Li Ka Shing Centre, a splendid new facility for research into cancer. It has made Cambridge the largest cancer research facility in the whole of Europe.

What is so instructive in addition to those developments is how a great centre of research expands outwards into its surrounding geographical areas. Due to the "Crick and Watson effect", as it were, Cambridge now has 200 biotech companies, the largest concentration in Europe. There is also the cluster effect in the larger area, 15 miles around the university, with 900 high-tech companies employing some 27,000 people and producing a massive annual income.

There is another cluster effect which I think is just as important: the cluster effect of having a community of scholars, or in the case of a university such as Cambridge—a collegiate university—a college community of scholars. I mentioned Crick and Watson and the unravelling of the structure of DNA. I was told earlier this week, by somebody who was there, about a dinner in my college, Peterhouse, where Crick and Watson were both present as young men. So too was a less well known Australian biochemist, Irwin Chargaff. During conversation Chargaff told the two of them about work he had been doing on DNA. It was the vital clue. The rest of what happened following that dinner in Cambridge is not just history; it is the double helix and everything that has changed our lives since. That is the value of a scholarly community.

The scholarly community applies also at the other end of the spectrum—among students. Young people from all sorts of social and economic backgrounds and from many different nationalities live and operate together and talk across the barriers of different subjects and different cultures. All of this gives these highly talented young people, brought in simply because they are talented, a chance to develop their true potential.

Perhaps it is not possible to measure the direct economic impact of all this, and perhaps, as the noble Lord, Lord Giddens, said, one should not do so. The important point is that they make a great contribution to society here and around the world. I pick up on another point made by the noble Lord, Lord Giddens. I hope that the role played by great research institutions will be affirmed by the Government. That is not to undermine what my noble and right reverend friend Lord Carey was saying about the role of newer universities; just to affirm what is being done by research universities.

Perhaps I may conclude by quoting Confucius. After all, he has been around a great deal longer than even the oldest of British universities. That great Chinese classic, the Analects of Confucius, starts, freely translated:

"The Master said: 'Is it not a great joy to study, and, in a timely way, to make use of what one has studied?'".

I believe that the universities of the UK, all of them in their different ways, provide the opportunities for just that.

Photo of Baroness Sharp of Guildford Baroness Sharp of Guildford Spokesperson in the Lords (Further & Higher Education), Education & Skills 3:50 pm, 19th April 2007

My Lords, I join other noble Lords in thanking the noble Baroness, Lady Warwick, for stimulating this timely debate. I also declare an interest as an honorary fellow of Sussex University, of Birkbeck, and, recently, as an associate fellow of Newham College, Cambridge.

This wide-ranging debate has celebrated the success, diversity and importance of the university sector in the UK. The noble Baroness, Lady Warwick, began by referring to a document produced by Universities UK, The Economic Impact of Higher Education Institutions, which gives the total value of higher education institutions' impact on the UK economy as £45 billion. That may seem a large sum but is only 4.5 per cent of UK GDP. I think that the report underestimates the value of universities to this country. I admit that it uses input/output analysis and takes account of indirect effects but, essentially, it presents a static photograph of the impact of universities. Our discussion today illustrates that the impact is dynamic over time rather than one that can be captured by a still photograph at one point.

I illustrate that with some work that, I confess, I did 15 years ago at the University of Sussex. We considered a question posed to us by the Treasury: what do we get from spending money on basic research? We began by looking at a lot of surveys, which considered how far industry uses university research. The answer was that it did use it and that, the longer the term for which you look at it, the more use it made of it. The pharmaceutical and electronic industries—the high-tech industries—and the motor car industry, in design, and even the low-tech industries, such as mining and agriculture, are thoroughly dependent on the output of ideas from universities. That was captured in work by an economist called Mansfield. His reckoning—I must say that I think that it was rather a back-of-an-envelope reckoning, but it has been widely cited—was that the long-term rate of return on basic research was 38 per cent on average.

That is where our work started. As we delved into the matter, we recognised that the key benefit to the economy from basic research came from the training of individuals. The concept is simple. Less than 10 per cent of the scientific publications in the world come from the UK; therefore, about 90 per cent come from other countries. If we are to make use of that contribution, we must have scientists working at the leading edge of science and technology so that they can understand the ideas in those publications, use them and apply them in the areas in which they are working. Those highly trained scientists and engineers must be the receptors of that knowledge and the translators of it for industry. Technology transfer therefore depends crucially on individuals.

The dynamic effect of that over time is considerable. If we did not have those trained people working at the leading edge of technology, the innovation potential of the UK would be very little. We need to look at the university sector far more widely than the document does. Let us take teaching, for example. I was much taken by what the noble Lord, Lord Giddens, said about simply having to have many people trained to higher educational level in a knowledge-based economy, because we need the creativity and lateral thinking that come from that education. The noble Baroness, Lady Deech, also made that point. In my preparation for the debate, I went back to the report written by the noble Lord, Lord Dearing, in which he quoted from Ernest Boyer's article on the scholarship of teaching, which we considered in 1990:

"great teachers create a common ground of intellectual commitment. They stimulate active, not passive, learning and encourage students to be critical, creative thinkers, with the capacity to go on learning after their college days are over".

Picking up again the Dearing concept that at the centre of education must be the student, surely the greatest output of our universities is training young minds to think for themselves so that they can hold down jobs where they are required to take decisions and to hold substantial responsibility for those decisions. This is why the CBI says that 60 per cent of future recruitment will be of graduates, because this is what industry wants from our graduates. However, as the noble Lord, Lord Morris of Handsworth, said, we should not forget that we are also training students to be work-ready. Universities increasingly fulfil that function. If we think about it, professions such as accountancy, business, medicine and its allied professions, law, engineering, information technology, media and communications, and teaching and education, all of which provide a great deal of our GNP, are now graduate professions. Our universities also deliver a good deal of our vocational training.

It is acknowledged that basic research in universities provides the seed corn for innovation, and in turn that innovation underpins our competitiveness. For a long time, the universities were seen too much as ivory towers, tied up in their own ideas and not sharing them with others. However, as the noble Baroness, Lady Lockwood, said, this is no longer true. The Lambert report documented a sea change in the culture of our universities, which are now positively seeking out industrial partners. The problem, as the Lambert report also documents, lies with the reluctance of British industry to do its part and invest the resources necessary to develop and exploit these new ideas.

Increasingly, it is also realised that, in the world of the knowledge economy, universities provide a dynamic nucleus for regional economic growth. Noble Lords have cited many examples today of the contribution made by universities in this respect. The noble Baroness, Lady Bottomley, talked about the contribution made by the University of Hull, and the noble Baroness, Lady Blackstone, talked about the regenerating effect in the Thames Gateway. Universities are now playing this vital role in their regional economies. They are big employers in their own right in all sorts of labour. They provide high- and low-skilled jobs, and are a focus for training in higher-level skills. They act as incubators for new enterprise and provide expert advice and consultancy for existing enterprise. I was very pleased that the noble and right reverend Lord, Lord Carey, mentioned the Arthur D. Little report, because it is not only our research-intensive universities that are doing all this. The report found that the 35 less research-intensive universities levered three times more contract income from public research funding that they received than the more research-intensive universities. That illustrates so well the fact that universities actively support a whole range of industrial and business services in their local areas by working with their RDAs and providing a dynamic nucleus for those economies.

Finally—we have heard a great deal about this—universities contribute a great deal to the international balance of payments. We hope that the students who are trained in this country and by this country overseas retain good feelings towards Britain, and through those links go on to work with service providers and equipment manufacturers who can meet the needs in their own countries. Put together, the impact of these dynamic influences is enormous and is talked about in the regional economy. Increasingly, the picture that emerges is that our universities provide the dynamic nucleus for this country as a whole.

I should like to add a slight caveat to what I have said on two issues. First, the success of our British university system has happened because we have been able to individualise education for personal needs. Overseas students come here because they get contact with senior members of staff. The success of teaching comes from knowing individual students and being able to help them to know themselves, which is part of the creativity. It is vital that we retain that tradition. I endorse wholly the request of the noble Baroness, Lady Warwick, and other noble Lords that we maintain the current unit of resources. Teaching is stretched to the limit. We need more resources, if possible, to maintain teaching levels. We cannot squeeze them further.

Secondly, universities have grown up within a collegiate system, which has contributed a great deal to the open discussion of ideas and, therefore, creativity. The collegiate system is not part of the market system and it would be dangerous to make it too much a part of it. We can go so far in developing business methods of running universities, but, in so doing, we should not lose the creativity that comes from collegiality.

Photo of Baroness Verma Baroness Verma Shadow Minister, Education, Shadow Minister, Health, Deputy Chief Whip, Whips 4:02 pm, 19th April 2007

My Lords, we on these Benches welcome the Universities UK report into the impact of higher education institutions on the UK economy and the Leitch review. We recognise the enormous contribution made by the higher education sector and the need for it to remain healthy for the growth of wealth and development of the UK's skills base and economy.

As the noble Baroness, Lady Warwick, pointed out, the higher education sector not only generates revenue greater than UK pharmaceutical companies but directly employs more than 330,000 people, which equates to 1.25 per cent of total UK employment. In addition, 276,000 people in other sectors are also dependent on the higher education industry. The sector directly spent £15.4 billion on goods and services produced in the UK and, through direct, secondary or multiplier effects, it generates £42.5 billion in the output of the economy.

Future learners believe that by going to university they will increase their potential to earn, to get better life skills and to enjoy better health. They therefore must not be deterred from committing to further education because of fears of rising debts through tuition fees and the general rising cost of living. The 2001 census shows that UK birth rates are falling: 600,000 fewer young people will enter the workforce between 2010 and 2020. At the same time, the Chancellor's targets for economic growth need another 1.3 million people to join the workforce. An additional 1.9 million people are needed to secure economic growth and to provide industry with resources to remain competitive.

The Government must bear in mind that declining numbers of young people in the UK will result in a natural decline in numbers applying to UK universities and, therefore, an increasing need to attract overseas students. Are there any plans to increase university marketing in countries such as China and Hong Kong, where recent figures show a decline? If we are to compete effectively with developing giants such as India and China, we cannot allow qualifications, especially in vocational subjects, to decline, as has happened with third-level qualifications, with the number achieving them dropping from 42,000 in 1999-2000 to 28,000 last year.

We must also be concerned about the number of adults who are functionally illiterate. Approximately 5 million adults are currently functionally illiterate, while 17 million people struggle with numeracy skills. The Leitch review of skills revealed that over one third of adults in the UK do not have basic school leaving qualifications. While we all recognise the huge importance placed on an educated and skilled workforce, we cannot ignore the 7.9 million people, 13 per cent of the UK population of working age, who remain economically inactive. It is vital that the Government and higher education institutions reach out to this last group of people who may consider education as something you leave at school and cannot access afterwards. To reach this disengaged group, a culture of continuous learning must be available, one that offers much more flexibility and support in the different activities in higher education.

The higher education sector works closely with business and industry, and is of course the key to improving the nation's skills and productivity. As my noble friend Lady Rawlings highlighted, the contribution made by higher education institutions to the economy is substantial. In particular they are often the drivers of regional economies. Universities are now contributing increasingly to a knowledge-driven economy that relies on innovation and productivity growth. The noble Lord, Lord Bhattacharyya, was absolutely right to say that universities need to be freed from excessive bureaucracy, while my noble friend Lord Geddes highlighted the need to recognise the value of specialist institutions and how they add to our culture economy, in which we are world leaders in many areas.

Let me take as an example of developing and retaining skilled individuals in the region the work of the University of York. York produces approximately 2,000 first-degree students and 1,000 postgraduates each year. The university is proactive in promoting local and regional employment for all graduates. It is also proactive in collaborative projects with businesses, while the activities of the science park yield substantial revenues for the region. However, can the Minister tell the House how he intends to address the shortage of science facilities in UK universities, and the question of access to separate science qualifications for school pupils? A large body of evidence indicates that chemistry and physics graduates will, on average, earn over 30 per cent more during their working lifetime than A-level holders of those subjects.

I have some concern that to ensure that participation in higher education continues to grow, the Government need to assist the process rather than hinder it. I shall explain what I mean. There is little evidence to suggest that when parents are asked to provide information on whether they have been to university, it increases graduate participation. We already have increased participation and we do not need to meddle in parents' backgrounds. The National Union of Students is absolutely right to highlight the continued effort by universities to ensure greater participation by the black and minority-ethnic communities, those in the lower socio-economic groups and people with disabilities. We should be careful not to deter those for whom university would be a natural life choice by erecting artificial barriers against them. I look to the noble Lord for reassurance that measures to discriminate against the children of better-off families will not be pursued in this way.

I agree with my noble friends Lord Norton of Louth and Lady Bottomley of Nettlestone that the higher education sector, through the diversity of its students, adds economically, socially and culturally to our towns and cities. The research and development carried out in our universities has had groundbreaking results, thus greatly contributing to the wealth of our intellectual capital and economic growth. The Government must give assurances that our top universities will not face difficulties in attracting appropriate levels of funding to ensure a continuing stream of quality work using well funded resources for research and training. As my noble friend Lord Norton of Louth observed, the Government need a lighter touch.

I congratulate the noble Baroness, Lady Warwick of Undercliffe, on securing this important debate. I must declare that I have no interests to declare with any university.

Photo of Lord Adonis Lord Adonis Parliamentary Under-Secretary (Schools), Department for Education and Skills, Parliamentary Under-Secretary (Department for Education and Skills) (Schools) 4:10 pm, 19th April 2007

My Lords, I join the noble Baroness, Lady Verma, in congratulating my noble friend Lady Warwick on initiating this debate and on her excellent speech. My noble friend deserves a great deal of personal credit for the strength of our universities today, in her longstanding role as chief executive of Universities UK. The recent UUK report on the economic impact of the UK's higher education institutions is a typically thorough and incisive piece of work. I have a slight quibble with the noble Baroness, Lady Sharp: I have never known Universities UK to undersell its product. If it is indeed underestimating the economic impact of universities, I leave the two noble Baronesses to discuss that between them.

With the exception of the noble Baroness, Lady Verma, I have never heard so many interests declared in one debate in your Lordships' House. Today's debate has demonstrated yet again the breadth and depth of university expertise in the House. Going through the list of speakers, I tried counting the number of serving or former university chancellors, principals, vice-chancellors, heads of colleges and professors, but I soon gave up, because the number of your Lordships represented in more than one of those categories—some in very many of them—was so complicated that it was becoming a major piece of prosopographical analysis more fit for a doctoral thesis than a speech.

The economic benefits that universities bring to their societies have long been recognised. I have not gone back to Confucius, but as long ago as 1442 the citizens of Ferrara petitioned their Duke to found a university because,

"Strangers will flock here from distant lands and many scholars will stay here, living upon our bread and wine and purchasing from us clothing and other necessities of life. They will leave their money in the city and not depart without great gain to us all".

The Renaissance Italians clearly understood the importance of overseas student fees, but I suspect that even the worldly wise Machiavelli and the Medici would have been astonished that there could in the future, in a fairly small country, be 300,000 overseas students, worth a staggering £1.5 billion a year to the economy in off-campus spending alone—not all of it, I believe, spent on wine and "other necessities of life" for the modern students; I am sure a good part of it also goes on books.

London has a particular attraction for overseas students. The LSE—once known as "Let's See Europe"—is about as international an institution as it is possible to be, as my noble friend Lord Giddens testified. The most multifaceted strengths of London's universities were all well attested to today by my noble friends Lord Paul and Lady Blackstone, the noble Lord, Lord Sutherland, and the noble Baronesses, Lady Rawlings and Lady Valentine. However, I hasten immediately to add that the rival and complementary attractions of Warwick, Oxford, Gloucestershire, Cambridge, Bournemouth, Staffordshire, Aberdeen, Liverpool and Hull have been equally well represented in the House this afternoon—as well, I should add, as the specialist arts and music institutions so rightly praised by the noble Lords, Lord Geddes and Lord Sutherland.

It is important at the outset to emphasise that the economic role played by universities represents only one of the many ways in which they contribute to society. I would not for a moment want to undervalue their powerful role as forces for social, cultural and intellectual advancement. As my noble friend Lord Bragg and the noble Baroness, Lady Deech, so rightly said, universities are, above all, a force for civilisation in our society. That, too, has long been appreciated. John Henry Newman wrote in 1854:

"If ... a practical end must be assigned to a University course, I say it is that of training good members of society. Its art is the art of social life, and its end is fitness for the world".

Newman's words remain as true today as when he set them out as the Idea of a University.

Today's debate is specifically about universities' economic impact, and on that front, as the UUK report implies, our universities are in fact, if anything, too prone to hiding their light under a bushel. At the risk of reinforcing national stereotypes, I note that the US institutions are rather more forthcoming and unabashed. The front page of the UCLA website will tell you that every dollar the university receives from the Californian taxpayer generates $9 of economic activity within the state. The University of Oregon claims no less than $20 of impact for every dollar of public funding invested. Many of our universities could and perhaps should declare something equally impressive on their websites.

It follows that UK taxpayers, most of whom have not, as the noble Baroness, Lady Verma, so rightly said, benefited from a university education, can be reassured that their very substantial investment in higher education produces a financial return in addition to the wider social return, which is to their good and that of the country as a whole.

As we have heard today, the economic impact of the universities is a powerful argument for greater public funding. This is an argument to which the Government have been consistently receptive over the past decade, and will, I assure my noble friend, continue to be receptive in the coming Comprehensive Spending Review. I pay tribute in this respect not least to my noble friend Lady Blackstone for her ministerial stewardship of the universities during four years in which their financial health was substantially restored.

We have gone further since then, not only with additional large increases in state funding, both in research and teaching, but in the wider reforms we have carried through—at some political cost—on student finance and, most recently, university endowments. During the last general election, I said at one political meeting that I expected to have the words "tuition fees" engraved on my tombstone; whereupon, someone shouted from the back: "Not soon enough!" At least let me share the blame for that particular reform with the noble Lord, Lord Dearing, who set the ball rolling precisely 10 years ago, and say to the noble Lords, Lord Hannay and Lord Butler, that the Government are committed to an independent review after 2009. I stress "independent review" to the noble Lord, Lord Hannay, not least because we want to take this vital issue of the future funding of our universities out of the political hurly-burly to the maximum extent possible for the good of the country.

We have demonstrated our commitment to supporting universities again and again. It has been shown in the growth to record levels of the numbers of students that our universities admit, and the fact that 43 per cent of all 18 to 30 year-olds now receive a higher education, with big increases in previously under-represented groups brought about not least by the newer universities so rightly emphasised by the noble Baroness, Lady Cox, and the noble and right reverend Lord, Lord Carey. It has also been reflected in the fact that this increase has been achieved without any real-terms reduction in the per capita public funding of university teaching after 25 years in which there have been substantial year-on-year per capita reductions and it has been shown in government funding of university research, which has more than doubled since 1997.

Scientific research has been the greatest beneficiary, thanks in no small part to the work until recently of my noble friend Lord Sainsbury of Turville as science Minister. I thank the noble Lord, Lord Butler of Brockwell, for his remarks on the way that we have stood by biomedical researchers, including at the University of Oxford. I assure him and the House that we will continue to do so.

Of special relevance to this debate, the Government have demonstrated their commitment by creating the Higher Education Innovation Fund, which is currently providing universities with more than £100 million a year to help them engage with businesses and communities. That fund will continue beyond the current third year of funding. My right honourable friend the Chancellor announced in the Budget recently that the public funding of universities will continue to grow in real terms over the period of the Comprehensive Spending Review. This will enable us to honour the commitments on the unit of funding and student support made during the passage of the Higher Education Act 2004. It will also allow us to continue widening participation and increasing employer engagement.

With his customary panache, Boris Johnson said recently in his role as opposition spokesman on higher education:

"If Universities UK says our universities contribute £45 billion to the economy, I am not going to quibble".

I will not quibble either. Nevertheless, universities engage with the economy in a wide variety of ways, many of which we have heard described today. Some of these are easier to quantify than others.

The best source of information on what can be quantified is the latest Higher Education — Business and Community Interaction Survey, which gives an insight into the extent of universities' external activities. It shows, for example, well over 1,000 licences a year being granted for non-software products and over 900 spin-out companies operating with at least one university as a partner. No less importantly, the survey shows more than 10,000 full-time equivalent staff days a year being devoted to free public lectures that were attended by some 400,000 people, and a further 1,000 staff days being spent on paying events for the public.

The greatest impact of universities' external engagement is most often felt in their local communities which are, as my noble friend Lady Blackstone rightly said, frequently in areas of the country that are in need of economic development. To take just one example, the University of Hull, represented so effectively here today by the noble Lord, Lord Norton, and the noble Baroness, Lady Bottomley, was only last month awarded £4 million to develop the Yorkshire and Humber lifelong learning network. Nowhere in the country needs such investment more than Humberside—and every part of the country can boast of similar schemes in progress, often with universities in the lead in taking them forward. Often these universities are acting in highly innovative partnerships in so doing. At Medway, for example, as my noble friend mentioned, I have been extremely impressed by the collaboration between the University of Greenwich and the University of Kent at Canterbury in creating a completely new campus focusing on widening participation and with a substantial regeneration effect.

All these activities, and others that the survey describes, might be summed up in the phrase "making knowledge work", which is one of the marketing slogans used by the University of Bradford, a prominent participant in knowledge transfer work as my noble friend Lady Lockwood described in her excellent speech. She also described the changes in higher education in recent years as a whole as "close to a revolution"—I think that those were her words. I would concur with that view.

Of course, universities' economic impact extends beyond their direct business and community engagement activities. It also extends beyond these shores. It can be found, for example, in future use that students will make of the hard and soft skills that universities teach them, not least the language skills that students may acquire as part of their courses, or through extra-curricular activities, and about which the noble Lord, Lord Dearing, spoke so eloquently. I take this opportunity to thank him, and Dr Lid King, for their work in producing the recent report on languages, which has some important recommendations for universities, which my department is looking to take forward.

We talk a lot about the internationalisation of economies and of higher education, but perhaps without always appreciating how closely the two are linked. This is an important issue, and one to which I will devote the remainder of my remarks.

Our universities today are key actors in not only the domestic economy but also European and global economies to which our own prosperity is increasingly tightly bound. Of the £3 billion or so per year of private funding that universities receive for research contracts and other services, over £0.5 billion comes from sources outside the UK, and of the £4 billion in fee income they receive, about one-third comes from international students. The UK's leading universities have recognised that, if they are to fulfil their role of ensuring that all learners are prepared for life in a global society and work in a global economy, they need to engage with other countries.

The name Bologna, whose university was founded in 1088, is rightly associated with this intent. The Bologna process aims to enhance the competitiveness of European higher education worldwide through greater compatibility and comparability of European higher education systems and greater transparency and recognition of degrees. This brings real benefits in opening up opportunities for student mobility; study abroad enables young people to develop the skills, knowledge and confidence to seize the opportunities available in today's labour market, while inward mobility brings real economic benefits for the UK. This message will be strongly underlined when my right honourable friend the Secretary of State hosts a major conference of Ministers from the 45 Bologna countries in London next month. The Royal Society noted in February:

"The Bologna Process has the potential to act as a driver for change... in UK higher education: the process provides an opportunity for the UK to consider more broadly whether our current system is delivering what students, employers, the economy and wider society need from its graduates".

Bologna can indeed act as a spur to universities throughout Europe to make the changes necessary to remain competitive. All institutions need to identify their areas of excellence, improve their governance, develop new partnerships with employers and increase and diversify their funding sources. We can be proud that the United Kingdom is at the forefront of higher education reform in Europe in all the respects I have just mentioned. However, this further reform is necessary so that institutions can deliver excellent provision—helping graduates develop the essential knowledge, attitude and skills to compete in fast moving global markets.

The impact of UK universities is also felt beyond Europe. Not only is the UK the second most popular destination in the world for international students after the USA, but our universities' reach extends far and wide, thanks to the partnerships they have developed abroad, and through the diverse ways in which UK qualifications are now delivered across the globe.

International students not only bring immediate financial benefits to the UK, they add to the cultural richness of our society and in particular to our national research capacity. Some stay on to work after completing their studies, adding to our skills base, and it is very much in our interests to make it easier for them to do so. That is why, from next month, a new International Graduates Scheme will be created to allow international students in any discipline to work here for up to a year after graduation.

Furthermore, international students who return home having enjoyed a positive study experience here often become lifelong friends to the UK, helping to forge trade, cultural and political links of immense value. This is not the least important of the many ways in which our country is aiding the developing world. I pick up the important point on Africa made by my noble friend Lady Blackstone. Here, too, the Government are supporting universities' own efforts to expand their reach. One example that the noble Lord, Lord Hannay, will recall from his diplomatic service is the Chevening scholarships programme, which brings to us some of the brightest students from around the world, including those from developing nations. Building on this work must be a vital concern to us as a country in the years ahead. For example, the Shared Scholarship Scheme funded jointly by my department, the Department for International Development and participating universities helps bring to the UK academically able students from developing Commonwealth countries who are outside the scope of other schemes. This scheme specifically supports students who are unable to study here for financial reasons but whose area of study has the potential to bring developmental advantage to their home countries.

A large number of other points were made. My noble friend Lady Warwick sought assurances that funds would be made available to support teaching infrastructure in universities. My department has received a capital settlement of £10.1 billion in the forthcoming Comprehensive Spending Review. This is a generous capital settlement for the department, signalling that we shall continue our unprecedented investment in the fabric of our education infrastructure. I am sure that universities will share in that.

The noble Lord, Lord Norton, raised his perennial but none the less important theme of bearing down on bureaucracy and red tape. I gave a full account of our policies in that regard in our previous debate, which I think he accepted was a move in the right direction but considered that we could go further. I fully accept that we can go further. A number of stakeholder groups are helping to advise us in that regard. The Higher Education Regulation Review Group was established in 2004 and reappointed for a further two years in summer 2006. Its membership is made up of front-line practitioners who have considerable experience and expertise and we believe that it is making an impact.

The noble Baroness, Lady Verma, raised important issues in respect of science education. I strongly support the tenor of her remarks about the vital importance of our schools—particularly those which have traditionally offered general science qualifications leading up to GCSE—having the opportunity to specialise to a much greater degree than has been the case in the past to encourage more students to stay on and study individual sciences at A-level. As she may know, we recently announced that from next year all schools with a science specialism will offer the three individual sciences at GCSE. We are seeking to expand that more widely across the system. We are also engaging in a very substantial increase in recruitment of science graduates into schools to change the unacceptable situation we have at the moment where only one in four state secondary schools has a fully qualified physics teacher with a degree. We seek to increase dramatically the proportion of schools which have qualified science teachers in all the main areas.

I will respond in writing to the many other points that have been made. I thank all noble Lords who have spoken, and I congratulate Universities UK on its contribution to the vital debate on the future of our universities, because nothing is more important to our future as a country.

Photo of Baroness Warwick of Undercliffe Baroness Warwick of Undercliffe Labour 4:30 pm, 19th April 2007

My Lords, we have had an extremely positive and constructive debate with a galaxy of supportive speeches, and I thank all noble Lords who have spoken. It has been especially satisfying to hear so many noble Lords waving the flag for their own institutions; I stopped counting at 15. I particularly thank my noble friend the Minister for his recognition of the excellent work that universities do.

It is clear from what has been said that the House passionately believes in the value of higher education. I wonder if I might briefly return to three points. First, I am glad that many noble Lords have agreed that the expansion of higher education must be properly and publicly funded and emphasised the importance of the stability of the unit of funding for teaching, and that must continue. Secondly, creativity, the generation of fresh ideas and the regeneration of communities all depend on sustaining diversity of provision, freedom, flexibility and, importantly, autonomy. Thirdly, there is the sheer diversity of examples—the wide contribution from music and culture to science and economics—of how higher education is benefiting the UK economy.

My noble friend Lord Giddens said that higher education was one of the UK's great, unsung successes. I hope that your Lordships' voices raised in harmony today will sing out that success loud and clear. I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.